On syndrome of shocks

Rural life in Bangladesh confronts a number of conundrums - 'ranging from vagaries of nature and uncertainties of the market to personal calamities of myriad types'. In this article, we shall depend on the conceptual framework espoused by S.R. Osmani and Mehrun Ahmed. We have also drawn upon the Sustainable Livelihoods Approach of DFID (Department for International Development of UK). Customarily, shocks are classified as 'covariate' or 'systematic' shocks and 'idiosyncratic' shocks. The former tends to affect a large number of people sharing common characteristics such as floods, cyclones, and drop in yield or price of a staple crop. By contrast, idiosyncratic shocks are peculiar to a person or a household such as death or prolonged illness of the major income earner of the family. Impression about the distinction is important to draw policy conclusion, e.g., a standard insurance policy may suit the idiosyncratic shocks but not covariate shocks. Again, the coping strategy adopted by households would be different in two cases.
Coping strategies are also multi-dimensional depending on the nature of shocks and the resources available to the households. In this paper, a la Osmani and Ahmed (2013), we classify them as erosive and non-erosive coping strategies. Erosive strategy involves some immediate erosion of the household asset base, while non-erosive strategy keeps the asset base intact, at least in the short run. For example, sale of land or other assets or drawing down accumulated savings in mitigation is erosive strategy. "An erosive strategy with long-term consequences would involve stopping children from going to schools either to save on educational expenses or to use children's labour for the purpose of earning additional income; in either case, it would entail a loss of future human capital". Examples of non-erosive strategy include borrowing, drawing upon reciprocal support system, social safety nets etc.
The 'vulnerability' context can also be analysed from another angle. Households eke out a living from five types of capital they are endowed with in varying degrees. These are, for example, human capital (H), natural capital (N), financial capital (F), physical capital (P) and social capital (S). The confluence of the various capitals resembles a diamond where the size of the diamond depends on the magnitude of the capital possessed. Thus, a poor household would have a small-sized diamond as they would have less land, and meagre financial, human and social capital. What is more important is the fact that the size of the diamond is affected by exogenous factors like seasonality, shocks, trend etc. For example, a shock like river erosion could erode natural resource base to reduce the size of the diamond. On the other hand, the size of the diamond could also protect the household from the onslaught of the vagaries of the exogenous factors, e.g., a wealthy household could withstand health shocks better than poor households; a household by the roadside would have better options to face crisis than a household in a remote village.
Available studies under different shades of methodology and analytical contents  tend to show that, around 40-50 per cent of rural households in Bangladesh are exposed to shocks but a  census of households carried out by BRAC in 2013 in 62 villages posits a different scenario on shocks. First, less than a quarter of households reported that they faced shocks during the comparable periods perhaps giving the good news that roughly four-fifths of the  rural households were free from shocks during 2010-2013. Apparently, the observed ratio of incidence is much lower than that of other studies mentioned above.  However, gleaning from disaggregated data set, we find that in households of some villages the proportion is around 33-56 per cent (highly vulnerable) while in other villages, the incidence ranges between 20-28 per cent (moderately vulnerable). Taken together, we can possibly argue that 25-40 per cent of households have faced shocks of a tall order during the period. Second, most of the high and medium vulnerable households belong to unfavourable agro-ecological zones including Khulna and Barisal. The higher incidence of shocks in Chittagaong and Dhaka could possibly be explained by the fact that the sample villages lie in vulnerable zones.
An investigation into the sufferers of shocks would hopefully provide some interesting insights. First, farm households seem to be more prone to shocks than households of other occupations. This is not surprising given the fact that, shocks from natural calamities like floods, droughts or hailstorms damage crops due to which farm households face income loss. Lower incidence among agricultural and non-agricultural labour, compared to business and services, is also not surprising since their mobility is high and occupational shift can be swift to avoid shocks. Second, as one moves up the landownership scale, one finds higher incidence of shocks. In other words, higher land owning groups are more susceptible to shocks than landless ones. The same explanation follows here: calamities damage land-based activities or other assets to reduce income of the households. On the other hand, landless households have little asset base to suffer a shock; further their occupational mobility from farm to non-farm could help stem the rots. Finally, the rich and the solvent segments of the rural households appear to be more vulnerable than the poorer ones. In other words, contrary to conventional wisdom, the poor are not necessarily more vulnerable than the non-poor ones as usually thought of. The reason could be that the lust for higher standard of living open doors of opportunities keeping widows of risks open. The severity of a given shock on the poor is very high than on the rich.
   What are the types of shocks that rural households have to grapple with? Over time, livelihood strategy of households changes; so does coping mechanism. From the census data, we have identified 20-30 types of shocks  that have been bracketed under different typology.  It appears that 44 per cent of the households tend to face income shock followed by expenditure shock (about 40 per cent), and asset shock (16 per cent). Income shocks are mostly caused by natural calamities such as flood/heavy rains and cyclone/tornado. The expenditure shock arises predominantly from health hazards such as treatment of illness. Many migrants are deceived by the agents to put them in peril.  Finally, among the asset shocks, loss of livestock is at the top.
The writer is a Professor                         of Economics at                  Jahangirnagar University.                  [email protected]