As soon as we start speaking about “globalization,” we inevitably associate it with the excessive financial markets that are disconnected from the real economy. There is less public awareness of another type of globalization that also involves the forced unification of institutions all over the world: the institution of private property and privatization strategies. The driving forces behind this development are – besides the usual suspects, the International Monetary Fund, the World Bank, the World Trade Organization – governmental development organizations themselves.
For land use and land rights, development usually entails the formalization, specification and individualization of property rights. It is assumed that informal, collective forms of property rights should be converted into private property (Platteau 1996) because such policies will help ease land conflicts, enhance the efficiency of the land markets, guarantee tenure security and assure access to loans. Anything other than private property is seen as an inferior, immature type of property right.
The privatization strategy of national and international governmental development organizations has often been criticized. Nongovernment organizations (NGO) working on environment and human right issues are particularly vocal in arguing that private property on land means the loss of livelihood and forced evictions, especially among socially and economically vulnerable groups. They strenuously object to private property regimes that exclude all other forms of property rights because such regimes trample underfoot the manifold commons institutions that have ensured broad access to land and sustainable use for a long time. Governmental development organizations are taking greater notice of this criticism, but some promising conceptual alternatives are beyond the scope so far.
Anatomy of property rights
So where does this fixation on private property come from? From a legal point of view, private property rights grant the possibility to exclude other persons from an asset. Moreover, owners may do with their property as they like. However, traditionally private property on land has been heavily restricted by public law, e.g. building law. From an economic standpoint, property can be interpreted as a bundle of rights comprising the right to use the asset (usus), to appropriate the yields (usus fructus), to change the asset (abusus) and to sell it (ius abutendi).
The dogma of land privatization was initially pushed by the Property Rights school, which emerged in the US as a branch of New Institutional Economics in the 1960s (Demsetz 1967). Property Rights theorists stress the necessity of coupling a secure right of use with the usus fructus right and the right to sell the asset. They believe that this is the only way to ensure that the persons who bear the investment costs will reap the yields (Feder and Feeny 1991). Investments in improvements (plantings, renovations, houses, etc.) would be stimulated by individual ownership, and an overuse of resources (as described by Garrett Hardin in his “tragedy of the commons” essay) could be avoided. Apart from misleading wording – Hardin was in fact describing a tragedy of open access while commons are always characterized by controlled access– this argument seems plausible at first glance.
However, it conceals an important fact: The right to take the yields from land (usus fructus) and the right to sell the asset (ius abutendi) are not limited to the “improvements” (such as plantings or buildings). They also include the most important sources of land value – the location, the intensity of use and the quality of the land compared with marginal lands (where the yields just cover the costs). Economists call these factors “differential rents.” Such advantages are often circumstantial and beyond the control of individual owners. In most cases, in fact, the basis for land values is created by the community, e.g., changes in land use plans or investments in infrastructure that affect the value of the site.
A high share of these costs is borne by the community. These costs comprise the costs of planning, the costs of infrastructure construction and the opportunity costs of forgoing alternative public or private land use. In the case of improvements to land, individual owners both pay the costs and receive the benefits. But the same does not hold true for the actual unimproved land because rents and incremental values are privatized, whereas the lion’s share of the related costs is borne by the community. The decoupling of benefits and costs is an important driver for a multitude of unfair aberrations such as land grabbing and rent-seeking, and not only in developing countries (Löhr 2010).
However, the picture presented thus far is not complete. Many developing countries have both private property and state property regimes for land. But there are two reasons why that distinction is often more of a nominal than a real difference. First, while access should be controlled to protected areas – which are often former commons that lost that status during the formalization of property rights in land – the state often does not have the capacity or the will to control access effectively. Second, state property is frequently leased out as economic concessions to private sector actors for their private economic exploitation.
In Cambodia, for instance, “Economic Land Concessions” on so-called “State Private Land” now account for about 25 percent of the country’s agricultural land. In addition, there are extensive concessions regarding forestry, mining and other commercial activity. Although lands used under concessions are regarded as state property, from an economic point of view they have all the characteristics of private property. Even the abusus right is oftentimes de facto in private hands, if, for example, forest protection laws are ignored by the concessionaires and the state ignores violations of the law. Unlike private property, the allocation of benefits from land is not driven by market forces, but by the state – oftentimes in the form of undisclosed payoffs to political cronies. Apart from bribes that are often paid, concessionaires pay no acquisition costs, and the formal fees are often ridiculously low; the concessions are obviously privileges.
Flattened by the steamroller of privatization: rent-seeking and state capture
Rent-seeking occurs when institutions allow the privatization of land rents and incremental value at the expense of the community. Oftentimes land speculators and land grabbers hold the state hostage, or succeed in planting its representatives within government agencies. The result: needy people are deprived of their livelihoods, common resources get enclosed and the land concentration process continues. This mechanism of appropriation works in favor of the elite. The privatization agenda can succeed only by overcoming the separation of governmental powers. It generally needs a strong executive power and strong centralized state that can prevail against the lower administrative levels.
Although governmental development organizations may not consciously support land appropriation by the elite, they at least tolerate it while the general population disapproves. Governmental development actors are behaving schizophrenically in this regard: On the one hand they promote and demand “good governance,” but on the other hand they are helping to issue a carte blanche for rent seeking (private property on land) that harms use of land as commons.
Increasingly, governmental development organizations see themselves as exporters of a product that might be called “private property titles in land.” However, this product does not work well even in the western context, as seen in a long list of failures such as unused and underused sites, urban sprawl, and a systematic bias in the planning process in favor of influential investors (Löhr 2010). In western states, such extreme abuses of privatization are contained by a working separation of governmental powers and a constitutional state. This is not the case in many developing countries that have weak governance. In the end, governmental development organizations in fact are helping to eliminate customary rights in land and thereby destroy numerous land commons.
One size fits all?
The elite knows how to play the game. It has access to legal advice and personal connections to key governmental decision makers. In contrast, poorly educated rural people are defenseless when new land titles are suddenly claimed out of the blue. They do not understand what is going on until it is too late. With little understanding of formal legal procedures and no financial and political backing, they have barely any chance of successfully defending their traditional claims. However, law is based on mutual acknowledgement, without which there is no legitimacy.
The problem is a clash of norms. The formalized legal rights invoked by the elite are allowed to override the customary rights of the poor and marginalized to regulate their own commons. The abuse of law to sanction this power play is pushing many states into a state of de facto anarchy. Paradoxically, the resulting, new state of “de facto open access” is sometimes producing a gridlock of fragmented, overlapping property rights claims, a problem known as a “tragedy of anticommons” (Fitzpatrick 2006).
Economic and social consequences
It is of no surprise, then, that in many cases the results of privatization do not meet the stated expectations. Land is not allocated to the best users, but to speculators. Land often remains unused. “At best,” land goes to agribusiness companies, i.e., to powerful and concentrated economic groups.
Ways of life and economic models with a low ability to pay are severely disadvantaged in this context. It means that the diversity of forms essential to a sound social and economic organism, is reduced. The disappearance of traditional ways of life and economic models often goes hand in hand with migration to big cities (and the rise of new slums) or to peripheral regions. Yet the influx of displaced people into peripheral regions, combined with a lack of effective access controls, only causes further degradation of natural resources that had been stable commons in the past. A telling example is the province of Pailin in Cambodia, where about 50 percent of the primary forest has been destroyed, and agricultural land gradually degraded, in recent years.
The central state bears responsibility for much of this harm. It grants most of the economic concessions, usually without consulting regional or local administrations. Oftentimes environment and social impact assessments are conducted inadequately or not carried out at all. The resulting overlapping land claims often lead to disputes, which concessionaires do not even try to solve by negotiating agreements with the people affected. Instead, they simply contact the central government, which has allotted the concession to them, because they expect that the government will “resolve” such conflicts in their favor, using police or armed forces if necessary. The people who lose their livelihoods then join the queue of landless migrants.
Toward a paradigm shift in development policy
Considering the disastrous impacts of the privatization agenda in many countries, the proponents of the agenda have become more cautious. This has not led to a reconsideration of the privatization paradigm in general, however, but rather to ad hoc modifications of how it is administered on a case-by-case basis.
When challenging the privatization paradigm, several principles are essential:
- Neutral planning should provide space for a diversity of lifestyles and economic models. This refers in particular to social and institutional forms that have a low ability to pay. Such forms are of inestimable importance for social cohesion and ecological functionality, and to enhancing a coexistence of formalized law and customary rights. A diversity of lifestyles and economic models might be supported, for instance, by allocating collective land titles to communities where customary rights are in place. Any legal relationships to outsiders to such communities, however, should be based on formalized law.
- The state should be as free from special interests as possible, in order to guarantee neutral planning and to provide scope for forms beyond the capitalist exploitation logic. The collusion of private special interests with governmental institutions should be criminalized – something that is not always the case even with the western development “blueprints.”
- Fighting rent seeking also means skimming off land rent and incremental value as far as possible in favor of the community (de-capitalization of land). This could be executed by an intelligently designed leasing or land taxation framework. It is clear that this requirement is difficult to enforce in countries where political decision makers are closely connected to owners of large estates and developers.
- In addition, state policymaking should be reflect the principles of subsidiarity. Lower administrative levels, e.g., within the land allocation process, should be granted greater powers. Of course, the decentralization of power is the opposite of what influential political decision makers generally want.
If community interests in shared natural resources are to survive, a new development agenda will need to be advanced, and it will need to sail against the wind. It is time to adjust the compass.
- Demsetz, H. 1967. “Toward a Theory of Property Rights.” The American Economic Review (57)2: 347–359.
- Feder, G. and D. Feeny. 1991. “Land Tenure and Property Rights: Theory and Implications for Development Policy.” The World Bank Economic Review, (5)1: 135–153.
- Fitzpatrick, D. 2006. “Evolution and Chaos in Property Rights Systems: The Third World Tragedy of Contested Access.” The Yale Law Journal. (115)996–1048.
- Löhr, D. 2010. “The Driving Forces of Land Conversion – Towards a Financial Framework for Better Land Use Policy.” Land Tenure Journal (FAO). June: 61–89.
- Platteau, J.P. 1996. “The Evolutionary Theory of Land Rights as Applied to Sub-Saharan Africa: A Critical assessment.” Development and Change (27)29–86.