This article and this one at Mises.org provide top-notch advice to President Ramaphosa of South Africa who is embarking on a program of “accelerated land reform”.
Ramaphosa’s program is basically to take farm land from current owners (a minority) and shift it to a larger group of smaller owners “…all citizens can have their land rights recognised, whether they live in communal areas, informal settlements or on commercial farms.” He also proposes to aid the small farmers “…through financing, training, market access, irrigation and the provision of seeds, fertiliser and equipment…”
This program will fail miserably because it is a transfer of land from skilled people who have found recipes for success to unskilled people whose potentials as farmers are unknown. To the extent that it ever succeeds after some years of upheaval, it will be because a small group of new beneficiaries consolidates holdings of smaller farmers who will fail and end up selling out. If that happens, the old order of concentrated holdings by successful farmers will re-emerge.
Aid to the new farmer-owners will not produce profitable enterprises; it will subsidize failure. It will encourage even greater government regulation of the farm businesses. Fostering subsistence farming is a disaster in the making.
To be specific, let’s consider a few facts about farming as a business. (1) Farming is a tough business, requiring many skills. (2) It faces many risks one must address. (3) It’s a very competitive business. Product differentiation is hard. (4) It requires cooperative marketing in many cases. (5) The optimal scale of farms has to be discovered by entrepreneurs. (6) Land is not wealth by itself. It takes the other factors of labor (knowledge) and additional capital to make it productive profitably.
Taking producing enterprises and dividing up the land among unskilled farmers is a recipe for disaster because it flies in the face of these considerations and others like: (7) Owners now are probably also in many cases also the managers and entrepreneurs, combining these important functions and their attendant skills. New people given land are going to be deficient on these dimensions. For example, the ownership dimension involves getting the seasonal and long-term financing for the farm, and that may involve banks. That involves loans, a record of paying back loans, and bank assessment of many factors. New people do not have reputations or these links established. Ramaphosa intends to cover this ground “through financing”, presumably by government. This is bound to fail. Government cannot replicate market workings. His plan begins with bailouts right off the bat.
Ramaphosa supports his program by referring to the World Bank: “As the World Bank has observed, ‘SA’s historical, highly skewed distribution of land and productive assets is a source of inequality and social fragility.’
“It argues that, after skills, current distribution of land is the second-biggest constraint to poverty reduction and shared prosperity.”
If the government takes land and changes its distribution, this will not reduce poverty. It will raise false hopes, encourage unskilled people to go into farming where they will fail, hopelessly entangle the government in farming, and increase poverty as people defer acquiring alternative skills that have market value. It will cause capital in the affected farming lands to flee the business. It will cause an exodus of skills that have taken a long time to gain.
Inequality and social fragility, twin concerns of World Bank, should only and can only be addressed properly in an indirect way by appropriate government policies. Direct policies like land redistribution and government direction will fail to produce the desired results. Indirect policies are those that promote economic liberty. The Mises.org articles recommend low and stable taxes, “…liberalized trade, increased personal freedoms, and [keeping] marginal income tax rates low to deter tax evasion and corruption.” It will help to have a stable government so that capital markets will finance municipal and regional infrastructure, payable by user fees. It will help to have an emphasis on education and marketable skills. Laying one’s hands on land via redistribution is not going to produce wealth. It is much more likely to destroy value.
2:02 pm on August 27, 2018 Email Michael S. Rozeff
