How to make the traditional agricultural transforma into a modern agriculture is a problem that developing country needs to solve. Theodore William Schultz who was born in is a famous American economists. Since the s, Schultz had focused on researching agricultural economics. In the mid s, He became one of the famous American economists. Schultz Committed to his economic theory research more than half a century, and has published more than 20 books and more than papers. For example ,the publication as the Is Not Stable Economic Agriculture which was published in , The human Capital Investment published in and Transforming Traditional Agriculture published in
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People who are rich find it hard to understand the behaviour of poor people. Economists are no exception, for they too find it difficult to comprehend the preferences and scarcity constraints that determine the choices that poor people make. What many economists fail to understand is that poor people are no less concerned about improving their lot and that of their children than rich people are.
What we have learned in recent decades about the economics of agriculture will appear to most reasonably well informed people to be paradoxical. We have learned that agriculture in many low income countries has the potential economic capacity to produce enough food for the still growing population and in so doing can improve significantly the income and welfare of poor people. The decisive factors of production in improving the welfare of poor people are not space, energy and cropland; the decisive factor is the improvement in population quality.
In discussing these propositions, I shall first identify two intellectual mistakes that have marred the work of many economists. I shall then point out that most observers overrate the economic importance of land and greatly underrate the importance of the quality of human agents.
Lastly I shall present measurements of the increases in population quality that low income countries are currently achieving. Much of what I have learned about these propositions I owe to the research of predoctoral and postdoctoral students, to subsequent studies during their professional careers, and to my academic colleagues. In recent decades their work has produced a veritable explosion in the understanding of the economics of human capital, with special reference to the economics of research, the responses of farmers to new profitable production techniques, the connection between production and welfare, and the economics of the family.
Mistakes by economists This branch of economics has suffered from several intellectual mistakes. The major mistake has been the presumption that standard economic theory is inadequate for understanding low income countries and that a separate economic theory is needed. Models developed for this purpose were widely acclaimed until it became evident that they were at best intellectual curiosities. The reaction of some economists was to turn to cultural and social explanations for the alleged poor economic performance of low income countries.
Quite understandably, cultural and behavioral scholars are uneasy about this use of their studies. Fortunately, the intellectual tide has begun to turn. Increasing numbers of economists have come to realize that standard economic theory is just as applicable to the scarcity problems that confront low income countries as to the corresponding problems of high income countries.
A second mistake is the neglect of economic history. Classical economics was developed when most people in Western Europe were very poor, barely scratching out subsistence from the poor soils they tilled and they were condemned to a short life span. As a result, early economists dealt with conditions that were similar to those that prevail in low income countries today. So it is today in many low income countries.
The weekly wage of the ploughman in India is currently somewhat less than the price of two bushels of wheat Schultz, a, b. In India many people live under the Ricardian shadow. Understanding the experience and achievements of poor people over the ages can contribute much to understanding the problems and possibilities of low income countries today. Historical perception is also lacking with respect to population. We extrapolate global statistics and are horrified by our interpretation of them, mainly that poor people breed like lemmings headed toward their own destruction.
Yet that is not what happened looking back at our own social and economic history when people were poor.
Land is overrated A widely held view — the natural earth view — is that there is a virtually fixed land area suitable for growing food, and a supply of energy for tilling the land that is being depleted. According to this view, it is impossible to continue to produce enough food for the growing world population. An alternative view — the social-economic view — is that man has the ability and intelligence to lessen his dependence on cropland, on traditional agriculture and on depleting sources of energy and can reduce the real costs of producing food for the growing world population.
By means of research we discover substitutes for cropland, which Ricardo could not have anticipated, and as incomes rise parents reveal a preference for fewer children, substituting quality for quantity of children, which Malthus could not have foreseen. It is ironic that economics, long labelled the dismal science, is capable of showing that the bleak natural earth view for food is not compatible with economic history; that history demonstrates that we can augment resources by advances in knowledge.
It will be determined by the intelligent evolution of humanity. Differences in the productivity of the soils is not a useful variable to explain why people are poor in long-settled parts of the world. People in India have been poor for ages both on the Deccan Plateau where the productivity of the rain-fed soils is low, and on the highly productive soils of South India. In Africa, people on the unproductive soils of the southern fringes of the Sahara, on the somewhat more productive soils on the steep slopes of the Rift landform, and on the highly productive alluvial lands along and at the mouth of the Nile, all have one thing in common: they are very poor.
Similarly, the much publicized differences in land-population ratio throughout the low income countries do not produce comparable differences in poorness. What matters most in the case of farmland are the incentives and associated opportunities that farm people have to augment the effective supply of land by means of investments that include the contributions of agricultural research and the improvements of human skills. A fundamental proposition documented by much recent research is that an integral part of the modernization of the economists of low income countries is the decline in the economic importance of farmland and a rise in that of human capital — skills and knowledge.
Despite economic history, scratch an economist and you will find that his ideas about land are still, as a rule, those of Ricardo. The share of national income that accrues as land rent and the associated social and political importance of landlords have declined markedly over time in high income countries and they are also declining in low income countries.
Why is Ricardian Rent losing its economic sting? There are two primary reasons: first, the modernization of agriculture has over time transformed raw land into a vastly more productive resource than it was in its natural state, and second, agricultural research has provided substitutes for cropland. With some local exceptions, the original soils of Europe were poor in quality.
They are today highly productive. The original soils of Finland were less productive that the nearby western parts of the Soviet Union, yet today the croplands of Finland are superior. Japanese croplands were originally much inferior to those in Northern India; they are greatly superior today.
Some part of these changes, both in high and in low income countries, is the consequence of agricultural research including the research embodied in purchased agricultural inputs. There are new substitutes for cropland call it land augmentation if you so prefer. The substitution process is well illustrated by corn.
The corn acreage harvested in the United States in was 33 million acres less than in Yet the 7. The quality of human agents is underrated While land per se is not a critical factor in being poor, the human agent is: investment in improving population quality can significantly enhance the economic prospects and the welfare of poor people. Child care, home and work experience, the acquisition of information and skills through schooling and in other ways consisting primarily of investment in health and schooling, can improve population quality.
Such investments in low income countries have, as I shall show, been successful in improving the economic prospects wherever they have not been dissipated by political instability. Poor people in low income countries are not prisoners of an ironclad poverty equilibrium that economics is unable to break. There are no overwhelming forces that nullify all economic improvements causing poor people to abandon the economic struggle.
It is now well documented that in agriculture poor people do respond to better opportunities. The expectations of human agents in agriculture — farm laborers and farm entrepreneurs who both work and allocate resources — are shaped by new opportunities and by the incentives to which they respond.
These incentives are explicit in the prices that farmers receive for their products and in the prices they pay for producer and consumer goods and services that they purchase. These incentives are greatly distorted in many low income countries Schultz, b. The effect of these government induced distortions is to reduce the economic contribution that agriculture is capable of making.
The lowly cultivator is viewed as indifferent to economic incentives because it is presumed that he is strongly committed to his traditional ways of cultivation. Rapid industrialization is viewed as the key to economic progress. Policy is designed to give top priority to industry, which includes keeping food grains cheap. It is regrettable but true that this doctrine is still supported by some donor agencies and rationalized by some economists in high income countries.
Entrepreneurs Farmers the world over, in dealing with costs, returns and risks, are calculating economic agents. Within their small, individual, allocative domain they are fine-tuning entrepreneurs, tuning so subtly that many experts fail to recognize how efficient they are. I first presented an analysis of this entrepreneurial behaviour in Transforming Traditional Agriculture Schultz, Although farmers differ for reasons of schooling, health and experience in their ability to perceive, to interpret and to take appropriate action in responding to new information, they provide an essential human resource which is entrepreneurship Welch, , ; Evenson, On most farms there is a second enterprise, the household.
Women are also entrepreneurs in allocating their own time and in using farm products and purchased goods in household production Schultz, This allocative ability is supplied by millions of men and women on smallscale producing units; agriculture is in general a highly decentralized sector of the economy.
Where governments have taken over this function in farming, they have prevented this entrepreneurial talent from being used and these governments have been unsuccessful in providing an effective allocative substitute, capable of modernizing agriculture. The allocative roles of farmers and of farm women are important and their economic opportunities really matter Schultz, b.
Entrepreneurship is also essential in research. All research is a venturesome business. It entails allocating scarce resources.
It requires organization. Someone must decide how to allocate the limited resources available for research given the existing state of knowledge. The very essence of research is that it is a dynamic venture into the unknown or partially known. Funds, organizations and competent scientists are necessary. They are not sufficient. Research entrepreneurship is required, be it by scientists or by others engaged in the research sector of the economy Schultz, c.
I have shown that the value of the ability to deal with disequilibria is high in a dynamic economy Schultz, Such disequilibria are inevitable. They cannot be eliminated by law, by public policy, and surely not by rhetoric. Governments cannot perform efficiently the function of farm entrepreneurs. Future historians will no doubt be puzzled by the extent to which economic incentives were impaired during recent decades. The dominant intellectual view is antagonistic to agricultural incentives and the prevailing economic policies deprecate the function of producer incentives.
For lack of incentives the unrealized economic potential of agriculture in many low income countries is large D. Gale Johnson, , Technical possibilities have become increasingly more favorable, but the economic incentives that are required for farmers in these countries to realize this potential are in disarray, either because the relevant information is lacking or because the prices and costs they face have been distorted.
For want of profitable incentives, farmers have not made the necessary investments, including the purchase of superior inputs. Interventions by governments are currently the major cause of the lack of optimum economic incentives. Achievements in population quality I now turn to measurable gains in the quality of both farm and nonfarm people Schultz, a, b. Quality in this context consists of various forms of human capital. I have argued elsewhere Schultz, that while a strong case can be made for using a rigorous definition of human capital, it will be subject to the same ambiguities that continue to plague capital theory in general and the capital concept in economic growth models in particular.
Transforming Traditional Agriculture
Early on at Chicago, Schultz became interested in agriculture worldwide. In his book, Transforming Traditional Agriculture, Schultz laid out his view that primitive farmers in poor countries maximize the return from their resources. Their apparent unwillingness to innovate, he argued, was rational because governments of those countries often set artificially low prices on their crops and taxed them heavily. Also, governments in those countries, unlike in the United States, did not typically have agricultural extension services to train farmers in new methods. Schultz was always optimistic that poor agricultural nations would be able to develop if this government hostility to agriculture disappeared. When he traveled to serve on commissions or to attend conferences, he visited farms.
Schultz’s Thesis of Traditional Agriculture
People who are rich find it hard to understand the behaviour of poor people. Economists are no exception, for they too find it difficult to comprehend the preferences and scarcity constraints that determine the choices that poor people make. What many economists fail to understand is that poor people are no less concerned about improving their lot and that of their children than rich people are. What we have learned in recent decades about the economics of agriculture will appear to most reasonably well informed people to be paradoxical.