Term Paper (Essay)

Critical analysis of market-led land reform -The case of Market Led Agrarian Reform in South Africa-

Kyoko Tamada

MA in Conflict, Development and Security

School of Politics and International Studies, Leeds University

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(1) Introduction

Through the Conference on Hunger and Poverty in 1995 and the World

Food Summit in 1996 organized by the International Fond for Agricultural

Development (IFAD), the importance of securing access to resources especially

land in terms of poverty reduction in rural areas has been recognized. (Moore,

2001) In 2001, the land distribution was once again the agenda and “poverty

reduction among the poor would require increased support from governments and

aid agencies for farmland distribution to poor communities, households and

women.”(IFAD, 2001) However, the way of land reform has been conflicting

between proponents of market-led land reform and proponents of state-led market

reform. The proponents of state-led land reform say that to succeed in land

reform, land redistribution is the integral part and has to be embedded in land

reform. Since the relationship between peasants and landlords would change by

land distribution and reduce influence and political power of landlords, land

reform has to be a political process. (Barraclough, 1999) In contrast, to avoid

the social and political cost of land reform, market-led land reforms were

introduced as one of the Structural Adjustment Program by the International

Monetary Found (IMF) in the 1980s in developing countries, emphasizing that the

market can play a role in land distribution instead of states.

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One of the recent examples of market-led land reform is the one called

Market Led Agrarian Reform (MLAR) introduced by the World Bank in South

Africa which has been implemented since 1995. By examining the

characteristics and benefits which were discussed by proponents of MLAR, and

comparing the outcome of MLAR in South Africa, it can be said that peasants are

not benefited by it and “MLAR blocked chances more radical expropriation

redistribution by state.” (Borros Jr, 2005) Even the government of South Africa

explicitly stated in the position paper in 2005 that “the failures of the land market

reform, the limits of the market and the ‘willing buyer and willing seller’ practices

are acknowledged.” The major problems behind this are that first, MLAR tends

to ignore that land reform is political process (Borras, 2003) and treated land

reform as “technical issue” (Borras, 2003, p24). The second problem is that

MLAR is prone to dismiss the idea that land has multi-dimensional functions

such as cultural and political values of land. (Borros Jr, 2005)

In this essay, first, the importance of land reform in terms of reduction of

rural poverty will be examined. Secondly, the precondition of land reform in

South Africa where inequality was created by the apartheid policy will be

discussed. Thirdly, the current MLAR of South Africa will be analyzed by

comparing benefits raised by proponents of MLAR and the outcome.

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(2) The importance of land reform

First of all, the importance of land reform to reduce poverty in rural areas

will be examined in this section by mentioning current situation on land issues,

the definition of land reform, the justification of land reform and the current trend

of land reform. Regarding the current situation, data on number of landless

people in developing countries are lacking. However, according to the

International Fund for Agricultural Development (IFAD), the number of landless

increased from 171 million in 1980 to 180 million in 1985. The study also shows

that in Asia, 37% of people in Philippines were landless, 36% in Indonesia and

55% in India. In Latin America, 37% of people in Mexico were landless, 39% in

El Salvador and Brazil. (1992) The problem of lack of access to land is that it is

associated with low income and rural poverty. First, 70% of people who consume

less than one-dollar a day live and work in rural areas. Secondly, 70% of rural

household income in Asia comes from farming, 60% in Africa and Latin America

where farming is the most subjected to current sharp price decline of agricultural

products. (IFAD, 2001) Another study shows that 70 % of those who can not

meet food needs are rural people. (Moore, 2001) Since rural poor can not meet

their needs, they are the most vulnerable to food insecurity even though they

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produce food products. (Moore, 2001) The lack of access to land also causes food

insecurity which causes high level of malnutrition. The infant mortality is much

higher than among the landed. (IFAD, 2001) The lack of access to land is not

only associated with rural poverty and high level of malnutrition, but also the

cause of land conflicts such as Zapatista movement in Chiapas, Mexico and

Movimentodos Trabalhadores Rurais Sem Terra (MST)1 in Brazil resulting in 73

deaths in 2003 alone. (Journal do Nikkei, 2004/12/7)

To benefit the rural poor and to realize equal distribution of land without

resulting in causing violence like MST, land reform “necessarily includes

redistribution of rights to land from large landlords by providing the poor with

more equitable and secure access to land” by state participation. (Barraclough,

1999 p1) What “redistribution of rights” means is that land reform must change

the existing structure of ownership of land by distributing rights to land to the

landless and increase their ownership over the land. (Borros, Jr, 2005) Borros

(2005) also mentioned that degree of redistribution of rights to land should be

analyzed as well, because traditionally land reform includes the compensation to

landlords who lost their land and the payments by peasants who gained the land.

To benefit the rural poor, the compensation to landlords should be between zero or

1 According to the official homepage of MST (http://www.mstbrazil.org/), it was established in 1984 to achieve land distribution to the landless through occupying land and as a result of this movement, MST won land for 250000 families and 1600 settlements so far.

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below the market price, whereas payments by peasants should be between zero or

below the acquisition cost of the market price. The land reform introduced as the

Structural Adjustment Program (SAP) by the International Monetary Found

(IMF) was the case that landlords were paid with higher than the market price

and peasants paid higher than the acquisition cost of market price.

To benefit the rural poor, states not the market should be the central

figure to realize land reform which distributes rights to land by changing the

relationship between landlords and peasants. This implies the reduction of

economic and political power of landlords. Therefore land reform must be a

political process where states promote social change, especially change in

relationship between peasants and landlords. (Barraclough, 1999) Ghimire

also emphasized the importance of the role of sates regarding not only in land

reform itself but also in “extensive services” (p16) which provide peasants with

credit and goods for farming after the reform was done. (2001)

In terms of the role of states, the cases of Egypt and South Korea show

how difficult or easy to promote land reform. In Egypt, 0.1% of landowners

owned 20% of total land before the land reform was conducted in 1952 and 1961

by Nasser. After the state-led land reform succeeded in distributing one-seventh

total land to the landless, it eventually helped reduce poverty and promote growth.

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However, besides the economic slump in Arab world in the 1970s and the 1980s

that reduced investment by the sate in agricultural sector, Nasser did not succeed

in undermining the interests of big landlords by remaining the ceiling on

landholdings high. Thus, Sadat, the successor of Nasser overturned the land

reform in 1952 and 1961 easily and reinforced the economic strength of large

landlords by enacting law 96 in 19922. (Bush, 2002)

In contrast, South Korea succeeded in distributing land to the landless

with the support of the United States after the World War Ⅱ. Before the land

reform in South Korea, the richest 4 % owned 50% of land and 20% of land was

owned by Japanese government. Since new government of South Korea had

little tie with large landlords who were sides of Japanese government during the

World War Ⅱ, government of South Korea succeeded in change in the distribution

of land ownership where full tenancy were fell from 48.8 % to 7.2%. (Griffin,

2002) There are other reasons for South Korea to succeed in redistribution of

land ownership such as state received 20% of land that was occupied by Japanese

government as a windfall gain when Japanese colonists regime collapsed after the

Word War Ⅱor tenure reform was introduced before the land reform was

introduced. (Griffin, 2002)

2 Law 96 in 1992 promoted the application of market land values and annual rents. This law enabled landlords to sell their land at the market price and evict tenants and retake their land through land market. (Bush, 2002)

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However, besides the historical factors that helped South Korea to succeed

in land reform, the cases of Egypt and South Korea show that unless states

determined to promote land distribution by reducing political and economical

power of landlords, benefits of land reform will not last long. It can be seen in

the situation of Egypt where Nasser could not break political opposition of

landlords and resulted in reinforcement of their power by Sadat. (Bush, 2002)

In addition to the significance of land reform in terms of redistribution of

rights to land and the role of state to benefit rural poor, land reform is also

important in the following four reasons stated by Ghimire. (2001) The first

reason is that vast majority of the population in developing countries are

near-landless, the landless and rural workers. According to the Food and

Agriculture Organization (FAO) (1987), in the mid 1980s, there were 817million

small holder and the landless rural labors in Asia, Africa and Latin America and

the landless workers were among the social groups most vulnerable to hunger and

poverty. Secondly, fertile land is held by small number of powerful landlords,

and by reform, it is expected to improve social justice and equality. The third

reason is that access to land by rural poor is essential human rights because with

access to land, the rural poor have possibility of access to shelter, food and

improved livelihood. The fourth reason is that by possession of secure land by

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rural poor, legal land titles encourages peasants to invest more time and resources

in making land more fertile and productive which may lead them to adopt

sustainable practices of agriculture and beneficial for environment protection.

Moreover, distributing land to peasants increases productivity since “small

landholders often use their land and labors more intensively and efficiently than

do large landholders.” (Barraclough, 1999, p18)

However, the current trend of land reform can be characterized as

market-led reform rather than state-led land reform. Land Market Reform

(LMR) was introduced as part of SAP by the IMF since the 1980s. It was also

supported by the Secretary General of UN in the review and analysis of agrarian

reform and rural development of 1996 (E/1996/70) stating that “the majority of

governments have recognized that the market is the most effective land

distribution mechanism. It is seen as a vehicle for the reduction of unequal

patterns of distribution and as a mean of reducing fragmentation and inefficient

land use.” Consequently, the policy on agrarian reform shifted from state-led

land reform to LMR and emphasis was placed on capacity building of peasants not

on the reduction of political and economical power of landlords. (Moore, 2001)

The content of land market reform is that technical program of

agricultural credit and legal procedure for land transactions based on the

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dominance of private sectors which are free from price control by states. The

consequence of this is that since the rural poor can not compete with speculators

and landlords on land market, they can not afford the land. In addition to the

liberalization of the land market, the governments cut spending on agriculture

sectors as well as health and education as economic liberalization policies imposed

by the IMF, poverty in rural areas increased. (Ghimire, 2001)

The examples of effects of LMR can be traced in the following two different

regions. First, in Sub-Saharan region, land titling was introduced to enhance

economic efficiency. Because it was thought by economists that legal titles to

land enable owners to use their land as collateral, increases access to scare

finance and capital investment. However, land registration fees have been

beyond means of the poor. The people who gained benefits from this land titling

were landlords and created further inequality in distribution of wealth3. (Griffin,

2002) Second, in Central America, even though land distribution by

governments was achieved, after the liberalization of land market was introduced,

states withdrew the credit support for farmers and cut spending in agricultural

sector. Consequently, farmers sale their land to land market as a way to get

quick money4. (Ghimire, 2001) Bernstein stated following reasons to explain

3 In the case of Kenya, even though 90% of land was replaced with property rights by 1993, Kenya is now going back to communal land tenure. (Griffin, 2002) 4 In Honduras, peasants’ co-operatives were privatized through their sale to the giant

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LMR was promoted. First, by claiming that land titling, privatization and

decentralization have something to do with rural poverty, development agencies

would be given the legitimate function to intervene and shape the state policy of

developing countries. The development agencies can promote market-led land

reform in the name of alleviating poverty. Second, providing property rights can

do away with the complexity of land issue such as the circumstance where many

people are claiming the same land. Third, by saying that objective of land reform

is to increase productivity, it can resolve or pre-emptive the conflicts related to

land. (2002)

In short, the importance of land reform in terms of poverty reduction in

rural area is recognized and the role of state in the distribution of land is

emphasized by many scholars to benefit the rural poor. However, it can be seen

that market-led land reforms are the current trend of land reforms. The market

not the state is given a role to distribute land and this resulted in unintended

outcome which is creation of further inequality in developing countries.

(3) The precondition of land reform in South Africa

One of the recent examples of market-led land reform can be seen in South

Africa. Like most of the countries that have conducted land reform, the rural Chiquita Brands. (Ghimire, 2001)

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poor in South Africa also suffered from lack of access to land. However,

inequality between blacks and whites was extreme since it was created by the

apartheid policy. Therefore, before the examination of the market-led land

reform in South Africa, how inequality was created by the apartheid policy and

economic situation when the apartheid policy was eliminated will be discussed to

understand the necessity of land reform in South Africa.

Among the laws that discriminated blacks, National Lands Act of 1912

was one of the most influential acts that promoted the deprivation of rights to

access to land by blacks. This act prohibited the establishment of new farming

operations, sharecropping and cash rentals by blacks outside the reserves which

made up only 7.7% of the total land. Inside the reserves, an artificial form of

tenure with limitations of holding sizes and restrictions of land transactions were

imposed. In addition to this act, “Black Spot Removal” which was promoted from

1960 to 1983 worsened the situation. This transformed large majority of blacks,

who had legitimately owned the land outside reserves, to homelands. The

homelands can be characterized as tenure restrictions, high population density,

lack of capital and these characteristics made commercial agriculture virtually

impossible. (Since homelands were set up in remote and sterile region, blacks

had to depend on income from working as migrant workers because the income

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from farming was not enough to make ends meet.) The labor laws also

contributed to successive evictions of large parts of blacks from white farmers and

employed them as tenants. These laws discriminated against blacks in favor of

whites and generous capital subsidies to the white farmers were given.

(Deininger and Binswanger, 1993) As a result of these laws and the government

policies, extreme poverty and inequality among blacks were created.

At the beginning of the 1990s, 87% of South Africa’s land resources were

owned by whites who represented only 12.6% of the population. The land for

blacks was limited to the remaining 13% of land in the homelands. (Adams,

2000) Even though these policies allowed the country to achieve self sufficiency

in food since white farmers have modernized their farms aided by subsidies from

government, “…the costs, in social as well as economic terms of doing so have been

very high.” (Deininger and May, 2000 quoting Wilson and Rampele, 1989, p4)

The environmental impacts also called for an urgent policy change because white

farmers used fertilizer and chemical products aided by government subsidies led

to serious soil erosion. In addition, modernizing the farms to realize less labor

intensive farming contributed the high unemployment rate of blacks. (Deininger,

1999)

When the new government was formed in 1994 and abandoned the

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apartheid policy, land reform was one of the main reforms not only to redress the

injustices of the apartheid policy but also to alleviate poverty in rural areas.

(DLA, 1996) The Constitution of Republic of South Africa sets out the legal

framework of land reform, especially in Bill of Rights to address the equitable

access to land for all people. Under the Constitution, Department of Land

Affairs was given a major role to play in land reform to conduct reform nationally.

(4) The current MLAR of South Africa

The Constitution of Republic of South Africa promised equitable access to

land for all. To achieve this goal, national land reform was proceeded to alleviate

poverty in rural areas and extreme inequality between blacks and whites which

were caused by the apartheid policy mentioned in section three. The African

National Congress set out for land reform called “Reconstruction and

Development Programme (RDP)” in 1994 with major role given to Department of

Land Affairs (DLA), one of the national ministries. RDP has three components, all

of them are provided for in the Constitution. (Adams, 2000) In this section, to

understand the current debate about land distribution of South Africa, framework

of RDP will be explained first. Secondly, current Market Led Agrarian Reform

(MLAR), which is one of RDP programme of land distribution in South Africa, will

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be analyzed by comparing the outcome and benefits of MLAR raised by

proponents of MLAR.

Regarding the framework of RDP, the World Bank’s target to distribute

30% of the country’s land during 1994 to 1997 was adopted. RDP is consisted of

three different reforms which are restitution, tenure reform and redistribution.

In following paragraph, each reform will be examined in order. Regarding the

restitution, Restitution of Land Rights Act of 1994 provided the legal basis for

establishing Commission on Restitution of Land Rights (which is under control of

DLA) and Land Claims Court. These institutions investigate claims and provide

land or compensation if claimant was dispossessed of a right to land after 1913 as

a result of discriminatory laws. The respondent of all the claims are the state not

the actual landowners. By 2003, total settlements are 36686 cases and

equivalent to 516910ha of land since 1995. The current problems are late

lodgment of claims, difficulties in rural claims because of the high rate of illiteracy

among the rural poor, uncooperative white farmers and high cost since the price of

land is currently high. (DLA, 2003)

According to the official website of DLA, the mission of land tenure reform

is “to provide security of tenure and access to land on an equitable basis to the

previously disadvantaged person or communities.” Regarding the legal basis,

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many laws were enacted such as the Labour Tenants Act of 1996, the Extension of

Security of Tenure Act of 1997, the Transformation of Certain Rural Areas Act of

1998 and the Communal Land Rights Act of 2004. These laws were enacted to

protect and strengthen of the rights of residents of privately owned farm and state

land.

These two reforms have relatively minor effects in land reform. Because

the government has not implemented land tenure laws effectively (Lahiff, 2003)

and the number of people who gained access to land under the restitution

program are relatively small5. To benefit the rural poor, the privately owned

land must be distributed, (Adams, 2000) because “…the potential beneficiaries

are estimated at nearly one million landless workers and 200000 tenants.”

(El-Ghonemy, 2001, p121)

Before examining the characteristics of land redistribution, the definition

of redistribution should be mentioned. The redistribution reform has been

achieved through Settlement and Land Acquisition Grant (SLAG) which grant

R16000 to the people whose income is less than R1500 a month. Since 2001, the

Land Redistribution for Agricultural Development sub-programme (LRAD) was

introduced to deal with distribution of land especially large land for commercial

5 By the end of 2002, a total of 1480835ha was distributed to 130000 households (Hall, Jacobs and Lahiff, 2003) under the land distribution program whereas 516910ha was distributed under restitution program by 2003. (DLA, 2003)

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agriculture use. LRAD does not have income limit for people to receive grant like

SLAG. Therefore, Market Led Agrarian Reform (MLAR) in terms of land

distribution in South Africa means both of SLAG and LRAD since both of

programmes are based on the same principles with different scale.

The characteristics of redistribution of land can be seen in the process of

access to land and the post land purchase developments. In the process of access

to land, first major characteristic is “the negotiated land reform” which promotes

land transactions in the land market through the willing buyer and willing seller.

The voluntary landlords sell their land at the full market price. It is believed by

proponents of MLAR that the negotiated land reform is needed to maintain public

confidence in land market and to affirm the government’s respect for individual

property rights. (Deininger, 1999) This characteristic can also be said as

“demand driven approach” which also promotes voluntary exchange of willing

buyer and willing seller in the market. The benefit of this approach raised by

proponent of MLAR is that “…beneficiaries can themselves ‘compete’ for available

land on the land market” (Neto, 2004 p53) which lead to higher production

because land is transferred to “most skilled farmers.” (Neto, 2004 p53) It is

argued that expropriation of land done by government often decided in political

ground and will result in inefficient production. (Neto, 2004) In addition, the

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program of financing through SLAG is considered as one of factors to help

market-led land reform work effectively because with grant given by government,

the peasants are expected to go for the best bargain for the grant. This will

result in financially cheaper than state-led agrarian reform. (Deininger, 1999)

The second characteristic of MLAR is the decentralization and increase

role of private sectors. Because the decentralization is regarded as a useful

mean to achieve speedy transactions since bureaucracy of government is

considered as a problem to slow the efficiency of MLAR. (Deininger, and

Binswanger, 1999)

In the process of post land purchase development, the land titling is

considered as a major characteristic of MLAR. The land titling is regarded as a

way to enhance economic efficiency because it encourages the owners to use their

land as a collateral to access to credit and eventually wide spread of investment in

land market can be achieved. (Deininger, 2003)

If MLAR can achieve efficient land market, productive land and

financially cheap reform, it would not have been said in the position paper 2005

by the South African government that “the ‘willing buyer, willing seller’ approach

needs to be tempered by the reality of land market failure [where] markets by

themselves do not redistribute land at scale, of quality, at location, and price; from

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rich to poor, from white to black.” The government also stressed the role of state

in land redistribution by saying “markets need reform, assistance, and direction

from the state.” Regarding decentralization promoted by MLAR, various explicit

and implicit subsidies were withdrawn which resulted in curbing “the entry of

emerging black farmers into the market outside of government land reform

programs, or leads people into a ‘debt trap’ by forcing them to buy land in excess of

what they need.” (The government of South Africa, 2005) The South African

government stated in conclusion that they need to move on to “more pro-active [by

state], supply-led approach to land reform” not the market-led land reform.

(2005)

Since MLAR has not been successful as the South African government

hoped, the problems of MLAR should be examined. The first major problem of

MLAR is that it ignores that the land reform is a political process by promoting

demand driven approach and reducing the role of state. Since the land

distribution includes change in relationship between peasants and landlords

which implies the reduction of political and economical power of landlords, it must

be a political process. Therefore, it has to be dealt by state that can face the

opposition from landlords.

According to the proponents of MLAR, the state-led approach is an

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approach of supply driven which results in the situation where productive farms

are expropriated to less productive farms by peasants who have no potential to

become efficient producers. (The World Bank, 2004) However, study shows that

the rural poor use their land productively and resourcefully. What they are

struggling to improve productivity is the economic constrains to participation in

agricultural market dominated by large multi-national companies. (Hall, Jacobs

and Lahiff, 2003)

The outcome of demand driven approach is that the people who benefit

from MLAR are landlords since they themselves become willing sellers and

willing buyers. Especially under the LRAD since 2001, it can be seen that there

is a huge gap in terms of land distribution between the wealthier beneficiaries

and the poor beneficiaries. (Hall, Jacobs and Lahiff, 2003) According to the study,

in West Cape Town, the average land delivered to well-resourced beneficiaries is

83ha whereas 3ha for those at the bottom of LRAD scale. (Hall, Jacobs and

Lahiff, 2003) In short, small groups who have substantial resources gained

benefits from LRAD.

It can also be said that the concept of willing seller and willing buyer itself

is the problem, because this concept allows landowners to make their decisions

whether to sell or not by seeking the highest bidding. Thus, there are no willing

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buyers because they are dependent on decisions of seller and willingness of state

to approve their application to provide the grant. (Jacob, Lahiff and Hall, 2003)

In addition, it is considered that the concept of “willing buyer and willing

seller” slows the distribution and the transactions on land market. According to

the South African government, only 1.65% of total target land was distributed and

2.5% of total target of rural poor gained land. (2005) The reason for this is that

within the concept of willing seller and willing buyer, landowners are the one who

influence the pace and the direction because they can make decision when and to

whom to sell. Since most landlords will not give up their land voluntarily despite

the attractive monetary value because land means not only material value but

also political power, the pace of land transactions becomes slow. (Jacob, Lahiff

and Hall, 2003)

Moreover size, shape and infrastructure of current commercial land sold

in land market are inappropriate for rural poor who need small scale farm. The

information about land selling in land market is also out of reach from rural poor

and tends to remain within the network of landlords (Hall, Jacobs and Lahiff,

2003) or land transactions were depended on “uncoordinated negotiation between

buyers and sellers” (Lahiff, 2003 p28) In other words, “there has been a shift from

land reform as a program aimed at rural poor and landless to the one aimed at the

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creation of new classes of commercial farms.” (Hall, Jacobs and Lahiff, 2003 p32)

Theses outcomes show that ignoring the nature of land reform as a

political process and replacing the role of state with the market benefited the

landlords. The market itself does not distribute land equally, rather it favors

large landlords because under the concept of “willing buyer and willing seller”,

landlords have the say about to whom to sell and when to sell.

Not only the demand driven approach but also reduction of the role of

state by promoting decentralization and increase of the role of private sector are

problems of MLAR. The reason that the proponents of MLAR promote

decentralization is because state-led land reform causes landlords’ resistance to

reform and leads to legal battles which are waste of time. It is also said that the

state-led land reform degenerated into political maneuvering and rent seeking.

(Deininger, and Binswanger, 1999) However, this is the very reason that land

reform has to be the political process led by state.

The second reason for promoting the decentralization by the proponents of

MLAR is that many states have failed to deliver support to the beneficiaries after

the reforms were done because of inefficient and bureaucratic governments.

However in the case of South Africa, land is unexpectedly high because of the

liberalization of land market and there is nothing left in buyer’s budget to buy

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after care goods such as fertilizer. (Bernstein, 2002) In addition, the

transparency is secured by work of the Monitoring and Evaluation Unit of the

Ministry of Land Affairs in South Africa. (Ghimire, 2001) What considered to be

the central problem of land distribution by 73 South African NGOs is that “land

reform is left entirely to the market” not the corruption of the government.

(Ghimire, 2001 p121)

Regarding the reason for promoting active role of the private sector by

proponents of MLAR, they consider that the private sector can provide more

effective services and infrastructure after the land reform. Because peasants’

access to services and infrastructure after land reform have not been successfully

implemented by states in many developing countries. The study shows that high

profit can be achieved by giving the role to private sector and withdrawal of state

intervention by cutting spending on agriculture sector. (Deininger, and May,

2000) However, it does not include the idea of equality to provide all the peasants

with necessary services and infrastructure after the land reform.

The benefits of the decentralization and active role of private sector needs

close examination since it takes time to see whether it works or not. However, in

the case of South Africa, it is moving toward state-led approach and the benefits

raised by the proponents of MLAR do not apply for the case of South Africa.

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The second major problem is that MLAR tends to dismiss the

multi-dimension aspects of land by promoting property rights. In the context of

MLAR, land is considered as one of a commodity to trade through land market.

According to the proponents of MLAR, without proper assets ownership secured

by property rights, owner can not use their land as collateral to access to credit

and investment. (Deininger, 1999) Proponents of MLAR also referred that

promoting property rights lead to the development of financial market, because

using land as a collateral facilitates transfer of land through rentals and sales.

This is considered to support the development of financial markets by helping

land owners gain access to credit whereas expropriation type of reforms are

inconsistent with property rights and regarded to cause irreparable damage to the

private investment and the international confidence in market. (Deininger,

2003) The proponents of MLAR also mention that property rights enable peasants

to control over land and land can be taxed by local government and consequently,

peasants will have greater voice which will create basis for more democratic local

governance.

However, regarding the use of land as collateral, the formalization of

property rights does not promote lending to the poor by banks because they fear

that poor can not pay back or consider their land as low volume of assets. The

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poor also acknowledge that if they use their land as collateral to access to credit,

they would be likely to end up giving up their land because of their debt. Thus,

they chose not to use their land as collateral to access to credit. The western

capitalism of using land as collateral by promoting property rights and trade on

land market does not apply to the countries where livelihood of people are based

on land. (Jacob, Lahiff and Hall, 2003) Since property rights did not stimulate

the use of land as collateral, development of financial market which proponents of

MLAR proposed will not be likely to happen. (The land sold under MLAR in

South Africa was marginal or in remote area, credit is unlikely to be forthcoming,

either.)

Having examined the benefits of MLAR raised by proponents of MLAR

and compared with the outcome in South Africa, it seems that none of their

benefits are realized in South Africa. In fact, the South African government

stated in the Position Paper in 2005 that failure of market-led land reform should

be recognized and state should be the central role to play in land distribution.

The strategy of development by the World Bank can be summarized as the

strategy to increase productivity by demand driven approach, decentralization

and privatization and to increase efficiency by providing property rights.

However, the outcomes of South Africa show that land reform must be a political

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process by state to distribute land equally and land can not be treated as a

commodity to trade through the land market because land has multi-dimension

aspects to the people in developing countries.

(5) Conclusion

In conclusion, the market-led land reform has been introduced by the IMF

and the World Bank to realize speedy land distribution for economic development

in developing countries; however it resulted in widening inequality in rural area

of developing countries. Even though the state-led land reform which includes

land distribution to the landless is emphasized by many scholars (Borros Jr,

Saturnino, Cousins, Jacobs, Lahiff), it has not been considered as strategy for

rural development by the IMF and the World Bank because the state-led land

reform generate political opposition of landlords class and land reform becomes no

longer an economic agenda but a political process.

One of the recent examples of Market-Led Agrarian Reform (MLAR) is

Reconstruction and Development Programme (RDP) in South Africa. Since there

is an extreme inequality in South Africa between blacks and whites which was

created by the apartheid policy, the land reform was proceeded as one of the

reforms not only to redress the injustices made by the apartheid policy but also to

26

alleviate poverty. To achieve these goals, restitution to restore the land owned by

blacks taken during the apartheid and the land distribution to reduce poverty in

rural areas under SLAG and LRAD programmes were conducted.

The land distribution of South Africa is a good example that the market

itself can not distribute land to the landless equally. The characteristics of

MLAR can be categorized as first, “demand driven approach” under the concept of

“willing buyer and wiling seller” second, reduction of the role of state by

promoting decentralization and increase the role of private sector and third,

promoting property rights to enable the owners to use their land as collateral on

the land market. The problems of these characteristics are that first, MLAR

ignores that land reform is political process; secondly MLAR tends to dismiss the

multi-dimension aspects of land and considers land as one of commodity to trade

through the land market.

At the national land summit held in July 2005, Minister of Agriculture

and Land Affairs acknowledged the failure of MLAR and the importance of role of

state in terms of land distribution. However, little has been done in terms of

creating overall strategy of the role of state in distribution of land in South Africa.

Lahiff argues that “selective expropriations [should be done] in areas where

sufficient land is not coming onto market or where negotiations with landlords are

27

not fruitful” rather than promoting overall expropriations. The future research

should be placed on how state should play role in distribution of land and what

extent expropriations of land should be done.

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