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Tuesday, 24 July 2007

A new perspective on land inequality.....

I had the pleasure last week of reading an exciting new paper by one of my favourite economists and his buddies, which presents a startling conclusion:

“Very differently from the recently emerging consensus about the sources of comparative advantage within the Americas, we find a positive association between economic (land) inequality and long-run development and long-run development. Municipalities with greater land inequality are those that supply more public goods and are more educated and urbanised today. In contrast, we find a relatively robust negative relationship between political inequality and economic outcomes. We also showed that powerful individuals appear to have been much more likely to become landowners and to have increased the value of their lands substantially.

Our interpretation of these results is that in weakly institutionalised polities, such as 19th century and 20th century Colombia, economic inequality may be a useful counterbalance against the most rapacious policies that may be pursued by political elites. This interpretation is consistent with the negative effect of political concentration (inequality) on long and medium-term outcomes in Cundinamarca, with the evidence presented by Bates (1981) for Africa, and with the additional results we presented above, suggesting that inequality among landowners, not overall inequality has the positive effect on various economic outcomes”.
This rich conclusion has left me pondering on a number of areas - one of them being Zimbabwe. We always need to be cautious in taking new results and applying them elsewhere, but I can't help thinking over the obvious question : is it possible that Zimbabwe actually performed well before the land grab because the large presence of rich white land owners actually provided the necessary counter balance to Zanu-PF in the absence of weak institutions? In effect the white land owners probably acted a "bulwark" against a corrupt Zanu-PF elite, which helped drive the country forward.

Its a controversial view, but certainly it is the case that once Mugabe grabbed the land, that balance of power was broken, and what then emerged was possibly a more equal society (?) but full of “political capture”. The corrupt Zanu-PF elite possibly exploited their new found dominance to generate rents for them. They were able to do this because the society was "weakly institutionalised". The historical lesson here might be that Zimbabwe should have first strengthened its institutions (e.g. the constitution) and then redistributed the land away from rich white farmers. Doing the latter first created a dangerous vacuum that Zanu-PF exploited, and of which we may be seeing the consequences of now.

16 comments:

  1. I didn't read much more than a couple pages... Seems like a blend of obvious and crazy to me. ;)

    Anyway, the paper doesn't look at racial tension which is what caused the problems in Zimbabwe.

    In the 1930s the whites stole 70% of the arable land. The war from 1965 to 1980 obviously boosted race tension. In 1980 Zimbabwe achieved majority rule but the whites kept the land. In 2000 the land was stolen again by Mugabe's henchmen.

    The problem was that the whites could never keep the land when they were so out numbered. At the same time the Zimbabwe constitution had no legal provisions to force the whites to sell. So eventually it had to come to fighting.

    The whites were lying to themselves to think they could hold on the land forever.

    The land isn't any more evenly distributed now then before and I think proper land reform is even more difficult at this point.

    Zambia was much more fortunate with its low population density. There were no forced relocations. There was no war. There is less racial tension.

    As a foreigner, I worry about the mines and the talk about kicking foreigners out in the last election.

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  2. Anonymous,

    "I didn't read much more than a couple pages... Seems like a blend of obvious and crazy to me. ;)

    Anyway, the paper doesn't look at racial tension which is what caused the problems in Zimbabwe."


    This is my fault, I should have been more clear perhaps. To clarify the paper is not focused on Zimbabwe! Its the conclusions in the paper from the Americas data on the relationship between land inequality and development that made me think of Zimbabwe. This is why I said "We always need to be cautious in taking new results and applying them elsewhere".

    On your other points, you are quite. Have you read Brendan Stone's paper? MrK brought it to our attention. Very insightful (with other flaws of course).It picks on the points you make.http://www.raceandhistory.com/Zimbabwe/2007/2205.html

    "As a foreigner, I worry about the mines and the talk about kicking foreigners out in the last election."

    I heard it was kicking "bad foreign investors". The two are not one and the same. There are lots of good foreign investors in Zambia. What we should be doing is making sure that there's enough protection for our workers and the foreign companies are not being exploitative. We want is an open economy open to foreign investment but within an adequate programme of empowering Zambians and sufficient institutional protection.

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  3. suggesting that inequality among landowners, not overall inequality has the positive effect on various economic outcomes”.

    Aren't they confusing cause and effect?

    Also, we are talking about the effect (of concentration of wealth) on economies, not on the people living in those economies.

    For instance, Brazil has an enormous concentration of wealth in the hands of a few individuals. However, this results in huge inequality in incomes and living standards, with some of the poorest people in the world living right next to some of the richest.

    I think their argument is like comparing the national positive effects of wealth concentration, without looking at individual living standards.

    Is this the return of trickle down economics?

    Our interpretation of these results is that in weakly institutionalised polities, such as 19th century and 20th century Colombia, economic inequality may be a useful counterbalance against the most rapacious policies that may be pursued by political elites.

    The essence of what they are saying, is that economically strong feudal elites are a counterbalance against central government elites.

    Which is not a desirable society to live in. :)

    What I have suggested is a superior counterbalance to strong national elites - namely a broad based, well to do, informed middle class in a government system that is extremely decentralized and responsive to local issues.

    I would say that it is not the political elites that are the problem, but the absence of well funded and legally empowered and democratically accountable local government - in all colonial states and most other states as well.

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  4. MrK,

    "Aren't they confusing cause and effect?"

    Don't worry the results are robust with respect to "reverse" causality :)

    "Also, we are talking about the effect (of concentration of wealth) on economies, not on the people living in those economies. "

    Actually the paper looks at "outcomes" such the enrolment in primary and secondary school, urbanisation and poverty concentration as possible measures (explanatory variables) of economic development. So it is explaining the conditions of people in the economies to some extent.


    "The essence of what they are saying, is that economically strong feudal elites are a counterbalance against central government elites.

    Which is not a desirable society to live in. :) "


    Well it could be worse than in a society without the counter balance :)
    But why do I think you are going to quote a proverb to me - when two elephants are fighting the grass suffers? Lol!! Don't worry counter balance means that no elephants are fighting!!! Government behaves itself and the rich landowners observe the law…

    "What I have suggested is a superior counterbalance to strong national elites - namely a broad based, well to do, informed middle class in a government system that is extremely decentralized and responsive to local issues.

    I would say that it is not the political elites that are the problem, but the absence of well funded and legally empowered and democratically accountable local government - in all colonial states and most other states as well."


    I would have to agree.
    Your proposal is superior to the counter balance talked about.

    To be fair to the authors, they do not advocate the counter balance, they simply illustrate what it might achieve…….

    However, I think their assessment carries useful lesson on how to reform land properly…simply grabbing it as Zimbabwe did was not the best way forward. Would have been better to strengthen the institutions first and then grab the land …although may be it would have been impossible to grab the land if strong institutions would have been in place?…perpetuating inequality…..ummm not so straightforward..

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  5. I think their sample to small to draw such broad conclusions. Looking at history can show corrolations but they seem quick to assume causation.

    In fact, I'm not surprised by the corrolation between unequal distribution of wealth and development but I think they're missing the point. Having a more equal society is a goal for it's own sake.

    If you look at Zimbabwe they had a highly developed country but because it was so unequal it collapsed.

    I do agree that political equality is important. That's obviuos. If Zimbabwe had term limits we wouldn't even be wondering about a post Mugabe world right now.

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  6. Anonymous,

    I am curious to know why you think that "Having a more equal society is a goal for it's own sake."

    I don't disagree with you (although I would put some caveats) - but I am curious.

    If someone said that equality could only come at the price of slower economic growth, what would you say?

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  7. But why do I think you are going to quote a proverb to me - when two elephants are fighting the grass suffers? Lol!!

    Or they leave the grass out of it altogether.

    We have seen a century of attempts to develop 'the economy' without the involvement of ordinary people. Their involvement in the economy should be the real revolution.

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  8. If someone said that equality could only come at the price of slower economic growth, what would you say?

    I would first say they are wrong.

    If you look at the development of the United States, their big leaps forward were made when they allowed working people to become middle class.

    This is because there is stability in numbers. Just as a portfolio of 100 stocks is more likely to be stable than one of 5 stocks, the distribution of earing power, of productivity over the entire population makes the whole economy much more flexible and able to adjust to changes in the world economy, technology, etc.

    Right now, 2/3 of America's 10 trillion economy comes from consumers. Because they have a huge middle class, they are able to keep 80% of their GDP from domestic economic activity.

    This is what creates wealth, because internal trade causes wealth to be retained inside the economy and the country.

    So I would say that equal access to the means of production (land, credit), and equal opportunity in access to wealth creation (free education, free health care) will increase economic development, not slow it, or present a slower alternative.

    Economic elites tend to stifle economic growth, not spur it. Especially in a situation where the majority of the population is poor. We have all seen how economic inequality leads to revolutions - in Africa, South America, and Asia.

    In Asia, a big driver behind support for the Vietcong was economic inequality, and the feudal situation in the countryside. If the Americans had dismantled the feudal elites, and allowed the rice farmers to keep what they grew, the outcome would have been far more similar to what happened in South Korea.

    You can argue that it is economic inequality that is a huge driver behind Palestinian restance, because it makes their occupation even more tangible and resistance even more releavant.

    In fact, the real reason behind the end of the Troubles in Northern Ireland, is not a defeat of the British army or the IRA, but Ireland's inclusion into the EU, the massive subsidies that they received and the consequent economic revival. All of a sudden, to Northern Irish protestants, Ireland was no longer a country of poor peasants who wanted to take their jobs and their homes. Ireland becoming a place people migrate to for work, took all the air out of fear of a Catholic takeover in Northern Ireland after unification. All of a sudden, unification was not so scary anymore.

    So economic equality does not only make good economic sense for making the economy more stable, but it creates social stability, which in turn improves the business climate by lowering risk, lowering inflation, interest rates, etc.

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  9. "We have seen a century of attempts to develop 'the economy' without the involvement of ordinary people. Their involvement in the economy should be the real revolution."

    Yes certainly development must involve some form of empowerment of the local masses.

    I think we could safely accept that development is possibly unstable without brining others on board. The richer classes can never keep the poor out forever - sooner or later the masses will rise and take their share...to the detriment of all....

    So democracy emerges as a compromise between the needs of the those who hold onto power, and the poor who needs a stake. This is why democracy is conducive to growth...it eliminates the threat of instability and encourages long term investment...

    So yes, I accept that an empowerment policy of the power and greater reduction inequality possibly offers a more sustainable equilibrium in the long term for growth....this is why I fully accept your previous statements that creating a large middle class must be a goal....issue is how that could about..

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  10. "Economic elites tend to stifle economic growth, not spur it. Especially in a situation where the majority of the population is poor. We have all seen how economic inequality leads to revolutions - in Africa, South America, and Asia."

    I think what your assessment and Acemoglu's assessment show is that "equality" or "inequality" multifaceted and its impacts depends on what we are looking at.

    I tend to think of inequality from three dimensions: income inequality [disparity between rich and poor], social inequality [either gender difference, social differences] and political inequality [measured by political concentration - as in the paper we have discussed].

    These are all probably related, but their relative importance on economic outcomes will vary.

    I think the examples you give in Palestine etc may well be more closely associated with political and social inequality. But of course I agree that ultimately greater inequality in those areas could impact negatively on outcomes

    See the blog on RSA:

    http://zambian-economist.blogspot.com/2007/07/tutu-on-rising-inequality-in-south.html

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  11. this is why I fully accept your previous statements that creating a large middle class must be a goal....issue is how that could about..

    Well it would be educational to look at how other middle class societies came about.

    In the US, there were several moments that gave an impetus to the development of a middle class.

    One was the availability of cheap land back in the 19th century, when people in the West (because of expansion, now the Midwest) were able to start farming.

    The other was after WWII, when all returning servicemen and women were allowed to go to college at the cost of the state, through the GI Bill. This created the consumer boom of the 1950, and catapulted a huge number of people from the working class into the middle class.

    I've said it before, but what I would like to see in Zambia and Africa, is the creation of hundreds of thousands of medium sized farms. This would give a huge stimulus to the farming families themselves, the people they could employ and the professionals whose services they would use.

    Secondly I would like to see the creation of hundreds of thousands of SMEs in Zambia alone, through the creation of a climate that is beneficial to these companies. Low to no taxation for new businesses, far less legislation, streamlining of licenses and applications, and far more vocational and skill training. I would ask the SME owners and Tuntemba operators themselves what the biggest obstacles are, and remove those obstacles.

    The millions of tuntemba owners and subsistence farmers present a huge reservoir from which future businesses can rise, given full support from the state (not in the least through changing legislation, which should be relatively cheap to do).

    Half the states revenues should go to local government, the other half should be mainly spent on infrastructure creation. The state should be connecting up all the provinces, towns, etc. by road. Railways should take a lot of the cargo off the roads. Airports should be developed as well, and there should be support for integrating regional infrastructure, so Zambia can benefit from exports and imports from neighboring countries.

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  12. "I would ask the SME owners and Tuntemba operators themselves what the biggest obstacles are, and remove those obstacles."

    I am pretty sure access to credit is the problem.

    If this can be eliminated in a NABARD style way that offers lower rates then we are there I think.

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  13. And being turfed out into the street doesn't help either. :)

    It should be much more easy to run a legitimate business.

    Also, these huge taxes are really punitive in that they force legitimate businessus into the 'informal' market.

    It would also really help to have a government that doesn't just see indigenous businesses as cashcows, that are only good for levying taxes.

    There is a real sense of disrespect about the way politicians talk about businesses and farmers, including marketeers.

    Which I still don't fully understand.

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  14. Whats your opinion of Tuntembas?

    Are these really profit making enterprises or are they just there for people wishing to have something on the side but aren't serious about expanding?

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  15. I think they could be seen as the training ground for the future business class.

    If only 10% became medium sized businesses, they would solve a lot of unemployment.

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  16. "I think they could be seen as the training ground for the future business class."

    How would you make sure that happened?

    Also I see a conflict between using them as a step stone for future business and making them larger. Isn't that a contradiction?

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