Land Redistribution and Economic Development

1
Land Redistribution and Economic Development

• A Brief Explanation on the Changing Land Rights
• in Modern China
• Xiaopeng Luo
• Zhejiang University
• July 2007

2
Outline of the Presentation

• Main characteristics of the land rights
  arrangements in Chinas history
• Strength and weakness of Chinas land rights
  arrangements in the history
• Changes brought by the revolution and the land
  reforms in the middle of the last century
• Changes brought by the social experiments and the
  reforms took place in the last half century
• Strength and weakness of the current land tenure
  arrangements in China

3
Framework and Key Concepts used in this
Presentation

• The framework is inspired by the main idea from
  the theory of state by Yorarm Barzel
• No property rights can be defined airtight and
  costless, so state power is needed to protect
  property rights and to enforce contracts in all
  civilizations, therefore the structure of state
  power shapes land rights in all countries.

4
Framework and Key Concepts used in this
Presentation

• The basic framework used in this presentation is
  to explain the following questions
• How structures of the state power shaped the land
  rights in China?
• What were the economic effects generated by the
  interplay of the state power and the property
  rights in China?
• In return, how Chinas economic development
  induced the changes in the relationship between
  the state power and the property rights?

5
Framework and Key Concepts used in this
Presentation

• The concept of Entitlement System by Amartia Sen
  is used in analyzing the relationship between
  State Power and Property Rights.
• What is Entitlement System?
• Market entitlements and Social entitlements make
  an Entitlement System.

6
Framework and Key Concepts used in this
Presentation

• Market Entitlements are equivalent to Property
  Rights derived from individual asset ownership,
  but Social Entitlements are based on public
  revenues, so the legitimacy for Market
  entitlement Exchange and Social Entitlement
  Exchange is fundamentally different. In
  principle, MEs are free to exchange while SEs are
  not.

7
The Pattern of Land Redistribution in Chinas
History

• Ever since 219 BC when Qin Empire established,
  Chinese civilization has maintained a number of
  important features of its state power structure
  and property rights arrangements. The rulers of
  the empire with highly centralized state power
  tended to allocate land to the maximum number of
  independent peasant cultivators.

8
The Mode of Land Redistribution in Chinas History

• All large empires did not want land ownership to
  be too concentrated, as this was conducive
  neither to the central revenues or its authority,
  then how the Chinese central rulers succeeded in
  suppressing feudal powers and maintained a
  centralized political power with dispersed land
  rights?

9
The Mode of Land Redistribution in Chinas History

• The answer lies in the ally between the emperor
  and the the massive scholar stratum (the gentry
  class)
• To win the support and loyalty from the gentry
  class, the emperors gave them social and economic
  privileges that were based on family land
  ownership.
• The state also supported equi-partition of land
  among a households male descendants rather than
  primogeniture, encouraging land redistribution
  caused by family cycle.

10
The Mode of Land Redistribution in Chinas History

• The imperial examination system invented for
  selecting civil servants also constituted an
  institutional factor in the land redistribution
  mechanism, because it offered a pathway by which
  talented man from small landlord and landowning
  peasant families could study, win office and gain
  wealth, which was used to purchase land in their
  home districts.

11
The Mode of Land Redistribution in Chinas History

• At the macro level, the dynastic cycle was an
  important mechanism for the large-scale
  redistribution of land. After the Qin Dynasty,
  most Chinese dynasties were established on the
  basis of large-scale peasant uprisings and civil
  strife.

12
The Strength and Weakness of Chinas Land Rights
in the History

• The dispersed land rights could generate strong
  incentive for prosperity, but the highly
  centralized political power limited the
  development of rule of law, created the Circle
  of Order and Chaos in the Chinese history.

13
The Great Chinese Revolution and Maos Social
Experiments

• Chinas rural crises in the first half of the
  20th century was not caused by land concentration
  but by deterioration of rural governance.
• The rural crises created opportunity for
  revolutionary armed separatism and Mao Zedong led
  CCP and the Red Army took this opportunity to win
  the civil war. Radical land reforms helped the
  CCP to attract supports from the poor peasants in
  the civil war.

14
The Great Chinese Revolution and Maos Social
Experiments

• The most far-reaching impact of the 1947-1952
  land reforms was the total overturning of the
  social foundation of Chinas traditional rural
  governance, shaking the legitimacy of private
  property. Chinas state power gained
  unprecedented capacity of mobilization and
  organization in the countryside, creating
  conditions for radical social experiments.

15
The Great Chinese Revolution and Maos Social
Experiments

• In 1958, not deterred by the lack of success of
  agriculture collectivization, Mao created his own
  socialist model to speed up economic development.
  Although millions of people died of famine caused
  by the campaign for Peoples Communes, China did
  not return to the models prior to
  collectivization, but gradually evolved unique
  rural governance and property institutions.

16
The Concept of Hierarchical Property Rights and
the Rules for Rent-sharing through Hierarchy

• The Big Famine could not force Mao to take a
  complete retreat, but Mao did realize the need
  for property rights. China formed the concept of
  hierarchical property rights. Under this concept,
  within the unified administrative and economic
  entity of the Peoples commune, a three-level
  hierarchy of ownership of all economic resources
  would operate, and in which land was the main
  asset primarily owned by production team, the
  smallest unit for collectivized farming.

17

• Two basic rules for rent-sharing through
  hierarchy
• Rule One horizontal exclusiveness which
  means the upper level was not allowed to
  redistribute assets and income across units at
  same lower level, however, vertically the upper
  level in the hierarchy has certain rights to
  directly derive some economic rents from the
  proceeds of lower level operations.
• Rule Two every level has the right to carry out
  relatively independent economic activities at its
  level. Proceeds of operations at each level must
  in the first instance be shared with those
  higher, but not necessarily with those lower.

18
The Social Contract under Hierarchical Property
Rights

• the peasants land rights became an institutional
  arrangement defining their social status. A basic
  principle was that the peasantry had no share in
  urban land rents and they had no freedom of
  movement to the city.
• The high-level units had privileged access to
  economic resources and higher SEs distributed by
  the state. However, higher-grade unit had more
  restrictions to their MEs than lower grade ones,
  while the latter had relatively greater rights to
  autonomy in disposing of resources.

19
The Effects of Hierarchical Rent-sharing

• Giving great power to the state to concentrate
  economic rents for industrialization.
• Providing basic economic security for everyone,
  while institutionalized unequal social
  entitlements, especially between urban and rural
  residents.
• The substitution between ME and SE reduced
  demands on the central administrative capacity,
  allowing a more decentralized industrialization
  under Chinas command economy.

20
Why some collective farming failed some did not?

• For those units that have opportunity to
  generate more cash income though industrial
  activities the work point system applied for
  internal income distribution may produce
  sufficient incentive for collective farming.
  However, most rural collectives could not have
  industrial opportunities so they were vulnerable
  to falling into collective poverty trap.

21
The Mechanism for Collective Poverty Trap before
the Reforms

• As the decline in the collectives output
  resulted in per capita income dropping, the
  proportion of products subject to equal per
  capita distribution increasing marginal income
  of reproduction exceeded that from labour, thus
  increasing the collectives predicament. While
  Mao Zedong mobilized the entire peasantry to
  continually improve the conditions of basic
  agricultural production, more than one third of
  the rural population falling into the collective
  poverty trap.

22
What is the Household Responsibility System? How
this radical reform happened?

• HRS is to lease the collectively owned land to
  individual households with obligation to fulfill
  state grain procurement quota and tax.
• This radical reform measure was excluded at the
  beginning of the reforms by the policymaker but
  later permitted for poverty areas due to the
  pressure from the peasants.
• It took three years of regional competition for
  HRS to become a dominant model.

23
How land was redistributed during the reforms

• In early 1980 when the reforms started, there
  were about 180 million rural households and 800
  million rural population, a survey conducted in
  1984 shows that the average land holding per
  household in China was 0.56 ha, composing 9.7
  plots of farm land, 0.06 ha for each plot on
  average.

24
How land was redistributed during the reforms

• No redistribution of land across production
  teams.
• No respect to private land ownership in history.
• Equal land rights within production team.
• Successful collectives can remain collective
  farming.

25
How land was redistributed during the reforms

• The collective land was rapidly distributed to
  households with great uncertainty about the
  future, therefore
• Land was distributed among current family size
  and age structure without clear rules for future
  adjustment.
• Same plot of land was tried to distributed to
  more households to solve problem of quality.

26
Why the de-collectivization was successful?

• Capitalized the investment in infrastructure for
  agriculture production, so the land productivity
  jumped purely caused by incentive improvement.
• New procurement policy maintained high demand and
  high price for grain production.
• Fiscal decentralization encourage local
  government to support market oriented reforms.

27
The evolution of land tenancy after the
de-collectivization

• The intention of the central policymaker
  Stabilizing the land rights for the peasants.
• The reality in the ground
• High localization of land policies.

28
Three main local patterns of land tenancy policy
in China

• Guizhou Model no land redistribution regardless
  to family changes.
• Inner provinces maintaining equal land rights
  through frequent adjustments.
• Coastal provinces concentrating land to
  specialized farmers .

29
Why Chinas land tenancy policy is so localized?

• The fiscal decentralization has driven the local
  governments to maximize short term rent income at
  minimum administrative and political costs.
• While the institutional arrangements are the
  same, the resource endowment and market
  opportunities are different in different regions.

30
How did the new land tenancy help the Chinese
economy

• More than 200 million rural people got out of
  collective poverty trap.
• Ending the long time food shortage, removed a
  main constrain to the economic development.
• The rise of rural industry and private
  entrepreneurship. Millions of peasants started
  their own non-farming business.
• Unlimited supply of low cost migrant workers to
  the export industry and urban development. More
  than 150 millions of migrant workers now working
  outside their village and even their home
  provinces.

31
The Challenge to Chinas Current Land Rights
Arrangements

• The peasants who are counted for more than 70 of
  Chinas total population only get about 15 of
  Chinas GDP.
• More than 40 millions of peasants lost their land
  without fair compensation and most Chinese
  peasants still lack of social security.
• Agricultural modernization is obstructed.

32
Why did Chinas reforms help the economy more
than the peasants?

• The Chinese reforms did not change the
  hierarchical entitlement system that put peasants
  in great disadvantage. The reforms only
  introduced more market entitlements into the
  system and gave more economic opportunities to
  the peasants. As the rent were still largely
  shared through hierarchy, most economic benefits
  of the reforms went to the people who were closer
  to the state power.

33
Conclusion

• The case of China for land redistribution shows
  that a state system in which political power was
  highly centralized can allow land rights to be
  dispersed, and for a certain degree, economic
  prosperity to be achieved. However, the
  allocation of land rent induced by the
  centralized state power drove people to devote
  major resources to the pursuit of monopoly power
  and social privilege, as result, innovation of a
  cooperative order was suppressed and the economic
  prosperity is ultimately unsustainable.

34
Conclusion

• China's current land system is a product of more
  than half century search for rapid path to
  modernization. China has achieved some successes
  with high price and the search is still going on.
  For other developing countries, China's most
  valuable experience lies not in its specific
  institutional choice, but in its strong will to
  maintain autonomy in collective learning.