Free market to reduce poverty

What could broadly be called free market reforms represent one strategy for reducing poverty. For example, noted reductions in poverty in the 20th century have been in India and China, where hundreds of millions of people in the two countries grew out of poverty, mostly as a result of the abandonment of collective farming in China and the cutting of government red tape in India. This was critical in fostering their dramatic economic growth. However, UN economists argue that for the market reforms to work, good infrastructure is needed. China is thus willing to invest in railways, roads, ports and rural telephony in various African countries as part of its winning formula for economic development, which was something that was considered too risky by many of Africa's traditional Western partners.


However, UN economists argue that for the market reforms to work, considerable state intervention is needed. For example, today, China opertates and active industrial policy using tarriffs and legislative measures to promote 'strategic' sectors that have a long-term potential for profits ignored by risk-averse private investors. India too started growing in the 1980s, a full decade before economic liberalisation, largely because of a fiscal push due to government social programmes (most notably in the countryside). While the Free Market certainly aided growth and poverty alleviation in China and India (as the World Bank argues forcefully) it is difficult to deny that state planning built the foundations of this growth and continues to 'guide' the market today in both these countries.


Bringing the market to remote, rural areas can bring farmers the information to produce more profitably. For example, mobile phones could be used to do this, helping people in remote areas of the developing world. Farmers receive market information sent directly to their phones. In Ethiopia, farmers in remote areas produce crops that may not bring the best profits. When they sell their products to a local trader, who then sells to another trader, and another, the cost of the food rises before it finally reaches the consumer in large cities. Economist, Gabre-Madhin proposes warehouses where farmers could have constant updates of the latest market prices, making the farmer think nationally, not locally.


Each warehouse would have an independent neutral party that would test and grade the farmer's harvest, allowing traders in Addis Ababa, and potentially outside Ethiopia, to place bids on food, even if it is unseen. Thus, if the farmer gets five cents in one place he would get three times the price by selling it in another part of the country where there may be a drought. Already, farmers in Ethiopia are switching from their traditional crops to more profitable export crops, such as sesame seeds that are destined for the Middle East, even though they are not used in local Ethiopian cuisine. Over the past three years, sesame-seed production has risen nearly 200 percent, from 199,000 tons in 2001 to 380,000 in 2005. In relation to this approach, a strategy that could help impoverished countries is to shift from cash crops to more selfsustaining ones. For example, right now cash crops are sold to developed nations at low prices in exchange for high-priced food crops. If these countries are allowed to shift to food crops they would be able to sustain themselves better.