A World without Agriculture: The Structural Transformation in Historical Perspective
By C. Peter Timmer
AEI Press, February 2009
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FOR IMMEDIATE RELEASE: February 27, 2009
The steadily diminishing role of agriculture in the world economy--a largely unperceived and poorly understood but profound change--is as transformational for developmental economic thought as gravity has been for physics. In A World without Agriculture: The Structural Transformation in Historical Perspective (AEI Press, February 2009), noted development economist C. Peter Timmer, a non-resident fellow at the Center for Global Development, argues that policymakers who ignore this fundamental shift risk mismanaging their economic development policies, with severe consequences.
The inevitable "structural transformation" of a developing economy has four main features:
- Agriculture takes up a smaller share of the economy and employs fewer people
- Urban economic activity--in industry and modern services--increases
- Rural workers migrate to urban settings
- A demographic transition in birth and death rates leads to a spurt in population growth before a new equilibrium is reached
Although all developing economies experience these transitions, governments vary in their approaches to coping with the resulting political consequences. For example, the breakdown of the Doha Round of the World Trade Organization negotiations, the world food crisis of 2007-2008, and unrest in China and India are all, to some extent, effects of structural transformation. Developing efficient policy mechanisms to prevent food riots and shortages, trade gridlock, and social unrest should be a priority of world governments in the twenty-first century.
A World without Agriculture makes three basic points:
- A developing country's structural transformation depends on rising productivity in both the agricultural and nonagricultural sectors. Maintaining a successful balance is the main pathway out of poverty for all societies.
- In its early stages, the process of structural transformation widens the gap between labor productivity in the agricultural and nonagricultural sectors, as industry and services become more efficient compared to agriculture. This pressures rural societies to adjust and modernize as well, leading to significant fluctuations in agricultural prices. Agricultural surpluses generated in rich countries because of artificially high prices then cause artificially low prices in world markets and a consequent undervaluation of agriculture in poor countries.
- Finally, despite the decline in the relative importance of agriculture, the process of economic growth and structural transformation requires major investments in the agricultural sector itself, which is not yet as productive in the developing world as it is in rich countries. This seeming paradox has complicated economic planning in developing countries and hindered the work of donor agencies seeking to accelerate economic growth for the poor.
Coping with the social and economic upheaval that results from rapid agricultural transformation has been a major challenge for policymakers over the past half-century. The historical record illuminates what is feasible and what is not. Trying to stop structural transformation simply does not work; making investments to ensure that the poor benefit from change, however, does. Investments in human resources, for example--especially in education and health--are the most promising approaches to easing the transitions of a developing country's structural transformation. Such strategies require significant public-sector resources and policy support to enhance rural productivity. They also demand that local governments and policymakers understand the political consequences of structural transformation.
The drama of fluctuating food prices, increasing urbanization, and growing social inequalities inevitably plays out in the politics of the developing world. The ability to comprehend the origins of such dynamics will be critically important for policymakers in the coming decades.
C. Peter Timmer is a non-resident fellow at the Center for Global Development. He has previously taught at Stanford, Cornell, and Harvard Universities, as well as the University of California, San Diego, where he was the dean of the Graduate School of International Relations and Pacific Studies.