Rural transition
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Rural development is a challenge world wide, and the transition countries of central and eastern Europe and the Commonwealth of Independent States are no exception. Some of the issues faced by the region, such as the need to reform agriculture and preserve the rural environment, are also faced by developed countries. Other issues, such as the levels of rural poverty and poor basic services, are similar to those in developing countries, albeit less pronounced. Yet others are an inheritance of pre-1990 central planning. Although central planning assigned considerable resources to rural areas (for infrastructure, general education and medical services), its disregard for transport costs and resource constraints has left many rural regions with production patterns that are not viable in a market environment.
In addition, much of the political power of the young democracies in the region has proved to be biased towards urban areas. The main political force in transition has tended to be the urban elite, while the key rural economic players– usually large landowners or collective farm managers– were lukewarm towards agricultural and land reform and as such ineffective advocates of rural transition. In a number of countries, land reform was designed and implemented with social objectives in mind, rather than to improve agricultural productivity. As a consequence, rural reforms have not featured as prominently on the political agenda as they should have. In fact, some countries are only now starting to devise rural development strategies. These delays– together with inherent disadvantages, such as heavy reliance on agriculture and dispersed economic activity– have compounded the transition problems of rural areas.
Using household and enterprise surveys, this chapter examines the main actors in the rural economies– rural households, farms and non-farm enterprises. The chapter explores how rural households differ from urban households, in terms of income, poverty and unemployment. It argues that the high incidence of rural poverty and unemployment is closely linked to the heavy reliance of rural areas on an unproductive agricultural sector. Increasing agricultural productivity and promoting economic diversification are therefore key aspects of rural transition. This will require substantial new investment as well as an attractive business environment. The chapter examines to what extent the rural investment climate differs from the urban investment climate, briefly compares the performance of enterprises in rural and urban areas, and identifies the main obstacles to rural enterprise development.
The final part of the chapter discusses the key challenges of rural transition. To restructure the existing economic base (both farm and non-farm enterprises), attract private capital and diversify economic activity, progress is needed on many fronts. Rural transition goes beyond the need for agricultural sector reform that was discussed in Chapter 4. Rural areas also have to enhance the quality of their infrastructure– both physical and institutional– improve access to credit and strengthen market linkages between firms. Market economies are characterised by a complex web of economic relationships of two broad types: "horizontal linkages" through which the value added in one firm is transmitted to the rest of the economy, and "vertical linkages" that connect firms with their business clients and suppliers. In many rural areas these market linkages have not yet fully matured. As a consequence, economic activity is held back and the benefits of new investment– in terms of the development of skills, increased productivity and income and employment creation– are not transmitted sufficiently into rural economies.
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