Agriculture in development: A coalitional analysis

In interpreting these results, we can make use of several characteristics of the economies of the developing nations. The first is that consumers in poor nations spend a very large portion of their incomes on food — in many cases, in excess of 50 to 60 percent. The second is that specialization in the developing economies appears to have proceeded much further in the ‘modern sector’ — i.e. in manufacturing — than it has in agriculture. Thus, in the manufacturing sector, there are firms which specialize in the production of such items as clothing, bicycles, soap, and toothpaste; but in agriculture, ‘firms’ often amount to peasant farmers who grow a full range of crops with which to meet their subsistence needs and who simply market their surplus production. In other words, agricultural producers supply ‘food’ as opposed to ‘wheat,’ ‘lettuce,’ ‘tomatoes,’ or what not. In terms of our model, these considerations imply that agricultural producers can be assigned very high ‘α's.’ In the process of coalition formation, they therefore constitute relatively unattractive partners; for should they be granted a price rise, this would be very costly to all other members of the coalition. Persons seeking to influence the state so as to secure higher real incomes therefore have a strong incentive to exclude agricultural producers from the policy determining coalitions in preference to other partners who possess lower ‘α's.’ Under such circumstances, our model suggests, an equilibrium coalition does exist and food producers are unlikely to be members of it. Such a coalition would maximize the level of the guaranteed income of all prospective members; it would represent the best possible outcome of their search for lobbying partners, and there are therefore strong incentives for it to form. Moreover, our model suggests that such a coalition would be composed of persons who draw their incomes from the production of goods characterized by the lower range of ‘α's, i.e., by ‘α's’ which are of a magnitude more typically exhibited by manufactured goods than by food. Under the circumstances captured by our model, food producers thus have a higher likelihood of being among the losers in a game of relative prices. Our model further suggests how they might behave when consigned to the losers' role. The equilibrium coalition receives the largest upward revision in prices; by so doing, it achieves an increase in the real incomes of its members greater than that achieved by any other coalition. In effect, the members of the winning coalition are able to achieve changes in public policy which redistribute income from the excluded persons to themselves. When the winning coalition is able to extract a relatively ‘massive’ redistribution of income, our model then suggests that food producers are more likely to successfully find partners and to coalesce with others among the disadvantaged in attempts to alter public policies. When the winning coalition achieves a more modest redistribution of income, however, then food producers are more likely to be shunned yet again as potential allies; they will stand relatively isolated and alone. Viewed in another light, our results suggest that the degree of polarization in the political economy is a function of the degree of income redistribution effected by the winning coalition. Thus far, we have confined our attention to the implications of our analysis for the status of agriculture within the political economies of the poor nations. But our model also gives insight into the changes that can take place in the status of this industry as nations develop. The two factors we used to identify the food producing sector as a ‘high α’ sector vanish when we consider the more developed economies. Food production becomes more specialized; rather than producing ‘food,’ farmers produce particular food items. As incomes rise, we observe progressively smaller fractions of income being spent on food. And the result of both transformations is to lower the α's and thus to render agricultural producers more viable partners in coalitions seeking changes in relative prices. One example of such a transformation is provided by Grant McConnell. McConnell interprets the history of the American farm movement as a move from a relatively undifferentiated populist movement, largely excluded from the benefits of the policy-making process, to a highly differentiated set of commodity groups, each ensconced within a highly privileged, crop specific, public-policy program. We interpret this transformation as exhibiting the expected correlates of a change in the location of agriculture in the equilibrium solution to a relative prices game. More generally, the underdeveloped countries, which are overwhelmingly agricultural in composition, currently adopt policies which are antithetical to the immediate economic interests of the vast majority of their farmers. But rich nations, such as those in Europe and the United States, where agricultural producers constitute but a small fraction of the citizenry, frequently adopt public policies which shift relative prices in favor of food producers. This pattern has been one of the paradoxical features of the position of agriculture in the political economy of nations. Our model gives us insight into why something that appears so anomalous should instead be expected to exist. Obviously, there are many other factors at work, many of which might conceivably blunt the conclusions we have drawn. These factors have been excluded by our assumptions. Relaxing some of these assumptions, however, might actually tend to strengthen our conclusions. Suppose, for example, we allowed variations in the elasticity of demand. Then an industry with a relatively higher elasticity of demand would be a more desirable partner, ceteris paribus, because a rise in its price would induce a smaller decline in real incomes. Consideration of this factor suggests that had we incorporated variable elasticities of demand our results would have been strengthened. For food consumption is highly price-inelastic. The relatively low elasticity of demand for food should therefore make food producers relatively less attractive as coalitional partners. We have also ignored the problems of political organization within industries. We did so by assuming one firm per industry. Note that a prime determinant of the relative ability of groups to form is their size. Size increases the costs of coordination, the perceived benefits of ‘free riding,’ and the costs of detecting such behavior. In most developing nations, the number of firms in the manufacturing sector is simply orders of magnitude fewer than the number of ‘firms’ in agriculture. Being more numerous, agricultural producers might well face higher costs and perceive fewer individual benefits from organizing. They might therefore be more likely to find themselves excluded. We assumed that the size of a shift in relative prices obtained by a coalition was a function only of the size of the coalition; in particular, it was not a function of who was in it, and the admission of one more industry yielded the same increase in price irrespective of which industry it was. As explained in the Appendix, if we relax this assumption, then ceteris paribus, industries which are less able to secure price rises than others are more likely to be excluded from the winning coalition. Agriculture is likely to have a lower than average effect for at least two reasons. First, its greater difficulty of organizing, as discussed above, might make it a less effective lobbyist than other groups. Second, in poorer nations, industrialization is widely held to represent the road to modernity; and as a consequence, most governments in the developing areas are more solicitious of the interests of industrial and manufacturing firms than they are of the interests of farmers. For both reasons, relaxing this assumption leads us to give even greater credence to the likelihood of agriculture's exclusion from the winning coalition. Lastly, we have assumed uniform consumption patterns among all economic interests. Engel's law operates within as well as between societies, however, and the owners of urban industries will of course not spend as high a proportion of their incomes on food as will others. It is our contention, however, that they will nonetheless negotiate as if they had the same consumption patterns as had the poorer workers. For incomes of owners are derived from the profits of their firms; and their profits are vulnerable to claims by the workers for adjustments to compensate for an erosion in their real incomes. These claims can be made either through the use of a competitive labor market or through recourse to strike action. In either case, as the wage bill of a typical firm far outweighs its profits, the real income of the owners will be influenced far more by changes in the price of goods consumed by the workers than by changes in the price of the goods which the owners themselves consume. Given the state of the literature in this field, it is therefore ironic and informative that our analysis underscores the role of lower class interests in building coalitions in the political economies of the developing nations. Investigating the effects of the relation of our assumptions and considering the effects of factors excluded from the model thus leaves us optimistic concerning the robustness of our results. Copyright Martinus Nijhoff Publishers bv 1980