History of Land Concentration and Reform

History of Land Concentration and Reform Workshop on Land Redistribution July 9-14, 2007 SADC/World Bank Institute Hans P. Binswanger-Mkhize And Klaus Deininger

Introduction • Family farms that rely mostly on family labor are usually more efficient than farms operated primarily with hired labor • In terms of profits per hectare owned or operated, not yields on land actually cultivated • Why are there many countries with very large farms? • Why do land markets not redistribute land to smaller, more efficient family farms? • Why is land reform necessary to allocate land to the landless?

Outline • The emergence of property rights in land • Aggregating land and extracting tribute and rent • Success and failure in land reform • Credit, policy distortions, and land sales markets • Policy implications for redistributive land reform

The emergence of property rights in land • Low population density • Members of self –identified groups have a general right to gather, hunt and later cultivate in a specific territory • Labor is the scarce factor of production, not land • Shifting cultivation restores soil fertility • No rights are required to specific parcels of land to provide investment incentives into land

With rising population density and markets • Land gets scarcer • Fallow periods decline until there is continuous cultivation • The plow, manure, fertilizer and land investments become necessary • Rights emerge early on to use specific parcels of land, and pass them to one’s heirs • Rights to common pastures and woodlands survive for a long time • Land rental markets emerge, followed by sales within the community • When sales to outsiders become unrestricted, the transition to private property is complete • Land can only then becomes a major form of collateral

But usually there was a ruling class of chiefs or landlords • Extracted tribute, taxes, and/or rent, in labor, kind or cash • They rarely owned the land and could not sell it • These rights were often granted by a higher lord or king • We will call their rights over people and/or land a “manorial estate” • Peasants’ rights to their land may be unaffected How could the peasants be made to pay to or work for their overlords?

Coercion • Whenever there was a lot of land that could be used for shifting cultivation people had to be made un-free to stay on the manorial estate • Slavery • Capture slavery – mainly in subsistence systems • Merchant slavery – only in market systems • Serfdom • Sometimes survived into market systems • Indentured labor contracts • Where there was an abundant labor reserve to source workers • Dept peonage • Survives even when land becomes scarce

Economic distortions • Reduce land available to peasants • By allocating titles to “unoccupied” land • Differential taxation on free peasants • Head, hut or poll taxes in cash or in kind, labor • Restricting market access • Prohibitions, monopoly marketing, concession • Confining infrastructure and services to the farms of the rulers, and/or subsidizing them

Forms of manorial estates • Haciendas • Workers farm some of their own land and provide unpaid labor services to the home farm of their masters (Western Europe, Russia, Latin America, Eastern and Southern Africa…) • Landlord estates • All land is farmed by tenants who pay rent or crop shares to their masters or tax collectors (Japan, China, Eastern India, Iran, Egypt, England…) It took centuries of struggles, revolutions, land reforms to overcome these systems • And they still continue in parts of Africa, Asia, Latin America

Outcomes of land reform depend on • Whether the estate was a hacienda or a landlord estate • Whether the reform was gradualist or all at once • Whether the reforms occurred in a socialist system or a market economy • Whether the peasants were cohesive and got help from the bourgeoisie

From landlord estates to family farms • Right to tax or rent disappears, land becomes ownership of previous tenant • Organization of production remains unchanged, peasants have farming skills, implements • New owners often obtained substantial state support for technology, inputs • But limited cost of infrastructure, housing, etc • Impressive productivity gains • Based on investment, technology, better labor incentives • Stable political systems Bolivia, Eastern India, Ethiopia, Japan, Korea, Italy…

From Haciendas to “Junker estates” • Unlike plantations, junker estates produce a variety of products with hierarchy of hired supervisors and workers • Emerged via expansion of home farms at the expense of peasant land; are cultivated by hired labor • Emerged as a consequence of land reform, restrictions on tenancy, or in anticipation a land reform in favor of tenants • Junker estates were often dependent on monopoly rights, subsidies, or other restrictions Prussia, South Africa, Kenya, Zimbabwe, most of Latin America

From “Junker Estates” to large mechanized commercial farms • Emerged often as a consequence of state pressure: • “Modernize, or face land reform” • Obtained large subsidies for mechanization, inputs • Led to massive loss of permanent employment • Rely on temporary hired workers resident in squatter camps or rural slums (boyas frias) • The resulting systems hard to reform • because there are few workers with significant farming and management skills South Africa, Zimbabwe, Kenya, Brazil, Colombia…

Wage plantations • Produce only one commodity, • Under one management with hired labor • Examples: Bananas, Sugar, Tea… • Emerge when processing or marketing is associated with large economies of scale • And the product is highly perishable • So that processing and production and harvesting must be coordinated • Either via a plantation or via contract farming • They are efficient • Economies of scale in processing/marketing overcome diseconomies of scale in farm production Plantations are not good candidates for land reform

Tenure of reform beneficiaries • Freehold • Most reforms of landlord estate systems • Japan, Korea, Eastern India, Italy, … • Some reforms of Junker estates, LCF • Prussia, Kenya,… • Communal tenure • Most reforms of Junker estates, LCF • Mexico Ejido, South Africa, A1 farmers in Zimbabwe, • Later transformation to freehold • Now an option in Mexico, South Africa

Reforms in Socialist Economies • Landlord estates to family farms • Initially in Russia, China, Ethiopia, Vietnam • Later consolidated to Collectives • Russia, China, some in Ethiopia, Vietnam • Junker Estates or LCF to State farms • Chile, Peru, East Germany, Algeria, Mozambique... The resulting inefficient systems have been disbanded (China, East Germany, Eastern Europe, or partly reformed (former Soviet Union)

Why are collective farms so inefficient • Incentives problems with labor • High labor supervision costs • Sometimes remedied by elaborate point systems • Poor incentives to invest profits • High incentives to reduce number of members • So that profit can be divided among fewer people • Have disappeared in all of Latin America, China, Vietnam, Ethiopia, most of Eastern Europe, some remain in former Soviet Union • Why is it still the preferred model in South Africa?

The Social Costs of Delayed Land Reform • Static efficiency loss • Poor of incentives to invest in physical and human capital • Inability to absorb labor, provide employment • Rent seeking to maintain the distortions in favor of large farms • Revolts and civil wars

Brazil 1950-1980 • Agricultural value added +4.5 percent/aLand under cultivation + 3.2 percent/a • Agricultural employment + 0.7 percent/a • Unemployment in rural and urban slums • Boyas frias • Income inequality as high as in South Africa • Enormous contribution to macro-economic instability

Revolt • Thousands of peasant revolts across the world • Mostly unsuccessful, except when in alliance with outside forces, especially the urban bourgeoisie (Chile), urban underclass (France), or revolutionary movements (Russia, China) • Peasants often later deprived of the fruits of their successful revolt • The last sixty years has seen many protracted civil wars and bloodshed fuelled by land issues • Algeria, China, Iran, Philippines, Colombia, El Salvador, Guatemala, Nicaragua, Peru, Angola, Mozambique…

Why do large owners not simply rent or sell to smallholders? • Rental often leads to threat of land reform • The poor have no savings and cannot get credit • However, large farmers could sell to them in installments • Insurance and collateral value of land • These are capitalized into land prices • Land prices therefore exceed the capitalized value of farm profits • Therefore new owners cannot pay for the land without reducing consumption below their imputed labor income Land must be purchased mostly out of savings

Distortions intensify the problem • Growing population and urbanization can add a speculative component to the land price • Land is a good hedge against inflation • Large owners have lower transactions costs in credit markets, and easier access to credit subsidies • Many countries exempt agriculture from income and other taxes, and it becomes a tax shelter These effects will be reflected in higher land prices

Policy Implications • Redistributive land reform can increase efficiency, employment, wages • Can reduce inequality and social tensions • Cannot be done by the market alone • Unless the state buys the land and provides it at no or reduced costs • Or unless the state provides grants to the poor to buy the land and develop the farms

Policy implications • Land reform in Southern Africa is more difficult than in East or South Asia • Because of the system of large scale commercial farms • New farmers require efficient support services • Land reform requires elimination of distortions in favor of large farms • As recently done in Brazil and South Africa • (With some exceptions)

History of Land Concentration and Reform