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"Our population is our biggest asset": Rehman Sobhan

Sep 28, 2010

In his latest book, Challenging the Injustice of Poverty, noted Bangladeshi economist, Prof. Rehman Sobhan, discusses how an inclusive approach towards micro-finance and development policies in general can lead the way out of poverty in the heavily populated countries of South Asia. Rehman spoke to OWSA about the book, the chronic development issues in South Asia and some solutions.


OWSA: Your latest book, “Challenging the Injustice of Poverty”, talks about an unjust social order being the cause of poverty in South Asia.  Could you elaborate on this? 

Rehman Sobhan: Most approaches to poverty, deal with the ‘symptoms’ of the problem. The symptom is, they don’t have proper resource, so, give them resources to cope with their poverty. The book concentrates on the cause rather than cure. It argues that the source of the problem lies in the unequal way the society functions. It works for the narrower elite in the society and a major proportion of the population remains under-served by opportunities. We argue that this is a problem that can be fixed. To address it, you should first know why it has been created and then try to correct it. The failure to correct this is injustice, which is avoidable.

OWSA: You talk about enhancing the market value of the excluded. Why is this important? Some purists may disagree and argue that not all solutions should be looked for in a commercial manner. What would you say to them?

Rehman:  The book revolves around the idea that the poor and the marginalised should be provided a platform whereby they can reach higher levels of markets. A co-operative effort by communities can establish institutions which provide them access to better facilities to augment their livelihood.

Basically, even I don’t mean to say that all solutions should be commercial in nature. Many things need to be done as matter of right – providing them with quality education, quality healthcare and where possible, provide them with work, etc. But in the end, what we really need to do is create opportunities where people can generate income for themselves and they can do so at a level where they can constantly remain with adequate means to feed their family and to improve their conditions in life. The fact that the economy functions in an unequal way and that people still suffer from hunger makes it necessary for the state to constantly supplement the livelihood of the poor.

If we want to come up with permanent solutions, we have to create conditions where the poor can compete in the market. We have to provide them access to credit and a proper market to sell their goods otherwise they are always going to live below subsistence levels. We should enable them to get better returns on whatever they produce through a value addition process.

Let’s take the example of Amul in India. It’s an aggregation of a number of dairy farmers who have been given access to better credit, better technology as well as a better market. Thus the production of milk is high and processing it adds further value. The final products are then sold in the supermarkets of the urban areas fetching a much higher price than it would have in a small town in say, Gujarat. Thus, through this value addition, a dairy farmer can get a better price for his product and augment his livelihood. 

Another important feature of Amul is that it is owned by dairy farmers. So, while buying dairy products of Amul in an urban supermarket, the dairy farmer who is a shareholder of Amul, will share a part of the profits from the sale of say, cheese. This model can and should be replicated for producers of other primary goods like sugar.

OWSA: The book, “Challenging the injustice to poverty”, draws attention towards limitations of the work done by development institutions to eradicate poverty. What are those limitations and how may they be addressed?

Rehman: All the government programmes and those of the development organisations are designed to deal with the ‘symptoms of poverty’ as said earlier. These are very desirable programmes, I don’t say that we should discontinue them. But these programmes don’t solve the unequal nature of the opportunities created. A village boy going to a government school in say, Rajasthan may not have the same opportunities as one from an elite school of the country. So, the facilities given to the poor should be competitive with those currently in existence and enjoyed by the privileged communities. There is an open market economy based on competition where people are expected to perform well in order to survive. How is a person who has been educated in a village going to compete with someone who has an inherited background and received quality education?

So, in our chapter on education, we pointed at these disparities in the availability of education. If the society cannot correct this unjust access to education opportunities, this is going to perpetuate poverty and division in our society.

This is the way we should look at state policies. The state should recognise quality differences. You don’t just have to provide primary education; you also have to correct inequalities in the education system. Unless you create a set of opportunities where, within the marketplace, everybody has a reasonable chance, this is going to nip the problem of poverty in the bud.

OWSA:  Would you agree that one of the reasons we have been unable to eradicate poverty is also the rate of population growth in the target communities? 

Rehman: A number of South Asian countries, including Bangladesh have made good progress to decelerate population growth. When Bangladesh came into existence, the rate of population growth was 2.8-3%, same in Pakistan. The fertility rates have been halved which has brought the population growth in Bangladesh to 1.8%. India’s population growth rate has also come down to below 2%. Sri Lanka has also achieved a decline in population growth over the years. However, a reduction in population is not the solution to the problem. Even if you bring down the population to the replacement level, you have more than a billion mouths to feed. The solution to the problem is that you have to make efficient and competitive use of the capacities.

"Countries with large  populations are going to become the new factories of the world."

Countries with large  populations are going to become the new factories of the world. Like China is now becoming the most competitive producer of goods around the world. A part of it is derived from the fact that a good fraction of their population is trained. In our case, the secret is to use the resources, equip them, train them, and get them to produce goods which can be sold in the international markets. 

Secondly, big populations are in fact assets. Countries like Singapore or Taiwan have to export great proportion of their production. In the face of a global crisis, their exports are severely affected. China has been able to transcend it because they have a market of a billion people. So, your economy can stay afloat even in the wake of an international recession because of a buoyant domestic market. 

The essence is that you should have policies which do not perpetuate poverty. You should have policies which enable people to improve their productivity through better education and training and you have to have a system where you have access to credit  to facilitate them sustain their purchasing power.  Our main resources, main assets are the people. Invest in them.

OWSA: What are some of the good practices which the book suggests for government, the policy makers and the civil society to take to address poverty and bring about an inclusive growth? 

Rehman: The book doesn’t suggest a revolution. We suggest practical, feasible solutions that any democratically elected government, seriously working to bring about a change should look into. We realise that civil society groups have an important role to play. NGOs are doing good work. They are giving credit and running other programmes to improve the lives of the people. You should use your reach to give these people a permanent solution to change their way of life. We have suggested, for instance, microfinance institutions can convert their borrowers into owners of these institutions. They can become shareholders and can convert these microfinance institutions which are competitive and credit worthy, into financial banks. 

Grameen Bank in Bangladesh has already done that. It’s owned by four million people. But very few microfinanace institutions could emulate it. In India, for instance, there are quite a number of microfinanace institutions which are profit-making. What the book says is, make your borrowers shareholders in your bank and let them own a share of profit you make in your operations. Thus, you will have a large, commercially viable bank where you will have millions of people who are not just borrowers but also the owners of a big bank. 

"To take people out of the ghetto of micro-credit system, of poverty, the qualitative nature of the opportunities needs to be changed"

The profits thus reaped can be reinvested in buying shares of other blue chip companies. Thus, even private entities can have a deeper and more prolific penetration into the market of rural India while maintaining their hold on urban areas.

To take people out of the ghetto of micro-credit system, of poverty, the qualitative nature of the opportunities needs to be changed. The most credit-worthy people are the poor. They have 98% repayment rates which even some private commercial banks, dealing with the rich find hard to achieve.

So, market sufficiency demands that you recognise the creditworthiness of these people. Only you need to bring them together, bring them opportunities and enable them to become owners and not just beneficiaries.

(Prof. Rehman has served in the first Planning Commission in Bangladesh. Presently, he heads the Centre for Policy Dialogue (CPD), Bangladesh's leading public policy think-tank that is considered to be one of the top thirty non-governmental research organisations in the world.)

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