Urban Bias in Rural Development

Urban-rural dynamics are predominant for economic growth and development. While the rural areas provide labor, capital, and the agricultural surplus to establish factories in urban states, urban areas produce machinery and durables for rural lands. Their co-existence is a driving factor of economic prosperity and human development. 

The rural or agricultural sector, the foundation of an economy, in general, houses the poor, the illiterate, and the traditional. On the other hand, the urban or industrial sector is wealthy, highly skilled, and modern. Rural migrants, otherwise underemployed in farms, relocate to urban areas to increase their productivity, hence, wages, and pull their families out of poverty and scarcity. 

This idea, in the 1950s, was characterized by Arthur Lewis’ model of economic development. Further, it was extended by Michael Lipton as Urban Bias Thesis, introduced in Why Poor People Stay Poor: A Study of Urban Bias in World Development (1977). It addresses the income gap between urban and rural economies, stressing the urgency of this issue. 

He proposes four stages to do so. First, focus on agriculture and allocating maximum resources to the rural sector. This step will prioritize agricultural development, which will aid the surplus to the industrial sector. Stages two and three align with the failures of the initial stage. These policies will inevitably focus on the rural economy and not on the social classes residing in rural areas. Later stages realize that these resources, spent majorly on big farmers, have now made them powerful and coercive of small tillers. Marginal productivity has increased in agricultural lands, and the sector has become productive. On the other hand, the industry is flourishing, using raw materials and labor from the rural sector.

Finally, at stage four, the rural industry must not be neglected as countries tend to do. There is a belief that industrialism would degrade and the rural sector rise. Lipton reiterates a need to advocate a ‘national path’ unlike in Western or Soviet industrialism. 

Though a national plan of action is a better way to account for economic activity, as in centrally-planned economies, over-centralization often creates inequities. Influence in state-planning by affluent business classes will cater to their needs and neglect the rural sector altogether. It will lead to an underdeveloped rural economy and concentrate economic benefit to a few areas. And the poor remain the poor. 

There are other policy challenges too. The spatial difference within people raises the cost of efficiently implementing policies and allocating resources to far-flung areas. This tendency creates a bias towards developing non-rural regions as they are easily approachable. Rural areas are often politically marginalized and remain less influential to government policies. 

Further, investments in rural areas are risky as the sector is primarily dependent on agriculture and allied activities in most developing countries. They contribute a lower proportion to taxes and get less share of government expenditure and resources. 

Ideologically, a highly taxed agricultural sector could lower the state’s vulnerability to invest in the rural sector, accelerating economic growth and development. In practice, urbanization and migration to cities to search for better opportunities, and social mobility, are the drivers of economic growth.

The solutions to these biases lie in these criticisms. One argument is regarding investments in rural sectors not being profitable. Contesting that, experimental evidence suggests that the poor tend to spend additional income on durables such as television rather than consuming more calories or saving up for emergencies. In the essay titled The Economic Lives of the Poor, Abhijit V. Banerjee and Esther Duflo (2007) observe this behavior by analyzing household surveys from 13 developing countries. This observation is a testament to the consumption habits of the poor. Investment in the rural sector can pump money back into the economy, creating a multiplier effect using the macroeconomic principles of income flows of consumption expenditure by individuals and private investment by rural firms.

For this order to function competently, a formal financial system needs to be in place. The rural sector must trust the banks as they do the moneylenders who charge higher interest rates or demand repayment in the form of labor. 

Another solution to this is the decentralization of over-centralized organizations in a state. Although in authoritarian nations, the policies remain biased towards urban areas with no one to object to, modern-day democracies take a different approach. 

In a democracy, the government, along with other stakeholders, works at the grass-roots level to better the functioning of local bodies. The system works well in framing policies that serve the cities and boroughs in their ways. In India, the local government bodies, and the Panchayati Raj system, allow villagers to discuss policy challenges in regular meetings. But the course of action remains uneven for many such towns and villages. Some communities come together to solve a prevailing crisis or a long-run issue, while other societies are less interactive and hence, less developed. 

In the United States, a developed economy and the oldest democracy, local bodies play a similar, specifically in education-related policies. The funding, channelized from the center through the states and urban bodies, and robust curriculum set at micro-levels, help the system function adequately. 

There is a pressing need for resource allocation at the state and district levels in developing economies, following models from developed countries across the world.