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Property rights are crucial to land reform

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

Land reform in South Africa is widely acknowledged to have been inadequate to date. The majority of restitution and redistribution projects have failed to remain, or become, commercially successful. Before considering radical measures that risk economic catastrophe, we should fix what’s wrong with land reform first. One key issue is to recognise the importance of private property rights to black South Africans.

The rate of land reform in South Africa peaked in 2007, but has since come to a grinding halt. It has resulted in a change of ownership of only 5.46% of South Africa’s commercial agricultural land. Much of this land was transferred to the state, or to communal ownership groups.

Of these, the majority of projects have underperformed, according to a recent report by a high-level panel. The panel of experts was appointed by former deputy president Kgalema Motlanthe to advise the government on the effectiveness of legislative programmes, including land reform.

Marelise van der Merwe recently wrote a brief overview of the 100-page land reform chapter of the report, and it is a startling story of how bureaucratic incompetence and policy incoherence leads to disastrous outcomes. She quotes Dr Aninka Claassens, a co-author of the report:

The evidence presented shows that the ills of the past are being reproduced in post-apartheid society, despite extensive legislative reform.”

The majority of land reform projects are commercial failures. Says the report:

The economic and developmental outcomes of restitution have been very poor. … Where agriculture was the main objective, 83% of projects underperformed; where settlement was the main aim, 75% of projects underperformed, and where ecotourism was the main aim, 88% of projects underperformed.”

(Note: I have not distinguished between land restitution and land redistribution, because whatever the merits of each, the arguments in this column apply to both.)

The high-level panel cites a 2005 study conducted in North West, which found that “one-third of land reform projects were locked in intractable conflict and, as a result, the majority of their members had lost interest in the project and had de facto exited; 55% of projects had no implements for production and 27% had inadequate implements; and more than a quarter of projects had not produced anything since taking ownership of their land.”

Such numbers are shocking. The failure of newly minted farmers is graphically exposed to the world by international news agencies, such as this recent insert on a German television station. It shows a large, formerly productive commercial farm which has become almost entirely fallow, with broken down plant and equipment, and a group of women with hoes scratching a living on a small patch.

There are, of course, fêted counter-examples, like Errol April, who made a success of a struggling fruit farm near Greyton in the Western Cape. He did so despite not receiving outright ownership of the farm, although if I understand correctly, he has the prospect of earning ownership in future. He relied heavily on the mentorship and technical assistance of a fruit distribution company appointed by the Department of Agriculture. April’s story is wonderful, but it is clearly an exception to the rule.

Many new landowners do not appear to receive any such training, mentorship or support. And because they do not own the land, they have no collateral against which to raise working capital, and no ability to enter into productive partnerships that could improve their operational skills.

Because they become tenants of the state, they cannot even sell the land to someone better qualified to work it. So unless the state rides to their rescue, or obliges someone else to do so, most land reform recipients are doomed from the start, through no fault of their own.

However, the image of failed black farmers working state-owned land by hand like medieval peasants (which is exactly what they are) is not only deplorable in its own right. It also enables racist white people to point at them and say:

See? We gave them working farms, but look how they destroy everything with their incompetence.”

This sort of sentiment is caustic for the South African project, especially when they appear to be supported by the statistics. Failed land reform projects have obvious consequences for future prosperity and food security, but they also threaten racial harmony and reconciliation by reinforcing racist stereotypes. This is tragic. It is critical that land reform recipients become more successful at working the land they receive.

There are many reasons for the failures, and black skin is not one of them. The high-level panel report is scathing about the bureaucratic incompetence and corruption of government. It also places blame on a lack of skills, poor management, and a lack of training and mentoring for land reform recipients. Perhaps new land recipients should also be given a three-year course at agricultural college and an apprenticeship with an established farmer, before they’re dumped on a farm and told to figure it out.

The report further notes that the government’s selection of business plans to consider for land reform is flawed:

The findings of the study draw into question the quality and appropriateness of the type of business plans that form the basis for project approval, since these are widely ignored and, even where they are implemented, correlate negatively with project success.”

Of course, those of us who believe in free markets are quite aware that government is in a poor position to select economic winners. No individual agent is in a good position to pick winners, especially not when they don’t have a stake in the success or failure of a project.

What crops up time and again in the high-level panel’s report, however, is the matter of property rights.

[T]hose who do receive redistributed land are made tenants of the state, rather than owners of the land,” it notes.

It says that the government has tried to group people together in tribes, exactly like the apartheid government did, so that it could rapidly award communal ownership to many people. However, the report says there is an “urgent need” to record property rights “in a way that reflects customary understandings of land rights as family property”.

As Mbhekesini Mavuso said, quoted in Daily Maverick recently:

We don’t have land. We live in the chief’s back yard. We can be evicted any time. We are hoping for radical transformation this time. We know all our communities are captured. We are waiting for this so-called hard-fought freedom.”

The high-level panel also found that “land reform policy has drifted from its initial pro-poor focus to one marked by signs of elite capture”.

The report spends several paragraphs describing the failures of “commonage” owned by municipalities, while also suggesting such publicly owned land ought to be expanded. It does not explain how competing interests can be accommodated on common land, how the poor might benefit without being elbowed aside by the rich, or how the tragedy of the commons might be avoided. Why the authors think municipal officials will give up the valuable tracts of land they now dole out as patronage to their business cronies is also left unexplained.

The right to private property is enshrined not only in the South African Constitution (where it is under threat), but also in the United Nations Universal Declaration of Human Rights of 1948:

Everyone has the right to own property alone as well as in association with others. No one shall be arbitrarily deprived of his property.”

In 1981, the Organisation for African Unity (the forerunner of the African Union) adopted the African Charter on Human and People’s Rights, which also enshrines property rights:

The right to property shall be guaranteed. It may only be encroached upon in the interest of public need or in the general interest of the community and in accordance with the provisions of appropriate laws.”

Philosophically, I’ve always considered the right to private property to be a logical extension of the right to liberty and self-ownership. If you are free, then you must own the fruit of your own labour as well as anything you buy with it. If someone takes that property without your consent, they subject you to slavery: being forced to work for the benefit of another without compensation.

In Principles of Economics, the influential 19th century economist Carl Menger provides a different explanation of why private property is an essential element of human economy. Because the goods available to people are by nature limited, there will always be some people whose needs or wants are, at best, only incompletely met. There will always be someone who wants or needs a new car, a larger property, more food, more woodworking clamps, or more shoes. That means there is an “opposition of interest” between those who have the goods that are desired by others, and those that desire them. For this reason, the ownership of those who possess goods must be protected from those who would otherwise dispossess them.

Thus human economy and property have a joint economic origin since both have, as the ultimate reason for their existence, the fact that goods exist whose available quantities are smaller than the requirements of men. Property, therefore, like human economy, is not an arbitrary invention but rather the only practically possible solution of the problem that is, in the nature of things, imposed upon us by the disparity between requirements for, and available quantities of, all economic goods,” writes Menger.

To abolish private property, one would have to remove the reason for its existence – scarcity. Only in a world in which everything is abundant and nothing is scarce could people live in peace without private property rights.

This helps to explain why the right to own land was non-existent or weakly developed in times when human populations were small. When a resource is practically unlimited, there is no reason to claim property rights or exclude non-owners. When it becomes scarce, because of growing demand from growing populations or new trade relations, property rights tend to develop rapidly.

It has long been theorised that property rights are key to the growing prosperity of an economy, to protect citizens from the depredations of a tyrannic state, and to maintain international relations of peaceful trade rather than war and conquest. Such a concept of private or family property rights existed in Ancient Greece, for example. Philosophers who addressed and developed the right to property include Plato, Aristotle, Aquinas, Hegel, Hobbes, Locke, Hume, Kant, Marx, and Mill.

Modern-day economists have used empirical data to prove that “property rights institutions have a first-order effect on long-run economic growth, investment, and financial development”. If you want society to progress, you must establish and protect private property rights.

By contrast, historical societies in which people were poor and oppressed have been characterised by weak or non-existent private property rights. Instead, property was concentrated in the hands of despots, aristocrats or religious authorities.

Collective ownership and central planning, where some governing entity such as the state or a tribal authority exerts control over property, leads to inefficient use of scarce resources and disincentives to invest in the improvement of those resources.

History is littered with examples, from feudal Europe to the collective farms and factories of the 20th century communists, that illustrate that without the underpinnings of private property, economic development is either highly unequal, or entirely impossible.

The reason for this is simple. Private property provides the institutional basis for trade and exchange. You cannot exchange something unless you are assured of what is yours and what is mine. Exchange is necessary to establish a market, where prices can form to balance supply and demand. The price mechanism provides essential signals to calculate how best to employ scarce resources such as capital, labour and land. Without knowing which products and services to produce, in which quantities, for which customers, at what time, a well-functioning economy that serves the needs of all of society cannot exist.

No single agency – private or public – is capable of understanding, directing and planning an entire economy, or even a part of it. Famously, no single person knows how to create even something as simple as a pencil. It requires the combined skill of a great many people, brought together by the market and their own self-interest, in peaceful, productive co-operation.

All of that collapses without private property.

Conversely, when you grant people full property rights to the land which they occupy or farm, they have the beginnings of a capital base. Instead of just scratching a living for the short term, this gives the owners the security and legal certainty to invest time and money to improve a property’s value or productivity over the long term. This “impetus to invest” is what makes individual properties, and modern economies as a whole, prosperous. Without ownership, it all means nothing.

There are many things that need to happen to improve government’s record on land reform. The land reform bureaucracy itself must be strengthened and purged of corruption. Land recipients need to be given the skills and capacity to use their newly gained property productively. But one of the most important changes that needs to happen is that these people – along with others who live on communal, tribal or municipal land – must be given the right to own the land they occupy.

Apartheid denied black people rights in land, not only via dispossession but also by imposing a discriminatory tenure system that created a second-class set of rights,” says the high-level panel report.

This was most clearly the case in relation to rights to land derived from customary law, or similar systems of norms and values, and involving group-based (or social) land tenure systems. A clear statement of principle is required that gives high priority within the land reform programme to securing such rights, both urban and rural.”

It adds: “As long as the majority of South Africans have no recorded land rights, they remain vulnerable to eviction and dispossession. They also remain largely invisible to the formal economy. … [The] Panel recommends … some specific urgent interventions to address barriers that continue to deny property rights to the majority and marginalise them from the core economy.”

I couldn’t have said it better myself. Instead of threatening private property rights, strengthening and expanding them are essential to improve the outcomes of land reform. This would be truly radical economic transformation. DM


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