Consequences of Economic Policies Concerning Land Tenure

Economic Consequences

18. Imbalances in the division of land ownership and the policies giving rise to and sustaining them are the source of serious obstacles to economic development.

Such imbalances and policies can have economic consequences which affect the majority of the population. At least five of these can be listed:

a) distortions in the land market: political interventions in the market often directly or indirectly favour large landholdings through indirect subsidies, advantageous taxation and credit facilities. Such advantages lead to further investment in land, and hence a rise in its price. As a result, small farmers see their purchasing power for land eroded, and hence their possibility of improving the efficiency and equity of the land market through normal trading operations;

b) a reduction in the country's overall agricultural production: in countries with a less developed agricultural economy, there is usually an inverse relation between farm-size and productivity. The production per land-unit of small landowners is higher than that of large landowners. The production of the large landowners, who own the greater part of the land, is less, with the consequent reduction of the overall agricultural production of the country;

c) the pegging of farm wages at low levels: this pegging is a result of the simultaneous rise in supply and fall in demand for farm labour and of the absence of conditions that would allow workers to negotiate their terms of employment on a collective or individual basis;

d) the lower profitability of small farms: when the profitability of small farms is reduced, this makes the investments necessary for their development difficult, thus creating a vicious circle;

e) the draining of savings accumulated in the agricultural sector, which are not used productively for investment in infrastructures and technology useful to agriculture, but are taken out and used for consumption or in other sectors of the economy.