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Policy Research
WVORKINGPAPERS
B
AgriculturalPolicies
LatinAmericaandtheCaribbean
Technical
Department
andthe
Agriculture
andRuralDevelopment
Department
TheWorldBank
July 1993
WPS1164
Power,Distortions,
Revolt,and Reform
in Agricultural Land Relations
HansP.Binswanger
KlausDeininger
and
GershonFeder
If the efficiencyof the largecommercialfarm is a myth,whydo
marketsfor the rental and saleof agriculturalland rarelyreallocate land to the most efficientuses and users (familyfarmers)?
PoUcyRcarch Wosking Papczsdisseninatothe findings of work in progress andencourage the exchange of ideas among Bank
staff and
alodtcsintrestedindvelopmentisues
Thesepapers,disuibutedbytheRescarchAdvisoyStaff,carry
thenamesoftheauthors5reflect
ordytheirviews,andshouldbouseda
ndcitedaccordingly.Thcfindings,interpreutions.andconclusionsamtheauthors'own.nTcyshould
na be attributedto the World Bank. its Board of Directon, its management,or any of its member countries.
l
~~Polloy
Research
Agricukural
Policese
WPS1i64
This paper -a productof the AdvisoryGroup,LatinAmericaand the CaribbeanTechnicalDepartnent
and the AgriculturalPoliciesDivision,Agricultureand RuralDevelopmentDepartment- wasprepared
for the Handbookof DevelopmentEconomics,VolumeII, edited by Jere Behrmanand T. N. Srinivasan.
Copiesof this paper are availablefreefrom theWorldBank, 1818H StreetNW,Washington,DC 20433.
Please contactHansBinswanger,rooml4-021,extension31871(July 199^, 121 pages).
Most workon the relationshipbetweenfarmsize
and productivitystronglysuggeststhat farmsthat
rely mostlyon familylabor are moreproductive
than large farms operatedprimarilyby hired
labor.
This study began as an inquiryintohow
rental and sales marketsfor agriculturallandin
the developingworld affectefficiencyand
equity.What emergedwas lie clearsense that
great variationsin land relationsaroundthe
world and over time cannotbe understoodin the
commonparadigmof propertyrights and competitivemarkets. Underthat paradigm,land
scarcity leadsto betterdefinitionof rights,which
are then traded in sales and rental markets
accessibleequally to all players.The outcome
shouldbe the allocationof land to the most
efficientuses and users, yet this rarelyhappens.
Instead,land rights and ownershiptendto
growout of powerrelationships.Landowning
groupshave used coercionand distortionsin
land, labor,credit, and commoditymarketsto
extracteconomicrents from the land, from
peasantsand workers,and most recentlyfrom
urban consumergroupsor taxpayers.Suchrentseekingactivitiesreduce theefficiencyof
resourceuse, retardgrowth,and increasethe
povertyof the ruralpopulation.
Binswanger,Deininger,ard Feder examine
how thesepower relaJons emergedand what
legal meansenabled relativelyfewlandownersto
accumulateand ho'd on to large landholdings.
They discussthe successesand failuresof reform
in market and socialisteconomies,and the
perversionsof reformsin both systems,manifestedin large commercialfarms and collectives.
They surveythe history of land relationsand
the legaciesthat history leaves.Theydiscussthe
three analyticalcontroversiessurrounding
economiesof scale, and the efficiencyof the
land sales and land rentalmarket.
Tley discussthe mainpolicy issuesand
implicationsof variousdistortionsand successful
and unsuccessfulreforms in the developing
world,includingland registrationand titling,
land taxation,regulationsrestrictingland sales
and rentals,fragmentationand consolidationof
land, redistributiveland reform,and
decollectivization.
In an epilogue on methodology,theyexamine howvarious strandsof economictheoryhave
contributed,or failcd to contribute,to the explanationof variationsin policies,distortions,and
landrelationsover spaceand time.
The PolicyResearchWorkingPaperSeriesdisseminates
therndingsof work underwayintheBank.Anobjectiveoftheseries
is to get these findingsout quickly, cven if presentationsare less than fully polished.The fimdings,interpretations,and
conclusionsin these papersdo not necessarilyrepresentofficialBankpolicy.
Producedby 'he PolicyResearchDisseminadonCenter
POWER, DISTORTIONS,REVOLT AND REFORM IN AGRICULTURAL
LAND RELATIONS
Hans P. Binswanger,Klaus Deininger, and Gershon Feder
Prepared for the Handbook of DevelopmentEconomics, Volume m, Jere
Behrman and T.N. Srinivasan, editors.
The authors of thJ paper have benefittedfrom dcauslons at the Asian
Dvelopment Bank, the Land TenureCenter at the Universty of Wisconsin,
the Universityof Minnesota,and the World Bank Writtencommentsand
suggestxionby AS.P. Brandaw,D. Bromley,J. Bruce, M. Carter, R.
Christiansen,E Hayaml, M. Lipton, S. Migot-Adholla,K Otsuka,M. Roth,
V.Rutan, and TN. SrWnivasan
wereparticularly helpfid.
TABLE OF CONTENTS
Glossary
Introduction
The Historical Legacy
Part I:
The Emergenceof PropertyRightsin Land
ExtracdngTributeand Rent from Peasants
Successand Failurein Reform
1.
2.
3.
AnalyticalControversies
Part II:
4.
5.
6.
Farm Size and Productivity
The Effectsof Land-CreditLinksand Policy
Distortionson LandSales Markets
Incentives,Land-CreditLinksand Land Rental
Markeu
Part III: PoUcy
7.
S.
9.
10.
11.
12.
13.
Land Registaion and Xtling
Land Tax
RegulationsLimitingLandSales
Fragmentationand Consolidation
Restrictionson Land Rentals
RedistributiveLandReform
Decollectivization
Epilogue on Methodology
Annex 1:
Intervention to Establish and Support Large Famns
Annex2:
How Market LnperfectionsAffect the Farm Size - Productivity Relation
Bibliography
i
GLOSSARY
Irrespectiveof their historicaland culturalor Ideologia origins, the followingterms are used In this
paper with the definitiongivenbelow:
Co.2ectlveFarm: A farm jointlyownedand operatedunder a single managementfor the benefitof
and with work inputfrom the owners of the collective.
CommuWaCwnershp System: A systemof land ownershipin whichspecificplots of land are
assignedtemporarilyor permanentlyto membersfor familycultivation,whileother areas are held in
commonfor pasture,forestry,and collectionof wildplants and gamo. Individualplots mayor may
not be inheritableor tradeablein internalrental or sales markets. But sales to nonmembersare
alwaysforbiddenor subjectto communityapproval.
ContractFannlng. A contractbetweena farmerand a p-archr'er in advanceof the growingseason
for a specificquantity,qualityand date of deliveryof an agriculturaloutputat a price or price
formulafixedin advance.The contractprovidesthe farmer an assuredsale of the crop and sometimes
providesfor technicalassistance,credit, servicca,or inputsfrom the purchaser.
Cori*: Unpaidlabor and sometimesthe serviceof draft animalprovidedby serfs, tenants,or
usufructright holderto the ownerof the manorlalestate.
Debt Peonage,Bonded LaborSeries: A tributepaymentor labor serviceoriginatingin a defaulted
loan.
Family Fanm:A farm operatedprimarilywith familylabor, withsome hiring in or out of labor.
Familyfarmingsystemsmay be sociallystratified,with widedispersionin farm sizes and technology
levels.
Radenda. A manorialestate in whichpart of the land is cultivatedas the homeharm of t'e owner
and part as the familyfarms of serfs, usufrctuauryright holders, or tenants.
Home Farm: That part of the manorialestate or large ownershipholdingculdvated'Jy the lord,
landlordor owner under his own managementusing corvdeand sometimespartly remuneratedlabor.
Landlord Eftate:A manorialestate in whichall of the land is cultivatedby tenantsor usufructuary
right holders.
Junker Estate: A large ownershipholdingproducinga diversifiedset of commoditiesoperatedunder
a singlemanagementwith hired labor. Laborersdo not receivea plot of land to use for their own
culdtivation
as pant of their remuneraton, exceptperhapsfor a house and a garden plot.
Large CommerdcalFarm:A large ownershipholdingproducingseveraldifferentcommodities
operatingunder a singlemanagementwith a high degreeof mechanizationusing a few long term
hired workerswho may resideon the farm and seasonallyhired workerswho do not reside
permanentI)on the farm.
Manodl Estate: An area of land allocatedtemporarilyor as a permanentownershipholdingto a
manoriallord who has the right to tribute, taxes, or rent in cash, in kind or in corvdelabor of the
peasant residingon the estate. ITis paper uses the sme term whetherthe peasantsare there by
1
choiceor are bound by restrictionson their mobility. Manorialestatescan be organizedas ha,<indas
or as landlordestates.
Rcat is used in severalways:
* Rsudrfa t 'hTe
residualpaymentto a productivefactor in inelasticsupplyafier all factorshave
been renumeratedat their respectivemarketrates, whetherthe other marketsare competitiveor not.
* Rent-secing rent. The additionalreward receivedas a result of regul-tionsand restrictionsthat
raise the level of rewardsabove its undistortedlevel. Wheremarketsare thin or uncompetitive,
measuringrent-seekingrent may be very difficult.
* Land rent: A tenant'spaymentto a landownerin a voluntarycontractualrelationship. Rent may
be paid as a fixedor share paymentin cash, kind, or iabor sarvices. It may or may not be equalto
residualren If the reservationutilityof tenantshas been reducedby distortionsassociatedwith rent
seeking, the land rent includesa componentof rent seeking.
Reservraon udiky or reserwtion wage.The level of utility (includingthe risk ataibutes)or the wage
whichis availableoutsidethe manorialestate to a potentialtenantor workeron a manorialestate.
Sharecontract:A rental contractin whichthe tenantis payinga portion or all of his rent by
deliveringa certainproportionof the output, the crop share, to the landowner.
SatJbnws: A farm belongingto the state andoperatedlike a Junker estate or a large commercial
farm under a singlemanagementwith a largely residentlabor forcepaid in wages,and sometimes,
profit shares in cash or in kind. Laborersmay be allocateda smallgarden plot.
Swplhw:Outputor labor availableover and abovethat requiredto reconstituteand maintainthe
energy and life of peasants,serfs or slaves.
bsa.e:A paymentin cash, kind or labor servicesto a landlordbased on restrictionson mobility
and/or other forms of state-sanctionedcoercion. Tributemay also be calledrent or corv6e.
U
qtfauatVuarj
,fghi . Rightsto use the land. May be temporary,long-term,lifetime,or inheritable,
but alwaysexcludethe right to unrestrictedsale of the land.
Wage,aanton: A large ownershipholCingspecializingin a single crop under a singlemanagement
using wage labor, a large share of whichresideson the plantationbut does not receive more than a
garden plot for self cultivationas part
of the remunion.
2
INTRODUCTION
This paper beganas an inquiry into the efficiencyand equity consequencesof rental
and sales marketsfor agriculturalland In the developingworld. Mostof the workon the relationship
betweenfarm size and productivitystronglysuggeststhat farms that rely mostlyon familylabor have
higherproductivitylevelsthan large farms operatedprimarilywith hired labor. If that Is so, why have
marketsfor the rental and sale of agriculturalland frequentlynot reallocatedland to famUyfarmers?
Why do extraordinarilyunequaldistributionsof ownershipand operationalholdingspersist in many
parts of the world?Why has land reform seemedto be necessaryto changetheseland ownership
distributions?
What beganto emergefrom this studywas the clear sense that the great variationsin
land relationsfound acrossthe world and over time cannotbe understoodin a simplepropertyrights
and marketsparadigm.Section2 explainsthe idealizedsequenceof the emergenceand definitionof
propertyrightswhichoccurredin only few areasof the developingworld. As that paradigmwould
have it, increasingland scarcityleadsto better definitionof rights, whichare then traded in sales and
rental marketsthat are equallyaccessibleto all players.The outcomeshouldbe the allocationof land
to the most efficientuses and users. Yetthis oftendid not happen,as great observeddeviationsfrom
efficiencydemonstrate.
An examinationof the historicalevolutionof land rightsshows the reasonfor the
deviations:rights over land and the concentrationof ownershipobservedin most developingcountries
at the end of WorldWar II are outgrowts of power relationships.Landowninggroups used coercion
and distortionsin land, labor, credit, and commoditymarketsto extract economicrents from the land,
from peasantsand workers, and more recentlyfrom urban consumergroupsor taxpayers.Such rentseekingactivitiesreducedthe efficiencyof resourceuse, retardedgrowth,and increasedthe poverty
of the rural population.How these power relationsemergedand what legal meensenabledrelatively
few landownersto accumulateand hold on to large landholdings.The terminologydescribing
agriculturalproductionrelationsvaries as muchas the relationsthemselvesdo. We use a consistent
set of terminologyand providea glossaryof definitions.'
A lag litete eaboratstheimi",*on of paa modelof landue follwingtheutcad of v.
Thuen for th optimalu# of land . aociad problems
of localiedmonopolies
(FujitaandThib
3
BIecse land ownershipdistributionhas often been determinedby power relationships
and disortions, and becuse land sales marketsdo not distributeland to the poor (the key pointof
secton 5), land reform has oftenbeen necessaryto get land Into the hands of efficientsmall fazily
owners (section4 showsthat they are indeedefficient).The successesand failuresof reform in
marketand socialisteconomiesand the perversior of reforms In both these systems,manifestedin
large commercialfarms or collectives,are discuss&;3 section3. The social cost of failingto
undertakereform-peasantrevolt and civil war-arealso considered.
But land reform wouldnot be necessaryif there were economiesof scale in
agriculturebeyondthose that a familycouldtake advantageof with a givenlevel of technology.In
that case it wouldnot have been necessaryto use power to aggregatelarge holdingsor coercionand
distortionsto recruitworkers. And in modemtimesit wouldnothave beun necessaryto subsidiza
lage commercialfarms so heavilythrough credit subsidiesand other distortions.Voluntary
tasactions in undistortedmarketswouldhave achievedtheseends, and smallpeasantsmighthave
found it attractiveto join collectives.Section4 examinesthe workthat hitsbeen done on the
presence-ornot- of economiesof scale in agriculture,Plndingin measurenientsof the relative
effcienc of small versuslarge farmisonly exceptionalcases whichare consistentwith the mythof
the efficientlarge farm.
Similarly,if land sales marketscouldalloczwe
land from inefficientlarge owners to
small familyfarmers, lana reform would not be necessary.Abolishingthe specialsubsidiesto lage
fas
and the conditionsthat permit coercionwouldbe all that wouldbe required to leadto the
brekup of large farms throughsales to small farmers. Showingwhy sles marketsare oftennot
capableof facilitatingthese efflciency-twhancing
transfers- covarianceof risks, imperfectionsIn
credit markets,distortionsin commoditymarketand subsidiesto large farms are amongthe reasonsis the topic of Section5.
Section6 then showsthat tenacy and sharecroppingare not as ineffAcient
as often
assumed.They are secondbest adaptationsto incompleteor distortedmarketsfor labor, credit, and
risk diffulsion.Such rental agreementsare also necessaryto allowlarge ownershipholdingsto be
I (...oa _ned
1986),rgi and urbonplniig, andthe dorminant of lad values(RndallandCastle1985).7he
rifarmis citedprovidea goodoveviewof thislitratr
4
oprated by tent
as smallfamilyfarm units. Regulatingtenancyor outlawingit has perverse
efficiencyand equity effectsfor the poor.
The sectionsof the paper are groupedin k ee parts. Part I coversthe historyof land
analyticalcontroversiessurrounding
relationsand the legaciesit leavestoday. Part II coversthe whree
economiesof scale, and the efficiencyof the land rental and the land sales market. Part m discusses
the major land policy issuesleft behindby the variousdistortionsand successfuland unsuccessful
reformsin the developingworld. These inicludeland registrationand titling, lar.d taxation,regulations
limitingland sales and land rentals,fragmentationof land, redcstributiveland reform and
Policy implicationsare discussedusing the insightsgainedin the previoussections.
decollectivization.
Finally,the methodologicalepilogueexamineshow var:ousstrandsof economic
theory have contributed,or failedto contribute,to the explanationof variationsin policies,distortions
and land relationsover spaceandtime.
PART I: THE HIS
RICAL LEGACY
1. The energence of property rights In lhnd
7Te critical issuein land-ablndantsettingsis accessto labor, not lancd.At low
populationdensities,there is no incentiveto investin soil fertility, and becausefertilityis restoredby
long-treefallow,ownershipsecurityis not requiredto induceinvestment.Whenpopulationdensities
rise, fallowperiods are graduallyshorteneduntil the lRndis continuallycultivated.Then plows,
maure, artificialfertilizers,and other invesmentsand labor-intensivemethodsare requiredto
maintainsoil fertlity (Boserup1965,Ruthenberg1980,Pingaliet a., 1986).Marginallands are also
broughtunder cultvation requiringhigher investmentsstill to makethem productive.Now ownership
securitybecomesan importantincentivefor makingthe required investments.As the demandfor
credit to financeinputs and investmentsin land improvementsrises, the issueof land as collateral
becomesimportant.
lTus as populationdensityincreasesprivaterightsto land emergein a slow and
gradualprocess that exhibitsgreat regularity(figure1, arrows1 to 4). Boserup's(1965)discussion
of this proces is unsurpassedand so is quotedhere at length:
S
Virtuallyall the systemsof land tenure found to exist before the emergencyof private
property in land seemto have ihis one feature in common:certain familiesare
recognizedas havingcultivationrigihtswithina givenarea of land whileother families
are excluded.... 'Free' land disappearsalreadybefore the agriculturalstage is
reached.Tribes of food collectorsand huntersconsiderthat they have exclusiverights
to collectfood and to hunt in a particulararea....
Under the systemof forest fallow,all the men,bersof a tribe .... have a generalright
to cultivateplots of land.... Tbis gerera' right to take part in the cultivationof the
land whichthe group dominates- or imaginesto dominate- can never be lost for any
memberof the cultivatorfamilies.They may voluntarilyleave the territory for a time,
but they can then reclaimtheir right whenthey return ....
.a distinctionmust be made betweenthe generalcultivationriZht- as described
above- and the more specificright a familymay have to cultivatea par,cular plot of
land. Under all systemsof fallowa familywill retain the exclusiveright to the plot it
has clearedand cultivateduntil the harvesthas been reaped.... But if, after the lapse
of the normalperiodof fallow,the familydoes not re-cultivatea givenplot, it may
lose its right to this particularplo; .... Thus,the general cultivationright is an
inseparableelementof the statusas memberof the tribe and, therefore,in principle
inalienable,whilethe specificright to cultivatean individualplot is lost by desuetude
,... As long as a tribe of forest-fallowcultivatorshas abundantland at its disposal,a
familywouldhave no particularinterestin returningto preciselythat plot which it
cultivatedon an earlier occasion.Under theseconditionsa familywhich neededto
shift to a new plot would finda suitableplot, or have it allocatedby the chiefof the
tribe....
But the situationis apt to changewith increasingpopulation,as good plots become
somewhatscarce. Under such conditions,a familyis likelyto becomemore attached
to the plots they have been cultivatingon earlier occasions....
6
Hunter-gatherer
T e r r i t o r i a I r i gh ts
t o
hunt
and
g a t he r
3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Emergence
of agriculture
0~~~~~~
Forest fallow
Forestfallow II1h1enera t
a
t o
9n9r a I
-
external market
land grants
1
o
I t I v a t *
a nd
9 r a Z a
S~~~~~~ ~~~~~~~~~~~~lavery
External tabt
reservrla
6~~~~
U
2
Em
Bush
fallow
eroen
ce
3
nR
oI
rIghts
9 h t a
t o
to
I f I b tz I e
15
Family Farm
Ic
apeaIf
pI0t0
a n d I o *
I a a d
Indenturt,
Plantatlabor
.
________
Slave
_______
________
________
_____Plaantatio
Manorial systemns
communal tenure
Plantatlo
tonants. corvee labor
self-cultivation
of the home farm
4
I grater
'rigl
Permanent
cropping
to
to efol il"|o [*
15
t
unrestricted
right to sell
greater rlghtJ
to overlords
Abolition
I
Family Farm
owner-operated
Landlord Estate
entirely
tenant-operated
ol
~~~~~~~slavir
y
Hacienda
ten nt plus
owner-operated
home farm
I
L
Plntatior
Contract Farming
Permanent
Family Farm
Landlord Estate
cropping...
Hacienda.
mamas.Isauve
*eaamu-.p.rmd
11
*
Wage
Plantation
@waer.sparatsd
croppingLndroorrr
. ._
Land reformTen1
Junker Estate
*am.s3vI@Iei
12|
r*eht is s@el
4
I
lowner-operated\
Land reform
Contemporary
Systems
Large mechanize
State Farans 14
*,.-prld13
Titilng
POLICY
ol ectlve an
Family Farm
and Land RKegletrlom
aegulatlsa of Land S01e
Resulallef
Dooollooltlwhallea
s
e* Laud R1at1le
QUESTIONSFlagmemtltloead
Land Taxatlsn
Co
aoollidmtis
commercialfarm
Eliminatlio
of subslidie
RedlelilbatlvO
Land Retori
Teneasy regatatlos
land
\
subsldlde
7_____________6_________
ait iloa
Contract
Farming
ReodltrlbutlI
Land Ta:atleu
c"*.sol
l
Lead Note,
At this stage, whenthe attachmentof individualfamillesto Individualplots becomes
more permanent,the customof pledgingland is also likelyto emerge.If a family
does not need to use a givenplot for a certainperiod It maypledgeit to another
family .... subjectto the condit:onthat the land must be returned, uponrequest....
Thiscustomo; pledging.... must be distinguishedsharplyfrom the sale of land
where the former occupierof the land losesall rightsin it.
Thus, the attachmeAtof individualfamiliesto particularplots becomesmore and more
important.... As moreand more land is subjectto specificcultivationrights, little
land will be availablefor redistributionby the chief....
As long as the generalright of cultivationhas not lost all its importancea sharp social
distinctionexistsin rural communitiesbetweencultivatorfamilieson one hand and
familieswithoutcultivationrightson the other, the lattergroup consistingof
strangers,whetherthey be slavesor free... even those strangers,who are not slavesin
a legal sense, are neverthelossleft with no other choicethan to do menialwork for
chiefsor for ordinarymembersof the dominatingtribe....
Under both long- and short-fallowsystemsthe land lyingfallowat any giventime is
at the free disposalfor grazingby domesticanimalsbelongingto familieswith
cultivationrights....h. Ile cultivaors' communalrightsto use fallowland for grazing
will usuallysurvivelong after the generalright to clear new forest land has
dsappeared.... (Boserup1965, pp 79-80
Boserup'sdiscussionmakesclear that propertyrights in land are not simpleand are
arely unresticted. As land becomesmore scarce,generaland Inheritablecultivationand grazing
rights are complementedby rightsto resume cultivatingspecificplots afterfillow (srrow 2), to
inheritspecificplots rather than just generalcultivaion rights, to pledgeor rent out the plots, to use
them as coilateralin informalcredittransactions,and to sell them withinthe community(arow 3).
When the right to sell Includessales to membersoutsidetta community(arrow 4), the last vestiges
of general cultivationrightsare lost amdprivatepropertyrightsare complete.Generalrightssurvive
only as grazingand collectionrights on communalgrazingareasand forests,whc-e soils are usually
unsuitale for crop or intensivepastureproduction.
9
Even wherecommunalland rightsand managementsystemsprevail, as in indigenous
communitiesof the Americas,or tribal communitiesin Asia and Africa, familieshave strong specific
laud rights. These rightsp;ovidesubstantial'ownership' securityas long as the plots are farmedby
individualfamilyunits (Noronha1985;Downsand Reyna 1988).Land rental and sales usually occur
withilnthe community, especially among close kin.
Whilethe internalrules and structuresof these systemsexhibita bewilderingvariety,
all communalsystemshave one thing in common:Salesto outsidersare either forbiddenor subjectto
approvalby the wholecommunity.
The right to sell is oftenproscribedby laws that assignultimateownershipto the state
or that regulatethe land tenure of tribal or indigenouscommunities.Colonialpowersoften legislated
a uniformsystemof communaltenure to be appliedto all land held by indigenouspopulations
(althoughtribal societieshave oftencircumventedformalprohibitionof land sales; Noronha 1985).
Under communaltenure family-ownedplots can be used only for pledgingin informalcredit markets
and not as collateralin formal credit markets.
2. Extracting tribute and rent from peasants
Historyhas few examplesof the uninterruptedtransformationof generalcultivation
rights to land into owner-operatedfamilyfarms (alongarrows 1 to 4 in figure1). Nearly always,
there has been an interveningperiod under a class of rulers who exacted tribute, taxes or rent from
cultivatorfamilies(arrow 5). The landholdingsof theseoverlords(referredto here, for expositional
simplicity,as manortal estates, whatever the cultural or historic setting) were allocated temporarily or
as permanentpatrimonyor ownershipholding, alongwiththe right to tribute, taxes, or rent (in cash,
kind, or corveelabor) from the peasantsresidingon the estate. Frequendy,peasants' freedomto
movewas restrictedby bondageor by prior claimsto land by membersof the rulinggroup. The
rights of the rulinggroup were acquiredand enforcedby violenceor the threat of violenceand
institutionalizedin tradition, custom,and the law and order forces of the state.2 The rights took
2 For WestanEurope,NorthandIhomas(1971)inteprette rig to triute as theemergence
of a
contractbetweenpeasts nd maoril lords,withthe lordsprovdingprotecon andotherpublicgoodsi
exchangefor tribute.Ihis viewipore the asymmetyin thepossesdonof the meansforviolenceandjudicial
pow.
10
numerousforms and left historicallegaciesin the distributionof land once land rightsbecamefully
private. Again,Boserup(1965)says it best:
Abovethe group of familieswith cultivationrights is usuallyfound an upper class of
tribal chiefsor feudalland who receivetributefrom the cultivators.... The emergence
of a kind of nobilityor aristocracyoftenseemsto followthe introductionof shortfellowcultivationwith animaldraft power.... Usuallythe positionof a cultivatorwith
regard to his rights in land does not changebecausea feudalgovernmentimposes
itself and leviestaxes and labor services.The cultivatorfamiliescontinueto have their
hereditarycultivationrights, bothgeneraland specific,and redistributionof land by
village chiefsmay continuewithoutinterferencefrom the feudal landlords.Nor does
land becomealienableby sale; grantsof land by overlordsto membersof the nobility
and others are simplygrantsof the right to levy taxes, and do not interferewith the
hereditarycultivationrights of the peasants.In other words, the beneficiariesof such
grants do not becomeownersof the land in a modemsense.... (pp. 82-84)
An analytical structure for the evolutionof agrarian relations
For an analysisof the evolutionof agrarianrelationsand the associatedland
ownershipdistribution,severalpointsare key. The first is that favorableagriculturalconditions
generatethe potentialfor rent-seekingrent or surplusand providean incentivefor groups with
politicaland militarypower to try to capturethe rents or surpluses.The secondis that under simple
technologythere are no economiesof scale in farmingand that independentfamilyfarms are
economicallythe most efficientmodeof productionexceptfor a very limitedset of plantationcrops,
(see section4). Comparedto large farms based on hired or tenantlabor, owner-operatedfamilyfarms
save on supervisioncosts of labor or eliminatethe inefficienciesand supervisioncost constraints
associatedwith tenancy.
Therefore, wherepopulationdensity is very low, peasantswill establishtheir own
farms in the bush and therebyescapepayingtribute, taxesor rent to the overlord.Extractingtribute
under these conditionsrequirescoercion. Or the utilityof the free peasantmust be sufficiently
reducedso that they will offer themselvesvoluntarilyas workersor tenantsto holdersof large tracts
of land at wages, rents or crop shares that providethe samelevel of utility as would independentself-
11
3 Coercionis no longer necessary.Utilitycan be reducedby changingthe free peasants
cultivation.
accessto high qualityland. Large landownerscan also try to increase the supplyof labor or tenantsto
their holdingsby Influencinggovernmentsto intervenethroughdifferentialtaxationof owners and
workersin large and smallholdings,or by limitationson marketaccessthat drive downprnfitabillty
for independentpeasantsand thus reducethe reservationprice of labor. Such economicdistortions
increasethe rent that goes to large-scalefarmersat a cost to the economyof lower productive
efficiency.
Whenpeasantscan freelyestablishtheir own farms, It becomesvery difficultto
operatelarge farms with hired labor under a singlemanagement.With simpletechnology,there are
usuallyno technicaleconomiesof scale (section4). Lumpyinputssuch as draft animalsprovidefor
decliningeconomiesof scale at very small farm sizes. For larger farms the samedraft-animaland
driver combinationhas to be repeatedseveraltimes over, leadingto constanttechnicalrets.
Disincentivesassociatedwith hired labor give the family-operatedfarm a cost advantageover large
farms: for familymembers,there are no hiring costs, they have greater incentivesto work than do
hired wage labor becausethey receivea share of profits, and third, site-specificlearningcosts are
lower.
Rentingout entire small farms to sharecropperfamilies(sharetenancy)or granting
usufructuaryrights to peasantsin exchangefor tributeallowslarge landownersto circumventmanyof
the disincentiveeffectsinherentin large wage-basedfaming and take advantageof the tenant fmily's
labor. Share tenancyhas some incentivecosts of its own,however,(section6) and even under fixedrent tenancythere are problemsof supervisionand moralhazard.
Once a labor supplybecomesavailable,large landownerscan organizetheir
operationseither as landlordesmas, with the entire estate culivated by tenantedpeasants,or as
hacendas, with workers cultivatingportionsof the haciendafor their own subsistenceas tenantsor
holders of usufructuaryrightsand providingunpaidcornie or labor servicesto cultivatethe homefarm of the owner (see glossary).Sinceshare teonatsdo not receive their full marginalproduct,
landlord estes based on a lump-sumrent paymentwouldbe the most efficientform of operation,
followedby landlordestatesbased on share rents. The haciendawouldbe less efficientsince labor
3 Takingintoacount anyrisk tduction t lanoner maybe ableto provideas pat of thebarin.
12
tenantshave few incentivesto invest, and landowners'cultivationof the home farm entailslabor
supervisioncost. Thesepointsare more fully elaboratednow.
Coercion: As Boserup(1965)pointsout, 'Bonded labor is a characteristicfeatureof
communitieswith hierarchicstructure,but surroundedby so muchuncontrolledland suitablefor
cultivationby long fallowmethodsthat it is impossibleto preventthe membersof the lower class
from findingalternativemeansof subsistenceunlessthey are madepersonallyunfree' (p.73).Four
wayshave traditionallybeen used to tie labor to large farms: slavery,serfdom,indenturedlabor
contracts,and debt peonage.
Meillassoux1981,showsthat for merchantslavery in whichthe slaveholders
purchase, rather than captureslaves,they mustproducefor the marketto financethe slaves.' In areas
with sparse populationsof hunters and gatherersand with ties to externalmarkets,such as in the
United States' Southeast,the East Coastof Brazil, andthe SouthAfricanCape, largefarms had to
importslavesas workers(arrow 6) The nativehunter-gathererswere too few to providea steady
labor supply,or simplymovedaway.Large farms in areaswith access to abundantlabor reservoirs
such as the sugar islandsof the Caribbeanand Mauritius,Ceylonesfe(Sri Lankan)and Assamesetea
plantations,Malaysia,Sumatra,and SouthAfricawere able to rely on indenturedlabor insteadof
slaves (arrow 7). lhe workershad to be indenturedto preventthem for the period of indentureat
least from establishingplots of their own or goinginto mining.Laws and policeforceswere used to
enforce indenturedlabor contract and to ensurethe recaptureand returnof escapedslaves.The
capitalcost of slaves, the cashrequirementsfor recruitingindenturedlaborfrOmdistantlands, and the
Mesaillouxalso showsthat these systemsof merchantslaery were dependenton systems
of aistocratic skvery which engagedin the reproductionof the slavepopulationthrough
peasantpopulations.Domar
raids and warfare on widelydispersedsubsistence-oriented
(1970) relates ownership rights in people - slavery and serfdom - to land abundance, which
makesextrating residual land rents impossible.What he did not distinguishis that slavery,
the purchaseof the labor force, requireshigh levelsof capital, which can be financedonly if
there is a market, while serfdominvolve extractingtribute withouta purchasetransaction,
4
and so no market is needed.
5
For a discussionof the transitionfrom slaveryto serfdom, see Mesailloux1991.
13
absenceof cash marketsfor food in fact impliedthat these systemscouldbe used only for crops that
bad an export market.'
Serfdomor bendagecouldbe used in somewhatmore denselypopulatedregionswith
a settledpeasantpopulationand productionprimarilyfor only local consumption(arrow 5).7
Peasantswouldhave had to moveto more marginallands to escapebondage. Slavescouldnot be
importedbecausethere were no export earningswith whichto purchasethem. Overlordsobtainedthe
populationsto the land and to extract tributeor labor services.This
right to tie subsistence-oriented
pattern arose during feudalperiodsin WesternEurope,China, and Japan, and pre- and post
columbianAmerica,and survivedin EasternEuropeuntil the late nineteenthcentury (Blum1977).
Debt peonageor bondedlabor, anotherform of coercion,survivedin manyareas
even under high populationdensities.Wheremanorialestateshad to competewith minesfor labor
and thereforefaced acute labor shortage,as in Guatemalaand Mexicoin the nineteenthcenturyor in
South Africa in the twentiethcentury,vagrancylaws kept a pool of potentialworkersin prison for a
variety of petty offenses(seetable 1). In SouthAfrica farmerscouldinvest in prisons in exchangefor
rights to prison labor; these rights couldeven be traded.
Economicdistortions
Wherecoercionwas no longerpossible,or sufficient,influentialgroupswere able to
get governmentsto interveneto createeconomicdistortionsthat would generatea labor supplyfor
their farms. Once populationdensity washigh enoughfor long falow agricultureto replacehunting
and gathering,peasantswould establishindependentfarmingoperationsin areas withoutslavery and
Brazil,andArgentina)
NorthEsternUS,Southern
(Canada,
temperatezrn of the AMericas
zon Europeunil the
ecwapdslavey becausetheir producscouldnot be exportdcompetitivelyto temperate
at a timewhendaveryhadgone outof dyle. Thetropicaland
itmshp
andthe railroad
adventof the s
in Europe mankets.
sbtopical cropssugar,cotton,andtobaccofacd no competition
6
nTo
Mesailloux (1991) also shows that these systems of merchan slavery were dependent on
slaves for systems of aristocratic slaveiy which engaged in the reproduction of the slave
7
populbaonthrough raids and warfire on widelydispersedsubsistence-onentedpeasant
populapions.
14
bondage.With identicaltechnologyand a competitiveoutput market, cultivationof the home farm
with wage labor wouldnot be competitivewith the free familyfarm becauseof incentive
disadvantagesand labor supervisioncosts.
To get free peasantsto moveto the manorialestaterequiredloweringexpectedutility
or profits in the free peasantsectorin order to reducepeasants'reservationutility- expectedutility
from familyfarming, includingthe risk attributesof the correspondingincomestream- or shift their
labor supplycurveto the right. This was achievedthroughfour mechanisms:
Reducingthe land availableforpeasant cultivationby allocatingrights to
"unoccupied'lands so that they went to membersof the ruling class only and thus
confiningfree peasantcultivationto infertileor remoteareas with poor infrastructure
and marketaccess. (rable 1 lists a varietyof casesfrom all continentsin whichaccess
to high qualityland was restricted).Farm profitsor utilityon free peasantlands were
thus reducedby the higher labor requirementsfor producinga unit of outputon poor
land, by increasedtransportand marketingcosts, and by increasedprices for
consumergoods importedto the region.
*
ItImposing
d5iferendoJ
taxationby requiringfree peasantsto pay tribute, hut, head or
poil taxes (i cash, kind, or labor services)whileoftenexemptingworkersor tenats
in manorialestatesor taxing them at muchlower rates. Suchsystemswere used
widelyin WesternEuropeduring the feudalperiod, in ancientJapan, China, India and
the OttomanEmpire, and by all colonialpowers (table 1). Tributesystemsin Eastern
Europe and Japan survivedinto the secondhalf of the nineteenthcentury.As long as
free peasantscan pay tributeor taxes in kind or cash and have equalaccessto output
markets, taxationalonemay be insufficientto bring forth a supplyof workersor
tenants.They were thereforeoftencomplementedby output marketinventicas.
*
RestrIctingmarketaccess, by commonlysettingup cooperativeor monopoly
marketingschemesthat buy only from the farms of the rulers. Theprazo systemin
Mozambiquecombinedrightsto labor and tribute from peasantswith monopolieson
inputsand outputs. In Kenyathe productionof coffeeby Africanswas prohibited
15
Table 1: Intervention to Establish and Suort LargIeFarms.
COUNTRY
VVENTIONS
LAND MARPT
TAXS AND
TBRVENTIONSIN LABOR AND
IOUTUIr
MA1S
,
ASLA
Idia (Norah)
LAnd rans fin
lot entuy
Haced system; 4th cne
WC
Corece labor, from 2nd contr
Chin. (South)
LImitationson pea nmobility;caSO
Tax eneption for swves; ca 300
Gentry exemptionfrom es & labor srvices; ea
1400
Jap
Io
Ecludve lnd rights to developed wsteland; 723
and Sumata
iwpimnes
Tribute exemptionfor cleared and temple land; 700
Ad grant to companies; 1870
Lan grSts to mostic
Indentued labor. 19th cenuy
Culivation System; 19th century
ler; 16th ce_y
Encomienda
Rimioato
Tax exemptionfor haciendaworen ; 16thcenatry
SdriLhan
Land appropdration;1840
aunation tax eonyt, 1818
Indenture labor 19th century
Pnusa
Land rams; from 13th conuy
Monopoes on millig and alcobol
Retorictionson hbor mobility, 1530
Land form legisations; 17S0-180S
Ruwsa
lAnd grAs; from 14thcentury
Service tem ; IS65
Resictions on pe
mobility:
- Exit fees;1400/50
- Pobidden yea; 1588
- Bnerfwnt- 1597
- Tndabiliy of secr 1661
Hoan farm w pt from
taxata1580
Debtpompge; 1597
Monopoly on commee;
until 1830
EUROPE.
S. AMERICA:
Chai
Land grant (ereda
El Salvdor
Gra
dli
de m);
te
Retlmen
Mexico
t
Eionends; 16th century
Labor ervic (Wt); 17th centy
bIport dutis on beef; 1890
Subidies to mechanizstiom 19S50i6
of public land; 18S7
of commu nd; 1882
Vesnay lws; 182S
Exenption from public an miitary smo
___
uah mala
16th ceouy
of
dln
t of lodis;
of com
propratio
___
___
___
__
___
16t centr
_lu__
_lbandm
s
endthi
for
workers; 1647
Cal trute; 1540
Manmiento; ea 1600
Debtpeonago; 1877
IS40
_nal luand;
__
i
; 1490
Trt
exemption for hacienda
worke
Dobt peongp; 1790
Rctu of debtorn to haciendas; 1843
Vagncy
1877
1
17thc.
lws
Viceryai
hay
of
Lad gSant; 1540
Resettlement
of Inian (consr_gacla); 1570
Encomianda;1530
Mhu: Exemptionfor haciendawokear, ISS0
rift
Slavery of Africa;
ad expropriation of Inian lad; 17dhceumry
16
1580
AICAs
A a
MMng;
co 1840
Landgru under ettlmentprogms; 1871
Tax oxemptionfo worker on Eluopen fm;
CreditproviskinfowvLP
-|"t settlerc
1849
'Sealers' law' 1873
Atoag
ndMconcesIonsto uropeans;1838,1865
Egypt(Ottoma)
Landgrns; 1840
Slavery;until 1880
Vaganq law; 1875
Corve.hbor, from 16thcentwy
Corv. exemptionfor farm-workers;
1840.
Lan tax oxemptionfor lage badlords; 1856
Creditandmrketing ubsidie, 1920 ad 1930.
K|uR
Landconwesionsto Europea; ca 1900
No Africanlandpurchausoutsidercsot;
1926
Hut ndpoll tues; from 190S
labor Pase; 1908
Squatterlaws;1918,1926and 1939
Restritionson Africans'maket acces; from 1930:
- Dualpricesydemfor maize
- Quanine and for" dstackig for livestock
- Monopolymarkeoing
acato
- Prohibition
of Africanexportcropcivation
Subsidiesto mechanizaton; 1940c
SokothoCaliphate
Ln gmunsto settler; 1804
Slavery;19thcentury
Malawi
Lan allotmen to Europea; 1894
Tax eduction fr fam-wore;
Mozambique
Comprhendverightsto lse
csorry
Labortribute;1880
Vagnucylaw; 1899
Aboiion of Africantrade;1892
underprmo; 19th
ca 1910
Forcedcultivation;
1930
Sou Africa
Nativerserve; 19thceonury
Pasud-commu tenurein eaves 1894
NativeLads Ac; 1912
- Demarcof
r
- E_imion of tenancy
- Prohibition
of Africanlnd purcase outside
Slaveryand indenturedhbor, 19thcenury
Resrooe on Africn mnobiii; 1911,1951
Mono" maren, from 1930
Prion labor.ea 1950
Dirct and indirct subsid; 20thcenuy
Tanayia
Lan gat
Huttax and corve requirements;1896
Comnpulsory
cottonproduction;1902
Vagrancylw (workcard); 20thcenury
Exchlsonof Africansfromcedit; 1931
Markei coopsto deprs Africnprice;
to setles, 1890
.___
_
_
Zimbao
__ __
_ _ __
Roeerve; 1896and 1931
1940
Pdb andhut ta; 1896
Dscrimatinm again tnan_ , 1909
M_oy mar et boards,fiom 1924
- Dua pricesystm in maime;
- Faced detockin in livestock;1939
outrightuntil the 1950s.Europeanmonopolieson sales of tobaccoin Zimbabweand
Malawiwere directlytransferredto large farms after the countriesgained
independence.
17
goodsandservices(roads,extension,credit)jo the
Coipningagrlcidturalpublic
fawmsof the rudersor subsidizingthesefarms directlywas anothermeansof incaeasing
their profitabilityrelativeto peasantfarms.'
Sometimesthe four types of distortionswere supplementedby coerciveinterventions
in the labor market - vagrancylaws, debt peonage,and rural slaveryare examples- to make it easier
to retain workersor tenantson manorialestates.
Sincethese four mechanismsinvolvedlegal or customaryrules backedby the state,
they requireda coalitionbetweenthe overlordsand the state. The combinationsof distortionsused to
establishmanorialestatesunder conditionsof low populationdensity have been remarkablysimilar
across continentsand over time (table 1). The earliestrecordedincidencewe foundwas in the
Arthasastrain the fourthcenturyB.C. Once membersof the rulinggroup beganto establishviable
aricultural productiongeting enoughworkersfor their estatesrequiredinterventionsin more than
one market. The most commonpatternwas to combinerestrictionson land use with differential
taxaion. Groups with widelydifferentcultures,religions,and ethnicbackgrounds- Ottomans,the
Hausa and Fulani in Africa, the Fujiwarain Japan, and all Europeancolonialpowers - imposedsuch
systemson peopleof the same or differentethnicbackgroundswhenfaced with similar material
conditions. Materialconditionsof productionrather than cultureseem to have led to the emergence
of the distortions.
Production relations on the manorialestate
On both landlordestatesand haciendas,corvee,all of part of the land is cultivatedby
peasantsunder tenancycontractsor usufructuaryrights. In the hacienda,the unpaid laborservicesof
peasantswho hold usufruct rightsto some plots on the estate is used to cultivatethe homefarm of the
owner. Corvee may includethe servicesof their draft animalsand plows. The labor servicesof
tenantsconstituteall or a part of their rental paymentsfor the use of the land. Peasantsmay be free
to leave the manorialestate or may be boundto it. Sometimespeasantsreceive a wagepaymentin
In Zimbabwe,Aficans had beenencouragedto cultivatemaizethroughthe MasterFarmr Ptogrammi
h lat 1920swhenEuropeanfarmerfoundit moreprofitableto growntobaccoand cotton.Whenthose
and dualpricesystemswereintroducedand the MasterFarmerProgram
m coliapsedmonopoly matketing
officialspubliclydeclaringthattheyhadneverintendedto "teachtheNatives
withresponsible
wasabandoned,
to grw maiz in compedtionwithEuropeanproducers(Phimister1988:235).
18
additionas part paymentfor their labor. Often, the residentlabor force is complementedby
seasonallyhired wage workers.
The extremevariationin the namesand detailsof these arrangementsand in their
local evolutionover time has long stood in the wayof comparativeanalysisin a singletheoretical
framework.Yet commonelementsseemclear.
Landlordestateswere prevalentin China,Korea,Japan, EasternIndia, Pakistan,Iran,
Egypt and Ethiopia.In manycolonialenvironments,it was easy for landlordsto restrictpeasants'
alternativesand maintaincontrolover land and labor and sometimesover outputmark-ets.Haciendas
emergedas the predominantform of manorialestatesin Algeria,Egypt, Kenya, SouthAfrica,
Zimbabwe,Bolivia,Chile, Honduras,Mexico,Nicaragua,Peru, and other countriesin Latin
America,in the Philippines,in Prussiaand other parts of EasternEurope.
The homefarm of the landlordoftenvastlyexceededthe area actuallycultivated.A
majorpurposeof the huge landholdingswas to restrictthe indigenouspopulation'spossibititiesfor
independentcultivation,and muchof the land remainedunder forest or fallowor was devotedto
extensivelivestockgrazing. At the heightof the feudalperiod in WesternEuropebetweenone-quarter
and one-halfof the total area on manorialestateswas cultivatedby the owner in the home farm. On
Latin Americanand Africanhaciendas,that share was initiallya muchlower, one-tenth(Palmer1979;
Chevalier1963).
Many historicalaccountshave notedthe lack of competitivenessand limited
profitabilityof large-scalecultivationof homefarms relativeto landlordestatesin whichall land is
rented out. Tbat relativedisadvantageIs also confirmedby a rangeof quantitativestudies. Records
for the eighteenthand early nineteenthcenturiesshow that in all of the cases investigatedhacienda
ownersin Mexicowouldhave been better off by rentingout all of their land at rents actuallypaid by
tenantsrather than cultivatingtheir homefarms (Brading1978). Manyoverlordssurvived
economicallyagainstcompetitionfrom independentproducersonly becauseof their accessto capital
marketsand large-scalestorageof maizewhich couldbe sold at high prices in poor years (Florescano
1969).The sameappliesto manyChileanand Peruvianhaciendasin the sixteenthand seventeenth
centurieswhichyieldeda return on capitalof about4.5 percent, considerablybelowthe marketrate at
whichthe overlordsborrowedfundsto keep up their livingstandards.They were ableto repay
mortgagesonly becauseof a rapidlydevaluingcurrencyand the appreciationof their land (Moerner
19
1973:204).Labor productivityand total productionon the patrons' plots were abouthalf that on
tenants' plots in Peru and one quarterin Ecuador (Pearse 1975:91).
What explainsthe total amountof tribute, surplus,or rent that couldbe extracted
from the peasantson the manorialestate?The predominantexplanationfor Europeanestateswas a
demographic-economic
model based on Malthusand Ricardo(see, for example,Postan 1973;Le Roy
Ladurie 1966, and 1985;North and Thomas1971;Brenner1985;Holton 1977)that relatestribute
burdensto relativescarcitiesof land and labor. Beforeruling groupscontrolledmost of the land or
were able to coerce labor, attractingor retainingpeasantsto manorialestatesin areasof low
populationdensity requiredthat peasants'utility on the manorialestate exceededtheir reservation
utility for subsistencefarmingin the bush or in areasfrom whichthey had to be inducedto emigrate.
In Europe east of the river Elbe such terms usuallyincludeda grant of hereditaryusufructrights.
Initially,most corveelabor was devotedto the constructionand maintenanceof infrastructure.
As long as populationdensitieswere low, corveerequirementshad to be regulated
and enforcedby the state. But as risingpopulationdensitiesand increasedland scarcityreduced
peasantmobility,it becamepossibleto increasethe amountof tribute extractedand to increasingly
rnsform that tribute into obligationsto workon the landlord'shome farm Labor requirements,of
two to three days a week in feudalEurope, nineteenthcenturyRussia, Kenyain 1918, and Central
and SouthAmerica,began to rise with growingland scarcity.In Kenya,corvderequirementsfor
squattersand their familieshad risen to five days a week by the end of the colonialperiod (Resident
Labor Ordinanceof Kenya, 1939).
This simpledemographic-economic
model falls to explain,however,why European
regions reactedso differentlyto the plague-induceddeclinesin populationin the fourteenthcentury.
The associateddrop in tribute contrbuted to the erosionof serfdom in WesternEurope, but led to the
reimpositionof serfdom in EasternEurope. In the debateover the demiseof feudalismin Europe,
Bremner(1976, 1982)clearly establishedthat economicfactors such as populationdensity and market
access alone are insufficientto determinethe incomedistributionbetweenpeasantsand lords in the
manorialestate. At best, they determinenot the actualamountof tributeor surplusthat couldbe
extractedfrom peasantsbut rather the maximumpotentialamount The lords' successin extracting
tribute dependedon their politicalpower to claimthe land, monopolizemarkets, and controlthe
movementof peasantsrelativeto the power of peasantsto resist these efforts.
20
Barganing between peasants and lords and the distribution of Income
The amountof rent extractedthus dependedon the outcomeof a bargaininggame, the
politicalconfli^t,or the class struggleover the definitionof 'property rights" in the widestsense.
That meansthat the cohesivenessof the landlordsrelativeto that of the peasantsand the successof
the alliancesthey couldforge - with the King, the bureaucrac),otherproductionsectors, the fnancial
sector, and externalinterests- are centralto an analysisof changein the instrumentsof surplus
extractionto landedclasses.
In the bargainingover the terms of incomedistributionbetweenpeasantsand
landlordson the manorialestate,two sets of issuesmust be dealt with. One is to definethe admissible
set of propertyrights and of coerciveor voluntaryexchangerelationships,includingthe instruments
used to enforcesuch relationships.ITis problemincludesthe abilityof overlordsto impose
restrictionson peasantmobilityand outputmarkets,the broad terms of legitimateleases(inheritable
usufruct,long-termleases, short-termrental),the formsof rental paymentavailable(cash,kind,
labor, fixedrent, crop share)and the sanctions(eviction,physicalpunishment,fines)or instruments
that ca be used to enforcesuch changes.The other is to determineoptimalmix and level of use of
eachintrument for maximizingsurplus extraction,takingthe availableoptionsas given. Although
this questionis more amenableto economicanalysisthan is the problemof the admissibleset of
instuments, there has been little formalmodelingof it, even for environmentswithoutcoercion(see,
for example,Carter and Kalfayan1990;Carter and Zimmerman1992;and Sadoulet1992).'
This secondproblemcouldbe set up as a bargainingprocessbetweenlandlordand
potentialtenants. The landlordwho maximizeshis incomeor utility subjectto the tenant's reservation
utility consaint, determinesthe termsof the tenancy,the size of the tenant's plot, and the size of his
own home farm accordingto the followingconsiderations:he can set the overallrent burdenof the
tenat. He can partitionthe rent into corvde,fixedrent paymentsin cash or kind, and crop shares,
9 Cintr and Kalfayam(1990)showthat thecombtion of a laborsupevion constrint and a wordng
capitalconstaint can rsaultin the emergenceof tied laborcontracts.Carterand Zimmerman(1992)providea
dynamicextensionof thismodeland demonsbta the emergenceof a numberof the salientcharateristics of
dualagrian societia aSa conquace of credit and laborsipervion problems.Sadoulet(X992)explainsthe
emergec of laborsorviceteancy as a deviceadoptedby the ladlord in order to enfore an optimallevel of
nsuranceagpinstdeft by te tenantin the caseof crop failure. Covaianceof yieldsbetweenthe landlord's
hnornfatm and tenants'plots is igored howevr. But in yar of crop failurethe tenants'laborhas no value on
tIe hom faramether, and forcinghim to provideit only leadsto extra supervisioncosts. Sadoulet'sexplanation
hereo fails.
21
each havingits own incentiveproblems.He can choosethe amununt
of land allocatedto home farm
cultivation,knowingthat incentivesare requiredto bring for,"%
effortand that supervisionis costly.
He can choosethe size of the plot allocatedto the tenants, knowlingthat familyfarms providehigh
incentivesto producebut may lead tenantsto concentrateon dt'wrownplot and not supplysufficient
effortfor homefarm cultivation.
With peasantsfree to leave,the major constraintfaced by the landlordis that he
cannotdrive the utility receivedby his tenantsbelowtheir reservationutility- the utilitythey could
receive workingin the free peasantsectoroutsidethe manorialestate or in an urban labor market.
ITe tenant, for his part, can vary the labor efforton his own farm or leave for frontierareas,
indigenousreserves,or urban labor markets.So even withoutcoercionor the abilityto affectthe
reservationutility, the landlordseemsto have an abundanceof instrumentsfor drivingthe tenant
downto his reservationutility.Withoutfurtherrestrictionson the bargainingproblem, its solution
may be indeterminate.
Constraintson the bargainingproblemimposedby the state - restrictionson peasant
mobility,on the size of parcelto be allocatedto peasantsin inheritableusufruct,or on the tribute,
rent and corvde requirements,for example- can simplifythe structureof the bargainingproblemfor
specifichistoricalsettings.Butthese outsideregulationsdid change,albeitslowly,in responseto such
forcesas populationdensitiesand politicalconflict,so,they can not truly be regardedas exogenous.
Thus the complexityof the problemremains.
Rent seeking, coaUtionsand conflict
The analyticalproblembecomeseven more complexif it incorporatesrent seekingor
surplus extractionthrougheffortsto changethe set of instrumentsavailableto landlords.A coalition
or class of landlordscan try to inducethe stateto manipulatethe reservationutility of peasantsand
may succeedif peasantsor workersare poorlyorganizedto resist the change.We have not found any
models addressingthese choicesor game theoryproblemsformally,but the literatureis rich in
discussionsof changesin the degreeof coercivenessof the systemsand of changesin other
instruments.North and Thomas(1971), for example,in an informallystatedbargainingmodel,
analyzethd choicebetweentribute in cash or kind and corveelabor, suggestingthat corveewas
preferredover tribute in kind whereoutputmarketswere limited,and the relativeprices of goods
22
were highlyvariable.There are many other examples,however,of frontiersocietieswithoutexternal
marketsin whichtributewas collectedin kind.
Whilethe bargainingproblemhas receivedlittle formalanalysis,manorialsystems
have sometimesbeen interpretedas the outcomeof an efficiency-enhancing
contractbetweenpeasants
and landlords:the landlordsprovideprotectionand otherpublic goods(whichare producedwith
economiesof scale and requiresome specialization)in exchangefor tribute or rent (Northand
Thomas1971, for example).This is a plausibleinterpretationfor land-abundantsettings,where
tributerates or labor rents have to be set low enoughto attract immigrants.However,there are two
major problemswith this view.
First, it ignoresthe asymmetrybetweencontractingpartiesin accessto weapons,
laws, and public investmentbudgets.The systematicuse of these instrumentsthroughouthistoryhas
depressedthe utilityof peasantsand workersto far belowthe reservationutilitythat wouldobtain in a
systemwithoutsuch symmetricaccess.Moreover,there is littledoubtthat substantialdeadweight
lossesand dynamicinefficiencieshave been associatedwith taxes and tribute, with inequalitiesin
factorratios betweenfarmingsectors, and with restrictionson accessto credit and output markets.
Second,the contractview ignoresthe likelycompetitionin rent seekingbetween
landlords,whichwouldadd to the deadweightloss associatedwith restrictions.Competitiverent
seeking,the literatureshows,is likelyto result in the dissipationof the rent into such rent-seeking
costsas competitivearmies, arsenals,and fortiScations,whichprovideno consumptionvalue.
Brenner(1985)arguesthat at the heightof the feudalperiod, rents were completelydissipatedinto the
costs of competingin the system. Periodicconflictsover the right to extractrent have caused
destructionand declinein manyflourishingkingdomsand empires,so the efficiencycharacteristicsof
the contractualsystemare only third or fourth best.
Conclusion
The major issuein land relations,then, is the evolutionof the relationshipbetween
peasantsand landlordsover time. The best developedliteraturein this area relatesto the demiseof
the manorialestate, corv6e,and bondageand the emergenceof capitalismin Europe. Dobb (1976)
23
interpretsthe emergenceof capitalistfarmingand the loss of rights to tributeas the consequenceof
increasedpopulationdensityalone, whileSweeney(1976)emphasizesthe role of increasedaccessto
markets. Brenner(1985)showsthat these explanationsalone are inadequate,arguingthe need to
introducethe cohesivenessof the two groups and the strengthof the coalitionsthey can form witk
lings or urban groups.Holton(1977)also discussestheseissues, as well as broader non-economic
theories).In particular,Brennerstressesthe importanceof the cohesivenessof the peasantcommunity
in resistingattemptsby the lords to increasethe instrumentsavailableto them or the intensityof their
use.
3. Successand failurein reform
How does the manorialestate disappear?AgainBoserup(1965)explainssuccinctly:
"Ibe processby whichthe feudal landlordtenure [the manorialestate]is abandonedmay take
differentforms: sometimesthe positionof the feudal landlordsin relationto the cultivatorsis
weakened;they lose their power over all or most of the peasantsand they end up as privateowners of
their home farms only [figures1 and 2, arrows 8, 10, and 11]. In other cases, the feudal landlords
succeedin their effortsto completelyeliminatethe customaryrightsof the culdvators,and they end
up as privateowners of all the land over whichthey had feudalrights, whilst the cultivatorshave
sunk to the statusof tenants-at-will.England,of course, is the classicalexampleof this last kind of
development'pp 79-87. In transitionsof the first kind the peasantsend up with the land rent, while in
those of the secondkind, the landlordsretain the rent.
Since land reform involvesthe transferof land rents from a ruling class to tenantworkers, it
is not surprisingthat most largescale land reformswere associatedwith revolts(Bolivia),revolution
(Mexico,Chile, China, Cuba, El Salvador,Nicaragua,Russia)conquest(Japanand Taiwan),or the
demiseof colonialrule (EasternIndia, Kenya, Mozambique,Vietnam,Zimbabwe).Attemptsat land
reform withoutmassivepoliticalupheavalhave rarely succeededin transferringmuchof a country's
24
land'° (Brazil,CostaRica, Honduras)or have done so very slowlybecauseof a lackof political
commitmentto providethe fundingto compensateowners(see section5).
The outcomeof land reformshas been conditionedby three factors:whetherthe
systemwas a landlordestate or a haciendasystem,whetherreformswas gradualistwith compensation
or took place all at once, and whetherthe reform was undertakenin a marketor a socialisteconomy.
We considerthe first two factors in the contextof the third, the type of economy.
Reform In market-based economies
Rapidtransitionfrom landlordestatestofamiyfaims in a marketeconomy(figure2,
arrow 7) has led to stable systemsof productionsrelations.The organizationof productionremains
the samefamilyfarm system.The only changeis that ownershipis transferredfrom large landlordsto
tenantswho already farm the land and have the skills and implementsnecessaryto cultivatetheir
fields. Governmentinvolvementin the transitionhas oftenbeen substantialfrom a ceilingon the size
of landholdingsand the amountsto be paid for the land, to the establishmentof financialobligations
of beneficiaries.Many reforms,that followedthis pate providedstronger incentivesfor tenantownersto work and investin their farms and led to increasesin output and productivity.The
10 Horowitz(1993)modelslandreformas theoutcomeof a Nashbargaining
betwe to agents
representing
landed
elites andthepoor. Eh partycaneitheragreeto a reformpropoulor iniiate 'revolt',
definedas a lotteryoverthe thr outcomes*victoryfor te rich', 'victoryfor thepoor', and 'maintemaneof
the statusquo'. Thepower-stucture
which,in thecas of revolt,determines
theprobabilities
for eachof hse
eventsi take to be exogenous
andtime-invariant.
his leadsto thedefinitonof a saferformplan as tho
evolutionof landholdinsovertimewhichconsitus a Nashequilibumin tie bargaing pm betwee
lbdlord andpests which,at any t in tim, pvides eachpartywitha levelof utilityat leastequalto
teir expetodudtliyi th caseof revolt Horwitzshowsthatin thecas of riskneuality (i) th exdsta
uniquesafereformjuanfor everyinitialdistrbutionof lanoldings whih canentaileitherrediutionu from
the richto the io or accum atio of landby the rich;(ii) foranygivenpowerst r, thoextentof land
asfer is thogreatr of thehigherof theinitialimbalances
in landholdings;
(iii)exceptin pcial cases,the
sfelandreformplanis a prolonged
processconsing of a sequence
of individual
reformevents ratherthana
one-tmerdistnbution. Thisapproachis the firstformalmodelin whichthedepedenceof theequilibrum
ladholdingpattemn
on thepowerstuctureis clearlyelaborated.Ihe determinants
of power,suchas coalitions
wi thirdgroupsandintemalcohesiveness
are notmodeled,however,butfromthe modelit is clearthat
changesin thepowerstrcture (suchas thechangestaing placein manypartsof theworldafter1945)andthe
insumets availableto landlordsto reducepeasants'reservation
utilitywillhavemajorimplications
for th
stdbe landdistbutiao
J
25
resultingsystemshave had great stability.Sincethe end of WorldWar II, landlordestatesin Bolivia,
large areasof China, EasternIndia, Ethiopia,Iran, Japan, Korea, and Taiwanhave been transferred
to tenantsin the courseof successfulland reforms.
Theoretically,the productivitygains associatedwith such reforms come aboutbecause
of improvedwork and investmentincentivesassociatedwith increasedsecurityof tenure. These gains
may be modestif tenantshad to compensatelandownersat near-marketprices, if securityof tenure
had alreadybeen high, if cash-rentcontractshad prevailed,or if the disincentiveeffectsassociated
with share-tenancyhad been low as suggestedby Otsukaand Hayami(1988). Empiricalevidence
showsthat the reform of landlordestatesled to considerableinvestment,adoptionof newtechnology
and increasesin productivity(Callison1983;Koo 1968;King 1977;Dorner and Thiesenhusen1990)
and that coststo the governmentof complementaryinvestmentssupportingthe transitionin ownership
structure,such as infrastructure,housing,training in managementskills, were low becausethe
structureof the smallholderproductionsystemwas alreadyin place.
By contrastwith the relativelysmoothtransitionfrom landlordestatesto familyfarms,
reform of haciendasystemshas been very slow and difficult.The outcomehas frequentlybeen the
Junker estateswith greatlyincreasedhomefarm cultivation
emergenceof large owner-operated
(arrow 10). Junker estatesproducea wide varietyof crops and livestockproductsusing a hierarchy
of supervisors,permanentworkerswho sometimesare givena house and gardenplot, and external
workershired on a seasonalor daily basis. Junkerestatesare less specializedthan plantations,which
produceand process a narrowrangeof crops (discussedin section4 on economiesof scale), and less
capital-intensivethan large-scalecommercialfarms.
Expansionof the landlord'shomefarm at the cost of land cultivatedby tenantsfor
their own use wouldbe associatedwith lossesin efficiency.Therefore,rationallandownerswouldnot
establishJunker estatesunless inducedto do so by such externalconstraintsas the threat of land
reform or restrictionson tenancydesignedto protect tenants'rights. Anticipatingsuch reforms,
landownersoften tried to reducetheir exposureto expropriationby evictingtenantswho usuallyare
the beneficiariesof land reform. The lack of competitiveness
of Junker estateswiththe more efficient
smallholdersector made Junkerestatesan unstableform of productionrelationsand led to intensive
lobbyingfor protectionand for subsidiesto introduceand expandmechanization.
26
By substitutingsubsidizedcapitalfor labor, the Junkerestate was transformedinto a
large-scale
mechanized
commercialfarn(arrow 11) that no longer dependedon large amountsof
labor. Intensivemechanizationof large commercialfarms reducesthe potentialfor land reform since
there are not enoughfamilieswith farmingskills and implementsavailableon these capitalintensive
farms to result in the establishmentof efficientsmallfarms ableto rely on low-costfamilylabor. A
similarresult can be achievedby convertinghaciendasor junker farms to livestockranches,which
requiresvery little labor.
The early rounds of land reform in Prussiagave freeholdpropertyrightsto hereditary
tenants, requiringthemto servicesgive up one-halfto one-thirdof their hereditaryland to the Junkers
r s compensationfor the loss of their corveeservices.Fearingthat further land reform would include
tenantsat will or holdersof nonhereditaryusufructrightsthe Junkersevictedmanyof the remaining
tenantsand revertedto cultivationwith hired labor.
In Latin America,ever sincethe MexicanRevolutionin 1910, land reform
movementshave legallyenshrinedthe principlethat land belongsto the tiller and that indirect
exploitationof the land throughtenantsconstitutesa causefor expropriation.The BrazilianLand Law
of 1964puts a low ceilingon rental rates and crop shares and conveyspermanentusufructrights to
tenantsafter a few years of tenancyby protectingthemfrom eviction.Similarprovisionsexist in
some land laws in Asia (Chumaand associates1990).Restrictionson tenantcultivationin South
Africahad differentroots - they were imposedto make tenancyless attractiveto Africanswho were
neededas workersin the mines. Whateverthe motivation,these legal restrictionson tenancyinduced
owners of haciendasto evict their tenantsand to expandhome farm cultivationwith hired labor, or
1
shift to ranching,whichrequireslittle labor, or to adoptmechanization.'
That Junker estatesemergedonly in responseto pendingland reform and tenancy
restrictionssupportsthe view that there are no technicaleconomiesof scale in unmechanized
" deJanvryandSadoulet(1989)arguethatthethreatof landreformandtheirabilityto lobbyin coition
withtheurbansectorfor subsidies
andprovisionof publicgoodsledlargelandowners
to mechanize
andmake
the transition fromhaciendasto largemechaizedcommercial
farmsin Colombia(1961-68),Ecuador(193657), Peru(1964-69),Venezuela
(1959-70),andin Chile(after1972). InEcuador,twosepart stagescanbe
distinguished.
Widespread
evictionof tenantsandtheformationof Junkerestates,until1957wasfolowedby a
periodof increasedemphasison thefamily-farm
sectortogetherwithwidespread
mechanization
(1958-73).
27
agricultureand that the incentiveproblemsassociatedwith supervisinghired or corvdelabor far
exceedthe efficiencylossesassociatedwith long-termwhole-farmtenancycontracts.To compete
successfullywith familyfarms, Junker estateshad to find waysto reducetheir labor costs or to
increasetheir revenues.Havinglost their rights to rent or labor servicesfrom tenantsor workers,
landownersoften soughtto securerents from the expandingurban and inJustrialsectorsthroughtrade
barriersand subsidiesfor mechanizingproduction(de Janvry 1981).Trade barriers, by banningor
reducingforeignagriculturalcompetitionforced consumersto subsidizeJunker estatesor commercial
farms. Examplesincludethe GermanZollvereinat the end of the nineteenthcentury(Gerschenkron
1965),tariffson beef importsin Chile in 1987(Kay 1992),and selectiveprice supportto products
from large-scaleunits in Kenya,Zimbabwe,and SouthAfrica (Deiningerand Binswanger1993).
Subsidiesfor mechanizationled to the transformationof nearly all Junkerestates into mechanized
commercialfarms(arrow 11). Huge sums were providedeither through direct mechanization
subsidies,as in Kenya,or through cheapcredit, as in SouthAfrica, Zimbabwe,and virtuallyall of
SouthAmerica,wherereal interestrates were even negative(Abercrombie1972). Mechanization
eliminatedthe need to rely on hired labor and resultedin widespreadtenant evictionseven in
countrieswith cheaplabor - hardly an optimaltransformationfrom a socialpoint of view.
In some marketeconomiesbaciendaswere convertedto communalfamiyfarm systems
(arrow 11). Communaltenure was adoptedfirst in Mexico'sejido systemand later, under land
reforms in Bolivia, Zimbabwe,and elsewhere.Beneficiarieswere grantedinheritableusufrucuary
rights, but constraintson land sales and rentalsoften preventedusingthe land as cottateralfor credit.
Attemptsto providealternativesourcesof credit tirough specialbansl or credit programsproved
ineffective(eath 1992;WorldBank 15991).
In Mexico,recent constitutionalamendmentlegalizes
land rental and sales within all ejidosand allowseach ejidoto removerestrictionon sales to
outsiders, by a majorityvote, effectivelyconvertingthe ejidatariosto owner-operatedfamilyfarms.
Reforms In sodalast economies
Reformin socialisteconomies(figure2, arrows 10, 11, and 12) has followed
differentpaths. Landlordestates in the former SovietUnion, Vietnam,and China were initially
convertedintofamilyfarms (arrow 10), in muchthe same way as in marketeconomies.Ihe
redistrnbutedfarmlandswere later consolidatedinto single managementunits or collectives(arrow
28
13), In whichland is ownedand operatedjointly, under a singlemanagement.Familiesdo not operate
their own plots as they do in systemsof communalownership.
In Algeria,Chile, East Germany,Mozambique,Nicaragua,and Peru, Junker estates
or large commercialfannswere converteddirectlyinto statefarms (arrows 14 and 15). In most
cases, workerscontinuedas employeesunder a singlemanagement,with no changein internal
productionrelations.Over time, the organizationaldifferencesbetweencollectivesand state farms
tendedto disappear.
A desireto maintainpresumedeconomiesof scale in productionand related activities
(inputsupply,marketing)or to educatethe beneficiariesof reform duringa limitedtransitionalperiod
(Chile),motivatedthe establishmentof collectiveand state farms. But to achieveefficientproduction
collecives have to deal withtwo incentivesproblems.One is to provideincentivesto workers,a
problemaddressedby the adoptionof piece-rateremunerationsystemsdesignedto rewardlabor at
leastpartiallyon the basisof effort.Evenwhere membersof collectiveswere not ableto divert effort
to privateplots, lack of incentivesand of disciplinarymeasuresby central managementled to serious
labor shortagesfollowingthe transformationof privateinto collectivelyownedfarms in Cuba
(MacEwan1981)and Nicaragua(Enriquez1992).
The other incentiveproblemconcernsinvestmentand savingsdecisions,whichare
madejointly by the colective. Bonin(1985)showsthat as long as equityfinancingis precludedand
memberscannotmarkettheir share in the cooperative,the representativeworkerwill not make
efficientinvestmentdecisions.Mitchell(1990)also examinesproblemsassociatedwiththe
intertemporalallocationof consumptionand showsthat the distributionof decision-making
power
betweenold (whowouldrather consume)and young(whoprefer to invest)determinesthe rate of
growthfor a cooperativeenterprise.Successfilcollectivestend to degenerateinto capitalistenterprises
(or wage-labor-operated
state farms)by successivelysubstitutingcheaperwage laborersfor more
expensivemembers(Ben Ner 1984). McGregor(1977)providesa theoreticaljustificationand
empiricalexamplesof the tendencyof cooperativeenterprisesto disinvestand to reducemembership
in order to increasecurrentconsumptionby members. Barhamand Childress(1992)showedthat
Hondurancollectivesdecreasedtheir membershipover time by aboutone fifth.Thus, the problems
associatedwith prvision of workers' effortand intertemporalconsumptionproved at least as serious
29
in collectivesas in haciendas(Boninand Putterman1986;Putterman1989). The poor performanceof
agricultureunder a collectivemodeof productionis well documentedand It is not surprisingthat the
expectedincreasesin productionfrom economiesof scale were not usually realized(see, for example,
Colburn 1990for Nicaragua;Ghai, Kay, and Peek 1988for Cuba;Ghose 1985,Wuyts 1982, and
Griffinand Hay 1985for Ethiopiaand Mozambique,Lin, 1990for China). Once giventhe chanceto
do so, membersof collectivefarms oftenvotedto redistributeplots to family-szed farms.'2 True
economiesof scale wouldinduceeconomicallyrationalfarmersto establishcollectiveforms of
production(Puttermanand Giorgio 1985). In the absenceof otherpossibilitiesof insurance,
collectiveforms of productionwouldbe chosen,due to the implicitinsurancethey provide against
noncovariaterisks, even in the absenceof economiesof scale (Carter 1987). However,cooperative
productiondoes not insureagainstcovariaterisks. Empiricalevidenceindicatesthat socialties may
be a less costlywayto insureagainstrisks that are not covariate(Walkerand Ryan 1990).
In China, agriculturaloutput in the first six years after decollectivization
in 1978grew
by 42 percent, with most of the growthattributableto the changein productionorganization(Lin
1992, Fan 1991, McMillanet al. 1989,Nolan 1988).Vietnamexperiencedsimilarproductivitygains
from breakingup large unmechanizedcollectivefarms into tiny familyunits (Pingaliand Xuan 1992).
The small familyfarms in these denselypopulatedcountriesexpandedthe labor input and were able
to reduce machineryand ferdlizeruse. Clearly,the incentiveadvantagesof individualfarming
outweighedany efficiencylosses due to the exremely small size and fragmentationof farms
(Wenfangand Makeham1992).
Under differentconditions,as in Algeriaand Peru (Melmed-Sanjakand Carter 1991),
the privadzationand breakupof mechanizedstate farms or collectiveshas been less successful.
12
Ortega (1990) offersquantitativeevidencefor the declineof the collectivesector dtoughout Latin
America. In Pemu,tho absenceof economiesof scale led reformbendiciaes to effectivelysubdividereform
colloctivesby cncentaing efforton their privateplots and to ptess for legal subdivisionsand individualland
titles (Kay 1983;Horton 1972; McClntock 1981).Collctivas failedin Zimbabweand were soonabandonedin
favor of a smallholder-oriented
strategy(Weiner1985).Similrly, colectivesfailed in the Dominicam
Republic
and were replacedby cooperatives,with individuallyownedplots (Meyer1991).Landreformcooperativesin
Panamaare highlyindebtedand use laborfar belowprofit-maximing lvels (ie
1987).Algerian
productioncooperativesexperiencedlowpductivity membershipdsertion, high ue of mnion,
and
cnderable underemployment
of the workforce(Pfeiffer1985;Trtman 1985).The samepatten of declinig
outputand transformationinto a 'collectiveJunkerestate' has beenobservedin Mozambique(Wuyts1985).
30
Mechanizationof these large farms had occurredand had reducedthe numberof workersor tenan
before their collectivization.When thesecollectiveswere turnedover to their relativelyfew remaining
workers,the resultingfamilyfarms were relativelylarge and unlike in China and Vietnamcouldant
be operatedefficientlywithoutadditionalhired workersor high levelsof mechanization.But hiring
additionalworkersdilutesthe incentivesadvantageof the familyfarm, and the farms had neitherthe
accessto subsidizedcredit nor the large amountsof equityneededto financehired labor or the
mechanization.To make reform workunder thesecapital-constrained
conditionsand reap the
efficiencybenefitsof familyfarmingmayrequire includingmorebeneficiaryfamiliesin the reform
programthan those employedon the highlymechanizedfarms, by resettlinglandlessor near landless
workersfrom outsidethe farms (Part III).
The social cost of delayed reform: revolts and dvil wars
Maintaining
an agriculturalstructurebased on relativelyinefficienthaciendasystems
is cosdy. In addidonto the static efficiencylosses" there are dynamicefficiencylossesassociated
with the reducedprofitabilityof free peasantcultivationand the accompanyinglack of incentivesto
investin physicaland humancapitalin the sector. Ihen there are the resourcecostsused in rentseekingto create and maintainthe distortionsthat supportthe large farms and contributeto rural
povertyand inequality.In a competitiverent-seekingequilibriumthese costsare equalto the rents.
The distortionsreduceemploymentin the sector, imposingan equitycost. Finally,the socialcosts of
failingto reform have often includedpeasantuprisingsand civil war.
ConsiderBrazil, wherethe social costsof continuedmassivedistortionsin favor of
large farms have been substantial(Binswanger1991)even withoutviolence.Between1950and 1980,
agriculturaloutputgrew at a remarkable4.5 percenta year, land area expandedat 1.5 percenta year,
but agriculturalemploymentgrew at only 0.7 percenta year. Over that period, the large-scalefarms
evictedmost of their internaltenantsand workers,manyof whom migratedto urban slums or ended
up as highly insecureseasonalworkerswithoutfarmingskills.An alternativegrowthpath based on
13 Quantitaiveestimates
of thisefficiencylos amrscare,but Loveman(1976)estimatethat Chilecould
havesavedroughly$100milliona year in agricultualimportsduring 1949-64had the40 percet of land left
Ucutiva byw
l
ndlordsbe cutimVated
31
smallerfamilyfarms couldhave providedrural employmentand self-employmentopportunitiesfor
many of thesepeopleand gainfullyabsorbeda substantialshare of the rapidlygrowingpopulation.
In most cases,protractedand violentstruggleshave significantlyreducedthe
performanceof the agriculturalsector and the economyas a whole. Whilepeasantshave rarely been
the initialprotagonistsin radical class strugglesor revolutionarymovementsmany revolutionary
movementstook refuge in remote areasof limitedagriculturalpotential- sometimesdesignated
"communalareas", "reserves", or "homelands"-wherepeasantshave providedboth active and passive
supportfor guerrillafighters.Many analystshave emphasizedthe importantrole of peasantdiscontent
in incidentsof regional and nationalviolence(Moore 1966;Wolff1968;Huizer 1972;Migdal 1974;
Scopoland Scott 1976;Christodoulou1990;and Kriger 1991).The losses from such conflictsare, of
course,difficultto measure,but some notionof their magnitudecan be gauged from the durationand
intensityof such strugglesas these cases show:
*
In Mozambique,peasantsescapedfrom forcedcultivation,vagrancylaws, and forced labor to
inaccessiblerural areas, whichwere the main centersof supportfor the Frelimoguerrillas
from 1961until independencein 1975. (Isaacman& Isaacman1983). Land reforms which
were initiatedafter independence,however,resultedin highly mechanizedcollectivefarms
and did not addressthe problemsof the freeholdsector. Violencecontinuesto this day.
e
In Zimbabwelarge scale evictionof some 85,000familiesfrom European-ownedfarmlands
during 1945-51,led to a generalstrike amongAfricansin 1948and providedthe basis for
peasants' supportof ZANU (ZimbabweanAfricanNationalUnion)guerrillasin 1964,
(Mosley1983;Ranger 1985;Scarritt 1991and Kriger 1991). Guerrillafighterstook up the
peasants' grievancesover unequaldistributionof land and state interferencewith production
and used the TIbal Trust Areas as bases to attack Europeanfarms. Whilea substantial
settlementprogram after independenceprovidedland to Africans,a numberof shortcomings
limitedthe successof this program(see Binswangerand Deininger1993). Policydistortions
remainedin place despite evidencethat large farms are not more efficientthan small holder
farmers(Masters 1991)and land reform continuesto be a major politicalissue.
32
*
In Guatemala,communallandswere In effectexpropriatedin 1879by a law giving
proprietorsthree monthsto registerland titles after whichthe land wouldbe declared
abandoned.Most of the "abandoned"land was then allocatedto large coffeegrowers.
Redistributionattemptsin 1951-54were reversedfollowinga militarycoup in 1954, when
virtuallyall the land whichhad been subjectto land reform was returnedto the old owner and
farms expropriatedfrom foreignerswere allocatedin parcelsaveragingmore than 3,000
hectares(Brockett1984).Sincethen, there has been a repeatedpatternof suppressinnand
radicalizationof resistance.Suppressionof the cooperativemovementsof the 1960sled to
formadonof the guerrillaarmyof the poor (EGP)in 1972, with Its mainbase in Indian
assassinationsin 1976with
highlands.Peasantsrespondedto a waveof government-supported
the formationof the committeefor peasantunion(CUC)in 1978. Governmentmassacresof
protestingpeasantsfollowed(Davis1983).Almost40 years after the firstattemptat reform,
continuingpeasantdemonstrationssignalthe cost of failure.
*
Smatlholderland in El Salvadorwas similarlyappropriated.A decreeof 1856statedthat all
communalland not at least two-thirdsplantedwith coffeewouldbe consideredunderutilized
or idle, and wouldrevert to the state. Communalland tenure was abolishedin 1888. Sporadic
revolts led to suchcountermeasuresas the 1888"securitytax" on exportsto financerural
policeforces, a 1907ban on rural unions,and the creationof a NationalGuard in 1912
(McClintock1985).Areas whereland pressuteswere particularlysevere emergedas centers
of the revolt of 1932,duringwhichsome 10,000to 20,000peasantswere killed(Mason
1986). Guerrillaspromisingland and other agriculturalreform gainedconsiderablesupportin
rural areas in particularfollowingtenantevictionsin the cottongrowinglowlandsduring
1961-70.Ihese evictionsled to a 77 percentdeclinein the houseplotsavailableto tenantsas
the numberof tenants droppedfrom 55,000to 17,000.Violencecontinuedto escalateuntil
1979, when reform-mindedofficersengineereda coup and introducedland reform in an
attemptto preempt a shift in popularsupportto the FMLN-FDRguerrillaforces. Narrow
eligibilityrules sharplylimitedthe numberof beneficiariesof land reformsand more than a
decade of civil war ensued.'he peace accordof 1992mandatesadditionalland reform.
*
Colombiaalso demonstratesthe perilsof incompleteland reform. Conflictsover land between
tenantsand large-scalefarmersat the frontierescalatedfrom isolatedlocal attacksin the early
33
1920sto more coordinatedtenantactionsby the late 1920s.Whilevariouskinds of reform
legislationwere consideredduringthe 1930s,the law finallypassedin 1936vested rights in
previouslypublic lands *ith large landlordsrather than the tenantscultivatingthe land (Le
Grand 1982).A series of tenantevictionsfollowed,leadingto a quarter centuryof violence
(1940-65)during whichguerrillasrecruitedsupportfrom peasantgroups. Land reform
legislationin 1961and 1968regularizedpreviousland invasionsbut did nothingto improve
the operationaldistributionof land holdingsand far fewer peasantsbenefittedfrom the
reformsthan had previouslybeen evicted(Zni.osc 1989).Peasantland invasionsintensified
duringthe early 1970s,leadingto the declarationof a state of emergencyafter 1974. Regional
mobilizations,strikes, and blockadesflaredup again in 1984, indicatedthat the conflictis not
yet resolved.
Much of the rural supportfor the ShiningPath guerillasin Peru can be tracedto the exclusion
of most of the highlandIndiansfrom agriculturalbUnefitsand the benefitsof agrarian reform
of 1973whichbenefittedprimarilythe relativelyfew workersin the coastalarea. As a result,
more than half the departmentsin ae countryhave becomevirtuallyinaccessibleto
governmentforces (McClintock1984),and public investmentin theseregionshalted, inducing
further economicdecline and large-scalemigrationsto the cities, thus exacerbatingsocial
tensionsand conflicts.Poor economicmanagementduringthe 1980sand continuedactivityby
ShiningPath have led to capitalflightand economywide decline.
Other countriesthat have experiencedprolongedconflictsover land includeAngola,
ChUle,and Nicaragua.Whilethe policiesthat createdand maintaindual land ownershipdistributions
do not necessarilylead to violentstruggle- other interveningfactorsare likely to be important- they
clearly playeda significantrole in manycases.
PARTU.: ANALYTIC
CONTROVERSIES
The first questionwhichis centralto the analysisof past and futurereforms in
grculura land relationsis: Are junker estatesand large mechanizedfarms economicallymore
efficientthan smaller, family-operatedholdings?The answeris importantbecauseif they are not,
34
equalizingthe ownershipdistributionor breakig up collectiveor state farms Intofamilyfarms would
enhanceboth efficiencyand equity. In examiningthe relationshipbetweenfarm size and
productivity,we look firstat the sourcesof economiesof scale: economiesof scaIein processing
plantsthat are transmittedto the farm and generatewageplantations,lumpyinputsthat cannotbe
used belowa certainminimumlevel such as farm machineryand managementskills, and advantages
in the credit marketand in risk diffusionarising from larger ownershipholding(section4). We then
summarizethe empiricalfindingson scale economiesand diseconomies.
This leadsto the secondcentralquestionfor land reform: if, as we find, large operational
holdingsare usually inefficient,why do large landownersin marketeconomiesnot rent to family
farmers (section6)? Tbe rental markethas historicallybeen the most importantmechanismto
circumventthe diseconomiesof scaleassociatedwith large ownershipholdingsdespitethe incentive
ssues associatedwith tenancyand sharecroppingwhichare reviewedin Section6. Yet the history of
land reform showsthat long-termrental of entire farms often impliesa high risk of loss of land to
tenants, and long term tenancyis no longeran option. Short-termrental of parcelsof land cannot
createsmall family-operatedholdings.But if tenancyis no longer an option, what preventsthe land
sales marketsfrom bringingownershipholdingsin line withthe optimaldistributionof operational
holdings? Our analysisin Section5 showsthat it is the result of imperfectionsin other markets,
broughtaboutby land-creditlikagtes andpolicy distortions.
4. Fsrm Size and Productivity
Economiesof scale In processing
Plantationshave historicallybeen establishedto producespecializedexport crops in
areas of extremeland-abundanceand thereforehave had to importslavesor indenturedlabor. But
even after the abolitionof slaveryor indenturedlabor, wageplantationssurvivedin selectedcrops as
highlyspecializedlarge ownershipholdingsusinghired labor to producea single cash crop. Most
workerslived in labor campson these wageplantationsand had no subsistenceplots of their own to
cultivate.
35
Labor is the largestcomponentof total costs. Grigg (1974)and Courtenay(1980)
discusshow the ability to use labor nearly year-roundfavoredthe organizationof productionof these
crops under plantations,rather than with tenantsor outgrowers. Tree crops such as oil palm, rubber,
and tea have the most even demandfor labor. Labor demandis more seasonalfor sugar and coffee,
althoughirrigation(for sugar) or specificprocessing(for coffee)can help even out demand.
Wage-basedplantationscontinueto exist for tne typicalplantatdoncrops - sugarcane,
bananas,oil palm and tea becauseof anothertechnicalcharacteristic.Economiesof scale arise from
the processingor marketingstage rather than in the farmingoperationsand are transmittedto the
farm becauseof the need to processthe crops withinhoursof harvesting(Vnswangerand
Rosenzweig1986). Onlyfor these crops can wageplantationscompetewith smallholderswithout
relyingon coercionto acquirelabor.
Economiesof scale in processingaloneare not a sufficientconditionfor plantations.
The sensitivityof the timingbetweenharvestingand processingis crucial.Easily storedproductssuch
as wheat or rice can be boughtat harvesttime in the open marketand stored for millingthroughout
the year. Therefore, the economiesof scalein millingare irrelevantfor the organizationof the farm.
In the case of sugarcane,by contrast,harvestingand processingmust be carefullycoordinated.If cut
cane is left unprocessedfor morethan a day, much of the sugar is lost to fermentation. And to keep
the expensivecapitalstock operatingthroughoutmost of the year processingcane into sugar, cane
must be plantedat differenttimes of the year, even at times when the sugar yield is not at its
maximum.Independentfarmerswouldbe unwillingto plan cane duringthose times without
compensation.One wayto circumventthis problemis for sugar factoriesto run their own plantations,
with a single managerwho decideson the tradeoffsbetweenharvestingcaneat suboptimaltimes and
leavingthe capitalstock idle. Anotherwayis contracfarming (Hayami1992;Glover 1990).
Contractingwith small farmers is widespreadthroughoutIndia, Thailand,and elsewherewhere
sugarcanewas introducedinto an existingsmallholdersystem.
Productionof bananasis anotherecampleof the coordinationproblem. Mature
bananasmust be put into a cold boat within 24 hoursof harvest,an immensechallengefor the
plantationand shippingcompany.Coordinationis requiredto ensurethat the boat will arrive when the
bananasare ready to be shippedand that a boat can be flled when it arrives,- for that reason, some
36
of the world's largestowner-operationsare bananacompanieswhoseholdingsincludedozensof
plantationsoperatedby hired managersand workers. In CentralAmerica,whenlegislationmade it
more difficultfor multinationalsto own plantations,the majorbananacompaniesincreasedtheir
suppliesby buyingfrom contractfarms.These farms typicallyhave hundredsof hectaresand their
contractsare so tight that they virtuallyremainmanagedby the multinationals(Ellis 1985).
Similarly,rapid deteriorationof the harvestedproducttogetherwith economiesof
scale in processingare the mainfactors leadingto the continuedcultivationof tea and oil palm on
plantations.Thus the superiorityof the plantationdependson a combinationof economiesof scale In
processingwith a coordinationproblem. Plantationsdo not arise - or do not surviveonce labor
coercionis abolished- unlessboth these conditionsexist. Bananasfor local and nationalmarkets,
whichare suppliedby individualtrucksrequiringlittle coordination,are suppliedby familyfarms all
over the world. Similarly,traditionalunrefinedformsof sugar such as muscovadoin Central
America,whereprocessingdid not involveeconomiesof scale, were producedby familyfarms even
in economiesdominatedby sugar plantations.In manycountriescoffeeand rubber are also cultivated
undaersmallholdersystems.They have lower capitalrequirementsfor processingthan do sugarcane,
tea, or oil palm, and therefore,have a smalleroptimalcultivatedarea associatedwith a single
processingunit. Despitetheir even labordemandover the year,the plantationmodeof production
has thereforedeclinedsharplyat the expenseof smallholderproduction.
The differentoutcomesfor plantationsfollowingthe abolitionof slaveryalso support
the combinationhypothesis.UnitedStatescottonand tobaccoplantationswhichhad no coordination
problem, abandonedlarge-scalecultivationand rented the land out to their former slaves, creating
landlordestates(arrow 17). The samethinghappenedin Latin America,exceptthat some farms
becamelandlordestatesand somehaciendas(arrows 16 and 17). Slave-perated sugar plantationsin
the Caribbeanand South America,however,convertedto wageplantations(arrow 15). There are, of
course, other factorsat workas well determiningwhatprecisepatternof productionrelationsresults
after slavery is abolished.Klein andEngerman(1985)distinguishthree patternsaccordingto relative
lad abundanceand the presenceof governmentintervention.
Today, wage plantationssurvivein areas wherethey were first establishedunder
conditionsof low populationdensityand with a large land grant. Wherethe samecrops were
37
Introducedinto existingsmallholdersystems,contractfarmingprevails.Processorsseemnot to have
found it profitableto form plantationsby buyingout smallholdersand offeringthem wage contracts.
This suggestseither that the coordinationproblemassociatedwith plantationcrops can be solved at a
relativelylow cost by contractfarmingor that imperfectionsin land sales marketsare so severethat it
is prohibitivelyexpensiveto createlarge ownershipholdingsby consolidatingsmallfarms (section5).
Lumpy inputs
Draft animalsfor plowingwere the first lumpyinput in agriculture.Becauseof the
diflicultyof farmingusing rented draft animals(Binswangerand Rosenzweig1984),smdl1farmers
who lose their draft animalsfrequentlyrent out their land until they can acquirenew animals(Jodha
1984).Farmmachinery- threshers,tractors, combineharvester- are much lumpierthan draft
animals.Tractors andharvestersreach their lowestcost of operationper unit area at a muchlarger
scalethan do draft animals,so the optimumoperationalfarm size rises with their introduction.Karl
Marx and his followersbelievedthat the economiesof scale associatedwith agricultural
mechanizationwere so large as to makethe familyfarm obsolete.Yetsmall owners can rent out their
land to larger operators(consolidators)rather than sell it, as the ejidatariosin irrigatedareasof
Mexicohave often done. So the initialeconomyof scaleassociatedwith machinesdoes not imply that
reverse land reform is neededin areaswith many smallownershipholdings.
Machinerental can permitsmall farms to circumventthe economiesof scale
advantageassociatedwith machinesin all but the most time-boundof operations,such as seedingin
dry climatesor harvestingwhere climaticrisks are high, wherefarmerscompetefor first serviceand
thereforeprefer to own their own machines.' But threshingcan be done at any time of the year and
as in Europeanagriculturein the late nineteenthcentury,the expansionof stationarythreshersin
developingcountriestodayreflectsa well developed,efficientrental market. Harvestcombinesare
often rented in the developedand developingworld. Most MidwesternU.S. farmersrent themfrom
operatorswho foliowthe progressof the harvest seasonfrom Oklahomato Canada.Tractorstoo are
widelyrented out for plowingto small farmersin Asia, Africa, and Latin America,but the markets
14 BinsuwaWr
andRosenzweig
(1986)discussthelimitsto natalmarketsimpsed by moa hazardsnd
msonality.
38
are not as problemfree as those for threshers(WorldBank 1984). Rao's (1975)analysisof India,
shows that smallfarms' productivityadvantageover large farms initiallydisappearedfollowingthe
introductionof tractorsin NorthwestIndia, but once the size of operationalholdingswas adjusted
upwards,the smallerfarms re-emergedwithhigherproductivityrates.
Tbus, the economiesof scale associatedwith machinesincreasethe minimumefficient
farm size, but by less than expectedbecauseof rental markets.The use of draft animalsand machines
- lumpyinputs- leads to an initial segmentof the productionfunctionthat exhibitsincreasingreturns
with operationalscale, but thesetechnicaleconomieswouldvanishwhenfarm size is increasedby
replicatingthe optimalscaleof lumpy inputsor when rental marketsmakethe lumpinessof machines
irrelevant.Under constanttechnicalreturnsto scaleand with perfectmarketsfor land, capital,and
of land wouldbe irrelevantfor productionand would only affectthe
labor,the ownership-distribution
distributionof income.Landownerswould either rent the necessaryfactorsof production(abor and
capital)and make zero profitsoperatingtheir own holdingor, if there were transactioncost. in the
labor market, rent in or rent out land to equalizethe size of operationalholdings.
skUlslike machines,are an indivisibleand lumpy input, so the better the
Management
manager,the larger the optimalfarm size. Technicalchangestrengthensthis tendency:fertilizersand
pesticides- and arrangingthe financingto pay for them - requiremodernmanagementskills. So does
the marketingof high-qualityproduce.In an environmentof rapid technicalchange,acquiringand
processinginformationbecomesmore and more important,givingmanagerswith more formal
schoolingand technicaleducationa competitiveedge in capturingthe innovator'srents.
Therefore,optimalfarm sizes tend to increasewith more rapid technicalchange.
Somemanagementand technicalskills, like machinery,can be contacted from specializedconsultants
and advisoryservicesor providedby publiclyfinancedextensionservices. Contractfarmingoften
involvesthe provisionof technicaladvice.But key farmingdecisionsand labor supervisioncannotbe
boughtin a market. So limitson managementskills will leadto an upwardslopingsegmentin the unit
cost curve as operationalholdingsize increases.
Accessto credit and risk diffusion
39
Land, becauseof its immobilityand robustness,has excellentpotentialas collateral,
makingaccessto credit easier for the ownerof unencumberedland (the issue is discussedIn detail in
section5). Rural credit marketsare difficultto developand sustain.There is thereforesevere
rationing,whichcan be partly relievedby the abilityto provideland as collateral.The high
transactioncosts of providingformalcredit in rural marketsimpliesthat the unit costs of borrowing
and lendingdeclinewith loan size. Manycommercialbanks do not lend to small farmersbecausethey
cannotmake a profit. Raisinginterestrates on small loans does not overcomethis problem, since it
eventuallyleads to adverseselection(StiglitzandWeiss 1981).For a givencredit value, therefore,
the cost of borrowingin the formalcredit market is a decliningfunctionof the amountof ownedland.
Land ownershipmay serve as a sign of creditworthinessin informalcredit marketsas well.
Accessto credit is particularlyimportantin developingcountriesbecausethey usually
lack other intertemporalmarketsto insureagainstcrop or price risks. Insuranceis sometimes
availablefor very narrowlydefinedspecificrisks such as hail or frost, but only for very large farms.
Forwardmarketsare often bannedor discouragedby policy intervention.An interestedlocal insurer
wouldhave enoughinformationto overcomethe moral hazardproblem,but the covarianceof crop
yieldsmakesthe risk uninsurableat the local level. A nationalinsurer couldovercomethe covariance
problem, but lacksthe local informationto overcomethe moral hazardproblem.The absenceof a
marketfor multi-riskcrop insurmce is the result of the combinationof moral hazardand the local
covarianceof productionrisk. The absenceof crop insuranceand forwardmarketsconfersspecial
importanceon accessto credit as an insurancesubstitute,but the combinationof covarianceand moral
hazardalso sharply reducesthe potentialof financialintermediationin rural areas (Binswangerand
Rosenzweig1986).
Providingfunds to overcomeemergenciesis a commonfunctionof informalrural
credit markets. But the amountssmall farmerscan borrow for consumptionare usually tiny - and
often at high interest costs (Binswanger1985;Christensen1989;Morookaand Hayami1990;Udry
1990;Deaton 1991). Investigationsinto how farmersand workerscope with disastershow that credit
financesonly a small fractionof their consumptionin disasteryears (Jodha 1978).Accessto formal
commercialbank credit thereforegives large modemcommercialfarms a considerableadvantagein
risk diffusionover small farmerswithoutsuch access.
40
Farmers and workerswith little or no accessto credit can attemptto diffusetheir risk
by relyingon accumulatedreservesand wealth,social relationships,and risk-sharingarrangementsin
land, labor, output and input markets(Jodha 1978;Bidingerand others 1990;Rosenzweig1988;
Deaton 1990;Sharp 1990).Wealthyindividualscan self-insuremuchmore easilythan the poor both
directly,as a consequenceof their wealth,and indirectly,becausegeographicallydispersedsocial
networkson whichthey can rely in years of (ocally covariate)poor harvests.Wealthyfarmersshould
thereforebe better able to accumulateprofit-maximizing
portfoliosthan poorer farmers,givingthem
5 In land-scarceenvironments,the
an allocativeefficiencyadvantage."
bulk of a farmer's wealthis in
the form of land, so large ownershipholdingsare correlatedwith a better abilityto diffuserisks
throughthe wealtheffectand land's robustnessas collateralfor credit. Forescano(1969)suggeststhat
in high risk environments,the superiorabilityof land-richindividualsto diffuserisk throughstorage
and better accessto credit marketsmighthave been an importantreasonthat otherwiseunprofitable
demesnecultivationsurvivalin the faceof competitionfrom familyfarms.
Evidence on farm size - productivity relationship
The literaturedemonstratesthat imperfectionsin a singlemarketwould notbe
sufficientto introducea systematicrelationshipbetweenfarm size and productivityper unit of land.
For example,if credit is rationedaccordingto farm size, but all other marketsare perfect, land and
labor markettransactionswill producea farm structurethat equalizesyieldsacross farms of different
operationalsize. But if there are imperfectionsin two markets,land rental and insurance,or credit
and labor, a systematicrelationshipcan arise betweenfarm size and productivity.
Srinivasan(1982)has shownthat under conditionsof fixedfarm size (no land rental)and no
insurance,uncertaintyand risk aversioncan lead to an inverserelationshipbetweenfarm size and
productivity,providedthat absoluterisk aversiondoes not increaseand that relativerisk aversiondoes
not decreasewith wealth.With credit and labor marketimperfections,the relationshipis not
necessarilyinverse. For example,Feder (1985)and Carter and Kalayan (1989)demonstratethat
with certain modelparameters,the combinationof credit and labor market imperfectionscan leadto a
is As explained
in Binswanger
andRosenzweig
(1986),theyarenotableto provideicsran to small
farmersbocausecovunanceof inome wouldrequirelargereservesin order to be able to offercraedible
conrct.
41
U-shapedrelationship.Eswaranand Kotwal(1985)obtain an inverse relationshipby addinga fixed
cost of productionto labor and credit market imperfections.Generally,the presenceof multiple
marketfailurecan explaina varietyof farm size distributionand productivitystructures.
The implicationsof imperfectionsin labor, credit, and land marketsare illustratedby
Feder (1985)whosemodel is replicatedin Appendix2. By assumption,the efficiencyof hired labor
dependson the intensityof supervisionby familylabor, implyingthat familylabor and hired labor are
complementsand that the amountof labor effortor 'efficiency' units suppliedincreaseswith
supervision.
If credit and land rental marketsare perfect, the supervisionconstraintalone would
lead each householdto lease in or lease out the amountof land requiredto maintaina uniformratio of
familylabor endowmentto operatedarea. The ratio of effectivelabor inputto operatedarea wouldbe
constantfor all cultivators,whateverthe distributionof land ownership.No farm size-productivity
relationshipwouldexist.
But if there is a bindingconstraintin the credit market wherebythe supplyof working
capitaldependson the amountof land owned,the optimalsize of the operationalholdingwouldvary
systematicallywith size of the ownedholdingeven if land rental marketswere perfect. The magnitude
(and direction)of this variationwoulddependon the relativeelasticitiesof output with respectto
effectivelabor and of labor effortwith respectto supervision.
Now, if, in additionto a supervisionconstraintand a credit constraint,there are no
rental marketsfor land - whetherby law or becauseof the threat of land reform - a negativerelation
betweenfarm size and land productivityis likelyto emerge. Of course, the capitalcost advantageof
large farms does not necessarilylead to higher investmentson the farm if the capitalcan be invested
elsewherein the economyat higher returns than in agriculture.
The Evidence for Diseconomnesof Scale
The discussionthus far suggestsseveralapproachesto the measurementof the farm
size-productivityrelationship:
42
*
Sincethe supervisioncostsvary withthe operationalholdingsize whilethe capitalconstraint
is relatedto the ownershipholdingsize, the separateeffectsof operationaland ownership
holdingsshouldbe distinguishedin any test of the farm size-productivityrelationship.To
eliminateerrors resultingfrom the raw correlationof farm size andhouseholdsize,
regressionsof an efficiencyindicatoron operationaland ownershipholdingsize shouldalso
includethe numberof adultfamilymemberswho can act as supervisors.None of the existing
studieshas taken full accountof these distinctions.
*
Propermeasuresof relativeefficiencyare the differencein totalfactorproductivitybetween
small and largefarms and the diference in profits, net of the cost offamily labor,per unit of
capitalInvested.Usingmarketpricesto measureproductivityassessesdifferencesin private
efficiency.Using socialopportunitycostsas a measureeliminatesthe impactof distortionand
measuresdifferencesin socialefficiency.Few studieshave madethis distinction.
*
Mostof the literaturehas analyzedphysicalyields of specificcrops or the valueof
agriculturaloutputper unit of operatedarea. Theseare not relevantmeasuresof overall
privateor social efficiencysincethey are but partialproductivityindicesthat do not take into
accountdifferencesin inputand labor use. Becausepart of the adjustmentto incentive
problemsand other marketimperfectionsis to vary the outputmix so as to saveon the factors
with the highest scarcityvalue in the specificfarm, focusingon a singlecrop is inappropriate
exceptin monocropfarmingsystems.Individualcrop studiesare thereforenot relevantto the
farm size-productivityrelationshipproblem.
*
Normalizingany productivitymeasureby total land area or regressingit on land area raises
severe measurementproblemsbecauseagroclimaticpotentialand land qualitydifferacross
regions.Ihe sameproblemafflictsany comparisonsthat involvepooled dataor use the means
from severalregions (e.g., Thiesenhusen1990;Deolalikar1981).Land qualitydifferences
withinregions are often so large that adjustmentsmust be made for those differencesif
productivityis measuredper unit area rather than per capitalinvested(Bhallaand Roy 1988).
Only if there is no correlationbetweenland qualityand farm size is such an adjustment
43
unneeswary16- or if the differencesarise from farmerinvestmentsin tubewells,land
levelling,drainage,or the like.
The followingtest of the farm size-productivityrelationshipis one wayto take these
considerationsinto accountdescribingnot a causalrelationshipbut a multiplecorrelation:
PIK = g(OPOW,H,Z) withexected signsg8<,g 2 >Ogy>O, (1)
WhereK is assets, L is labor, P is privateor socialprofitsnet of privateor social cost of
familylabor, OP is operatedarea or value of operatedland, OW is ownedarea or value of
ownedland, H is the numberof householdworkers,and Z is a vector of exogenousland
quality,distancefrom infrastructure,and exogenousland improvementvariables. g, should
be negativebecauseof rising supervisioncosts. g2 shouldbe positivebecauseownership
providesbetter accessto credit. And & shouldbe positivebecausefamilymembershave
incentiveto workand can supervise.
None of the studiesof the farm size-productivityrelationshipshave appliedthis full
specificationsand few studieshave even lookedat total factorproductivityor farm profitsnet
of the cost of family labor. So we must be contentto summarizethe findingsof farm-level
studieswithinsmall regionsthat look at value of outputper operatedarea. Typicalfindings
are presentedin table 2, whichis extractedfrom Berry and Cline (1979)and similarresults
are found in a range of other studies.'7
"Both distresssales(Bhagwati
andChakravarty
1969)anddifferential
patternsof invesmet (Sea1964)
coud explaintheoretically
whysmallfarmerscouldsystematicaly
endup withhigherqualitylandwithina
givenvillae. Few empiricalstudiesexistat a sufficiently
disggregatedvillagelevelto confirmthisasociation
Forsix villagesin semi-aridIndia,Walkerand Ryan(1990)rejectthe existenceof a systemticassociation
betwe farm size and landquality.
For SiXLain Americancountries Lu andYotopoUlos
1971,and 1979,BarraloughandCollarte1973;for
nortesten Brai Kutcherand Scandizzo1981 ; for fifteencountria in Africa,Asia, and Latin America
Comia1985; for theIndianPunjabSen1981;for IndiaandWestBengalCater 1984;andfor Ildia
1
disggrgated into seventy-eightagroclimaticzonesBhallaand Roy 1988.Dyer 1991descnbes the army of
intument used by largeproduce in Egyptto increasetheir competitiveness
with smallfarmers,
deostaing
that largeproducerscan successlly lobbyfor meaure to counteact the inversefam-size
productivityrelationship.Te need for such rent-seelng impliesthe coniued validityof this relationship
althoughDyer interpret it to meantheopposite.
44
TABLE2: Farm-sizeproductivitydifferences,selectedcountries
Fam size
NorthuatBrazil
Punjab,Pakistae
Smallfarm
(heatr)
563
(10.0-49.9)
274
(5.1-10.1)
Larva fm
100
(hectarft)
100
(SOO+)
(20+)
Muda,MaLkydi
148
(0.7-1.0)
100
(5.7-11.3)
Note:
*100- bqet fam sizecomparedwith secondsmallestfarm size. Secondsmallestfam size
used in calculationsto avoidabnormalproductivityresultsoftenrecordedfor the smallet plots.
lable 4-1. NortheasternBazil, 1973;Productionper Unit of AvailableLandResource,by
Farm SizeGroup,p.46. Indextakenusingaveragegross receipts/areasfor sizegroup2 (small)
and 6 arge), averagedfor all zonesexcludingzoneF, where sugarcaneand cocoaplantations
skewproductivityaveragefor argo farms.
able 4-29. RelativeLandProductivityby Farm Size: AgriculturalCensusand FABSSurveybasedEstimatesCompared,(1968-9)p. 84. Indextakenusingvalueaddedper cultivaedacre for
secondsmallestsize roup and luagest
'Table 4-48. FactorProductivityof MudaRiverFarmsby Size, DoubleCroppers,1972-3p.
117. Index takenfrom valueaddedin agriculture/relong
(0.283ha = 1 relong).
Soue:
Berry and Cline (1978)
Those studies support the following generalizations:
*
Ihe productivitydifferentialfavoringsmall farms over largeone increaseswiththe differences
in size. That meansit is largestwhere inequalitiesin land holdingsare greatest,in the
relativelyland-abundantcountriesof Latin Americaand Africa, and smallestin land-scarce
Asian countrieswherefarm size distributionsare less unequal.
*
The highestoutputper unit areas is often achievednot by the smallestsubfamilyor part-time
farmersbut by the second-smallestfarm size class, whichincludesthe smallestfull-time
farmers.This suggeststhat the smallestfarms may be the most severelycredit constrained.
*
Plantationcrops as representedby sugarcaneproductionin Brazil, do not exhibita negative
farm size-productivityrelationship(Cline 1971;Kutcherand Scandizzo1981).
*
When land is adjustedfor differencesin qualityusing land value or exogenousland quality
measures,the negativeproductivityrelationshipweakensbut does not disappear,especially
where it is very large.
45
*
Introductionof the green revolutiontechnologyin India led to a weakeningbut no the
disappearanceof the raw productivitydifferentials(Bhallaand Roy 1988).
Three studiescame closer to the specificationin equation1. For the Muda River region
of Malaysia,Berry and Cline (1979)found that valueaddedper unit of investedcapitalfor the second
smallestfarm size group exceededthat of the largestfarm size group by 65 percent, more than the
differencein valueof outputreportedin table 2. The use of valueadded adjustsfor costs of
purchasedinpUts,but thismeasureis still likelyto bias the test in favor of small farms to the degree
that smallfarms use labor more intensivelythan do large farms. But since the resultholds for raw
output, the negativerelationshipwouldprobablyhold as well if the test were based on net farm
profits. The resultssuggestthat well-developedrental markets, as in the Muda area for tractorsand
threshes,enablesmall farmersto circumventthe economiesof scale associatedwith tractors, leaving
labor supervisioncosts to dominate."
In the secondstudy, Berry and aine (1979)firstsplit the data for NortheastBrazil (see
table 2) into agroclimaticzones, whichsharplyreducedthe observednegativerelationship.'Social'
profitswere then calculatedby imputinga real opportunitycost of 15 percentto capitaland valuing
familylabor at 0, 50 and 100 percentof the minimumwage, a wagerarely paid in agriculture.Even
when familylabor is valuedat the full opporuity wage, socialprofitsare dearly higherby 23 to
150 percent for the secondsmallestfarm size group (10 to 50 hectares)than for the secondlargest
and the largestfarm size groups (200 to 500 hectares)in four of six non-sugargrowingzones. For
the two zones where the relationshipdoes not hold as clearly (Bahlaand Sertao),the weaknessof the
results appearsto be due to paucityof obsvations (Kutcherand Scandizzo1981).The negative
' Only a few studiesexplicitlytest for the sepambility of fimily and hired labor. Pitt and Rosenzweig(1986)
of the short-tm healthstatusof the
fannmes
thatprofitsare independent
showfora sampleof Indonesian
householdhead,but sinceshort-temillne doesnotinterferewithsupervision
the resultsayslittleabout
familylaboron a pmnet bi Deolaliar andVijverberg(1987)reject
whetherwagelaborcancomplement
thehypothesis
of perfectsubstitutabiltybetween
familyandhiredlaborbasedon samplesfrom ndiaand
Maaysia,but beas they estime a pduction functionusingcoss-ction data, atistical problemsvitate
their findings.Benjamin(1992)estimatesa demandfimctionfor aegate laborservices.He rejectsthe
hypothei of nonseparabilityfor Indneian rice fam aonthe basisof thejoint lack of significaneof
demogaphicvariables.Sincehis modelincludesar havesteda a dependetvariable,it doesnotallowfor
adjustmensof area operated(via rt)
in responseto familysiz. In effect,then, the modelmeures only the
conditionalimpactof demographicvariables,givenopeatod ea, on the demad for hired labor. The fact that
suggests
ea opeated(which,has sigificantinfluence onlabordemand)s correlatedwithfamilycomposition
a strong supervsionconstraintmightbe foundif the unconditionaleffectwere considered.
that
46
productivityrelationshipstill holds in the technologicallyadvancedAgrt .. region, where
mechanizationwas most pronouncedif socialprofitsare considered.
In the third study, Rosenzweigand Binswanger(1993)estimatea profit functionsimilar
to equation(1) whichincludetotal assets, the compositionof the asset portfolio,familylabor,
education,age, and the onset dateof the monsoon. Theyuse the completeICRISATpanel data from
ten villagesin high-risksemi-aridIndiato estimatea model that allowsfor separatetestingof
technicaleconomiesof scale on the one hand and the impactof supervisioncost advantagesof poorer
farmersrelativeto the capitalcost and risk diffusionadvantagesof wealthierfarmerson the other
hand. Fixed-effectsestimationtechniqueswere used to eliminateproblemsof land quality
differences.The resultsreject the hypothesisthat the compositionof investmentsreflectstechnical
scale economies.They supportthe hypothesisthat the asset portfoliosof farmersare signifcantly
affectby farmers' risk aversion,wealth,and the degreeof monsoononset variability(a measureof
weatherrisk). In an environmentof slowlychangingtechnology,the profitabilityof the portfoliois
not affectedby formalschooling,but it does rise withage, a proxy for experience.Profits(net of
their wage costs)also increasewith the numberof adultfamilymembers,suggestingthat their
contributionarises from their managementand supervisionfunction.
Rosenzweigand Binswangeralso estimatethe impactof weatherrisk and wealthon the
risldnessand profitabilityof farmers' asset portfolios.Figure 3 plots the profit per unit of asset for
four wealthclassesas a functionof rainfallvariability(onsetof the monsoon).The profit rate of
farmers at the eightiethpercentileof wealthis insensitiveto IncreasesIn weatherrisk, suggesing that
they are confidentenoughin their abilityto diffuserisk throughcredit, savings,or socialrelationships
that they do not need to chooseportfoliosthat reducerisk up front at some cost in profits. Farmers in
the 20th percentile,however,sharplyreducethe profitabilityof their portfoliosas rainfallrisk rises.
Despitetheseportfolioadjustments,this high risk environmentwith relativelylittle
mechanizationand slow technicalchange,the smallerfarm size groupshave higherprofitsper unit of
wealthat all levels of rainfill risk observedin the data The supervisionand laborcost advantagesof
familylabor are apparendygreaterthan the advantagesthat the lumpinessof managementskills ad
machinesand the better accessto credit and other risk-diffusionmeasuresconfer on large farms. Only
in the most risky environmentsdoes the advantageof the poorer farmersnearly disappear.
47
Figure
3.
Profit-WealthRatios and Weather
Variability, by Wealth and Class
034029 -
*_
0-24 _
-_-_
19- .'*
0I09 1
9-6
11-6
13-6
156
17-6
19-6
21-6
Monsoon onset standard deviation(weeks)
23 6
3. Profit-wealth ratios and weather variability, by wealth class. Pcrcentiles:
-- , 40th; -- , 6oth;---,
8oth.
Note:
,
The onset date of 4p.eMonsoonwas the singlemost
powerfulof eight differentrainfallcharacteristicsto explain
grossvalueof farm output.
48
20
Usinga nonparametricapproachto estimatea productionfunctionfor Wisconsinfarmers, Chavasand
Allier (1993)study farms in a very modernand dynamicenvironment.They flndvirtuallyno scale
economiesin dairy productionand only very limitedinitialscaleeconomiesdue to lumpinessof
Inputs.
Condusion
Most of the empiricalworkon the farm size-productivityrelationshiphas been flawedby
methodologicalshortcomings,and has failedto deal adequatelywith the complexityof the issues
involved.Studiesthat come to grips with someof the shortcomingsand use a more refined
measurementof land qualityand a productivityvariableInsteadof simpleyieldsfindthat even in
fairly technologicallyadvancedand mechanizedareas, such as the Muda schemein Malaysiaor the
Agresteregionof NortheastBrazil, smallfarms retain a productivityadvantageover large farms. This
findingsuggeststhat rental marketscan substituteto a certaindegreefor the indivisibilityof machines
and some managementskills.The methodologically
sounderstudybased on the ICRISATdata
confirmsboth the mechanismsleadingto differentialperformanceby scale and the superiorityof
smallerfarms in an environmentwith litde mechanizationand slow technicalchange.Whilethere is
evidenceon the negativerelationshipbetweenfarm size and production,more work is neededon this
subject. Suchwork shouldfollowthe lines sketchedout in equation1, using recentfarm level data
for developingcoutry regionswith high qualityagroclimaticand soil conditions,substantial
mechanization,and dynamictechnicalchange.
S. The effectsof land-credit Unksand policy distortions on land sales markets
The farm-sizeproductivitystudiesindicatethat for given technology,factor prices, land
quality,and farmingsklUlsthere is an optimaloperatdonal
holdingsize at whichthe disincentivecosts
of addingmore workersfilly offsetsthe economiesof scale from lumpyinputs, accessto credit and
managementskills. Takinginto accountdifferencesin hrming skills and land quality,this finding
translatesinto an optimaldistributionof operationalsizes. For any givendistributionof ownership
holdings,one would expecttenancyand land rental marketsto bring the distributionof operational
holdin close to that optimaldistribution. f incentiveproblemsassociatedwith tenancyare minor
49
and can be ignored,the distributionof ownershipholdingswouldbe Independentof the distributionof
operationholdings,since large landholderswouldsimplyrent out their land with no loss in efficiency.
But if legal restrictionson tenancymake this optioninfeasibleor unprofitablewe need to
ask whetherthe sales marketwill bring abouta more nearly optimaldistributionof ownershipoperationalholdings- that is, whetherit will be profitablefor the owners of large and relatively
unprofitablefarms to split them up and sell themto small familyfarmers.Covariaterisk, imperfect
Intertemporalmarkets, and policydistortionsaffectingthe functioningof the land sales market will
preventthis marketfrom achievinga first-bestsolution.But increasesin efficiencyarekstilllikelyto
result from sales transactionsthat transferland from bad to better managers.
Covariate risks and Imperfect credit markets
Land is oftena preferredstore of wealth, so with imperfectinter-temporalmarketsthe
utility derivedfrom landownershipwill exceedthe utilityderivedfrom farm profits. Its immobility
makes land a preferredform of collateralin credit marketswhichconfers additionalutilityfrom
landownership,especiallyin an environmentwhereproductionrisk cannotbe insured.
'he collateralvalue of land and the high positivecorrelationof incomesin a given area
imply that there would be few land sales in periodsof normalweather."' Landownerswouldbe
made better off by sellingland only if they could ear a higherreturn from the sales proceedsthan
from cultivatingor rentingout the land. So, wherenon-agriculturalinvestmentopportunitesfor ru
residentsare limitedand nationalcredit marketsare underdevelopedlittle land will be suppliedfor
sale in normalyears. Tbe numberof biddersfor land is constrainedby the level of householdsavings
since mortgagingthe land wouldbe unprofitable.Becauseland has collateralvalue, its equilibrium
price at given credit costs will alwaysexceedthe present discountedvalue of the incomestream
producedfrom the land. Mortgagedland, however,cannotbe used as collateralfor workingcapital,
so the owner does not reap the productioncredit advantageand thus will be unableto repay the loan
out of increasedincomefrom the land. Withimperfectinsurancemarkets,only unmortgagedland
1 Suchpaucityof lad salesis alsoobservedin developed
countreswhere landsalesmaketsarn usually
verythin.The perete of rnmland
transfend an avemg eachyearis 3% of thetotalin the US, 1-1.5%in
Bditain,
1.5%withinthowhitesectorin SouthAfrica,0.5%i IrelandandKenya(Moll1988:354).
50
yieldsa flowof incomeor utility,the present valueof whichequalsthe land price. As discussed,if
land ownershipprovidesaccessto credit and helps in risk diffusion,the buyer has to compensatethe
seller for the utilityderivedfrom these servicesof land (Federand associates1988). Sinceonly
unmortgagedland providestheseservices,a buyer relyingon credit cannotpay for the land out of
agriculturalprofitsalone. Thus land sales are likelyto be fianced out of householdsavings, so that
the purchasedland can be used as collateralfor workingcapital.This need to purchaseland out of
savingstendsto make the distributionof landholdingsmore unequal,despitethe greater utilityvalue
of land to smallerownersarisingfrom its insurancevalue and their lower labor costs.
Spatialcovariationin yieldssuggeststhat in particularlygood crop years, whensavings
are high, there wouldbe few sellersand manypotentialbuyersof land. Good years are thus not good
times for land purchases.In bad crop years, farmerswouldhave litdtesavingswith whichto finance
land purchases.And in particularlybad periods- say after consecutiveharvest failures- moneylenders
wouldbe the only ones in the local rural economywith assets(their debt claims).Moneylenders
wouldprefer to take over rather than sell the landholdingsofferedas collateralby defaulterssince the
price of land wouldbe lower than averagein bad years. So, in bad crop years land wouldbe sold
mainlyto moneylendersas distresssales, or to individualswith incomesor assetsfrom outsidethe
local rural economy.We shouldexpect, then, that in areas withpoorly developedinsuranceand
capitalmarkets,land sales wouldbe few and limitedmainlyto distresssales. Resultsfrom India and
Bangladeshconfirmthis hypothesis.Farmers in India experiencingtwo consecutivedrought years
have been found to be 150 percentmore likelythan other farmersto sell their land (Rosenzweigand
Wolpin1985).
The implicationsof differentmechanismsto insureagainstrisk on distresssales and the land
ownershipdistributionare demonstratedby a comparisonof the evolutionof ownershipholdingsfrom
about 1960to 1980for predominantlyagriculturalvillagesin Indiaand Bangladesh(Cain 1981).
These villagesfaced very high environmentalrisks but were characterizedby distinctdifferencesin
mechanismsof risk-insurance:In Mharashtra, India, an employmentguaranteeschemeoperated
throughoutthe period and attainedparticipationrates of up to 97 percentof all householdsduring
disasters.Such schemeswere absentafter the major floodepisodesin Bangladesh.With other
either absentor exhauted, 60 percentof land sales in Bangladeshwere
Insurance-mechanisms
undertakento obtainfood and medicine.Downwardmobilityaffectedlarge and small farmersequally,
Sl
suggestingthat even large farmershad insufficientpossibilitiesto diffuserisks. 60 percent of the
currentlylandlesshad lost their land since 1960and the Gini coefficientof landownershipdistribution
increasedfrom 0.6 to almost0.7. This contrastssharplywith the Indianvillageswhereland sales for
consumptionpurposesaccountedonly for 14 percentand were incurredmainlyby the rich to meet
social obligations.64 percentof land sales were undertakenin order to generatecapitalfor productive
investment(diggingof wells,purchaseof pumpsets,children'seducationand marriages),leadingto
an equalizationof the land-ownershipdistributionin India, and suggestingthat the poor were not only
able to avoiddistresssales, but actuallycouldacquiresome la,' as rich householdsliquidated
agriculturalassets to be ableto pursuenon-agriculturalinvestment.
Historically,distresssales have playeda major role in the accumulationof land for large
manorialestatesin China (Shih 1992)and in early Japan (Takekoshi1967)and for large landlord
estatesin Punjab (Hamid1983).The abolitionof communaltenure and the associatedloss of
mechanismsfor diversifyingrisk are amongthe factorsunderlyingthe emergenceof large estatesIn
Central America(Brockett1984).
Moralhazard, covarianceof income, and collateralvalueof land imply absentinsurance
and imperfectcredit markets. In such environments,land sales marketsare likelyto becomea means
for large landownersto accumulatemore land. Even wheremarketsfor labor, currentinputs, and
land sales and rentalsare perfectlycompetitive,weak intertemporalmarketsfor risk diffusionmay
thereforeprevent land sales marketsfrom bringingaboutpareto improvingtrades and an efficient
farm size distribution- an illustrationof the theoremof the secondbest.
The Impact of policy distortions
The existenceof commonpolicy distortionsintensifiesthe failureof the land sales
marketto distributeland optimally. Consideran idealizedcase of competitiveand undistortedland,
labor, risk and credit markets.The value of land for agricultur use wouldequal the present value of
agriculturalprofits capitalizedat the opportunitycostsof capital.If the poor have to borrow to buy
land at its present value, the only incomestreamavailablefor consumptionis the imputedvalue of
familylabor. The remainingprofitsgo to pay for the loan. If the poor can get the same wage in the
labor market, they are no better off as landownersthan they wouldbe as wage-laborers.Ard this
52
exampleassumesideal conditions,with the poor payingthe same interestrate as most creditworthy
borrowers.
Anythingthat drivesthe price of land abovethe capitalizedvalueof the agricultural
incomestreamthus makes it impossiblefor the poor to buy land withoutreducingtheir consumption
belowthe level of their potentialearningin the labor market.
The most importantfactorsand distortionsare the following:
*
Withpopulationsgrowingand urban demandfor land increasing,the price of land is expected
to appreciate,andsome of this real appreciationis capitalizedinto the currentland price.
Robinsonand associates(1985)findmuchhigherimp'icitrates of return (cash rents to land
values)to farmingin predominantagriculturalstatesin the UnitedStatesthan in stateswhere
nonagriculturalland demandis high. The impactof closenessto urban areason agricultural
land prices iswell known.Sincethese returnsare realizedonly when the propertyis sold, the
only way a poor personcouldtap into that incomestreamis by regularlysellingoff a small
parcelof land to pay the interestcosts- hardly a feasibleoptionfor small landowners.
*
In periodsof macroeconomicinstability,nonagriculturalinvestorsmay use land as an asset to
hedgeagainstination, so that an infation premiumis incorporatedinto the real land price. If
epected inflationis fully reflectedin interestrates, inflationalonewill not affect agricultural
land prices (Feldstein1980).But if inflationis higherthan expectedinterestrates, and if land
is perceivedto be no riskier than alternativeassets, excessdemandfor land will increasethe
price of land as a speculativeasset. Inflationand changesin real reurns on alternativeuses of
capitalare the mainfactors explainingchangesin land prices for the UnitedStates(Just and
Miranowsld1989). For Iowa, in additionto fundamentals,(the presentvalue of the discounted
future incomestream), an additivefad term closelyassociatedwith expectedinflationhas a
significantimpacton land prices (Falk 1991). In a simulationusing resultsof econometric
Althoughovervaluationdueto mispeetion - bubbles- wouldlead to observationallyequivalent
predictions,myopicbehavioron thepartof landpurchasers
seemsa moresatisfactory
explanation.
Onthe
poubilities for rationalbubblessee Asako(1991)andDiba and Grossman(1988).Empiricaland experimental
evidee an bubblesis providedbuy DeLng andShlcifer(1991),Smithandassociated(1988),andEvans
(1986).
53
estimationfor Brazil (1966-89)Brandaoand Rezende(1992)find that six percentof the
IncreaseIn land is attributableto credit subsidies,28 percentto macroeconomicinstability
(inflation).
*
Credit subsidiesare capitalizedinto land values,as shownin the Brandaoand Rezenda(1992)
study and by Feder and Associates(1988). For the U.S., Shalitand Schmitz(1982),showthat
most of the increasingdebt on farm real estateduring 1950-78was translatedinto higher land
21 Even wherethere are
prices, whereasfarm incomeincreaseshad a muchsmallerimpact.
no credit subsidies,large landownershave a transactionscost advantagein securingcredit,
whichis capitalizedinto land values andmay even block accessto mortgagecredit altogether
for smallborrowersaltogether.
a
Manycountriesexeempt
agriculturalincomefrom incometax, and even wherethere is no
general exemption,agriculturalincomeis de facto subjectto lower tax rates. These preferences
will be partly or fully capitalizedinto land values. Sincethe poor, pay no taxes and so cannot
benefitfrom the tax break, they do not receivethe correspondingincomestream. Any other
subsidiesor tax preferencesfor large farms similarlyincreasethe difficultythe poor have in
buying land.
Whereany of these factorspush the price of land abovethe price justifiedby the
fundamentalsof expectedagriculturalprofitsin the absenceof distortionsassociatedwith farm size,
the poor have difficultybuyingland. Even If they are providedwith credit on marketterms that
difficultypersistsunless their productivityadvantagefrom lower supervisioncost is very large. Of
these factors,nonagriculturl demand,inflation,credit constraints,and credit subsidieshave been
investigatedempirically;incometax preferencesfor agriculturehave noL Mostof the empirical
studies concentrateon the United Statessincethe paucityof land transactionsin developingcountries
enirment in aggregae models,
Whiloetis dem ate the sgnificaneof thepolcy andinstitutional
icroconomicevidenceon theimpostnce of credit ratining on landpricesis limited. Carter (1989),Carter
21
and Kalfaya (1989), and Cart and WVibe(1990)use a roughlycalibrad modelto determinethe reservation
priceof lnd as a functionof frm-sz and obtaina U-shapedcumre.Becase of the roughnessof their dat,
theresuts indicateordersof magnituderather thanexact figpues,but theyare certainlyin theapproprate
dirton.
54
makesresearchdifficult(Melichar;four other studies;Hallanet al; Barhema).More work needsto be
done.
6. Incentives, land-credit Unksand land rental markets
As long as there are imperfectionsand/or distortionsin other markets,land sales
marketsare unlikelyto bring a skeweddistributionof land ownershipholdingscloser to an optimal
distnrbutionof operationalholdings. The question,then, is whetherland rental marketscan increase
efficiencyby improvingthe accessof the poor to land under conditionsin whichthey can not buy
land.
Land tenancymarketsmightnot increaseefficiencyif tenantslack incentivesto investin land
improvements,to workhard, or to applysufficientinputs. Theseproblemswill be particularlysevere
under sharecroppingaangements, with the tenantreceivingonly a share of the marginalproductof
the inputs(the Marshallianinefficiency).Quantitativemeasurementof the inefficiencyassociatedwith
share contractsin differentenvironmentsis nceay
to
determinethe importanceof such
disincentives. The empiricaldiscussionshowsthat the inefficienciesof share-cropping,measuredat
the farm level, are not large.
Despitethe disincentivesassocited withtenancyand sharecroppingtheir widespreaduse
all over the worldsuggeststhat, in an enviroment, wherecapitalconstraintsand risk considerations
make fixedrent tenancycontractsinfeasible,share rental contractsmay in fact emergeas efficiency
enhancing,especiallyif the incentiveproblemsassociatedwith themare low. Since both the
theoreticalliterature(Otsukaand Hayami1988;Otsuka,Chuma,and Hayami1992)and the empirical
literature(Bell 1988)have been reviewedrecenty, the discussionhere is brief.
Choice of contract and the inetive problem
In the basicmodel of land-leasing,rentingout land under a fixed-rentor share coneract
or employingwage labor are substitutesalonga continuumon contractualchoices(Otsuka,Chuma
and Hayami 1992).The landlordmaximizesincomeby choosingthe numberof tenants,the fixed
55
paymentandthe output-shareparametersubjectto the constraintthat tenantsachievetheir
(exogenouslygiven)reservationutility.The tenantdeterminesthe level of effortthat will maximize
utility,yieldingan effort-reactionfunction.
The basic model consistsof a constantreturnsto scaleproductionfunctionQ = OF(e,h)
where Q is output, e is effort,h is numberof tenants, and 0 is a stochasticelement. The landlord's
incomeis y = h[l-&)Q- pl, and the representativetenant's incomeis Y=caQ + p. Thefixedrent
contractis obtainedfor (ar=1,p<O), the pure wage contractfor (a=O,0>O); and {0<a<< 11 with
arbitraryp (often assumedto equalzero for simplicity)characterizesthe share contract(Otsukaand
Hayami 1988).
Under conditionsof certaintyand the rather unrealisticassumptionof perfect
enforceabilityof effort, all contractsleadto equivalentoutcomesand the choiceof contracttype does
not matter (Cheung1967). If the assumptionof perfect effortenforceabilityis dropped,the tenant
receivesonly a fadicn a of their marginalproductfor all but the pure cash rental contract.
Therefore, with effortunobservableand under conditons of certainty(or equivalent,risk neutrality),
the fixed-rentcontractclearlydominatesthe fixed-wageand the share contract and will alwaysbe
chosenin equflibrium(Otsuka,Chuma,and Hayami1992). Givensupervisioncosts for workersor
sharecroppersany type of contractother than fixedrent wouldresult in an undersupplyof effortby
the tenantor worker, whichwouldlead to lower total production.
With risk aversionand uncerinty, a share contractprovidesthe possibilityof pardy
insuringthe tenant againstfucations in output.Where intertemporalmarketsare weak or
unavailablo,there would then be a trade-offbetweenthe risk-sharingpropertiesof the fixed-wage
contractunder whichthe worker's residualrisk is zero, and the incentiveeffectsof the fixed-rent
contract,which is associatedwith the optimalsupplyof effort. (Note that with effortas the only
variableinput, effortsupplycompletelydeterminestotal production.)Under these empiricallyrelevant
conditionsof risk aversionand uncertainty,the one-periodcontractcan achieveonly a second-best
solutionsince increasesin the outputshare parameterabovethe second-bestequilibriumvalue, while
increasingexpectedproduction,are no longerPareto superiorsince they lower the risk-aversetenant's
utility by exposinghim to greater uncertminty.
56
Recastingthe problemin a multiperiodcontextand allowingfor reputationeffects,
however,providesoptionsfor bringingthis second-bestopdmumcloserto the firstbest outcome.
Otsuka,Chuma,and Hayami(1992)discussthe conditionsunder which, In a multiperiodcontext, the
threat of loss of reputationwill preventthe landlordfrom cheating,and so the fixed-rentcontractwill
tend to dominatethe fixed-wagecontractas it does in the certaintycasejust described.They argue
that in relativelyclosedvillages,such Implicitenforcementby the communitymay be strong enough
to bring the inefficientoutcomeunder the unenforceablecontractcloserto the first-bestoutcomeeven
if risk is present.This conclusionis consistentwiththe empiricalobservationthat fixed-wage
contractsare found only wherethe institutionalenvironmentdiscriminatesagainsttenancycontracts
(see section3 and below)but is inconsistentwith the overwhelmingprevalenceof share-cropping
relativeto fixed-renttenancies.
Choice of contracts and factor market constraints
There is considerabletheoreticaljustificationand evidence(Blissand Stern 1982;Pant
1983;Nabi 1985;Binswangerand Rosenzweig1986;Skouflas1991;Shaban 1991)that where
marketsfor lumpyinputssuch as managementskills and draft animalsare imperfect,householdsseek
to achievethe optimaloperationalholdingsize throughland tenancycontracts.Giventhe nontradable
factor endowment,land rental wouldbe expectedto increaseefficiencyif a fixed-rentcontractis
chosen. The relevantquestionis whethershare contractswouldincreaseefficiencyas well.
A limit on the workingcapitalavailableto the tenant(or to landlordand tenant)because
of imperfectionin the credit market, can leadto the adoptionof a share contractas the optimal
solutionto the bargainingproblem.Laffontand Matoussi(1981)showthat a worldngcapital
constant imposeslimitson the share parametera that may makethe first-bestfixed-rentcontract
unfeasible.Their model impliespositivecorreladonbetweenthe tenants' workingcapitaland his
output share a. A positivecorrelationbetweenworkingcapitaland outputin the share contractbut
the absenceof such an effectin the fixedrent contractwould indicatepresenceof an incentive
problem. Considerationof the joint workingcapitalavailableto tenantand landlorddoes imply a
negativerelationshipbetweenthe landlord'sworkingcapitaland the tenant's share. All of these
predictionsare confirmedempiricallyfor a set of datafrom Tunisia. his direct dependenceof the
opdmalchoiceof contracton the workingcapitalavailableto both landlordand tenantmay account
57
for the coexistenceof a varietyof contractsin the sameenvironmentamongparties with roughly
similar risk aversionbut differentendowmentsof workingcapital.
Thus the mainreasonthat nterlinked
contractsand cost-sharingarrangementsare so
commonmay be that they implicitlyprovidethe credit or insurancea tenant needs in an environment
wherecredit and insurancemarketsare imperfect(Otsuka,Chumaand Hayami1992).The traditional
interpretationthat these interlinkagesare devicesused by landlordsto bring the second-best
equilibriumcloserto the first-bestoutcomeby increasingthe tenant's supplyof effort(Bravermanand
Stiglitz1982;Mitra 1983;Bravermanand Srinivasan1981)requiresstrong assumptionsthat are
generallynot satisfiedin developingcountries(Otsuka,Chuma,and Hayami1992).
A tenantmay be able to meet only part of his (working)capitalrequirementsin the
credit marketbecauseof the limitedsuitabilityof unharvestedcrops as collateral- and at higher
interestrates than the landlordwouldget by offeringland as collateral.The landlordis in a better
positionthan other financialintermediariesto providea tenantwith implicitcredit and actuariallyfair
insurancebecauseof economiesof scope in supervisionand informationaladvantagesconcerningthe
value of the tenant's unharvestedcrop. Sincethe amountof credit providedwill be relatedto the
tenant's expectedfuture income,the landlordcan set the contractualfixedpaymentto zero and stfllbe
free to adjustthe interestrate, or acceptthe customaryinterestrate and adjustthe fixedpaymentand
share parameter,to realizean optimaloutcome(Otsuka,Chuma,and Hayami1992).
A popularform of implicitcredit is the landlord'sprovisionof inputsto the tenantunder
a cost-sharig arrangement.Providinginputsthis way is formallyIdenticalto an implicitproduction
loan which, like interlinkedcontracts,wouldbe adoptedwherecredit marketsare imperfect.Static
analysisof costsharing a
em
may thus be inpropriate if credit constraintsare to be taken
filly into account.Calculatingthe implicitinterestrate charged for such productionloans wouldhelp
determinethe equity and efficiencyconsequencesof share-croppingarrangements.Tbe few empirical
studiesthat have been done suggestthat the interestrates may not be significandydifferentfrom those
chargedby moneylenders,rates reachingas high as 50 percent(Fujimoto1986)or even more
(Morookaand Hayami 1986). Wherethere are imperfectionsin credit markets, it is possibleto
derive the preciseconditionsfor share contractsunder whichthe benefitsfrom overcomingthe credit
58
marketImperfectionswouldbe greaterthan the loss resultingfrom the Marshallianinefficiency
(Shaban1991).
If tenantsare assumedto be willingto bear greater risk as their wealthrises (decreasing
absoluterisk aversion)then both workingcapitalconstraintwith imperfectcredit marketsand risk
aversionby tenantswouldgenerateobservationallyequivalentoutcomes.For a sampleof Tunisian
farmers,Laffontand Matoussi(1988)foundthat a credit constraintrather than risk aversionled
farmersto prefer share over fixed-rentcontracts.Sincecredit and insuranceare at least partly
substitutable,it is likelythat improvementsin financialmarketsand in the insurabilityof risk will
lead to a decreasein share contractsin favor of fixedrent contracts.Sucha shift shouldresult in a
gain in overallefficiencysincefixed-rentcontractshave superiorincentiveproperties.
None of the land rental modelsdiscussedhere, or even Marxian-inspiredmodelsof
semifeudalism(Bhaduri's1986)considersthe tenant's reservationutility - usuallythe marketwage to
be endogenouslydetermined.Insteadthey explaininefficiencyand inequitiesas consequencesof the
contractsthemselves,despitethe fact that such contractsare enteredvoluntarilyby both parties (see
epilogue). But in light of the discussionin section2, it wouldbe surprisingindeedif landlordswith
some politicalpower did not try to find waysto reducethe reservationutilityof potentialtenantsand
workers.
Governmentsthe worldover have been concernedaboutthe efficiencyand distributional
implicationsof such tenancyarrangements,whichin essencedependon the relativebargainingpower
of each of the contractig partners. Tenancyand sharecroppinghave thereforebeen heavily
regulated.The empiricalevidencesuggeststhat governmentinterventionsinto these have had little
successin achievingtheir stated objectiveof protectingtenants, whichis hardlysurprisinggiventhe
market imperfectionsleadingto the emergenceof share tenancy,and the designdifficultyto welfareimprovinginterventons. Historically,land reformthat resultedin establishingowner-operatedfarms
appearsto have been a far more successfulway of addressingthe equity question.
Evidence on efflidencyof tenancy arrangenents
59
and draft animalswere significantlylower on sharecroppedplots than on ownedparcels. No
statisticallysignificantdifferencesin efficiencywere found betweenownedplots and plots rented on a
fixed-rentbasis, supportingthe hypothesisof the productiveefficiencyof fixed-rentcontracts.Other
resultspoint in the same direction(Sen 1981),and Otsukaand Hayaml's (1988)reviewof the
literaturefinds, at most, small efficiencylossesassociatedwithtenancy.
Governmentinterventionshave givenrise to efficiency-reducing
share contractsin a
numberof countries.Otsuka,Chuma,and Hayami(1992)arguethat in India, wherethe Belland
Shabanstudieswere conducted,there were a numberof governmentconstraintson long-termfixed
rent contracts.That impliesthat the 16 percentin productionlosses adjustedfor land qualityderived
by Shabanare likelyto constitutean upper bound.
L
transactionsto circumventimperfectionsin credit marketshave been importantin
WestAfrica in the past (Robertson1985),and continueto be observedin a numberof developing
countrieswherecredit marketsare absentor credit is highly rationed.Usufructmortgageis still
reportedto be commonin Bangladesh(Cain 1981),Java (Morookaand Hayami1986),and Tbailand
(Fujimoto1988).In the Philippines,tenancytransactionsemergedas a credit substitutein responseto
limitationson the transferabilityof land (Nagarajanand associates,1991).
Wherethere is imperfectinformation,on tenant' unobservablecharacterisics,landlords
may inpret
the tenants' acceptanceof certin types of contractsas a signalthat can be used as a
self- selecing screeningdevice(Newberryand Stiglitz1979). The preferencefor tenantswho already
possesssome land and draft animals,whichis well documentedin the literature(Quibriaand Rashid
1986;Shaban1991)pointsin the samedirecdon.
Tenancyhas often been describedas a rung on the 'agriculturalladder' that rises from
workerto share tenant, to fixedrate tenant, to ownerand permitsfarmersto acquirecapitaland
griculturalknowledge.In a static firamework
this has been modeledby makingproductiona fimction
of tenats' effortand the landlord'sprovisionof managementskills (Eswaranand Kotwal1985).
Aldtoughquantitativeevidenceis limited,Reid (1973)arguesthat this functionof tenancyplayedan
importantrole in the U.S. South afterthe abolitionof slavery.Lehman(1986)notedthe importance
of tency in facilitatingcapitalaccumulationin the intergenerationaltransfer of farm holdingsin
61
Ecuador.Tenancywouldbe expectedto facilitatecapitalaccumulationwhere land is abundantrelative
to labor and where rents or owners' shares are low. Longitudinalstudiesof changesin tenancy
pans
and capitalaccumulationover the life cycle of tenantswouldhelp shed morelight on the
relativeimportanceof this phenomenonin differentenvironments.
Condusion
Becauseof the productivityadvantageof small over large farms, it is moreprofitablefor
large landownersto rent out land under fixed-rentcontractsthan to work it using hired labor, if
marketsand informationare perfect. If effortis unobservableand credit is rationedor insurance
marketsare imperfectand tenantsrisk averse, the first best fixed-ratetenancycontractmay no longer
be attainableand a second-bestshare contractwouldbe adoptedinstead.
Empiricalinvestigationsshowthat share tenancyarrangementsunder a wide varietyof
conditionsare a highly flexibletool for adjustingto such constraintswith relativelymodestlosses.
Since effortis not fully enforceableand even limitedenforcementis likelyto be associatedwith some
cost, the adoptionof share tenancy(or wage labor)contractswouldstill be associatedwith some loss
of efficiency.Removingthe conditionsthat prompt the emergenceof share tenancyare likelyto lead
to modest efficiencygains and will be more effectivethan legal prohibitionof such contracts(see Part
II). Greaterefficiencygains may be associatedwith the removalof the distortionsthat lead to the
adoptionand perpetation of wage labor contracts,and large commercialfarms rather than fixed-rent
or share contracts.
PARTm: LANDPOUCY
Many institutionalarrangementsin land marketsemergeas a resultof attemptsby the
contractingpartiesto overcomeproblemsof asymmetricinformation,moral hazard, and covarianceof
risk. Other types of institutionalaangements representinterventionsby the governmentor
communityintendedto produceoutcomesthat are more congruentwith the society'sobjectivesthan
those that wouldbe generatedby marketforcesalone. Here, we wI define efficiencyand equity as
the main objectivesunderlyingintventions in land markets,althoughequity can be considereda tool
62
for achievingthe more encompassingobjectiveof minimizingsocialtensions.The two objectivesare
not alwayscompatible;in some situationsinterventionsthat facilitategreater equitywould reduce
efficiency,and vice versa. But not always.
Four broad types of land distributionand productionrelationsremaintoday (figure 1),
each with its own characteristicpolicy problems. Familyfarm systemsunder freeholdor communal
tenure face problemsof accessto credit, land registrationand titling, tenancyregulation,
fragmentation,and taxation.Communitiesin whichcommunaltenure prevailsface decisionsabout
allowingsales to outsiders.Wherelarge scalemechanizedcommercialfarms coexistwith low wages
and unemployment,governmentshave to considerways,such as the eliminationof tenancy
regulation,the eliminationof agriculturalsubsidiesand/or land reform,to make farm size
distributionsmore compatiblewith equityand efficiencyobjectives.In wageplantationsystems,
contractfarmingand taxationare the importantissues.For collectiveand state farms systemsthe key
or privatizationshouldaim to establishlarge commercialfarms
concernis whetherdecollectivization
or smallfamilyfarms.
7. Landregistration and titling
The issues
Land dtles an registation reducethe problemsof asymmetricinformationand thus
providethe instittional frameworkto facilitateland sales. Suchtransferscan enhanceefficiencyby
transferringland from bad managersto better farmersand by facilitatingthe use of land as collateral
in the credit market. Transfersof land, whichare facilitatedby land tides may negativelyimpact
equityas well as efficiencyif economicand insdtutionaldistortionsencouragesaccumulationof land
by influentialor wealthyindividuals.As establishmentand maintenanceof land tidiesis not costless,
whetherto introducetitdinghas to be based on a comparisonof the benefitsof land tites over and
aboveexistng arrangementsto regulateland transactionsand the likelycost of such arrgemes.
In the early stagesof agriculturaldevelopment,transactionsin land take place mainlyamong
individualswho are membersof the samecommunityand who generallyshare informationaboutthe
63
rights enjoyedby a renter or a seller, and aboutrights to specifictracts of land. With more advanced
agricultureand increasedmobility,communalconstraintson sales to outsidersare abandonedand
transactionsare increasinglywith individualswho are not membersof the samecommunity.The
scope for asymmetricinformationincreases,generatinginefficienciesin the land market since the
price of land may no longer reflectits true social valueand the extentof land transactionsbecomes
less than optimal.To reducethese informationalinefficienciesand the associatedwelfarelosses,
societiesdevelopinstitutionalarrangementsto reducerisk, such as the requirementin the Arthsastra
(4th CenturyB.C. in India)that land transactionsbe conductedin public with witnessesor the
establishmentof a centralizedpublic registerthat tracks land plots and those who have rightsover
these plots. As early as 600 B.C., the Bibledescribesa land transactionbetweenthe prophet
Jeremiahand a relative in whicha writtenrecord of the transactionwas kept in two copies with a
certainpriest in Jerusalem.
Public registersprovidepotentialbuyersor renters of land with a wayto verify that the
rightsthey are aboutto purchasebelongto the seller. A functioninglegal systemand effective
enforcementmechanismsare other institutionalarrangementsdesignedto reducethe uncertainty
relatedto land transactions.Withoutsuch arrangementsto reducethe risk of challengesto land rights,
the incentivesto investand to workhard are weakened.It is often more efficientto reducethe risk
through the provisionof public goods (and records, police,judiciary),than trough the private
individualallocationof resources(guards,elaboratefences).2
AsymmetricInformationand risk are at their extremesin frontierareas, wherespecific
plots have no previousowners,thoughthe governmentusually claimsformalownership.While often
the land is subjectto a generalclaimby trbal groups who have been using it for hunting,gathering,
horticultureor livestockgrazing, some of it is also claimedby individualswho have migratedfrom
other areas. Sincethere Is no culturallyunifiedcommunityfrom whichto ubtain knowledge,the
administrativeinfrastructureOandrecord, offices,courts, police) typicallybecomesoverloadedby
claimsand counterclaims. It is not uncommonthen to find private(and necessarilysegmented)
institutionsprotectingpropertyrightsover land (gunmen,fortifiedproperty).And becausethe
2 In Ugand and COted'Ivoie, Ind privuiiaon significandy
decreasedrids and rdacon coss
associatedwithtransfernglnd relt
in inasd landtrasfr, a factorcommonly
associated
withhigher
productivity
in agrculture
(BarrowsandRoth1990;Atwood1990).
64
Institutionsfor recordingpropertyare not well developed,land claimsbased on forest clearingcan
leadto excessivedeforestation(Southgate,Sierraand Brown 1991).
Institutionalarrangementsfor land recordsand title documentsalso have beneficial
implicationsfor credit markets.In lending,asymmetricinformationprovidesamplescope for moral
hazard. Collateralhas long servedas a meansof minimizingthe efficiencylossesassociatedwith
asymmetricinformationand moralhazare nndland has traditionallybeen viewedas an ideal
collateralasset in areas whereland is scarce (Binswangerand Rosenzweig1986).For land to be
usefulas collateral,however,the lender needsto be assuredthat the borrower-operatorhas the right
to disposeof the land by sale or the transferof use rights.Thus the documentationof land rights
makesland a form of crediblecollateral,affectsthe willingnessof lendersto makeloans and may
make credit marketsmore efficient(Feder,Onchan,and Raparla, 1988).Wherethe inabilityto use
untited land as collateralfor credit is the relevantconstraint,the issuanceof titles can providea
solutionin the long term. Butother constraintssuch as smallfarm size prevent the operationof a
credit markets,land titles may fail to be usefuluntilthese obstaclesare not removed(Atwood1990).
Under ideal conditionsgovernmentinterventionin land registrationis theoretically
neutralin its effecton equity.In practice,however,titlingc3nlead to greater concentrationof land
and to the dispossessionof groupsthat have enjoyedland rightsunder a customarysystemthat
predatedthe formalsystem.When titlingis introduced,wealthierand beter connectedindividuals
may use their informationadvantagesto claimland over whichother, less informed,individualshave
customaryrights. Even when there are no informationadvantages,titling based on the on-demand
principleinvolvesfixedand relativelyhigh transacton costs for surveysand bureaucraticprocessing
that put smallholdersat a disadvantage.The equity-reducingimpactsof titing on this basis are wellknown.The introductionof selectivedtlingon demandgreatlyfacilitatedthe emergencyof haciendas
in CentralLuzon (Hayamiand Kikuchi1984),Guatemala(Cambranes1985),El Salvador(LindoFuentes 1990),and Nicaragua(Newson1987).In Boliviaduringthe 1980s,the tiding agencygranted
titles to very large farms in the EasternLowlandswithinone to two years, whileapplicationsfrom
smallbolderswithoutthe benefitof helpfullawyershave an averageprocessingtime of 12 years.
Bruce (1988)notes that land grabbingby influentialindividualsduringtiding programswho are able
to use the rules in their favor did more to facilitateland concentrationthan transactionsin the land
market followingthe issuanceof tides. The profitabilityof consolidatingseveralsmall untitled
65
holdingsand geting a singletitle providesincentivesfor w'althy individualsto buy out smalholders
and to concentratetheir own holdings. Titled land also providesadvantagesin the credit market
(Feder, Onchanand Raparla 1988)that are likelyto increaseincomedisparity.
The policy implications
To avoidtheseundesirableeffects,titlingprogramsshouldbe accompaniedby publicity
campaignsto ensure widespreadlnowledgeof the rules and procedures.Both equity and efficiency
considerationsargue that titling programsby systematicrather than on demand.Efficiencyis
increasedthrougheconomiesof scale and equityby the fact that all claimsin an area are registeredat
the sametime. The ryorwarisys. a introducedby the BritishsystemIn SouthernIndia around 1820
and similarsystematicttling progrmnselsewhereshow that conflictingclaimscan be dealt with
dhrougha relativelyquickadministativeprocedurerather than throughlengthyand costlylegal
channels.
Becausedtling programscan be expensive,the issue of optimalexpenditureis relevant
(see Malikand Schwab1991).Feder and Feeny (1992)have demonstratedthat when individual
wilingness to pay for tidtlingdeterminesthe aggregatepublic expenditure,there may be a tendencyfor
over-investmentfrom a socialwdfare perspective.Frequenty, some less costlyarrangementthan
foral titling may significantlylessenthe problemof asymmetryof information.In Rwanda,the local
municipalityissuesaffidavitsthat attestto he ownershiprightsof specificindividualsover specific
tracts of land but are not based on precisesurveys(Blareland associates1992). A lower cost system
was also used in Thailandprior to the inrduction of formaldtling (Siamwallaet. al. 1990, Feeney
1988).
Communalsystemsconstitutea specialcase. Communalland is not consideredadequate
collateralIn formalcredit systemsbecauseof constraintson sales to outsiders.Issuing individualtitles
in communitiesthat maintainsuch constraintsmay improveneitherthe securityif tenure nor access to
credit, althoughindib±ual tides wouldbe helpfulto avoidbarriersto the emergenceof rental markets
within the community.Untilthe restrictionson trnsfers to outsidersare eliminated,a community tle
could be issuedto ensure the community'ssecurityof ownershipagainstwell-connectedoutsiders.
Paeu
(1992)advocatesregisteringland as corporateproperty as a wa, of decreasingthe costs
04.!
associatedwith tiding whilereapingmanyrelated benefitssuch as insurance,flexibilityof land
allocation,and the utilizationof genuinescaleeconomiesin subsidiaryactivities.Experiencewith
group ranchesin Kenyasuggeststhat imposinggroup titles from aboveis unlikelyto be successful
while issuingindividualtides doesnot preventfarmersfrom taking advantageof scale wherethey
exist (Grandin1989).
Anothercase for communitytitles concernscommonpropertyresources,such as
communalpastures, forests,or other marginallands. Such areasconstitutean importantsafetynet for
the poor that may be particularlyimportantin high-riskenvironmentswherealternativemeans of
insuranceare unavailable.Communitymechanismsfor managingcommonproperty resourceshave
tendedto weakenwith economicdevelopment(Lawry 1991;Jodha 1986and 1990), and privatization
of such resourcesin India has led to significantincreasesin yields.But the preservationof common
propertyresourcescouldbe desirablefrom an equityperspectivesince privatizingtheselands takes
awaya part of the social safetynet for the rural poor. Providinga communitytidtlefor these lands can
protect communalrights from outsideencroachmentand preventthe poor from beingexcludedfrom
communalproperty.We need to learn more aboutthe managementand the relativeimportanceof
such areas to specificsocial groups.
Assessmentsof the impactof individualtitlingon efficiencyvary. Atwoodemphasizes
that in a distortedenvironment,introductionof land titles may decreaseequityand efficiency.Feder,
Onchan,and Raparla(1988)findthat in Thailand,wherepossessionof a tide can be considered
exogenous' output is 14 to 25 percenthigher on titled land than on untitledland of equal quality.
The marketvalue is also muchhigherfor tidtledland than for untitledland of similar quality.Less
rigorous evidenceis providedfor CostaRica by Sals and associates(1970),who estimatea positive
correlationof .53 betweenfarm incomeand title security.Studiesin Braziland Ecuadoralso suggest
a positiveassociationbetweenfarm incomeand tidtles(IDB 1986).But severalstudieshave
demonstratedthat the credit marketadvantagesof titles accountfor the lion's share of their effects
and that ownershipsecuritydoes not significantlyaffectdemandfor tiding (Adhollaand associated
1991).rTtlingmay have no significanteffectat all whenlegal or customaryrules limit land
> If thedecisionto acquiretitleis endogenous,
estimation
of theeffectsof tiling usingcrosssectiol da
is subjectto simultaneity
bias(Boldt1989;Stanfield1990).
67
asactions and credit marketsare weak. In Latin Americawhere credit marketsare more devdoped,
recentland dding programsappeargenerallyto have led to increasesin the value of land, without
encouragingincreasedconcentration- at least in the short term - (Stanfield1990).
68
8. LandTax
The issues
In most developingcountries,land taxeshave evolvedfrom tributepaymentsto feudal
lords or to a colonizingpower. Becausethe taxeswent to centralgovernmentbudgets,local
willingnessto pay dependedon strong enforcementby tax collectors,who shared in the revenues.
Inflationand the difficultyof centralizedcollectioneventuallyled to the erosionor complete
disappearanceof such taxes. Today,the policyquestionis whetherto reinstateland taxes and,
perhaps to use themto financeinvestmentsand servicedin localjurisdictions,as is done successfully
in the United States.In theory, a tax on land has three main advantagesover a tax on agricultural
outputor exports:(1) if a land tax is based on the potentialmonetaryyield of a certainplot under
normalconditions,a land tax has minimaldisincentiveeffects;(2) it facilitatestaxationof the
domesticagriculturalsectorwhilebeingmuchless regressivethan poll taxes; and (3) if the tax basis
is changedinfrequendy,a land tax doesnot discourageinvestmentin land improvements.
If risk is high and insurancemarketsare unavailableor imperfect,introducinga
significantland tax (basedon averageincomes)can lead to increasingland concentrationas Hamid
(1983)has shownfor India. Under these conditions,a tax based on actualoutput, whichacts as an
insurancemechanismin the same wayas sharecroppingdoes, mightbe preferableto a lump-sumtax
on land (Hoff 1991).It can be shown,however,that for realisticvaluesof risk aversion,income
variation,and exporttaxes, producerswouldprefer a land tax, balancedby an equivalentreductionof
exporttaxes (Skinner1991).
Administering a tax on land effectivelyand equitablyrequireshavingan officialrecord,
or cadastre,of the size, value, and ownershipstatusof eachtract of land, its productivecapacityand
informationon the costsof outputsand inputs.Land tax administrationalso requiresa propertytax
law that assignsproperty rightsand tax obligationsand an administrativeorganizationthat keeps the
registerup to date and assess, collects,and enforcesthe tax (Bird 1974).Even in the few developing
countriesableto meet theseconditions,land taxes are relativelyunimportant,suggestingthat the
administrativeor politicalcostsmay be higherthan the incentiveadvantagesassociatedwith a land
tax.
69
Progressiveland taxes are oftenadvocatedas a meansof makingland speculationless
attractiveand inducinglarge landownersto sell out or use their land more intensively(see Hayami,
Quisumbing,and Adriano 1991on the Philippines).Landownersoften findwaysaround such taxes,
however,from establishingdummydivisionsof their holdingsto lobbyingfor exemptionsfrom
progressiverates associatedwith effectiveuse of the land (as in Brazil), whichsharplydiminishthe
effectivenessof progressiveland taxes in breakingup large commercialfarms. Suchan approachwas
appliedand failed in Argentina,Bangladesh,Brazil,Colombia,and Jamaica(Strasma,Aism, and
Woldstein1987;Bird 1974);Carter (1992)in a simulationmodel calibratedto Nicaraguafindsthat a
progressiveland tax is unlikelyto significantlyalter the distributionof land. And even if such taxes
did work, it is not obviouswhy suchan indirectapproachwouldbe politicallymore acceptablethan
direct redistributionof land. Progressiveland taxesare also likelyto be associatedwith higher
administrativecostsand protractedlitigation.
Plicy implications
Wherethe administrativerequirements- an up-to-datecadastreplus administrative
organization- are lacking, flat or mildlyprogressiveland taxesbased on rough classificationof
holdingsmay still be useful for raising revenueand providingsomemodest incentivesfor ownersto
sell off poorly utilizedland. The UnitedStateshas found successby assigningthe administrationof
land taxesto local authoritiesand earmarkingtax revenuesfor local infrastructureand local
governmentservices.By increasingthe localvisibilityof the benefitsfianced with the tax revenue,
this approachmay increasewillingnessto pay a land tax. It may also reduceadminisrativecosts since
local governmens shouldbe better able to assessland valuesand land ownership.
9. Regulations
dmiting
land sales
Governmentsand local authoritieshave often placedrestrictionson land transactions.
Restrictionsare typicallyplacedon land sales and rentalswhen major changesare introducedto alter
the land ownershippattern (redistnbutiveland reform or settlingprograms).The restrictionsare
designedto prevent an increasein the numberof landlessand in the social tensionsthat accompany
landlessness.Since these restrictionsalso preventsometransfersof land from worse to better farmers
70
or managers,there is likelyto be some efficiencyloss. Such restrictionsare frequentlyevaded,
however,throughdisguisedsales and rentls, whichare likelyto involvetransactioncosts that
constitutea loss to society.
Restrictionson the rights of land reformbeneficiariesor settlerson state-ownedland to sell the
land also reducetheir accessto credit. Oftennew ownersare forbiddento mortgagetheir land during
an initialprobationperiod. Sincethat periodcoincideswith the establishmentphase,when their need
for credit is most urgent, the efficiencylossesmay be considerable.Landrental contracts(usufructmortgagingand kasugpong
contracts) that have arisenas credit substitutes,in some places, such as
the Philippines(Nagarajan,Quisumbingand Otsuka1991)involveconsiderableefficiencylosses.
Sometimesrestrictionson sales are not total, as in communalsystemsthat permit sales
only amongmembersof the community.The welfarelossesfrom the sales restrictionsare less than in
the case of a total ban, but they are not completelyeliminated.
In the early years after a redistributiveland reform in areas whereland marketsare thin
and accurateinformationmay not be availableon the expectedstreamof incomesfrom the land, it
may be reasonableto imposea temporaryrestrictionon sales of say, three to four years.That would
allowsufficienttime to acquirelnowledgeabouta farm's potentialand to avoidsales at prices below
the real value of the land, whichwouldrun counterto efficiencyand equityobjectves. Such
restrictionswouldnot be needed,however,in areaswhere formertenantsreceive land they have been
tilling sincethey can be assumedto have adequateknowledgeof the land. In the case of partial
restrictionsunder communalsystems,the ban on sales to outsidersmay serve a protectiverole in
environmentswhereoutsiderswith strong politicalconnectionsmay attemptto take over land in the
community.Whereappropriateinstitons for inragroup decNsion-making
are available(Libecap
1986), permittingthe communityto limit sales and givingit the right to decidewhetherto eventually
allowsales tD outsidersmay be an acceptablecompromisebetweenequityand efficiencyconcerns(see
Barrowsand Roth 1990).As traditionalsocialties loosenor the efficiencyloss from the sales
restrictionbecomestoo high, groups are likelyto allowsales to outsiders.The recentconstitutional
reform of the land rightssystemIn Mexicoallowsfor free sales and rental withinall efidos and for
decision-makingby majorityvote on whetherto eliminatethe restrictionon sales to outsiders.
71
The most commonmeansof restrictingland sales are upper and lower bound size
restrictionsand zoningregulations.Land ownershipceilingshave often been imposedin an attemptto
break up large estatesor to preventtheir reconcentration.Amongcountriesthat have imposedceiling
are Bangladesh(Abdullah1974), India(King 1977),Indonesia,Japan, Korea, Pakistan,South
Vietnam,Taiwan,Egypt, Ethiopia,Iran, Iraq, Zimbabwe,Bolivia,Cuba, El Salvador,Guatemala,
Mexico,and Peru. Whilesuch ceilingscan theoreticallyincreaseefficiencywherea negative
relationshipexistsbetweensize an,. vroductivity,in practicethe ceilingshave been evadedthrough
fictitioussubdivisionsor have becomesuperfluousover time through inheritance.Ceilingswere often
commodityspecificprovidingmuchlarger limitsfor sugarcane,bananasor livestockranching.
Therefore, they encouragedinefficientconversionto productswith the highestceilings.Rarelydid
ceilingsalone enablethe poor landlessor extremelysmallfarmersto vurchaseland; rather, they
enabledfarmerswith medium-sizedholdings,who had alreadyacquiredsome equity,to enlargetheir
holdings(Chile).
Despitethese flawsand loopholesin practice, severalstudiesdo credit land ownership
ceilingswith a major role in preventingnew large consolidationsafter land reform (Cain 1981;
Mahmood1990). In Japan and Korea,successin preventingthe reaggregationof land may be
attributedas muchto the availabilityof attractiveinvestmentopportunitiesoutside agricultureand to
noneconomicfactors sucLas attachmentto land as to the ceilingson land holdings.Ceilingsimposed
foLlowing
a land reform that results in fairly homogenousholdingsmightbe effectiveand less
disortionary in preventingmassivereconcentrationof land.
At the oppositeend, resricdons on minmwn holdingsize are intendedto prevent
excessivefrgentation of farms. While it is not clear that fragmentationis alwaysa negative
phenomenon(see below)a floor on farm size might providea usefulcountervailingeffect in a society
whereinheritancecustomslead to extremelysmall farms. Whetherthe interventionimproves
/
efficiencydependson the specificcircumstances.Also to be consideredis that many restrictionson
subdivisionof land or minimumholdingsize have historicallybeen used to prevent ex-slaves,tenants,
andother powerlessgroups from acquiringownershiprightsto land and thus eventuallycompeting
with fanm establishedby the rling group. Restrictionson the subdivisionsof large farms in Kenya
and Zimbabwehave limitedthe prospectsfor land resettlementschemes(Leys 1974)and in these
circumstancs clearly reducedefficiency.
72
Governmentsoften adoptzoningregulations,.e. assignspecificuses to certain lands to
overcomeenvironmentalexternalitiesrather than allowingmarketforcesto determineland usage.In
urban areas, the objectiveof zoning is to preventcommerciaor industrialactivitiesfrom locatingin
residentialareas and creatingnoise andpollution.In rural areas zoningof land for agriculturaluse
providesbenefitssuch as tax credits, exemptionfrom assessmentsfor urban type services, eligibility
for soil conservationprograms,and proteceionfrom nuisancesuits, but foreclosesthe optionof selling
the land as a residentialproperty.? In general, zoningisjustifiedif negativeexternalitiesneed to be
reducedby more than the cost of zoningenforcement.
Zoning laws establishedfor social or environmentalreasonsmay run counterto
economicincentives.Zoning may then need to be supportedby some type of incentivemechanism,
and politicalsupportfor implementation
of the regulationsbecomesessentialto their enforcement
(Barrowsand Neuman1990).If there are sharp conflictsbetweenprivateprofitabilityof land uses
and zoningregulationsin a countrywith weak institutionalinfrastructure,and little popularsupport
for the zoningmeasures,zoningmay lead to excessiverent-seekingand corruption.If zoningresults
in the emergenceof extensiverent-seekingthe benefitsmay greatlydecreaseor even becomenegative
(Mills 1989).Zoning laws affectsupplyand demandfor land and may lead to consumermobilityin
responseto zoning Mfebouteffects).The attemptto counteractproductionor agglomeration
externalitiesthroughzoninglaws also generatesthe potentialfor rent seekingbehaviorby landowners
who either try to evadeexistingzoningregulationsor lobbyfor the impositionof a set of lawswhich
wouldprovidethem with a differentialadvantage.All of these issueshavebeen analyzedlargelyin
isolationof each other and a comprehensiveanalyticaltreatmentis not yet available(Pogodzinsi and
Sass 1990).
X Hmabeny and Barrows(1990)find that parcelcaterics
in geneal ddemine whvetr agicultusb
zoni haspositiveor neptive pnce effects,in paicular parcl i and ditance fromurbanareas.(For a
toviewof theeffectsof urbanizaioD
on agnculture,sweBhadraandBrmndao1992.)
73
10. Fragmentation and consolidatlon
The Issues
Whilegovernmentsofteninterveneto preventfragmentationof farm land, such
interventionis not alwayseconomicallyjustified.Tbat requiresthat inheritancecustomsor other
exogenousforcesbe responsiblefor most of the fragmentation,that losses from fragmentationbe
substantial,and that existingmarketsbe unableto counterfragmentation.
While inheritancecustomsprobablyexplainmuch of the fragmentation^f.arm land, it
may also reflectconsciousdecisionsby farmersseekingto reducetheir risk by diversifyingtheir farm
land and thustheir crops (McCloskey1975).'Ibis factor is likelyto be importantwhereother riskdiffusionmechanismssuch as insurance,storage,or credit are unavailableor are associatedwith
higher coststhan fragmentation.Fragmentationmay also help to smoothout labor requirementsover
time wherelabor requirementsare highly seasonal(Fenoaltea1976).
Amongthe disadvantagesassociatedwith fragmentationare physicalproblems(increased
labor time, land loss, need for fencing,transportationcosts, and limitationsto access);operational
difficulties(unsuitabilityof certain equipment,greater difficultywith pest controland management
and supervision,foregoneimprovementssuch as irrigation,drainage,and soil conservation);and
social externalities(needfor extensiveroad and irrigationnetworks;Simons1987).The few studies
whichquantifylossesfom fragmentation developingcountriessuggestthat the lossesinvolvedare
modest,althoughfurther studiesof the efflciencyof farms or lossesfrom fragmentationare clearly
needed.Indeed, Hestonand Kumarclaimthat in Asia *it is hard to findinstanceswhere
fragmentationhad involvedhigh lossesin output' (1983:211),and in Ghanaand Rwanda,Blarel and
associates(1992)findfragmentationdoes not seem to hurt productivityand does improverisk
diversificationand the allocationof familylabor over time.
Policy impllcatIons
Relyingon the marketto eliminate
tation is liklcyto involvehigh transaction
costs to coordinte transfersamonglarge mumbersof landowers. Transactioncosts are muchlower
74
under goveramentprograms,whichare normallycoerciveand includea range of other development
initiatives,and returnscan be high - Simons(1987)findsreturns of 40 percent for France. However,
if the forcesthat led to fragmentationremainunchanged,land consolidationprogramsare unlikelyto
have any long-termeffect (Simons1987;Elder 1962).
Whenshouldsomethingbe done aboutfragmentation?Experiencein industrialized
countriesshowsthat fragmentationbecomesa seriousconstraintrequiringinterventiononce it impedes
the abilityto use machineryon a large scale in areas with a rapidlydecreasingagriculturalpopulation
(Bentley1987).This is rarely the case in developingcountries,with their high populationdensities.In
addition,consolidationprogramsare likelyto take a long time to complete,and they require
considerablehuman capitaland well-developedcadastresand land titles. Immediategovernmentaction
to consolidateholdingsdoes not appearto be a high priorityin most developingcountries,considering
the high costs and the potentialreductionof interestin fragmentationas rural credit and insurance
marketsimprove.
11. Restrictionson land rentals
The !ssues
Governmentshave often introduced
tenuresecurhyand rent controllegisladonto protect
tenantsfrom arbitraryevictionor to limit the amountof rent landlordscan changc.The unintended
result has often been the evictionof tenantsat the first hint of suchlegislationand the landlords'
resumptionof self-cultivationon the home farm, resultingeventuallyin the formationof Junker
estates.In India, atempts to pwvide greater land securityfor tenantscouldbe enforcedonly in stes
that imposedland ownershipceilings(King 1977), and even there, landlordsfoundwaysto evadethe
legislationby signingtenantsto short-termcontractswhichwere exemptfrom protection,or by
rotatingtenantsfrom plot to plot.
Whererent controlshave been effectivelyimplementedand combinedwith protection
from evictionas in the Philippinesor Taiwan,they do increasetenants' income,but sincethere Is no
transferof ownership,they are still likelyto resultin dynamicefficiencylosses. In the longerterm,
75
unless landownersfind waysto circumventthe restrictionon rents, such policiesare likelyto reduce
incendvesfor rentingout land, resultingin efficiencylossesfrom constraintson adjustmentsin
operationalfarm sizes. Investmentis also likelyto fall on farms on whichtenantshave a protected
statussince landlordsare unlikelyto investheavilyin land from whichthey are preventedfrom
evictingtenantswhile tenants' incentivesto investare weakenedby uncertaintyaboutthe inheritability
of the protectedstatus.
Bans on sharetenancyor low ceUingson the landlord'sshare are widespreadeven
whereother forms of land rental are allowed,such as the Philippines(Otsuka,Chuma and Hayami
1992), Brazil (Estatutada Tierra 1964),Zimbabwe(Palmer1979), South Africa (Bundy1985),
Honduras,and Nicaragua(Dorner 1992).These restrictionsare motivatedin part by the common
belief that share tenancyis exploitative(because,under conditionsof land scarcity,tenantsare likely
to receive incomescloseto their reservationwage)and in part by effortsto eliminatethe Marshallian
inefficiencyassociatedwith share contracts.But if the choiceof contractis endogenousand if share
contractsprovideefficiencygains under circumstancesof credit constraintsand high risk and
supervisioncosts, simplyprohibitingshare contractswithoutchangingthe underlyingframeworkof
market imperfectionsis likelyto result in very slightgains in efficiency(Otsukaand Hayami1988).
More likely,the bans will be ignored,givingwayto disguisedtransactionsor less efficientwage
labor contracs that improveneitherequity nor efficiency.Tenancyhas long been an important
transitionalstageallowingpeasantsto accumulatecapitaland gain agriculural experience,so
eliminationof sharecroppingas a rungon the agrarianladder will certainlynot contributeto equityin
the long run. And considerableinefficiencyin productionmay be associatedwith the absenceof
sharecroppingas an option, especiallywhererestrictionson privateownershipof land impedethe
functioningof fixed-rentmarkets(Noronha1985).Collier (1989)estimatesstatic efficiencylossesof
more than ten percent associatedwith unavailabilityof share contractsin Kenya. From al
perspectivesthen, bans on sharecroppingandlow ceilingon landlord'sshare have no merit.
76
12. Redlstributive land reform
The Issues
Most redistributiveland reform is motivatedby public concernaboutthe rising tensions
broughtaboutby an unequalland distribution.The commonpattern is concentrationof landownership
amongrelativelyfew large owners in an economywherelabor is abundantand land is scarce. Thus
the massesof landlesslaborersand tenantswho derive their livelihoodsfrom agriculturereceive
relativelyless incomebecausetheir only asset is labor. Redistributiveland reform can also increase
efficiency,by transferringland from less productivelarge units to moreproductivesmall, familybased units (section4).X6Yet, becauseof other marketimperfection,land marketswill not typically
effectsuch transformationsof ownershippatterns.The valueof the land to large ownersmay exceed
the discountedsum of agriculturalincomesmallholderscan expectto receivedespitetheir productivity
advantagesfrom lower supervisioncosts if there are policydistortionsfavoringlarge ownersor if the
accessof small farmersto long-termcredit haz alreadybeen exhaustedby mortgage-basedland
acquisition.
Marketvaluesof land are determinedin a waythat preventssmallfarmerswho lack
equity from buildingup viablefarms and improvingtheir standardof living whilerepayingtheir land
mortgage.Land reform schemesthat requirepaymentof the full marketvalueof the land are likelyto
fall unless specialarrangementsare made. In the simplestcase, beneficiariessoon defaultand the
program ends. Many ambitiousland reformprogramssimplyrun out of steam becausefull
compensationof old owners at marketprices imposesfiscalrequirementsthat the politicalforcesare
unwillingto meet - that was the fate of programsin Brazil, the Philippines,and Venezuela.Some
programsattemptto avoidthis problemby compensatinglandowners(with bonds)whosereal value
erodesover time. Not surprisingly,landownersopposethis thinly disguisedconfiscation,and such
programsare politicallyfeasibleonly in circumstancesof politicalupheaval(Cuba,Japan, Korea,
Taiwanor Vietnam).Anotherapproachis to financeland purchasesthroughforeign grantsor from
intal
tax revenuesor inflationarymonetaryexpansion- or some combination.
X Undercircuma
of extem povertyandlsndo
redistribution
of landcanalsoenhanceefficiency
by iprovng t nutnritional
wllbeig andthustheproductvecapacityof the population
(DasguptaandRay
1986and 1987,Mon. 1992).
77
Polley implications
Before any land redistributionprogramis ihtroduced,the implicitand explicitdistortions
whichdrive land prices abovethe capitalizedvalue of agriculturalprofitsneed to be eliminated.
Otherwise,small farmerswill continueto have an incentiveto sell out to larger farmerssince the
eavironmentwould still favor large ownershipholdings.In Brazil, the emergenceof an agricultural
structuredominatedby large farms owes muchto the policybias in favor of large farms (Binswanger
1987). The poor must be providedwith either the land or a grant to help them buy it to compensate
for their lack of equity. Credit to beneficiariesfor land purchasescan only play a subsidiaryrole."'
The macro-economicand politicalenvironmentalso stronglyaffect the outcomeof land reform
policies.In Chile, substantialincreasesin outputfollowedthe expropriationand redistributionof
almost20 percentof the total agriculturalland in 1964-70,muchof it due to the increasein
investmentinducedby the favorablemacroeconomicand politicalconditions(Jarvis 1985, 1989).In
contrast, outputfailed to increasesignificantlyduringthe decollectivizationand breakupirzo fawrily
farms in 1975-83,a periodof extremelyunfavorablegovernmentpolicies.Not until some of the debts
incurred to pay for the land had been forgivenand structuralimpedimentsaffectingsmall farmershad
been eliminateddid the programbecomefully effective.Removingdistortionsalso lowersthe amount
of grant assistanceneededby smallfarmersto supporttheir acquisitionof land.
The type of manorialestate has a substantialbearingon the gains to be expectedfrom
land reform. On landlordestates,would-bebeneficiariesare alreadymanagingoperationalunits so
land reform addressesprimarilythe equity concernsof society,transferringthe entidtlement
to land
rents whileleavingoperationalfarm structurelargelyunchanged.Potentialefficiencygains are
associatedwith improvedinvestmentincentivesand increasedsecurityof tenure (section3). With
haciendas,the threat of land reform legislationoftenleads to the evictionof tenantsand reductionsin
the residentwork force. The large commercialfarms that result are more difficultto subdividethan
landlord estatesor haciendas(de Janvry 1981, Castllo and Lehman 1983;de Janvryand Sadoulet
7 Organizations
suchas thePennyFoundation
is Guatemaa
havebeenableto buy landfromownersand
distbuteit to smallfaer.v with itle appan government
subsidies
(Foer 1992). Theseca usually
mvolvemome
grnt elemet or subidy thecreditprovnded
to thesmallholders,
or thepurchaseof theland
belowmarketpriceson accountof liabilitiesof thefomr ownr to govenmentinsituion or theworers
whichar forgivenas pat of thedea.
78
1989).Land reformsof Junkerestatesand large mechanizedfarms involvemajor changesin the
organizationof production.The residentlaborforce and externalworkershave little or no
independentfarmingexperience,and in manycases, neitherthe infrastructurenor the investmentsin
physicalcapitalprovidean appropriatebasis for smallholdercultivation.
The availabilityof technologyand of competitiveinputand outputmarketsthus becomes
a crucialdeterminantfor the potentialof land reform to increaseefficiency.Appropriateinstitutional
arrangementsare neededto ensureaccessto extensionservices,credit, and markets. Suchinstitutions
are especiallyimportantwhereland reform involvesresettlingbeneficiarieson former Junkerestates
or large mechanizedcommercialfarms. To reap the efficiencygains of familyfarmingunder these
conditionsseemsto requireincreasingthe densityof familylabor, and that may requireresetding
landlessworkersfrom outside.2Reformof thesesystemsis likelyto be difficult,but wherethe
alternativeto reform is the perpetuationof large economicand socialcosts, includingthe possibility
of revolt and civil war, the cost of failingto reform may be enormous.
Opinionsare dividedon redistributivereformof wageplantationsin the classic
plantationcrops: banana,sugar, tea and oil palm. The fact that contractfarmingin these plantation
crops is practicedsuccessfullyin manyparts of the developingworldindicatesthat convertng
plantationsto contractfarmingis feasible.Indeed,Hayami,Quisumbing,and Adrianodescribethe
successfil conversionof even a bananaplantationinto a contractfarmingsystemin the Philippines,
and stronglyargue for bringingaboutmore such conversationsthrough a progressiveland tax. The
efficiencygains from lower supervisioncosts associatedwith such a step are likelyto be offset,
however,becauseof the genuineeconomiesof scale in plantationcrops.
Tryig to replaceplantationswith collectivesrather than contractfarminghas been
unsuccessful.In Peru, the failureof collectivizedsugar plantationsto investand their increased
esploitationof externalworkerswho were deniedmembershiprights led to strikesby collective
membersthat were put downby militaryintervention.Continuinglosses- in part due to fallingworld
X To oomm
extent,creditandotherpublicsupportcan sbtute for theadvantage
of mmily
laborper
in economic
peformance
between
hocae Loys(1978)foundforKenyathattherews8verylittledifference
andlowdenst sms with arg plots
highdensity hm, withsmalp!otsandlowpublicinvestmen,
andsubal
publc uppoft
79
sugar prices - provokedincreasedgovernmentinterventionand the effectivetransformationof the
collectivesinto state farms (Kay 1952).In Malaysia rubberplantationswhichhad been establishedon
a collectivebasis were split up and allocatedto individualfarmersat maturityto ensureproper
tapping(Pickett 1988).
13. Decollectlvization
The poor performanceof collectivesand state farms the world over is so obviousthat
the questionfacing the liberalizingeconomiesof EasternEurope and the Commonwealthof
IndependentStatesis not whetherto privatizebut rather how quicldyand in what form - as large
commercialfarms or familyfarms.
Policy implications
The discussiotnsin this paper implythat four issuesappearto be of overriding
importancein determiningthis policy choice:
*
The small farm option is viableonly if there are competitiveinputand output markets.
Otherwisethe land rent ai4 the entrepreneurialrents from agriculturewouldbe capturedby the
monopolisticoutputmarketersand inputsuppliersrather than by the new farm owners. Risk
diffusionmechanismsalso need to be functioningadequatly else covariateweatheror price
shockscan force distrescsales by newlandowners,who do not have other assets or income
streams. Work on creatingcompetitiveinputand output marketingsystemsand a viable
financialsystemthereforehas to start beforelarge farms are split up ino individual
landhchlings.
Experiencefrom China, Vietnam,and East Germanyshows that inputsand machineryservices,
whichhave previouslybeen suppliedby the cooperative,are more efficientlyprovidedby
private contractorswho lease or buy the machinerystock from the cooperativein a competitive
process (Nolan 1988, Pingaliand Xuan 1992, Pryor 1992).The Chineseexperiencealso
suggeststhat farmersand machinerysuppliersrespondto the changesin operationalholding
80
size by adoptinga differenceandgenerallymoreefficientpattern of mechanization(Ling
1991).TIhssuggeststhat tne excessivelumpinessof the existingmachinestock is not a serious
constraintto smallerscale farming.
Agricultureresearch, extension,and other productionsupportservicestake on special
importancesincemany farm workersare likelyto lack the skills neededto managetheir own
farms. Someof the structuresthat servedquasi-governmental
functionson collectiveand state
farms particularlyby providingeducationand healthservicescouldbe retainedas well.They
might also eventuallydevelopinto independentcooperativesfor supplyingmachinery,custwr
plowingmachinerentalsor for inputsand possiblycredit - all in competitionwith the private
sector (see Nolan 1988;Pryor 1992).
*
Wherecapitalskills, technology,infrastructure,or competitivemarketsfor inputsand outputs
are lacking, enthusiasmfor independentfarmingmay be lackingas well. If only a few
entrepreneursare willingto farm, the resultingfarms are then likelyto be too large for the cost
advantageassociatedwith the use of familylabor, and large commercialfarms, heavily
mechanizedor dependenton large numbersof hired workers,will emergein their stead. Most
likelysuch large farms wouldcontinueto press for subsidies,emergeas rent-seekersfrom the
rest of societyand, if successfiu,generateinsufficientemployment.Therefore, countriesmay
need to findtemporaryarrangements,includinglong-termland leases, that will providea
greater numberof householdswith opporunitiesto acquirethe necessaryskills neededto allow
the emergenceof a structureof smallerfamilyfarms more consistentwith the incomeand wage
levels and rural labor forcesthat can be expectedfor theseeconomiesin the next few decades.
EPILOGUE ON METHODOLOGY
Scholarsof various ideologicalpersuasivenessand methodologicalcommitmentshave
attemptedto explainthe great variationsin land relationsover spaceand over time whichhave been
the topic of this paper. Much of the discordanceamongthesescholarsis closelyassociatedwith their
choiceof modelingstrategiesand assumptions.This epiloguerelatesthe analyticalresultsand the
81
observedvariationsin land relationsdiscussedin this paperto the minimumset of assumptionsneeded
to derive the results or explainthe variations. We distinguishseverallevels of assumptions.
Lewl A assumesse:.-mterestedbehavior,such as expectedutilitymaximizationor other
forms of purposivebehavior,of all actors, who competeon a level playingfieldin an environment
with risk using voluntarytransactions,with symmetricallydistributedinformationand exogenously
givenendowmentsof land, capital, and skills. Technologyis characterizedby constantor diminishing
returnsto scale. Virtuallynone of the variationsin land relationsdiscussedin this paper can be
explainedwith these assumptionsalone.
Lewl B adds constraintsin the credit marketcr assumesthat marketis entirelyabsent.
Formal modelsof surplus valuefrom Marx to the generalizedversionof Roemer(1982)use this
approachto explaincapitalistexploitationand the endogenousdifferentiationof maximizingindividual
economicagents - who operatein a competitiveenvironmentwith voluntarytransactions- into
economicclassesas the consequenceof differencesin their exogenousendowmentsof physicalcapital
and absent credit markets. Eswaranand Kotwal(1985)applyRoemer'sapproachto agriculture,
imposingin additionconstantcosts (section4).
Lewl C adds asymmetricinformation,moralhazard, and incentiveproblems,arrivingat
the analyticalapparatusof agencytheory.As Stiglitz(1986)summarizes,these assumptionsare
sufficientto explaincredit rationing,therebygiving an analyticalunderpinningto level B models.
They also explainvarious combinationsof reasonsfor sharecroppingand interlinkedcredit (section
6). Ihese assumptionsare also sufficientto establishthe superiorityof familyfarms, as discussedin
the mathematicalmodelof Feder (section4 and appendix2) and the historicallywidespreaduse of
teona by large owners of land at moderateto high populationdensity to circumventthe diseconomy
of rale (section2). Incentivesissuesof collectivesare also analyzedwith this analyticalapparatus
(section4).
Level C modelsprovidelittle insightinto the processby whichlarge landownership
holdingscould accumulateor be perpetuatedin systemscharacterizedby voluntarytransactionsand
competition,and with constantor diminishingreturns.
82
LevelD addsseveralmaterialconditionsrelatingspecificallyto agriculturalproduction,
generatingthe analyticalapparatusused by Meillassoux(1981)or Binswanger,Rosenzweig,and
McIntire(1986, 1987).The materialconditionsmost frequentlyused in this paper are covarianceof
risk and returns amongfarmersand workersin a givenagriculturalregion, the immobilityof land,
which- when it is scarce - makesit Into a preferredstore of wealth(relativeto stocksand livestock,
for example)and of collateral,and exogenouslygivenpopulationdensityand processing
characteristicsof specificagriculturalcommodities.
Covariancecreatesenormousdifficultiesfor intertemporalmarketsfor crop insurance
and credit.Becauseof land's preferredrole as store of wealthand as collateral,an insuranceand
collateralbenefitis associatedwith landownership.Togetherwith the failure of intertemporalmarkets
this preferredrole explainsthe prevalenceof distresssales and the accumulationof large
landownershipholdingseven in a competitiveenvironmentwith strictlyvoluntarycontractsand
diseconomiesof scale (section5). Ihe potentialfailureof land sales marketsto improveefficiencyin
an environmentwith missingor imperfectintertemporalmarketsis a powerfuland historically
relevantillustrationof the theoremof secondbest (Lipseyand Lancaster1957)of neoclassical
economics.
The explanationof variationsover time and spaceof propertyrightsto specificplots of
land (sections1 and 2) requiresthe introductionof populationdensityand its associationwith the
farmingsystemsand the farm technologies,as explainedby Boserup(1965).The seasonalityof
production,the timelinessrequirementsof specificcrops, and the economiesof scaleof the
processingplants or transport facilitiesrequiredfor them are necessarymaterialconditionsto explain
the survival,in only a few specificplantatio'%
crops, of wage plantationsin the absenceof slaveryor
indenturedlabor (section4). Note that anthropologists,like Marvin Harris, who use behavioralmaterialistapproachesalso carefullyspecifyingtheir detailedmaterialassumptions,althoughtheir
themesextendwell beyondthose discussedin this paper.
Level E partly abandonsthe assumptionof voluntarycontracts(for the case of slavery
and bondage)and extendsthe analysisbeyondindividualisticapproachesand transactionsby
introducingrent seeking,coalitionbuilding,and the coercivepowerof the state to enforcelaws.
Ihese additionsfacilitatethe explanationof the use of bondageand slavery,tribute systems,state
83
allocationsof preferentialland rights and enforcementpowers to ruling groups, distortionsin
commodityand fctor markets, and distortionsIn public expendituresspecificallyintendedto extract
rent and make large ownershipor operationalholdingscompetitivewith independentfamilyfarms
(section2 and 3). The historicalliteraturehas sharplydifferentiatedbetweencoerciveand noncoercive
methodsof rent extractionand has often equatedthe eliminationof coercivemeans with the leveling
of the playingfield. Whilethere are certainlyimportantqualitativedifferencesbetweencoerciveand
noncoercivemeans, the differentiationseemsto have obscuredthe continuityof rent seekingor
surplus extractionalong alternativepaths such as taxationof the free peasantsector, land allocation,
monopolymarketing,and the allocationof public spending.
Level E explainsthe emergenceand persistenceover time of highlydualisticfarms size
structuresas the result primarilyof a rarely broken chainof rent seeking(sections2 and 3). It
explainsthe poor economicperformanceof many suchsystemsas the result of a dissipationof rents
into the cost of competitionfor them amongzent-seekinggroups.20Withinthe chain of rent-seeking,
the officiallysanctionedset of legitimateinstrumentsof rent seekingmay be progressivelyreducedby
graduallyeliminatingslaveryand serfdom,tribute and corvde,and land rental, untilonly output and
factor marketdistortionsand differentialallocationof public expenditureremain. With exogenous
variationin the set of instrumentsavailablefor rent seeking,this frameworkof analysiscan explaina
substantialproportionof the variationover space and time in the level of use of each of the available
instruments.For given instruments,modelingat levelD can also, in principle, investigatethe income
distributionsand efficiencycosts associatedwith the resultingdistortions,whilethe theory of rent
seekingbehavior(Tollison1982)can be used to investigatethe extentto whichrents are dissipatedin
the processof competingfor them.
reBner(1975,198S)arguestt underfaudalismtherentsextmctedfrompents by luodedeliteswere
almostcompletely
dissipatedandthattho esult failurebypeasantsandlandlordsto rnvest in land
imwovem anddrft animalswa responsible
for theextensionof arble farmingto marginallandsandthe
decliningproductivity
asocited withpwuin gwth in feudl Europeanaiulre. Thusit wasth nt
oekigg itselfthatledto theNeo-Malthusian
or Ricardiansubsistenco
cises of thetwelfthandthinteth
positiveBoserup-succes of investment, age in technique,
centuries, daerthanto popuation-induced
inresed divsionof labor,andagiculura productivity
growth.Thisexplansionof sagnantor declining
prductivityis smilar to tht documented
by Kreger, Sdhiff,andValdes(1992)to explaintrecet stgata
of agrulture andlimitedtechnicalchangein muchof Africaasa cosqun of theextrdinry high
taxaionof (mostysmallholder)
agriculte in my Africn countiesby urbn-domatd stes.
84
Finally,level F asks questionsthat are touchedon only lighdyin this paper aboutwhat
determinesendogenouslythe changesin the set of instrumentsavailablefor rent seekingor surplus
extractionin a givencountryat a giventime. Populationdensityand its distributionover space
becomesand endogenousvariable.The questionsincludethe extensivelydebatedissuesof the demise
of feudalismand bondage(Marx;Dobb 1977;Brenner 1985);the abolitionof slavery (Fogeland
Engerman1977;Meillassoux1991);the eliminationof corvee,tribute, and debt peonage;the power
to monopolizeoutput and inputmarkets(Andersonand Hayami1986);eliminationof the land rental
option;and land reform (de Janvry 1981).The questionsanalyzedalso includewhy revolt and
revolutionare necessaryin some cases,while in othersa changein the set of instrumentsavailableis
successfullyaccomplishedby reform,and why somereformslead to stable and efficientproduction
relations,while othersresult in institutionsthat are unsuccessfulin either equityor efficiency.
These are the grand themesof historians,classicaleconomists,and Marxisthistorical
materialistanalysis.These issuesusuallyinvolvecoalitions(or their breakdown)that, exceptin purely
agrarian societies,extendbeyondopposingrural groups to includemanufacturing,trading, financial,
bureaucratic,or foreign interests.Thereforeadditionalexogenouselements(includingmaterialones)
from outside agriculturemust be factoredinto the exploratoryframework.Muchof the workon these
themesthat we have comeacross neitherexplicidyspecifiesassumptionsaboutthe distributionof
information(level C) nor formallyincludesinto the analysisspecificmaterialconditionsof agriculture
(introducedin level D) or other sectorsof the economy.And whilerent seekingof level E is implicit
in the questionsasked, and coalitionsor their breakdownare discussed,the coalitionbuilding
associatedwith rent seekingis rarely modeledexplicitly.There may be some gains to be had from
more formal considerationsof theseomittedelementsand their incorporationinto the structureof the
andysis of these grand themes.
85
Appendix 1
Interventions to Establish and Support Large Farms
The literatureon emergenceand evolutionof manorialestatesand the productionrelations
prevailingwithinsuch estateshas focussedlargelyon examplesfrom Europe(mainlyBritain, France,
Germany,and Eastern Europe).This appendix,whichexplainstable 1 in the text, providesevidence
on the establishmentand evolutionof large farm systemsfrom a wider rangeof setdngsand coversa
longer time period.
The examplesdiscussedhere all suggestthat neitherthe establishmentnor the continued
existenceof large farms were due to their superioreconomicefficiencyand/or the presenceof
economiesof scale in agriculturalproduction.The establishmentof large farms was due to
governmentinterventionin favor of large landholdersvia land grantsand differentialtaxation.
Withdrawalof these privilegesled either to their disintegrationinto landlordestatesor to a shift
towardsrent seekingand more subtleformsof supportfor large farms.
Asia
India (North)
Landmarketinterventions.The haciendasystemis alreadydescribedin the Arthshastrafrom
the 4th centuryBC. In the first century,land grantscomprisingsome ten or more villageseach were
made to priests and to a few membersof the ruling familyand high officersof the state (Sharma
1965). This processof land grants 'culminatedin the 11thand 12thcenturies,when NorthernIndia
was parcelledinto numerouspoliticalunits largelyheld by secularand religiousdoneeswho enjoyed
the gift villagesas littlebetter than manors' (Sharma1965:273).
DifWerendal
waton andlaborlevies.Corveelabor emergedin the secondcenturyand
remainedprevalentuntil the tenth century.Betweenthe fifth and tenth centuries,wherepopulation
densitywas high enough, as in Gujarat,Rajasstan,and Maharastra,permanenttenantswere reduced
to tenantsat will. Wherepopulationdensitywas low, tenantsand artisanswere tied to the soil in the
same manneras serfs in medievalEurope (Sharma1965).
China (South)
Diferend tation andlaborkvies. The equitableland allotmentsystemintroducedaround
600 under conditionsof land abundanceallocatedland equallyamongall membersof the commTunity
in return for tax payments.Slavesreceivedthe standardsize of plot but had to pay only half the taxes
demandedfrom free men (Chao 1986).Peasants,however,couldnot escapethe tax burden since
farmerswho fled to uncultivatedlands were returnedto their villageby the authorities.DeFrancis
(1956)quotesreportsof 600,000 "refugees havingbeen collectedin a singleyear (544). To escape
the tax, manycultivatorspresentedthemselvesas serfs or "bondservants"to large landholdersor
monasteries,leadingto the emergenceof large estates. In a majorland reform in 1369under the
Mingdynasty,the estateswere brokenup into smallfreeholdfarms (Eastman1988).Followingthe
land reform, tax captainswere installedto administertax collectionfrom units of 110 householdseach
and to delivergrain taxes to governmentwarehouses.Using corveelabor and bondservants,they were
also active in land clearingto expandtheir revenuebase (Shih 1992).They accumulatedmodest
86
estatesof their own thanksto their abilityto providecredit. Increasinglyheavytax demands(to
financewars)left manytax captainsin a desperatesituation.
The newgentry class that began to emergein the fourteenthcenturywas exemptfrom both
taxesand labor services. Sincegentry landlordsdid not pay taxes, they were ableto reap higher
returs from land and accumulatewealth. They were able to further increasetheir holdingsafter
periodsof disasterby foreclosingon lands they had acceptedas collateralfor credit (Shih 1992).
These advantagesmade it easy for membersof the gentry to accumulateland, decreasethe tax
captains'revenuebase, and finallybuy out bankrupttax captains,who by the end of the centuryhad
lost most of their land to gentry landlords.As gentry landlordsincreasedtheir moneylending
activities,small owners in financialdifficultieshad to resort to sellingtheir land or sellingthemselves
to gentrylandlordsas serfs or bondservants,therebyobtainingpartial exemptionsfrom their tax
obligations.Gentryestatesgrew to severalthousandsof hectares in size, with a labor force of over
10,000.The estateswere often split up into smaller farms of about500 hectares,managedby
speciallyeducatedbondservants(Shih 1992).
Followingthe changefrom the Ming to the Qingdynastyin 1644,gentry landlordslost their
tax privileges.Decliningpopulationand greater opportunitiesfor off-farmemploymentduring 163050 increasedthe amountof land availableand, as in Westem Europe, improvedthe positionof
peasants(Shih 1992). In the secondhalf of the seventeenthcentury,the heritabilityof serf statuswas
repealed, and serfs were fully emancipatedin 1728. Operationof a large homefarm using wage labor
was no longer profitable,and landlordestatesemerged(Wiens1980), considerablyimprovingthe
positionof tenants. Tenancyallowedoperationalholdingsto adjustto householdsize and led to very
labor-intensivecultivationand high yields(Feuerwerker1980).
Japan
Land marketinterventions.To provideincentivesto makethe investmentsrequiredto transform
wastelandinto paddyland, the land reclamationbill of 723 made such land the heritablepersonal
propertyof the developer.This provisionled to the emergenceof a separatecategoryof privateland
that was tax exemptand excludedfrom the communaltenure systemin whichland was redistributed
every six years amongall membersof the community(Takekoshi1967).
DWrerentaltaxes and labor levies. In return for such land allotments,farmershad to pay
tribute in kind as well as speciallabor servicesof up to 140 days a year (Takekoshi1967). Cleared
and temple lands, as well as land belongingto the nobility,were exemptfrota all tribute
requirements.In order to obtain immunityfrom tributes, manylandownerstransferredtheir landsto
templesor membersof the nobility.Whilethey had to give up the heritableright to the land, original
landholdersdid in most cases continueto managethe land and homefarm cultivationremained
minimal.Higher officialscould accumulatemanorsof enormoussize, but in turn had to commend
their propertiesto higher-rankingindividualsto protectthe immunityof their manor from tribute
requirements,leadingto a complextenure-hierarchyin whichshares of manorsand associatedrights
to incomewere traded (Sato 1977).Aroundthe end of the fourteenthcenturyincreasingland scarcity,
as evidencedby physicalfragmentationof fieldsdue to intergenerationaltransfers,led to a gradual
conversionto landlord estates(Keirstead1985), whichremainedin place until the nineteenthand
twentiethcenturies.
Java and Sumtra
87
Land marketintervendons.The AgrarianLandLaw of 1870declaredall uncultivatedland
inalienablestateproperty and leasedit to Europeancompanieswhichestablishedlarge scale
plantations.
Dferendal taxes and laborleves. Theseplantationswere operatedalmostexclusivelyusing
indenturedlabor (Breman1989).Laws such as the 'coolie ordinance' from 1880imposedsevere
penaltieson indenturedworkerswho abscondedand prison termson anybodyemployingsuch
runawayworkers,thus indicatingthe scarcityof labor (Stoler 1985).Large scale cultivationwas
limitedto theseplantations.Whereindividualpeasantholdingsprevailedat the beginningof colonial
rule, authoritiesused the "cultivationsystem' (1820)to appropriatesurplus withoutexpending
resourcesfor capitalinvestment,and relyingon traditionalland tenure and laborexchange
arrangements.Ihis systemrequiredfarmersto grow cash crops (predominantlycoffeeor sugar) for
the governmenton one-fifthof village lands in lieu of a land tax (Hart 1985).Both of these crops
were integratedinto the local systemsof rice or upland cultivation(Geertz 1963).
PhiHlppines
Land marketInterventions.Land grants were givento privateindividualsand religiousorders
after 1571(Roth1977)and by 1700all of the best land was under the controlof large estates
(Cushner,1976).
Dfferential taxationand laborlevkes.The Philippines,like countriesin Ladn America,had
both encomlenda-the right to tributein labor, cash, or kindfrom a particularregion-and
repanlmlnto-which distributedworkersfor publicworksand privateSpanishbusinesses.The
systemsdifferedfrom those in Latin America,however,in that the right to labor serviceswas
hereditaryand often includedwholevillages.Workerson Europeanhaciendaswere exemptedfrom
heavypublic worksand from taxes, makinghaciendaemploymenthighlyattractive.Despitethis
advantage,the lack of economiesof scale led to almostimmediatedisintegrationof rice-cultivating
haciendasinto landlordestates. Moreover,by the nineteenthcentury,sugarproductionas well as
processingwere controlledby tenantsas well (Roth 1977).
Sri Lanka
Land marketInterventions.Uplandareas whereslash andburn cultivationwas practicedwere
declaredcrown land in 1840(Bandarage1983)and sold to privatecultivators,mainlyBritish,who
establishedcoffeeplantations.
D&Terentlal
taxationand iabor levies. Corveelabor was abolishedon public lands in 1818and
replacedby a grain tax amountingto 10 percentof gross produce.Export agriculture-all land under
coffee,cotton, sugar, indigo, opiumpoppies,and silk- was exemptedfrom the tribute (Bandarage
1983).
Whilelandedinterestshad successfullyopposedthe impositionof a generalland tax, the
opportuniy to arn incomefrom coffeecultivation,togetherwith the absenceof a totally landless
labor caste, severelylimitedthe willingnessof local peopleto supplylaborto estates.Thus almostthe
entire agriculturalwork force on coffeeestateshad to be imported:Censusfiguresindicatethat in
1871and 1881, 97 percentof some 200,000plantationworkerswere indenturedTamils, mainlyfrom
India. The 3 percent of Singhaleseplantationworkerswere mostlylow-countryartisanswho were
88
paid competitivewagesand used their positionto accumulatecapitalfor own land purchases
(Bandarage1983).
Europe
Prussia
Land marketinterventions.Land grantsin Prussiadate from the thirteenthcenturyand were
made to knightsand nobleswho were to colonizethe largelyunpopulatedterritory and provide
militaryservicesto the king. Initially,populationdensitywas so low that very favorableterms were
requiredto attract peasants:peasantsreceivedhereditaryusufructleasesto about32 hectaresof land
each. Nobleknightsoperatedmodestlysizeddemesnesof abouttwo to three times the size whichwas
providedto settlers(Hagen1985)to supplementthe rents they receivedfrom peasants. Theywere
'not the masterbut the neighbor"of the farmer, and in economicterms they oftenfared worsethan
full peasants(Luitge1979).Depopulationcausedby the BlackDeathincreasedthe amountof land
availableto the nobilitywho became'land rich but labor poor". Productiveuse of this land couldbe
maintainedonly by attractingand settlingnew farmers,oftenon terms whichwere quite favorableto
the settlers.
Diferential taxationand laborlevies. Whilesettlerfarmershad a legal right to leave without
the lords' consentas late as 1484(Hagen1985),the Landesverordnung
of 1526no longer mentioned
the right of the farmerto take legal actionagainsta landlordwho wouldnot allowhim to leave (Abel
1978), indicatinglandlords'increasedbargainingpower (due to higherpopulationdensity). Such
restrictionson peasants' mobilityfacilitatedmore widespreadadoptionof labor rents and an increase
in labor requirementsfrom two daysof servicea week for full peasantsin 1560to three days around
1600(Hagen1985). Still, landlordshad to rely on hired workersin additionto compulsorylabor
services, estateswere relativelysmall:In 1624,Junkers' demesnetook up only 18 percentof the
cultivatedland (Hagen 1985). The mainbenefitof labor servicesfor landlordswas the obligationof
full peasantsto supplya pair of oxen or horsesand a driverrather than the contributionsmadeby
non-&llpeasants(nicht sparMlhge Bauern)to demesnecultivation.
Althoughlandownersincreasedthe size of their demesneby addingthe land of familieswho
died duringthe plagueyears of the fourteenthcenturyand the Thirty Years War of 161848, large
farms began to dominatein Prussiaonly afterthe land reform in 1807-50(tge 1979).Three aspects
of the reform contributedto the emergenceof large farms: the termsof separationrequiringfarmers
with hereditaryor nonhereditarylifetimeleasesto cede one-thirdor one half their land to the Junkers
in return for freedom;the initiallimitationof reform benefitsto "full peasants*and its extensionto
other peasantswithoutlong-termleaserights only in 1850when, most peopleagree, it was "already
too late" (Dickler 1975);and repealof tenancyprotectionlaws, whichhad been in place since 1750.
These factors allowedJunkersto vastlyincreasetheir demesnesand to draw on an increasedpool of
wage labor. The typicalJunker style of cultivationwith permanentlaborersresidingon houseplots
emergedas the predominantform of productionorganization(Ltltge 1979). After farm workers
becamefree to migratein 1868and beganmovingwestward(Wunderlich1961),they were gradually
replacedby salaried and migratoryseasonalworkers,especiallyfrom Poland, where population
density was high and landlessnesswas widespread(Diclder 1975).
Inputand outputmarket Iterventions.From the earliestsettlementdays, knightshad certain
rightsof jurisdictionand monopolieson millingand on the manufactureand sale of alcohol.
89
However,the fact that they were willingto cedea gooddeal of their trade-relatedprivilegesto
entrepreneurswho engagedin land-clearingand attractingsettlersfrom the west illustratesjust how
pressingthe labor scarcitywas.
Russia
Land market intervendons.In the fourteenthcentury,princes,consideringall land in their
princedomas their patrimony(votchina),grantedland to nobleswho couldprovidethe labor force
necessaryto cultivatethe land and pay taxes.These landlordsin turn had to attractpeasantswith very
favorableterms. In-kindpayments(obrok)remainedthe predominanttype of peasantobligation,and,
due to the limitedabilityto imposelabor rents (barshchina),homefarm cultivationwas almost
nonexistent(Blum1961).
In 1565,Ivan IV confiscatedthe property(votchina)of almostall the old princedoms,
convertingit into state land (oprichnina)and then using it for land grantsto rewardservitors.
Servitorsdid not receivefreeholdtitle, acquiringonly usufructrightsunder servicetenure (pomestye)
whichbecamethe dominantform of lay seignorialtenure. As a result, 'the personalpossessionof
landedpropertybecamea monopolyof a single class of Russiansociety-the servitorsof the tsar'
(Blum1961:169).As land rights couldbe terminatedat will by the tsar, continuedpossessionof the
land was conditionalon the performanceof serviceto the state. Indeed,landlordswho couldnot
providepaymentin serviceor moneywere evicted,and the class of servitorswas subjectto high
fluctuations,competitionfor labor was fierce,and homefarm cultivationremainedvery limited.The
economicsituationof the servitorwas oftenprecariousuntil tenuresgraduallybecameheritablein the
seventeenthcentury(Blum 1961).
Restrictionson Jabormobilityand dWerenatata.taon. The extentof labor scarcityis
illustratedby continuous!ymoresevere restrictionson peasantcultivators'mobility.Between1400
and 1450, the right of peasantsto terminateleasesand moveon to anotherlandlordwas restrictedto
two weekseach year. Even then peasantswere requiredto pay formidable"exit fees" (equivalentto
300 bushelsof oats or 120 bushelsof wheat;Blum 1961)before leaving.Landlordscompetedfiercely
for labor and resortedto 'labor pirating",i.e. attractingworkersfrom other estatesby promises.In
fact, such labor piratingbecame"the principallawfulwayby whichrenters transferredfrom one lord
to the other", thoughillegalmeanswere oftenresortedto as well (Blum1961).The intduction in
1588of "forbiddenyears" duringwhichthe peasants'right to movewas temporarilysuspendeddid
not preventlabor piratingbecausethe law couldnot be enforced.Decreesin 1597and again in 1607
bound all peasantsto the place they were residingat the time of the censusof 1592, whichfacilitated
enforcementof the law. The AssemblyCode of 1649, whichremainedvalid untfl about 1850,
abolishedstatutesof limitationon the returnof fugitivepeasantsto their original landlord.It also
made serfdomheritableby prohibitingthe peasant's wife and progenyfrom movingas well. After
1661, fines for peasantraidinghad to be paid 'in serfs": for every iUlegalpeasantfound on a
landlord'sholding,the landlordhad to give up one of his own serf families.Serfs couldbe freely
sold; restrictionsprohibitingthe sale of serfs withoutland were unsuccessful.Serfswere also used as
collateral,to be auctionedoff if their landlordwent bankrupt.In 1859, two-thirdsof all serfs were
mortgaged.After 1719, the privilegesof peasants-mainlyat the frontiers-who had escapedserfdom
were successivelyeliminated.They becameserf-likestatepeasants,subjectto taxes, quitrent,and
conscription.By 1850more than 90 percentof the male populationwere serfs (Blum 1961).
90
In 1580, landlords'home farms (demesnes)were exemptedfrom taxaticn. With revenue
requirementsalso rising, the tax burden on peasantsincreasedsubstantially,significantlyloweringthe
potentialreturn from cultivation(Blum1961).Peasantsrespondedby runningoff to the frontiers
wherelandlordswere keen to attract labor and, becauseof temporaryexemptionsfrom taxes, were
ableto offer better conditions.
Landlordsattemptedto tie peasantsto their holdingsthrough debt peonage.Under lawspassed
between 1586and 1597, a debtor automaticallyfell into debt servitudeif he was unableto repaythe
loan on time. He then had to work continuouslyfor the creditorjust to pay the recurrentinterest.
Withoutany possibilityof repayingthe principal,debt servitors' only advantageover slaveswas that
they were to be freed followingthe creditor'sdeath (Blum1961).
Input and outputmarket Interventions.Sinceneitherserfs nor state peasantswere allowedto
engagein independentbusinessuntil the 1820sor 1830s,landlordsenjoyeda de factomonopolyover
commercein their area, in additionto their formalmonopolyon alcoholmanufactureand sale.
Latin America
Chile
Lnd market Interventions.In the mid-sixteenthcentury,town councils,free of the central
supervisionby a viceroyor governorthat was commonin Mexicoand Peru, handed out land to
settlers 'with utmostgenerosityand ... in the face of royallegislationto the contrary"(Bauer
1980:4).In contrastto other Latin Americancountries,wherethe right to tribute was legally
distinguishedfrom land grants, and the de jure protectionof Indian communalland was enforcedby
central authorities,encomenderosin Chilereceivedland grants in the middleof "their" Indians'
communallands early on. The encomenderoswere thus providedwith cheapand abundantlabor
servicessuch that 'by the 1650slandownershipand encomiendawere filly integrated...[andJ the
encomlendawas absorbedby the land' (Bauer 1980:8).
Dfferentlal taxationand labor levies. Ihe main meansto providelabor to the mines was the
mta whichrequired all Indian settlementsto supplya certain proportionof their labor force for
agricultureor public works, but in most cases the mines. Haciendaworkerswere exemptfrom the
mfta and manyIndianssoughtrefuge from the cruel forcedlabor requirementsby joining the ranks of
the yanaconas,a group whichhad givenup all ties, includingland rights, to their original
communitiesand, living in total dependenceon individualSpaniards,formed the nuclearlabor force
of the Spanishestates.
A rise in demandfor wheatfrom Lima in 1687led to a considerableincreasein such labor
requirementswith landownersrelyingon either reconstitutedencomlendaor on yanaconaswho were
virtuallyenslavedand only given 3 days off a year to tend their house-plots(Pearse 1975).As on the
EasternEuropeanJunker estates,able tenantswere used as "labor brokers" and obligedto supplythe
haciendawith workers(veonesobligadosor reemplazantes)nearly year-round(Kay 1977).
Input and ouwputmarketInterventions.Large wheatgrownngfarms in the Centralregion could
not competeagainstwheatproducedon the more dynamic(and smallersized)farms in the South and
were convertedinto livestockranches.In order to protectthem from competitionfrom Argentinathey
91
lobbiedsuccessfullyfor the impositionof importtaxeson beef at the end of the 19thcentury.Such
taxes were maintaineddespiteconsumerriots causedby high foodprices in 1905(Kay 1992).
In this century,large landownersreceivedspecialtreatmentto reducethe cost of mechanization.They
receivedexemptionsfrom importtariffsand low interestrate loans; real interestrates on
mechanizationloans in most of Latin Americaduringthe 1950sand early 1960swere actually
negative.Farmers in Chile, Argentina,Brazil,and Venezuelapaid back only 50 to 80 percentof their
equipmentloans (Abercombie1972).
El Salvador
Land market Intervendons.
Publicland was grantedto anybodywho was plantingit at least two
third with coffeefrom 1857(Lindo-Fuentes1990).A large land titlingprogram, initiatedin 1882,
which was intendedto speed up the growthof coffeeproduction,is thoughtto have directlyaffected
up to 40% of the territory of the country(Lindo-Fuentes1990)and led to extraordinaryconcentration
of land ownership.The 1882law requiredall occupantsof ejido landsto registertheir claiLs (i.e.
prove that they were cultivatingthe land and pay the titlingfee) withina period of six month. All
lands not claimedin this way was to be sold at public auctions.IlliterateIndians,were oftennot
awareof theserequirementsand well-connectedindividualscouldtake considerableadvantageof the
legislation.The goal of establishinga successfulexport agriculturecouldhave been achievedby
modernizingthe credit systemand providingeducationto Indiansas well, in particularas Indianshad
proven to be responsiveto marketincentivesbefore. Choiceof the land marketas the instrumentto
achievethe trnsformation illustratesthe administrativedifficultiesas well as the power of the elites
who wouldbenefitfrom such legislation(Lindo-Fuentes1990).
DIferental taxation and labor levies. In 1825vagrancylaws were passedrequiringIndiansto
carry work cards certifyingtheir employment(Lindo-Fuentes1990).The penaltyfor vagrancywas
Imprisonment.In 1847, landownersplantingmore than 15 000 coffeetrees obtainedexemptionfrom
public and militaryservicesfor themselvesand all their workers.
Guatemala
Land marketlntervenlons.Whilethe Spanishmade some land grants in Guatemalain the early
sixteenthcentury,their main land marketinterventionwas resettlementof the Indianpopulationin
centalized villagesto facilitatetax administrationand conversionof Indiansto Christianity.They
limitedtheir activitiesto ranchingfor whichno land title was required(MacLeod1973).Titles, which
were issued to Spaniardsthrough land grants, becameimportantonly in 1590-1630,followinga shift
to culdvationof indigo.
Dferential taxaton and labor kWes. Initially,Spaniardshad little interestin establishing
intensiveagricultureand collectedtribute instead(suchIndiantribute contributedmore than 80
percent of royal governmentrevenue;Brockett1990).From 1540, tribute assessmentswere made in
cash, and the need for cash incomewas an importantforce inducingIndiansfrom the highlandsto
migrateto plantationareas 'MacLeod 1973).By the 1560sand 1570s,Indianswho had migratedfrom
the highlandsin this way constitutedthe majorityof the coastalIndianpopulation.
Beginig around 1600, Idian headmenwere requiredto providelaborcontingents
(mandamlento)-whichcouldbe as high as a quarterof the workforce-for tasksof public interest
(MacLeod295). Mandamlentolabor was ideallysuitedto the seasonaldemandsof indigoprocessing.
92
Employmentof Indiansin indigofactorieswas widespread,despiteits legal prohibitionto prevent
futher decline of the decimatedIndian population(Lindo-Fuentesi090). The mandamiento system
survivedwell into the 1880s,when it was used to providecheaplabor for Europeancoffeeplantations
(Cambranes1985).
Debt peonagewas legalizedin 1877, and by forcingdebtors to workoff their debts, provided
landownerswith officialmeansof enforcingthe continuationof a flowof cheaplabor. Followingthe'
abolitionof debt peonage,vagrancylaws were adoptedin 1933in responseto the severe labor
of a minimumof 1.1 to 2.8 hectaresof
shortage.All Indians who could not prove owner-operatorship
land were forced to work-mainly on plantations-for 100to 150 daysa year to dischargetheir "debt
to society."The requirementto carry work cards facilitatedenforcement(Pearse 1975).
Mexdco
Landmarket interventions. Resettlementof Indiansbeginningin 1540deprivedthem of their
traditionallands and placedthem on smaller,less productiveholdings.Whilethe intentionof the
resettlementprogramwas primarilyto raise moneyfor the crownby sellingthe Indians' land to
Europeans,the expropriationsseriouslyreducedthe productivebasis of the Indianagricultural
economy(Gibson1965;Taylor 1988).
Communallands were expropriatedin the 1850s,and as land becameincreasinglyscarce,
opportunitieswere open to potentialtenants. "The expropriationof communal
alternative
fewer
villagesbrought abouttwo contradictorytendencies.On the one hand, cheaptemporarylabor became
more readily availablethan before. This made It economicallyless and less necessaryfor the hacienda
in central Mexicoto rely on forcedlabor. On the other hand, as the haciendasacquiredmore and
more land, muchof it of mediocrequality,they preferrednot to work it themselvesbut to shift the
risk to sharecroppersand tenants. The conditionof theseoccupantswas so precariousthat manyof
them ... inevitablyincurreddebts with the haciendawhichthey couldnot repay" (Katz 1974:41).
DferentoJ taxationand laborlevies. Spanishsettlersreceived,after1490,encomlendas,i.e.
rightsto Indian villagesfrom whichthey couldetrac tribute in kind and labor services.Restrictions
limitingthe use of tribute labor in agriculturewere imposedin some regions, in order to secure labor
supplyfor public works.
In 1542, the originalencomlendas were restrictedto the right to collecttribute and the system
of repartinento was used to distributeIndianlabor, supposedlyin a more equitableway.While this
restrictedthe power of the originalbeneficiariesof the encomlenda,it worsenedthe lot of Indians
who still had to pay tribute to encomenderosand to render labor servicesunder repartimientio.
Tribute requirementsremainedin place but couldbe avoidedby workingon haciendas(the
haciendapaid the tribute). Tribute was often requiredto be paid in cash, forcing manyhighland
Indiansto migrateto lowlandareas to obtainthe necessarycash income(Moerner 1978).
Debt peonagewas not significantin the early period of colonization,but it later acquired
importanceas a meansof tyinglaborersto the haciendaand loweringtheir wages.In 1790, 80
percent of peons in one area had a wtaldebt higher than the legal limit; their averagedebt was
equivalentto eleven months'wages (Taylor1972).As landlordslet debt accumulateup to the point of
the expectedfuturevalue of work performed,the systemcame very closeto slavery (debt peons were
93
even beingtraded by redeemingthe debt to their currentemployer).A law enactedin 1843secured
debts incurfedto haciendasbut also made it illegalto hire
not only state enfocementto Ocollect*
laborerswho had left their haciendawithoutpayingtheir debts and requiredthat they be returned
(Katz 1974).Vagrancylaws passedin 1877and strictlyenforcedled to a considerableincreasein the
employmentof deporteesand 'criminals" (Katz 1974).
Viceroyalityof Peru (presentday Peru, Bolivia,and Ecuador)
Land marketinterventiois.Beginningin 1540, land grantsbecamecommonin this region, with
grantsof 120-800hectaresbeingrelativelyeasyto obtain.lhe main beneficiarieswere the
encomenderos,i.e. Spaniardswho had receivedrightsto labor servicesfrom wholevillages(see
below), sincewithoutIndiantributelaborto work the land, the latterwas virtuallyworthless.Once,
all the land set asidefor this purposehad been exhausted,around 1557, "private' Indian land was
expropriatedand distributedamongSpaniards(Gonzales1985;Dav.es 1984).
In the coastalareas, resetement under ViceroyToledoin 1570movedIndiansinto newly
establisbedtown-qwherethey were assignedfarmlandsof ofteninferiorquality.Programsto review
existingSpanishland titles under which'Spaniardscouldlegallyacquireland that they had previously
stolen from Indiansby payinga fee to the Crown"(Gonzales1985:15)were introducedin 1589. In
1641the samepatternwas appliedeven more rigorouslyto improvethe financialpositionof the
Spanishcrown:there were large-scaleexpropriationsof Indianland, and all surplus land was soldto
Europeans.Indians 'suffereda considerablereductionin their holdings;they now possessedsome of
the worst farmlandin the valley" (Davies1984:130).In the ArequipaValley,adultmarried men were
allottedan area of only abouthalf a hectare.
Diferentlal taxaton and labor levies. Beginningaround 1530,the encomlendaconferredrights
to tribute(in labor, cash, or kind) from a particularregionto Europeans,who replacedlocal
overlords.Holdersof this privilege(encomenderos)were, at least at the beginning,completely
unregulatedas to how muchor what form of tributeto assess(Ramirez1986).Whilemanyused lnbor
tributesto cultivatelarge farms, assessmentof tributes in cash did reportedlyforce Indiansto borrow
funds and sell off abandonedlands to repaytheir debt (Davies1984).The right of individual
to the exclusiveuse of Indiantributelabor for personalserviceswas abolishedabout
encomendwros
1550, mainlyto free labor for public worksand the mines.The other benefitsof encomlenda
remained,however.
Withthe abolitionof encomienda,the Spaniardstransformedthe mita, an Incaninstitutionfor
recruitng labor for public worksprojects, into a permanentlabor-recruitmentarrangementfor the
mines. In additionto payingtributeto the encomendero,eachvillagehad to supplya percentageof is
work force for "publicworks," whichmostlymeantworkin the mines. As work for Spanish
haciendasexemptedfrom the mlta and tributerequirements,many workersin the aldplanoare
reportedto have acceptedworkon haciendas.The class of yanaconas,who were residenton
haciendasand had completelyabandonedtheir tribal identities,emerged(Pearse 1975).
Slaverywas extensiveafter 1580in the coastalvalleysfor the productionof sugar, cotton,and
wine (Davies 1984).Whenslavery was abolished,sugarplantationsresortedto indenturedlabor from
China and Japan, whichcomprisedmorethan 90 percentof the work force on some estates(Gonzales
94
1985). Oth&rcrops, predominantlycottonwere, howeverproducedunder tenancycontracts(Gonzales
1991)after slaverywas no longeravailble, suggestingthat this form of labor was more profitable
thar. farmnngthe area under large farms.
Africa
Algeria
Land marketInterventions.Withthe Frenchoccupation,all state, religious,and tribal land
becamestateproperty;uncultivatedand waste land was subjectto titlingwhichallowedsettlersto
acquireland at no price and 'amountedto little short than robbery' (Ageron1991).In some cases,
such titling left the Muslimswith slightlymorethan 5% of the land area and much of the land
declaredwaste includedland grazedby nomadsin the courseof their migrations.Since the numberof
setlers remainedlimited,various formsof settlement(mcludin, establishmentof nativevillages)weie
tried to make the colonyeconomicallyviable.
Ihe desire to imposeFrench rule in Algeriaafter the 1870171rebellionled to initiationof a
large colonizationand setlement programbetween1871and 1882.At a huge cost to government,
settlerswere providedfree ?andand infrastructurebut either soldout or farmedtheir land with native
sharecroppers(Ageron1991).The so-called'settlers' law' from 1873allowedEuropeansto acquire
rightsto vast amountsof communityland by purchasinga small share thereofand led to the
accumulationof vast estatesat little cost (Ageron 1991).
D,fferenIa taxes and laborlevies. BeginningIn 1849,all Arabshad to pay head taxes from
which those workingas sharecroppersor wagelaborerson Europeanfarms were exempt (Bennoune
1988). Still, while 'they had alwaysbeen willingto cultivatefor the French as khammesor
sharecroppers",at the beginningof the 20th centuryonly about 12%of Arabs were workingas farm
laborers. Frenchviticulturalistsrelied on foreign,immigrantlaborfrom mediterraneancountries.
Differentialprovisionof credit to Europeans,led to rapid growthof vine cultivation.Market
fluctuations,togetherwith additionalland grants to te.anewly-richsettlers, led to the consolidationof
large estatesof between4000 and 5000ha.
Angola
Land marketlnterw'ons. In 1838and again in 1865all "unoccupied'land couldbe givenas
concessionsto Europeans."The settlerswere given lands, seAs, tools, and slavesby the government,
and measureswere taken to ensurethat their productscouldbe sold" (Clarence-Smith1979, 15).
From 1907to 1932,98 squaremiles were set aside for nativereserves,4 square mileswere givento
Africansalongwith land titles, and about 1,800 square milesof the best land was givento Portuguese
settlersand other foreigners(Bender1978).
Dfferentla taxationand labor leves. After the abolitionof domesticslavery in 1875, slavery
continuedin a varietyof forms but due to tremendousdemandfor labor from the cocoaplantationsof
Sao Tome, prices for slavesincreasedsteadily,makingit more profitableto export worker: than to
use them on inefficien'settler farms (Clarence-Smith1979).Vagrancylawspassed in 1875subjected
all "nonproductive"Africansto nonrmuneratedlabor contracts(Bender1978).The laws were
replaced in 1926by nativelaws, whichprovidedfor paymentsof wagesbut retainedthe provision
95
that all Africansbh-' to workfor Europeanlandlordsor couldbe contractedoy the state (Henderson
1980).
Egypt
Land marketinterventons.
Land grantsof the 1840sgave some 40 percentof the land to
Turko-Egyptianlandlordsand facilitatedthe formationof large estates(Richards1982).Expropriation
of communallands whichtook place in 1850-70,exacerbatedthis trend. Land taxes in 1856 (per
acre) were four to six times higherfor smallholdersthan for the large land holdings(Richards1982)
and in manycases large landownersdid not pay taxesat all (Owen1986).
Dtfferentialtaxationand labor levies.In contrastto their usual practice,the Ottomansin the
sixteenthcenturydid not distributeEgypdanlands to militaryleadersbut assessedcollectivetribute.
They wishedto avoiddisruptingagriculturalproductionin Egypt, 'the granaryof the Otte-man
Empire" (Richards1983:7).Corv6elaborerswere recruitedinitiallyfor publicworksto set up an
extensiveirrigationsystemand later for cottonproductionon the ruler's homefarm. Followingthe
large land grantsmade in the 1840s,'large landownersarrangedto have corvee!aborersworkon
their estatesand to get their peasantsexemptedfrom the corv6e*(Richards1982:23),thus closely
parallelingeventson the Latin Americanhacienda.
Large landownersobtainedconiiderabledirect governmentsubsidiesfor cotton-price
stabilizationprogramsin the early 1920sand 1930s,supplementedby an officiallimitationof the
amountto be plantedto cotton and financialsupportto lower interestrates for large landowners
which,by the 1930s,were heavilyindebted.Similarly,impositionof tariffson importedflourin 1932
and 1934and protectionof the marketfor domesticallyproducedsugar, directlysupportedlarge
landowners(Owen 1986).
Kenya
LandmarketIntervendotos.
With the arrivalof Europeans,all vacantland was declaredto be
Crown land and sold to Europeansetders at extremelyfavorableconditions.Muchof the land
continuedto be farmedby Africantenants,whichwere calledsquatters(Mosley1983).Africans' land
rightswere limitedto reservesand a formalprohibitionof Africanland purchasesoutsidethe reserves
was codifiedin 1926.
Djfferentl taxation
and labor levies.The Britishintroduceda numberof regressivehut and
poll taxes in order to 'increase the native's cost of living (Bernan 1990:509).To pay thesetaxes,
Africansinitiallydid not seek wagelabor but increasedproduction,mainlyon tenantedland. Despite
repeatedrequestsfrom settlersto grant tax-exemptstatusto Africansworkingon Europeanfarms,
such taxeshad to be paid by workersas well, thus large estatesbased on wage labor remained
relativelyunprofitableas compa. 4 to tenancy.
The squatterlaw from 1918requiredtenantsto provideat least 180 days a year in labor
servicesto their landlordat a wagenot to exceedtwo-thirdsof the wage for unskilledlabor. This
ordinancewas amendedtwice (in 1926and 1939), both times increasingthe minimumamountof
3F
For moredetailon Kenya,SouthAfiica,andZimbabwe,
see Deminiger
andBinsa%nger
(1992).
96
labor services(to 270 days por year in 1939), limitingthe area sllowedto be cultivatedas well as the
amountof stock ownedper tenant, and makingevictionof tenantseasier. Labor passes, whichhad
beet introducedin 1908,limitedthe mobilityof Africans;leavingwithoutthe employer'sconsentwas
a criminaloffense(Berman1990).
Input and Qowput marketlrervendons. A dual price systemfor maize, adoptedin the 1930s,
reducedthe returns Africanfarmerscouldobtainfor the sameproduceas suppliedby their European
counterpartsand, in addition,unloadedmost of the price risk on Africans(Mosley1983).
Growerassociationsthat excludedAfricanswere formedfor most of the importantcash crops.
High licensingfees kept Africansout of pyrethrumproduction,and they were prohibitedoutright
from cultivatingcoffee(Berman1990).
DuringWorldWar II, Europeanfarmersreceiveddirect subsidiesto mechanizetheir farms
(Cone and Lipscomb1972).
Sokotho-Callphate(presentday BurkinaFaso, Cameroon,Niger, and northeri Nig,ria)
Land marketImeventons. After 1804, land was grantedto settlersby tile caliphate
governmentin the areas arounddefensivecenters, the amountof land dependingon the numberof
slavesowned.Thus "anyonewith slavescouldobtain enoughland to start a plantation' (Lovejoy
1980).ITere were about 100-200slavesper plantation,althoughthere are reports of officialswho
managedto obtainholdingsof morr than 1,000 slaves(Lovejoy1978).
Dterenti taxaton and labor leves. The patternof 'slavery' in the area, whichwas
populatedby Hausa and Fulani, was characteristicof manyparts of Africa in the nineteenthcentury
(Lovejoy1980).21
Slaveswhichmade up some50 to 75 percentof the local populationwere
acquiredby warfare,direct seizure,or as tributefrom subjectedtrtbes. Limitedexport marketsand
the relativelylow price of slavesOandownerscouldreplenishtheir bondedworkforce through
independentraids; Lovejoy1980)allowedrelativelylenienttreatmentof slaveswho enjoyedmore
rights e.g. the possessionof heritablehouse-plots(Hogendorn1977)and the right to self-redemption
oftenusing fimdsacquiredby cultivatingsurplusland (Hill 1978)than the slaves acquiredfor cash by
market-orientedplantationsin the Americas. Land and the absenceof economiesof scale meant,
however,that slave ownershad to take measuresto preventslavesfrom escapingand establishing
their own operations(Hogendorn1977). Eventually,these factorsled to the demiseof the large
holdings(Hopkins1973).
Malawi
Land market lntervendons.In 1894, Europeanswere allottedmore than 1.5 millionhectares,or
about 15 percentof total arableland.
"h
e
IS is somediswsion in the littur
_mnt
of avauy ud sefdom.
an theappropritenomelatue for thissystem,whichcombines
97
Dferenial taxadonand laborlevies.Attemptsto introducelabor tenancyon European-owned
cottonlands were unsuccessfulas farmersabandonedthe land and fled to uncultivatedcrownland.
The situationimprovedonly as a law was introducedin 1908whichallowedAfricansto gain a
significantreductionin the head tax they had to pay by workingfor Europeancottongrowersfor at
least one montha year. Africans'possibilityto gain a similarreductionof the head tax by producing
cottonon tenantedland, was, due to landowners'pressure, eliminated(Mandala1990).
Mozambique
LandmarketIntervendons.
Exclusivepropertyrightsin land and quasi-governmental
authority,
were in the early 19thcentury,grantedto lessees(oftencompanies)for a period of three generations
under the institutionof pra.o. The prazo-holderhad to piovideminimalpublic services,cultivatepart
of the property,pay quitrentand tithe, but couldlevy annualtributes(in cash, kind, or labor) on the
local populationand (see below)was endowedwith a completemonopolyon all trade withinand
outsidethe area (Vailand White 1980).
DigerentIa taxationand labor levies. HIuttaxes were establishedin 1854. After 1880,at least
ha!f of die tax hid to be paid to the localprazo-holderin the form of labor services(Vailand White
1980).
Under the vagrancylaw of 1899,all male Africansbetweenfourteenand sixty years old were
legallyobligedto work. The area of cropsto be grownor the wage-employment
requiredto satisfy
this obligationcouldbe varied by localprazo-holders,providingthem with ampleinstrumentsto
increasethe supplyof labor. Contingentsof migratorylabor were often 'sold" to other areas (suchas
SouthAfrica) wherelabor was relativelyscarce (Vailand White 1980).Vagrancylaws were repealed
in 1926- at aboutthe time manyprazos were expiring- and the use of forced labor for 'private
purposes"(i.e. non-quotaproduction) was banned.The labor code of 1942institutedan obligatory
labor requirementof six monthsfor all Africanmen.
Input and outputmarketInerventions.In 1892all itinerantAfricantrade withinprazos was
abolished,conferringa monopolyonprazo-holdersof all commercein their prazw(Vailand White
1980:132).Prazosturned into a kind of mini-state,each with its own closedeconomyand unlimited
freedomfor the prazo-holderto determinethe terms of trade. Deprivedtraders to provideoutletsfor
their produce 'that had madepeasaatproductionso attractiveto the local people' Africansalmost
completelywithdrewfrom cash-cropproductionsand the prazos became'private laborpools from
whichthe companies,by direct force or by indirectmanipulationof the economy,couldcompelthe
labor they required"(Vailand White 1980:132).Followingtheir expirationabout 1930,prazos were
replacedby a 'concessionsystem".Concessionholdersreceivedmonopolyrightsto purchasecotton
and rice at state-administeredlow prices from Africangrowersin return for enforcingAfricans' work
obligationsand providinginputsand supervision(Isaacman1992).Althoughexactionsfrom Africans
were still high, (forced)cultivationof all but sugar revertedto smallerscale units rather than large
scale farms.
South Africa
Land market Intervendons.Nativereserveswere firmlyestablishedat the end of the 19th
centuryalthoughthey were legallydefinedonly in 1912. For examplein Transvaalin 1870, the area
allocatedto Africanreserves was less than a hundredthof the area availableto whites(Bundy1985).
98
The Glen Grey Act (1894)restrictedAfricanland ownershipin the reservesto a parcel of no more
than about3 hectaresand instituteda pervertedform of "communaltenure' whichbanned the sale,
rental, and subdivisionof land in order to preventthe emergenceof a class of independentAfrican
smallholders(Hendricks1990).The inabilityto sell land in the reserves,whichpersistsup to this
day, is recognizedto be major reason for the low productivityof agriculturein the homelands(Lyno
and Nieuwodt1991).
Variouslegal measuresto discouragetenancyon Europeanfarms such as a limit on the amount
of tenantsper farm in 1895and assessmentof licensefees for tenantsin 1896 4idnot leadto the
desired results. The NativeLandsAct (1912),circumscribedthe extentof Africanreserves and
declaredreal tenancyon Europeanfarms illegal,forcing all Africantenantsto either becomewage
laborersor labor tenantson Europeanfarms or to moveto the reserves.
D,ferentda taxes and labor levies.Prior to state interventionon their behalf, very limited
marketproduc.aonby Europeanfarmerswas based on slavesor, after the prohibitionof slaveryin
1834, indenturedlabor.
Mastersand ServantsLaws and the Mines and WorkersAu (1911)restrictedAfricans'
occupationalmobilityand excludedthemfrom skilledoccupationsin all sectorsexceptagriculture
(Lipton 1985).Restrictionson mobilitywere reinforcedand tightenedby pass laws (influxcontrols)
from 1922and the establishmentof laborbureausto enforcethe legislationfrom 1951(Lipton1985).
I additionto restrictingAfricans'abilitythe obtainjobs outsideagriculture,more rigid pass
laws and rigorous enforcementof such laws also provideda flowof cheap labor for white
agriculturalists.It is estimatedthat, in 1949,about40 000 pass-lawoffenderswere suppliedto fas
as prison laborers(Wilson1971).
Input and output market nterventions. European farmers were assisted by a large array of
monopolisticcommoditymarketingboardsand direct credit subsidies.In 1967,the amountspent on
subsidizingabout 100,000whitefarms was almostdoublethe amountspent on educationfor more
than 10 million Africans(Wilson1971).
Tanganyika (part of present day Tanzania)
Land market Inervendons. From the late 1890suntil 1904it was commonpractice to allocate
severalvillages apieceto incomingGermansettlers.
Dfferendal taaton and labor levies. A hut tax, to be paid in cashor labor services, was
imposedin 1896 'not so muchfor the revenuewhichresultedbut as a meansof propellingthem into
the labor market" (Rodney1979, 131)althoughhalf of the hut-taxincomewent direcdy to settlers'
DistrictCouncils.Vi'llageheadmenwere requiredto providea fixednumberof workerseach day to
providelabor for the settlersto cultivatetheir rubber and sisal plantations.Every Africanwas issued
a work card that obligatedhim to render servicesto an employerfor 120 days a year at a fixedwage
or else to work on publicprojects (Illife 1979).In 1902, the Germansintroducedcompulsorycotton
productionin certain coastalareas; it is widelyacceptedthat this schemewas one of the main causes
leadingto the outbreakof the Maji Maji revolt in 1905(Coulson1982).
99
Africanswere excludedfrtm credit by the Credit to NativesOrdinanceof 1931whichrequired
that an Afican have specificgovernmentpermissionbeforehe couldeven request a bank to lend him
money(Coulson1982).Attemptsby Africansto set up a marketingcooperativefor coffeeled to the
attempt to outlawtraditionalpracticesof coffeegrowingin 1937, whichled to riots. Settler-dominated
marketng monopoliesfor African-growncrops were set up in the 1940sand creamedoff most of the
profitsfrom those crops (Coulson1982).
Zimbabwe
Land marketInterventons.Reservesfor Africansin remoteareasof oftenlow fertilitywere
establishedin 1896althoughtheir boundariesunderwentsome changesuntil 1931(Palmer1977),
when Africanland purchasesoutsidethe reserves mndspecificallydesigned'African PurchaseAreas"
were declaredillegal.
D&erendadtaxadonand laborlevies Whileall Africanswere subjectto poll andhut taxes,
specifictaxes discriminatedagainstcash rental an;' share tenancycontractsfom 1909(Palmer1979).
The prospectof (temporarily)easingthe tax load led to large-scalemigrationof Africansinto the
reserves when commodityprices were extremelylow in the early 1920s(Arrighi 1970).
Input and outputmarketInterwntions.Volatilityand downturnsin outputmarketswere
smoothedby governmentinterventionssuch as increasedland bank loans,debt moratoria(especially
during the depressionin 1930)and, afterprotractedlobbyingby Europeanproducers,the
establishmentof monopolymarketdngboards (for tobacco,dairy, pigs, and cotton)inselectedcrops
and the establishmentof exportsubsidies.
Africanmaize and livestockproducerswere discriminatedagainstby dual price systems.
Pressureby Europeanminers who were interestedin cheapsuppliesof maizelimitedthe extentof
restrictionson Ailcan
price discriminationagainstAfricanproducersin maize. Quarantine-based
livestocksales initiallyled to the buildupof large herds and the associatedsoil degradationin the
reserves. To ease this problem, in 1939, compulsorydestockingwas mandated;prices paid fer
one sith of the pricesfetchedfor comparableEuropean
Africancattle were betweenone third anWi
stock (Mosley 1983).
100
Appendix2
Now Market ImperfectionsAffectthe Farm Size- ProductivityRelation
Conridera regionwh
ewh farmhouehold conmsits
of E fmiy membaercapableof
conductingfarm opertons as wel as supevising hiework of hired laborers." The householdownsy acres
of land, but the size of farm it actuallyoperates,denotedby A,, is determinedthroughrentingin or
rentingout land at the goingrental rate & Outputdependson effectivelaborlid and land M.
Effectivelabor is definedas the productof the numberof individualsemploy-d and the effort i1 they
exert. Whilefamilymemberscan be expectedto performfarm tasks with maximumeffort, say i,
hired laborers' work effortdependson the intensityof supervision.The intensityof supervisionis
representedby the ratio of householdmembersto operationalfarm size (M/0).It is assumedthat the
marginalreturns to supervisionintensityare diminishing,
e = e(FIA), e'> 0, e' < 0, lim e=1
(1)
FIA -_oo
WithN hired laborersper operatedacre and a total of E householdmembers,the
effectivelabor input is givenby
L = F.e+A N-e(FIA).
(2)
Outputis determinedby a neoclassicalproductionfunctionthat dependson effective
labor and land,
Q=Q(L,A).
Assumingconstantrets
(3)
to scale, and substitutingequation2 in eciation 3, output
per operatedacre is givenby
q=Q[1.(FIA)+N*e(FIA);lJIq[I- (FIA)+N e(FIA)J,
1/ This ppeadixis basedan Feder(1985).
101
(4)
whereq-Q/A andq'>0, q' <0.
A simplebutrealhitcwayto introducea creditmarketImperfecdon
to the present
modelis to assumethatthe supplyof creditdependson the amountof landownedby the household
denotedE&
S mS(VeS'Jr.
(5)
With$* wagerate denotedby w, Intermediate
inputcostsper acreby c, and cash
consumption
expenditures
per familymemberduringthe seasonby 0, the cashrequirements
of a
familywih an opwational
holdingof sizeA are w.N.A+c -A+R.(A- V)+ U*F,andthe working
capitalconstaintfced by the farmIs:
w.N.A+c.A+R (A -
v)+eOF-sF
v).
(6)
T7heaumr's objectiveis to maximizeend-of-season
profits(accounting
for interest
charges per dollarborrowed),subjectto the workingcapitalconstn. Formally,
max 1=-q[eU(F/A) + Ne(F/A)l
A,N
4w.N.A + c.A i R.(A-VJ(l+O,
subjectto inequality(6) and 20, N20.
Detingto lU an tficda [+k* S(1
w*N.A-c.A-R.-(AV)4.F1,
ft shaow przmof ft creit cons_ant,t Kuhn-Tcicecod
for opmid,on iply:
whA
a^ -q-q 'fF/eA) +N(FIA)
e -(w-N+c+A(1 +L+A)A,
at
(74)
ad
102
is
A!q-w(.+ks.(82)
A cIN
-W
li§
)O
a8N
N
N4
(8b)
(9a)
"1-S(v)-w*AJf-c'A -Rv-P)-B&
(9a)
kA-0,
1
(9b)
AkO,>N20,120,
(10)
Westai with Ihoco in whichthe credit coaint
conditon (7a) ad (8.) for th optmal value of A and iFand diffe
_
is not binding(X-0); solving st-order
tating yie:
A
dF F
ad4
(11)
dF
-m0.
(12)
Equat (11)impliestot in to absc of biwng redit constraints,te elucity of fth
opta opeaonal uizewith repect to houhold size s unity,i.e., thr is a fixet
tiop
nl holdingto
householdsizertio. Mmamountof owd landdos not affectthe optimalratio. This outocomis intuitively
expectedin a situationof constt rturn to scalewith prfect
ntal d capitalmarts.
103
t
Equation(12) impliesthat the optimalnumberof hirnd laborersper acre is not affectedby
householdsize (neitheris it affectedby the sizeof the ownedholding).Sincethe earlierroLultsimply that the
operationalholdingis proportionalto householdsize, it folows that the numberof hired leborersper acre is
identicalon ull farms, whateverthe sizeof the operationalhutding(a. 4 that the ratio of family to hired labor
declineswith operationalholdingsize). A trivialextensionof thes rslts is the observationthat the level of
effectivelaborper acre is identicalon all farms(sincethe ratioZ/A is fixedandA is the sam onall farms),
assumingall other farm and farmerattributesare identical.It therefre followsthat outputper unit of land
operatedis uot affectedby the sizeof the operationalfann or by the amountof landowned.
The analysisand thepresentationin the casewhere the credit constraintis bindingQ\>0) are
greatlysimplifiedby assumingthat the finctions q(*) and e(*) are of lxedelasticitywith respectto their
arguments,that is, that (q'he,)*(LIA) * il, the elasticityof outut with rspect to effectivelabor,and (e'/e)
(FIA) * i, the elasicity of effortwith respectto upesion,
aand V are parmet
dA
WR
dV
[
and where
<w
e
withinthe intew'l (0,1). Th&stadard treatmentof laborin the literaure - the
assuption that hired laboris not affectedby familysupervision- is then the specialcasen0
in the presnt
model.
Differeiation of equations(7a), (8a), (9a), under the assnuptionof an intmal solution,
yieldsafter some manipulaton
(13)
d4
-(1
dV
Ils
_
-1 -11
u (c +R)
w
wF.
w
Is -(
ZcF
eA
The denominatorow be dwsw to be positiveif second-ord conditionshold. It followsthat
th sig of equation(13) is detmined by the sip of (I-" , j), whichis the limit valueof total output
elasticitywithLrespectto land as the share of familylabortends to zero.
To demonstratethat the relationbetweenper-hectarsyieldsand openrionalholdingsize can
follow different pattns within the frmneworkof the preset Laodel, we use te definition of effective labor and
the fist-order conditions to calculate the optimal per-ectare inputof labor:
104
(IJA)*-v f[c+R)
./waJIaJS
F/AJ(1(I-"1 *
.).
(14)
Diffrentiationof quaton 14 with respectto ownedholdingsie y yields
d(14A)
dV
;*
eA
e di
w
At(1I1iL)
(1S)
Clarlny,if the labormart is pedfect(a.0), laborper hectao of landdos not vay with
fam style. Ibspectionof equaton 13 verifiesthat a and the sig of equaton 1S thus dependsan th term in
.squr brwket.
In the cas where 17-7i* I
0, the relafionbetweenthe offecive laboriput per hecta and
ownedholdingsize can be negativeor positive.Consider,for instance,tho cas wher the output Iasticitvi
equals'. Firt-orde conditionsimply[(1- *
(Ig)**A)-[( I <1Jc0,
hec, in t ca where i-'A, it
followstdatd(/)Idi/<O,
i.e., tho effectivelaborinput(andyieds) declin with ownedholdingsize. Mhm
ame resultcan be obtaned for aiwll<. By an avWmentof coStinuitysincein thecuo (l-1p-0
it holds
thatdl&4/)I_>0(in thatca the is a finalc.mional fam sa
of weth), ther mustexis
some low (but positive)valuesof the tem (1-""- it) for whichd(ld)l/d_>0 holds.The conclusionis,
therefore,that one mayobservea posiiiveor a negativereaton betwee opetional holdingsiz and perhect yields,dep&udigon the relafivemagnitudes
of ti and p. In thocase (1-t *p)-0 ther wiUlbe no
oetion
betw
operationalholdingsize and per-hwetacyields.
105
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