This is Part 3 of this series of posts on Piketty and some of his policy recommendations for South Africa. Earlier parts:
So I’m pretty sure that many people that clicked onto this are the type of former News24 commentator that expects a scathing indictment of land reform because:
- Zimbabwe
- We’ll perish from no food security
- All the foreign investors will leave
- Zimbabwe.
A point to note though: agriculture only contributes 2.6% to South Africa’s GDP, compared to the 19% or so that it contributed to Zimbabwe’s GDP in 1999 (immediately prior to the land invasions). And that’s without multiplier effects – which is important when you consider that most of the services and manufacturing industries in Zimbabwe were based around the agricultural sector.
But that aside, there is a much more practical problem with land reform.
Title Deeds
Zimbabwe is now a decade and a half into its land redistribution program. Here’s a question: is it land redistribution if the new landowners don’t hold a title deed? Because most of the new farmers don’t have title deeds – they just have long term leases. So here’s another question: why though?
The trouble is that the narrative on land reform is incomplete. The standard narrative:
- There is economic inequality!
- *takes back the land from commercial farmers*
- *gives it to the rural peasantry*
- *wins next election*
Here is the longer narrative:
- There is economic inequality!
- *takes back the land from commercial farmers*
- *gives it to the rural peasantry*
- *wins next election*
- *rural peasantry take their title deeds to the bank and apply for loans to finance their new farming operations using their title deeds as collateral*
- *rural peasantry are new to larger scale farming, and don’t always get the best yields due to underinvestment in infrastructure and the general pitfalls of being a startup*
- *rural peasantry default*
- *bank takes ownership of land*
- *bank sells the land title back to commercial farmers*
Much like some of the concerns around BEE share schemes, land reform is easy to implement but difficult to maintain into the long term.
Where Land Reform Has Worked
Most people will hold up South Korea as a model of land reform. Some points on that (taken from this article):
- When the American Administration redistributed land in South Korea at the end of World War II (over fears of a communist take-over), it was not a case of taking land away from established farmers and giving it to new and inexperienced farmers.
- The established farmers were already farming the land – they just didn’t own it. And they were paying rents to their non-farming landlords.
- On top of that, after the redistribution, those established farmers were heavily subsidised with fertiliser, inputs and other credits.
Conclusion: giving land to experienced farmers, together with effective financing, is a land reform policy that can make sense, for two reasons:
- Agricultural production is not interrupted; and
- The land reform won’t start to reverse itself through the credit-default process.
And generally speaking, land redistribution policies have failed when:
- The new farmers are inexperienced; and
- The land redistribution is under-supported in terms of financing and subsidies.
I guess the big question is: “Is South Africa another South Korea?”
And if it isn’t, then land reform is not a long-term solution to South Africa’s inequality problem. It is, at best, a short-term once-off tax on the agricultural sector.
And why settle for short-term solutions?
Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.
