A Necessary Turnaround: Betting on Cities and Towns
The government claims to be prioritizing agriculture in order to assure economic reactivation. Many NGOs see the countryside as the key to development and are placing their bets there too. But too few people are discussing the wisdom of these bets, even after Mitch. Perhaps this road leads nowhere, and Mitch was a warning signal. Why not make a turnaround in economic policy and bet on the urban economy instead?
Mario Davide Parrilli
Hurricane Mitch dramatically laid bare the weaknesses in Nicaragua's development model. It also revealed, as natural disasters always do, the countryside's extreme vulnerability to the forces of nature. Floods, droughts, landslides, hurricanes, earthquakes and tidal waves hit the countryside harder than the city, since they affect not only houses and infrastructure but also agricultural production. Months after such tragedies, the lives of the rural inhabitants are still at risk, since the loss of their production means the loss of income and food for several months, sometimes even a full year.
Why such a long road?According to calculations made by Nitlapán, the Central American University's activist research institute, with figures from the Ministry of Agriculture and Forestry, the hurricane affected 270,000 hectares of land, with losses of some $80 million in agricultural production and $850 million in buildings, machinery and agricultural supplies. In addition to the human victims—2,400 people living in rural communities in the country's northern and western regions—some 180,000 head of livestock were killed. The vulnerability of the countryside is a universal reality. Even in developed countries, farmers are affected year after year by torrential rains, hail and droughts. The rural economy is more likely to suffer from nature's violence, and is thus less stable and secure than an economy built on other productive activities.
Rural Nicaragua is even more vulnerable. In many especially inhospitable areas of the country—the agricultural frontier, the exhausted land of the northwest and the dry tropical forests—people barely scrape by, suffering from hunger and disease and clinging to land that is increasingly less productive, especially given farmers' limited access to capital and technology. It is no coincidence that most of the Nicaraguans living in extreme poverty are found in rural areas, as studies carried out by a wide range of institutions have confirmed.
Why do so many people continue to try to scratch out a living in such impoverished regions? We would have to ask this question of many people in the world. Why do Eskimos live in the North Pole, Russians in Siberia or Tuaregs in the Sahara? The history of humanity is a history of the innumerable intelligent adaptations our species has made in order to inhabit the most unlikely areas. But people had to adapt. The process was not easy, the adaptation not painless. The massive migrations that are also a part of this history, which have led many people to live in very difficult places, have been only partially voluntary. Wars, conflicts, and hunger often lie behind them.
In Nicaragua, these processes are very recent. They began with the land accumulation that displaced many small farmers from their places of origin—as happened in Chinandega and León during the cotton boom of the 1960s and 1970s, for example. Since the exodus and adaptation to difficult regions dates back so short a time, the question is, must so many Nicaraguans go through such a prolonged, painful process if is only 20 or 30 years underway?
Why is there no reflection?Although Nicaraguans have witnessed one example after another of the rural population's impotence when faced with nature's rage, nothing has been done to relocate the communities at risk in safer places. Nor has any serious reflection taken place on the possibility of encouraging investments and incentives to reshape the national economy, distributing economic activities and employment more reasonably. Nor has thought been given to encouraging the inhabitants of the most inhospitable, unproductive rural areas to move to places where their lives will be more satisfactory and their production more efficient.
The majority of Nicaragua's rural population currently lives in unjust, difficult conditions, without the basic services that make for a somewhat easier, more decent life: water, electricity, roads, sewage systems, schools and health centers. The lack of such services, along with the lack of productive conditions for greater yields from the land, leaves rural families with no perspectives of a better future. Furthermore, given the state's severely limited budget, there is little room to hope that such public services and infrastructure might be provided in the countryside anytime soon.
These facts raise questions about an economic policy that makes a priority of supporting the agricultural sector. Poverty cannot be reduced by emphasizing agriculture yet neglecting the rural world. If Nicaragua now enjoys a democratic government and the rule of law, people have the possibility of defending their right to a decent life. The state must encourage the appropriate location of its cities and communities, not by resorting to forced relocations, but rather by giving the rural population a variety of incentives.
Why this priority?Despite such obvious facts, there is no debate on these issues. The population's current geographic distribution is taken as a given, and solutions are sought where they simply do not exist. The government's policy, like that of many NGOs, focuses almost exclusively on rural development—more specifically, on agricultural development—based on Nicaragua's supposed "comparative advantages" in agricultural production.
The government maintains that technological improvements to traditional agricultural production will satisfy the population's food needs while increased exports of nontraditional products will bring in the foreign exchange needed to develop the country and even pay the onerous interest on the foreign debt.
Similarly, many NGOs expect their technical assistance, training and credit programs to improve the quality of life of the rural poor. Many of these institutions appear to underestimate the extremely inhospitable conditions in many regions of the country, and do not sufficiently consider alternative strategies that might strengthen the links between the rural and urban worlds. Perhaps—and this is fundamental—they underrate the urban world's capacity to generate more value added, which means more jobs and new income, to more effectively market and diversify products, to provide more agroindustrialized products, to stabilize the economy, train human resources and ensure the transfer of technology.
Why do people leave the countryside?It is odd that the people who most enthusiastically promote agricultural development are not agricultural producers but rather organizations in the service sector, based in Managua, where there is no dearth of comforts that are completely unknown in the countryside. It is also significant that many of the people who work in these organizations come from families that left the countryside a generation or two ago, convinced that their lives would improve in the city, and dedicated themselves to study or to industrial, commercial and professional activities. As soon as they could spare them, parents urged their children to leave the countryside in search of a better future.
This is the history of the world, not just of Nicaragua. Europe was basically agricultural until the beginning of this century. In many countries, half the population lived in rural areas only 30-40 years ago. The change began precisely when parents saw that the city could offer their children more than the countryside and told them, "Life is too hard here, go look for something better, go to the city, study, work at whatever you can and you will improve your life." Very few people would trade a job in an air-conditioned office in the tertiary sector and urban life in a house with water, electricity, sewage, a telephone, a television, and schools and health care so close, for a life in the countryside, where none of this is available and you have to go to bed at 7:00 in the evening along with the cows and chickens.
Much is being said about the tendency of urban dwellers in economically developed countries to trade in their city apartment for a country house, in search of the beauty and tranquility of nature. This tendency is also beginning to be seen in Managua, where people who can afford to have been moving to the safer, greener areas on the outskirts of the capital. But this does not mean that they have gone back to the country to work; they have gone only to build themselves a more comfortable, attractive, quiet house.
Why not relocate?The development institutions are convinced that agriculture is the basis of Nicaragua's development, even if it takes place on arid, swampy or hilly land. Why don't they consider relocating people in less difficult areas? Is it best for them to remain in these places?
The national budget is funded by the taxes paid by individuals, businesses and organizations. But the extremely low incomes of most Nicaraguan taxpayers means that very little money comes in: some $600 million annually. With this, the government has to maintain infrastructure around the country, pay the salaries of public employees and interest on the foreign debt, and meet other basic expenditures. If it is taking over two years just to build a few bridges on the highway from Managua to León, the country's two most important cities, why do we think that a rural population dispersed over thousands of square kilometers in the remote center of the country can be provided with the basis for development even in the next thirty or even fifty years? How can power lines, aqueducts, roads and highways, sewage systems, telephones, schools and health centers be put within reach of so many people? It seems scarcely possible, knowing that even developed countries struggle with the costs of such investments.
Furthermore, the country's leading businesspeople have demonstrated time and again that they are not going to make the long-term investments needed to build highways and other basic infrastructure, no matter how many people would benefit from them. To take just one example, collecting the large quantity of milk produced deep in the countryside would be to everyone's advantage. But private businesspeople prefer not to take risks, so they stay within the existing infrastructure, however limited it may be. No one breaks with routine.
Why, if agriculture isn't the driving force?Many researchers and policy makers that defend an emphasis on the agricultural sector argue that it is the basis for a capital accumulation process that will later allow for investment in more modern activities—industry and services—and guarantee the country's economic growth. They argue that this is what happened in Europe, the United States, Japan and Southeast Asia. But this is not true.
As long as the human economy was basically agricultural—until around the year 1000—the human population was also extremely poor. Later on, the commercial sector became the center of the economy, as the boost to the global economy from travels to the East and the Americas demonstrates. But even with that push, most of the world's population remained very poor.
In the 18th Century, the industrial revolution made industry the driving force of development. This trend was further accentuated with the second wave of industrialization in the century now ending. Over the past 30 years, the advanced service sector has taken the lead role. And it is only in this century, with this second industrial wave and the more recent drastic transformations in the advanced services—banking, insurance, research, technical assistance—that the global economy has taken off, substantially improving people's quality of life, especially in urban communities.
History shows that agriculture did not produce the surplus that allowed these improvements in the global population's living standards. The driving forces have been industry, services and, to a lesser degree, commerce. Currently, 90% of international exchanges are not commercial transactions but rather financial ones, included among the advanced services. This sector creates an enormous surplus. In such a context, how can we believe that agriculture will produce the surplus needed to transform Nicaragua's economy into a more advanced one? And how can we believe that peasant farmers' subsistence economy will generate such a surplus when, even if their income improves somewhat, it will always be extremely low?
Why not live in the countryside?The peasant population has its logic. Over the past three decades, a number of prominent researchers have tried to confirm this, to demonstrate the dignity of small farmers who survive in pitiful conditions. But few analysts pay any attention to what peasant logic has demonstrated for many years now: they no longer want to live in the countryside.
Nicaragua has one of the highest urbanization rates in Latin America and, according to the projections of the United Nations Development Program, this rate will continue climbing for the next 20 years. What does this mean? It would appear to mean that people prefer living in poverty in the city to surviving in the countryside with no comforts or the hope of anything better. For years they have been coming to the capital, Managua, which is now home to nearly half of Nicaragua's urban population. People who move to Managua from the countryside eventually figure out some kind of work in the informal sector. They move into impoverished neighborhoods where they build their houses out of scrap wood, cardboard and plastic, illegally hook up to the electricity lines passing overhead on the way to better-off neighborhoods, and close themselves inside at 8:00 at night to avoid the gangs.
Although the capital's population growth has leveled off in recent years, the mass of people already living there exerts enormous pressure on the city's capacity to respond to their basic needs. The city simply lacks the resources to respond adequately. The excessive, unruly growth in the capital doesn't help people from the countryside overcome their poverty. In fact, it has done just the opposite: it has exacerbated a number of problems, leading to increased crime, massive underemployment, and a lack of basic services and infrastructure in most neighborhood.
Although many cities in the world have far larger populations than Managua, their inhabitants usually represent no more than 20% of the country's total urban population, so the relationship between the various poles of the country's urban development is more equally balanced. In Nicaragua, although the urbanization rates in other cities have caught up with the capital in the past decade, Managua continues to concentrate 44% of the total national urban population. Policies are urgently needed to spread out production among the country's other potential centers of urban life and thus make them more attractive.
The most obvious problem arising from irrational urbanization is the growth of the informal sector of the economy, where workers suffer from the same poverty that afflicts most agricultural producers. Over half of Nicaragua's economically active population is underemployed, and most of them work in the informal sector. The urban economy's weakness is patently clear: it does not provide economic opportunities in the form of jobs, income or capitalization possibilities for most of the city's inhabitants. Informal urban cottage industries are mired in the same state of underdevelopment as rural production. Promoting the urban economy—so as to transform this informal sector into a formal sector capable of creating economic opportunities—is a key task for institutions that seek to contribute to national development.
What should be done?If this is the context and the trend among Nicaragua's peasant population, what should be done? This same question was raised by the Italian writer Ignazio Silone in the agricultural Italy of the 1930s, in a similar context.
International pressure compels Nicaragua's government to meet its foreign debt payments. This "obliges" the government to concentrate its efforts in the export production that provides the greatest and quickest hard currency returns: agriculture. Meanwhile, most NGOs insist on supporting subsistence peasant agriculture with a blind faith in its development potential. Thus both the government and the NGOs are supporting policies that are unlikely to create a decent life for such a large number of people anytime soon. And if it's clear that the basic needs of people in rural areas will not be met for the next 30 years, isn't it time to change development policies? If so many people will continue to lack water, electricity, roads, sewers, telephones, schools and health care, they will not enjoy "development." Is it right to keep betting on the agricultural sector as the heart of a development strategy for the peasant population and the country?
Silone's question requires finely tuned answers. And to find them, we need a broader concept of the economy and we need to appreciate the role of cities and towns in economic development.
Our concept of the economy must be broadened to include not only the agricultural sector but also the other productive sectors: industrial and agroindustrial production, commerce and services. An integrated focus on urban and rural development links all three of these economic sectors and all urban and rural actors that can be incorporated into them, seeking mutual, shared benefits.
All actors on the productive chain of any agricultural or forest product are also consumers of the product produced by the previous link, so it is to their advantage that it be a good product produced at a good price under good conditions. What is now called competitiveness is to their advantage. Neither the city nor the countryside can develop unless industrial and service sectors that can complement agricultural and forest production are incorporated into the task to create greater wealth, more jobs and income, better trained human resources, more effective marketing, technology transfer and economic stability and diversification.
How did others develop?It is important to study the history of peoples and nations so that the citizens of today's world can learn from the most successful national and international experiences and avoid the kinds of mistakes that lead to failure, poverty and even war. All studies reveal that the great leap in people's living standards in the most economically advanced countries was not a result of better agricultural organization. People's lives in Europe, the United States, Japan, the Southeast Asian "tigers" were relatively poor—except for a hegemonic sector—until the 20th century. The key factor in the great change that occurred in the quality of their lives was the expanding of the concept of economy beyond the agricultural sector. The economic leap came about when large numbers of people left the countryside and went to the cities and towns and began to work in industry, commerce and the traditional and, more recently, nontraditional services, which got a boost during those years from numerous scientific and technological discoveries.
The charts in the previous column show the value of an economy with appropriate distribution among its different sectors. If any kind of "natural law" can be gleaned from the experience of economically successful countries, it is that agriculture is the sector producing the least wealth per unit of work (GDP/EAP). In economically developed countries, 10% of the economically active population (EAP) produced 4% of the gross domestic product (GDP) in agriculture in 1990-91, for a relation of only 0.40 units of wealth per unit of work. In those same years, industry and commerce generated more wealth per unit of work: 1.12 in industry and 1.03 in commerce. And this is not just a recent trend. It also held true thirty years ago: the rate in agriculture then was 0.27, compared to 1.08 in industry and 1.22 in commerce.
In Nicaragua's case in those same two periods, these rates were 0.49 in agriculture, 1.33 in industry and 1.64 in commerce in 1965, and 1.03 in agriculture, 0.88 in industry and 1.04 in commerce in 1991. This means that the agricultural sector—which is now only complementary in the generation of wealth on a global level—has been and continues to be a key sector in Nicaragua, while the industrial sector—a key sector globally—is terribly weak in Nicaragua. Clearly, if successful international experiences serve as a reference for economic growth, Nicaragua may be following a path that leads nowhere.
Why do our products matter?Critics of these ideas emphasize the risk of being left without food if priority is given to sectors other than agriculture. But history shows that countries like France, Italy, Germany and the United States do not need to import agricultural products, even though they prioritize other economic activities. Aren't these the very countries that send thousands of tons of their surplus rice, corn and milk when droughts, floods or wars occur in poor countries? The agricultural capacity in these countries always surpasses their food needs. Indeed, in the European Union, fines are imposed when farmers put more agricultural products on the market than the EU agreements on agricultural policy allow.
Why, then, would developed countries need to import our agricultural products? If development in the countries of the North continues to consolidate, the answer is very simple: this economic option serves their interests. They prefer to devote the bulk of their capital and human resources to industrial production and services, which generate greater wealth per unit of work. And they do this despite the fact that they use the most advanced technology in agriculture, which increases the wealth produced per unit of work. In developed countries, a small minority of the economically active population dedicated to agriculture can produce enough food for tens of millions of people.
Of course we cannot abandon the agricultural sector, which supplies our food and the raw materials for industry and commerce. But we must work with this sector while remembering that the real economic surplus was generated by other productive sectors when they received the boost of transcendental scientific and technological discoveries.
Why demonize the city?To respond to Silone's question of what to do, we also have to reappraise the value of the city. In Nicaragua, the first thing we have to recognize is that Managua is not the country's only city. There are 16 departmental capitals and some 100 smaller towns like Jalapa, Condega, Wiwilí, Somotillo, San Marcos, Masatepe, etc., whose population densities facilitate the provision of services that make human life more decent and pleasant. Once we recognize this, we can begin a different, more realistic discussion, one that does not demonize the phenomenon of urbanization.
In economically advanced countries, cities arose around the year 1000 and became cultural and commercial centers. Over the following centuries, they became political, industrial and infrastructure centers. Today they are centers for tourism, sports, finance and the like. Cities grew because of the growing power of one sector, the middle class or bourgeoisie, which had such a strong influence on the global economy in the second millennium that it defeated feudalism and encouraged the formation of nation-states. Cities and this powerful socioeconomic sector became the protagonists of an infinite number of political, social and economic events all over the world that changed the static nature of the global system and led it to where it now is: caught up in an unstoppable process of globalization that, despite its many holes and risks, is aimed at promoting the "democratization" of rights and the wealth of peoples.
Why not support the urban economy?If the connection between the city and the most dynamic social sectors has been the driving force behind global development, this fact is relevant to Nicaragua's own development. Prominent Nicaraguan and international scholars from across the ideological spectrum agree that the greatest amount of value added occurs in the final links of the productive and commercial chains: industry, commerce and services. The connection between the activities in these three sectors and the city is clear. The economic activities carried out in cities and towns formed the basis for the two "industrial revolutions" that the human species brought about, both of which have made remarkable changes in people's lives in economically advanced countries.
It all seems obvious and evident. But none of this appears to influence the direction of national development policy, which is shackled to its conception of agriculture as the basis of national development.
Nicaragua should not abandon the countryside, but it should encourage the development of urban poles that favor productive concentration and a dynamic relationship among the various productive sectors, actors and links. This is the way to ensure the generation of wealth, jobs, income, capacity, technology, commerce, economic diversification and stability—all components of development that remain unknown here. Only through policies that recognize the importance of cities and towns in the nation's economic development can a more rational flow of people into the country's urban centers be encouraged, which would allow for a gradual adjustment of the city-countryside relationship and set us on the path to more economically efficient and socially acceptable forms of production.
The problem in Nicaragua is that, even though industry and services do exist and even involve a growing percentage of workers, the "informal" nature of these industrial and service activities means that they are not very productive. Small-scale industry—the production of cinder blocks, floor tiles, furniture, metal railings and gates, shoes, clothing—the small-scale commerce in urban markets and the multiple services offered on the street are completely informal activities, characterized by a poverty of capital and human resources that does not permit any possibilities of future growth.
Given this situation, it is essential to encourage the "formalization" of this economy: to strengthen its physical and human capital. To so this, it is necessary to find out which actors really have growth potential, then develop actions aimed at them. The strategy should emphasize those who can capitalize themselves in the short run and build more competitive businesses, so they can take the lead in developing the country's various sectors and areas.
Why not specialize?Physical capitalization basically requires long-term credit that allows those with the greatest potential to increase their productive capacity and the size of their operations and thus intensify the accumulation process. The capitalization of human resources, on the other hand, requires two kinds of actions. First, information about the market, technology, raw materials and workers must be made available so that these producers can take advantage of productive and commercial opportunities they are now unaware of. Second, technical and business training must be provided in the regions themselves, in order to strengthen the technical and commercial capacity for activities that the region specializes in or could potentially specialize in. In Nagarote and La Paz Centro, for example, this means concentrating on the industrial production and marketing of milk products; in Masaya, on the production of shoes, furniture and clothing; in Jalapa, on the production of tobacco, wood products and grain-based agroindustrial products.
This training would give young people a more technical way to get involved in the family business and create a new context for future businesspeople and workers in towns and cities. It would also stimulate people's interest in remaining in their own city or town, or at least in supporting their hometown economy through commercial, professional and social exchanges. And this strategy would promote the country's effective decentralization, taking advantage of the legal framework established by the law on territorial organization.
Greater technical-scientific knowledge of potential products could be developed within each branch of production. This would increase the competitiveness of local businesses in the national market and, even more importantly, the international one, which requires more detailed, thorough knowledge of each production category. It would encourage a fundamental change in the mode of production. Small production is still done in a strictly "artisanal" way, so that each small manufacturer carries out the whole process from start to finish, without that division and specialization of labor that Adam Smith described over two centuries ago as the basic element of productive growth and industrial competition.
In Nicaragua, each company does everything, losing the potential benefits of productive and marketing synergy and potential savings in production costs. Small businesses have to look for raw material wherever they can, since the few companies dedicated to supplying raw materials are not well diversified. They have to produce the whole product themselves, without subcontracting anything. Many small businesses even produce the machinery needed for their production, except for large agroindustry, which imports its machinery. They have to sell their poorly diversified products on the limited national market and only occasionally enter into the unknown international market, where they tend to fall victim to powerful foreign importers, since very few national producers and exporters really know the international market.
If the goal is really to promote the competitiveness of national production in industry and in the traditional and advanced service sectors, labor specialization is essential, with respect both to the human resources involved in the productive process and to "targeted" productive investments.
How to increase demand?When Keynes proposed creating useless jobs in order to remunerate people and thus jump-start the national demand mechanism, he was only partly joking. Keynes would have been capable of even money giving away if he saw it as an investment that would increase the national demand.
In Nicaragua many questions need answers. How can the supply of goods and services increase when most people earn only $450 a year? Is there any possibility of development under these conditions, without first increasing national demand to incorporate into the market the majority of Nicaraguans now excluded from it? Can agriculture become the source of national demand the country needs? How can peasant farmers, who are now left out of the national statistics because of their extremely small role in the national product, substantially increase demand, particularly if they continue to lack basic goods and services?
One of the new maxims is that the state must no longer "intervene." The global trend is to the other extreme, in which the state leaves everything up to the market. But in a country like Nicaragua, where private productive investment has always fallen short and capital flight is the norm, the state should at least "promote." There are not many other alternatives for building the national urban and rural economy where not only is the market not perfect, it has yet to be built.
What should be done?What is the definitive answer to Silone's question, "What should be done?" Nicaraguan cities currently offer few alternatives for rural inhabitants. They are as poor as the countryside and furthermore, no policies encourage their development. The cities—theoretically much better structured to defend themselves from the forces of nature—continue to succumb to its blows. Mitch showed us how potential cities like Wiwilí or Condega can be literally flattened.
What should be done? We have to promote cities and towns as development poles, equipping them with the basic infrastructure that is still lacking or is in poor condition. Providing this infrastructure should be part of a process of departmental and regional integration that reinvigorates economic activity in cities and towns and attracts private investors. Only in this way, little by little, will the fabric of local production, commerce and services be consolidated and developed. And within this fabric, people could produce more and live better.