Social Democratic Development III:

Land Equality Promotes Agricultural Productivity

 

    

In previous postings, I discussed Social Democratic Development, the process of increasing economic growth by reducing income inequality, thereby increasing the income available to poor people. In that essay, I discussed the large econometric literature showing a statistical relationship between social equality and economic growth. There are a number of different considerations of the positive pro-growth effects of social equality. In future postings, I will describe some of my own work that supports this theme. In this essay, we consider an equality-economic growth relationship that involves a fairly standard fact in development economics: land equality promotes agricultural productivity. Agricultural productivity produces economic growth. Land equality promotes agricultural productivity because small farms are far more productive than large farms.

    

The finding that small farms are more productive than large farms is real.

The table lists the relationship between productivity and farm size for a large range of countries. Without exception, small farms are found to be more productive than large farms. This not only applies to poor, underdeveloped nations, but it also applies to the United States. When rich landowners own massive farms, the massive farms underproduce.

    

But in theory, shouldn’t large farms be more productive than small ones? They can afford the best equipment. They can afford the best seeds. For some crops, having the best equipment or the best seeds can make a difference. When this happens, small farmers often join cooperatives that allow them to band together to get the same advantage rich farms have. However, for a lot of crops, you just don’t need that much fancy technology. If you are growing potatoes, expensive potato seeds are not that much more expensive than cheap ones. Very basic farm equipment is often all you need.

    

What are the downsides to large farms?

1. On a small family farm, the farmer and his family keep all their profits. On a large farm, employees work for the boss. Adam Smith was basically right. People working for profit work hard and work well. On a small farm, when the farmer is the owner, he receives the full benefit of all the efforts he puts into farming. So he has every reason to get up early to take care of the animals, to invest in the farm, and to pay close attention to those crops that need tender loving care. When a farm gets large, it gets too large for the owner or the owner’s family to work themselves. They have to hire employees to do the work. For the employees, this is just a job. As long as they get their paycheck, they will try to do the least amount of work possible. So, efficiency goes down on large farms.

2. Large farms can make recalcitrant workers work by hiring supervisors and cracking down with discipline. But this gives large farms administrative and supervisory costs that smaller farms don’t need to pay. The tough foremen with pistols and whips can make the harvesters bust their humps in the sun for twelve hours a day. But you have to pay the foremen for being out there with the workers.

3. Some large landowners don’t cultivate all the land they have. Land requires attention. When farms get too big, management may choose not to cultivate land they have acquired “for the future”, and concentrate on as much land as they can administratively manage. Buying more land than an owner intends to use can occur for three reasons:

a. Speculation. The land is being purchased now because the price of land may go up later. The farmer has no intention of cultivating it now.

b. Political Power. In the Global South, controlling land often means controlling the people who live on the land. This can mean votes in regional elections. This can mean fighters to join your private army or security force. This can just mean people who will stay quiet if they are cultivating drugs on other parts of your land. In unstable underdeveloped nations, territory means power, and land means territory. Being an efficient producer has nothing to do with it.

c. Status. Some rich people just want to own a lot of land because they want to own a lot of land. It is like owning ten houses or thirty-five cars. They want to be known as the kind of people who can afford all this real estate.

All of this takes land out of production that would otherwise be used by a small family farmer for actual economic use.

These rural dynamics can have a profound effect on overall economic growth. A German development scholar, Dieter Senghaas, actually wrote an economic history of the world that argued that the primary determinant of what countries got rich or poor was whether they had an egalitarian or inegalitarian land structure. He put together an impressive amount of evidence for his case.

    

He argued that most of the rich nations of the world got rich through agriculture rather than industrialization. England had an agricultural revolution before it had its industrial revolution. The United States got rich by selling cotton to the British. After that, the American Midwest supplied the world with corn and wheat. Canada grew in a similar fashion. The Canadian Great Plains sold wheat to the world; the wheat profits paid for industrialization. Australia became the richest nation in the world in 1860 by raising sheep and selling wool to the British. New Zealand became rich following the same route. Denmark moved into dairy farming – and from there further evolved into manufacturing butter. France’s early economic growth was based in part on manufactures, notably in luxury textiles. However, two key components of French growth were being leading world suppliers of wine and cheese.

    

Senghaas argues that the key to all of these success stories is that every nation in the preceding paragraph had egalitarian distributions of land. There were few huge super-farmers with massive estates. Small family farming was the rule in Britain, the U.S., Canada, Australia New Zealand, Denmark and France. The contrast he makes is with Iberia and with Eastern Europe, where land distributions were far more unequal. Large landowners were major political powers in all of these regions. Agriculture was far less productive and contributed less to growth.

    

Spain was the classic example of how large landowners inhibited technological improvement in agriculture; land inequality was the primary reason the Spanish economy was backward. Spanish agricultural productivity was much lower than that of the rest of Western Europe. This was one of the key reasons why Spain, which had been a dominant economic power in the 1500’s, began to fall farther and farther behind relative to England, France and the Netherlands. They were slow to adopt modern plows (although the distinctive properties of Spanish soil had something to do with that as well). When the great competition from American and Canadian wheat came in the nineteenth century, most of the rest of Europe moved out of wheat to higher yield crops and food manufacturing. The Spanish elite were able to get American and Canadian wheat restricted in Spain through the imposition of very high tariffs. This temporarily protected farmers’ incomes. But Spanish agriculture stagnated, continuingto grow wheat at very low rates of productivity. Western European agriculture upgraded. Spanish agriculture did not.

    

Senghaas notes that Eastern Europe, Latin America and much of South Asia suffers from the same land inequality that characterized Iberia. Rural poverty characterizes all of these regions.

    

Reducing land inequality has often been a kickstarter for economic growth. This is not always the case. If the land that is shifted from rich to poor is marginal or inferior land, land reform does little. If the poor receive land, but none of the capital needed to work it, land reform does little. But there have been some historic cases of jump starts in economic growth beginning with land redistribution. Denmark redistributed land from the nobles to smaller peasants in the eighteenth century as a strategy for restricting the power of the nobles. This was the beginning of agrarian growth in Denmark, the end result of which would be Denmark being the dominant agricultural power of Scandinavia.

    

Taiwan and South Korea both had dramatic land reforms after World War II. Land was shifted from large land owners to the poor. Generous agricultural credits and subsidized inputs were provided to the poor farmers. Agricultural output soared – most of which was put to use feeding the new industrial working class. Taiwan and South Korea would have two of the highest rates of economic growth in the late twentieth century.

    

So reducing land inequality has been associated with strong economic growth. Agricultural assets in the hands of the poor have been far more productive than agricultural assets in the hands of the rich.

     

Does the egalitarian distribution of economic resources have impacts in any other sector than agriculture? Stay tuned for further postings in this series.

For More Information

For an exhaustive discussion of differences in agricultural productivity by farm size, see Binswanger, Deininger and Feder’s essay in Volume Two of the Handbook of Development Economics edited by Behrman and Srinanvasan.

Dieter Senghaas’s book is entitled The European Experience: A Historical Critique of Development Theory. I cannot recommend this book highly enough.

On the Spanish case, see Paul Tortella’s Development of Modern Spain: Economic History of the Nineteenth and Twentieth Centuries.

On land reform in East Asia, see the various writings of Alice Amsden.