Accumulation of capital in rural areas

Leaving aside land and livestock, rural people also depend on some non-land fixed assets to eke out their living. These assets constitute an important component of their capital stock to generate current income. These include power tiller, shallow tube well, threshing machine, rickshaw van and so on. In fact, non-land fixed assets emerge as one of the significant determinants of household income.
Noticeably, eight in every 100 households in rural areas have their own irrigation equipment -- mostly shallow tube wells and power pumps. This compares with about six out of 100 households owning such assets in 2000, and three out of 100 in 1988. Assuming that the total number of agricultural farms in Bangladesh is 14.5 million, roughly 1.2 million households are now owners of such equipment. Specially to note, the price of irrigation equipment has fallen to US $161 in 2008 from US$ 179 in 2000 and $729 in 1988. We argue that the import liberalisation policy in the late 1980s played a vital role in the expansion of ownership of irrigation machines over time. Households owning bullock-cart is on a wane, possibly due to the advent of the modern transport mode and the development of paved roads that has made operations of rickshaw vans easy and profitable. The average value of capital owned by sample households rose from US$ 500 to US$635 between 2000 and 2008 - by more than six per cent per annum.
Like land, livestock or non-land fixed assets, access to institutions could also be counted as assets. For example, access to financial institutions can address the problem of the shortage of working or fixed capital; access to political organisation can reduce transaction costs or promote interests through political links etc. We call them social capital as they help produce output.
Let us now pick up the issue of access to association of the rural households with political organisations. We observe that 2-3 out of 100 households are associated with political parties. But when disaggregated, roughly one-thirds of the richer segments of households are found to have access to any political party. This compares with 6-7 per cent for the poor households. If access to political parties is assumed to contribute to capital accumulation, needless to mention, the rural rich are much ahead of the rural poor. It, thus, appears that disparity of this kind also contributes to disparity in other branches of livelihood strategy.
We observe that about 40 per cent of rural households had access to NGOs (non-governmental organisations) in 2008, as compared to about 24 per cent in 2000. But the average hides the disaggregated dynamics. Especially, very poor households (owning land up to 0.40 ha) could significantly increase their participations during that comparable period. That means, roughly four-fifths of poor households now have come under the umbrella of NGOs that provide access to credit and other services. This might have played a role for the accumulation of other assets like rickshaw vans, livestock or pumps. Thus, access to financial institutions influence livelihoods by enabling the accumulation of other assets.
This also points to another development of the coverage of NGO services and their targeting.  About one-half of the relatively large and medium land owning groups (owning one ha and above) gained access to NGOs in 2008 as compared to one-fifths in 2000. This observation is quite surprising as the NGO-bell was not supposed to ring for the rich. That means, although on paper the functionally landless households are the targets of the NGOs, in practice, a sizeable portion of the better-off households also appear to benefit from NGO activities.
But it should also be borne in mind that mere membership of NGOs might not help creation of asset unless the access helps households with credit for pursuing economic activities. In this case particularly, we notice another significant development in recent times. The share of household borrowing from institutional sources of credit increased more than three times over the last two decades. The most dramatic improvement was observed in case of the functionally landless households: 44 per cent of them now borrow from institutional sources compared to only about five per cent in 1988. This means, a respectable proportion of rural households have access to institutional source (mainly NGO) even without any collateral. This enabled them to have access to other assets also. However, although large land owning households had little opportunity in this case, the medium households increased their access by six times.
A quite opposite syndrome could be observed in case of non-institutional sources of credit. Only one-tenth of rural households now borrow from non-institutional sources compared to about one-thirds in earlier period. This means, access to highly usurious forms of credit has been replaced by relatively cheap sources of credit. This has positive impacts on all groups, especially the poor. For example, only one-fourths of the marginal landowning groups borrowed from non-institutional sources in 2008 compared to one-thirds in 1988. The diminished role of non-institutional sources of credit and the rise of institutional sources should be construed as positive development in rural areas. The landless households mostly benefited from this development through availing credit and creating assets for livelihood.
Finally, we can talk about another asset called mobile phone. Roughly 90 per cent of the rural households own at least one set. Initially, advent of mobile phones, like others technologies, went to benefit the rich but over time, the gap has reduced. Access to sophisticated mobile sets still remains within the reach of the rich.
It is by now very clear that ownership of more land and relatively more access to physical and financial capital by the rich went to widen income disparity in rural areas over time. In this gloomy state of affairs, the state and the NGOs have the responsibility of increasing the access of the poor to various capital-augmenting facilities. And for that to happen, the poor segment should not be left to the 'invisible hands' nor to the mercy of the market. Visible but selected interventions by the state like agricultural subsidies, special assistance for secondary and tertiary education, special credit arrangements etc., could minimise the disparity, if not remove it.
The writer is Professor of Economics at Jahangirnagar University.
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