Economics of Land Reform in the Pacific, or Micromodelling a Mataqali

In this post I will jot down thoughts on a very complex subject but attempt to simplify it as much as possible.  The topic is the economics underlying the land reform debate, and resulting policy implications.

If economists and anthropologists find this simplistic, please remember this is a blog and I am aiming at a wide practitioner audience and moreover I wrote this in far far less time than I should have taken on the topic.  However any comments, feedback and constructive criticism would be very welcome.

Views about land reform and economic development in the Pacific have fallen into three broad categories: the left, the right and a middle way.

On the “left” of the political spectrum, is a view that customary tenure should be left untouched on the basis that customary land is a system that has worked for thousands of years.  In this view, any reformist agenda is driven by “ideology, Western bias and vested interest” and leaves the door open for land grab and the trampling of indigenous rights.  Examples include Tim Anderson’s writing for Aidwatch – also see here.

On the “right”, if that is a meaningful label, the radical path of conversion of all customary and into freehold is the way forward.  This view has been most famously proposed by veteran Australian economist Helen Hughes (who spent 14 years in the World Bank during the 1970s and 80s, at a time when the Bank was embracing the highly free-market approach widely known as the Washington Consensus).  In a 2004 policy paper for an Australian libertarian think tank she called for customary tenures to be abolished.

In the centre, views taken perhaps by the majority of policy practitioners, and articulated by Jim Fingleton as well as the PIFS Land Management and Conflict Minimation research and AusAid Making Land Work report from 2008,  is a view that although fundamentally customary land tenure needs to be respected, there is a need for reform in its governance. This is perhaps due to the fact that the Pacific region is undergoing substantial social and economic transformation due to population growth, urbanization and commercialisation.  This middle ground in my view carries: i) a better understanding of the actual economic structure of customary land tenure than the “right”, ii) a better, updated understanding of the institutional prerequisites for economic development and transaction costs required for privatization than the “right”, iii) a more realistic view than the “right”, of the viability of reform given the bureaucratic capacities of Pacific island governments, and iv) a better way out of aid dependency and poverty than the “left” do-nothing view.  But I will try to explain this below.

Underlying these views are assumptions about the microeconomic foundations of mataqali, which I have hardly seen made explicit, only assumed (please email me at jonathanb [at] spc.int if you have examples).  Thus I want to try to make them explicit below.

The right

The Hughes view sees customary land tenure as having a ‘common property’ structure in that land, perhaps at the village level, is owned by a group whose members have untrammeled and uncoordinated open access.  Economically this generates an inefficient outcome.  The most basic way of explaining this is through a concept in economic theory called the ‘tragedy of the commons’,  which says that if everybody and nobody owns everything (a situation of common property rights) nobody will look after it.  If nobody owns a field then everybody will graze their cattle on it but there will be a race to get the best grass, so there will be overgrazing and the grass will die, rather than the ideal scenario of appropriate levels of grazing to yield optimum benefits over time.  The result: underinvestment in improvement because although it would be good for the community to invest, nobody will do so because no individual has the incentive to, because they will not reap the full rewards of their investment.

The solution offered: parcel up the big piece of land into lots of little pieces of land and dole those pieces of land out to individuals, so that those individuals then face the true consequences and reap the true rewards of their investments of effort and capital.

This approach is actually an incorrect free marketeer’s caricature of customary land tenure.  It underestimates the extent to which mataqalis can be treated as having unitary decision makers in them (one person in them making decisions for the family or village or community); it underestimates how individuals within a mataqali have use rights over their own parts of the mataqali.  It also underestimates the extent to which communities with common property resources can actually organize themselves to use those resources optimally.  Work on this was done by Nobel Prize winner Elinor Ostrom who outlined the conditions in which societies can organize themselves.  More on this later.

The left

The “do nothing” people tend to have a subtle and realistic view not only of the economic structure but the social and cultural structure of customary land title, which I won’t go into here.  Just to say that the leftist proponent Tim Anderson is a specialist in political economy – and not straight-ahead economics – and political economists in my experience tend to have a better grasp of institutional economics.  However there is an ideologically committed leftism in his writing and that of others which seems to me sentimental and unpragmatic – and ultimately not reflective of reality.  Here is an example: in a discussion some months ago I put it to my Fijian boss Inoke Ratukalou that this side of the argument is saying that imposing the preconditions for economic development in the form of moderate land reform, even if it respects customary land reform, is still an imposition of ‘Western’ ideas.  Inoke replied that Pacific Island Countries are highly dependent on aid from Australia, New Zealand and other countries, and if they do not implement reforms to make it easier to utilize their land they have more effectively, they will be less likely to reduce poverty, break aid dependency, and by implication reduce political influence by richer countries.  This argument seems to me a compelling one.  But what exactly should such reform look like?

The middle way

The economic structure of customary land tenure understood by the centrist pragmatists is a more realistic one.  Here a customary landowning unit is somewhere between common property and individual freehold.  It has a number of members within it who have rights over the land, but they have different use-rights that are coordinated with each other, and correspond to , and moreover there is usually a chief or head as well as a way of making decisions together as a community.  Thus it does not necessarily suffer from the tragedy of the commons.  According to economist Chris Lightfoot, writing in a discussion paper edited by Fingleton for the Australia Institute: typically in the Pacific members of a community do not have ‘open access’ to the land that is owned under customary tenures, and land is used by individuals to their own benefit and to the benefit of the mataqali as a whole.  And according to a presentation by economist Tim Curtin:

“Fingleton explains that customary land tenure is neither individual nor group holding but has elements of both, just as  ‘individual’ tenure in all modern cities from New York to Shanghai, including Sydney and even Port Moresby, for the majority of residents usually combines individual ‘strata title’ ownership of dwellings in high rise apartment blocks with group ownership of the building itself and its amenities in the form of the ‘body corporate’, of which unit owners are members and to which they pay charges for common services and maintenance.”

So customary land-owning units cannot be modeled as common property or a system of communism, because the people living in these do coordinate with each other and are incentivized, even if not perfectly, to look after and invest in the land.  Anecdotally this is borne out by the wholesale embrace of sustainable land management by Fijian communities, noted in a meeting I recently attended about a GEF-funded SLM project in Fiji.

The really interesting questions come when we start to talk about leasehold.  In a perfect world leasehold systems are exactly equivalent to individual freehold in their ability to provide economic benefits.  In this perfect world of neoclassical economic efficiency there would be:

  1. zero transaction costs
  2. perfectly defined borders around leasehold land and clarity about the rights over that land
  3. instantaneous transaction processing
  4. perfect tenure security within the terms of each lease agreement
  5. full information and full comprehension for all parties about the current and future value of all land
  6.  “leaseable” customary land valued in the same way that freehold land is valued – ergo at the capitalized value of the best economic use to which the property can be put, so that people are incentivized to (for the economists among you) equate marginal returns across all land, so that returns on land are maximized
  7. zero conflict

This emphatically does not look like the current situation in any country in the Pacific (and probably the world, even in freehold land markets), although Fiji comes the closest.  Some pure economist’s policy implications of the above points for land reform are as follows.  DISCLAIMER: I do not necessarily agree with these nor have I thought each one through carefully; they are just a list some of the logical conclusion of each of the points above, in order:

  1. Increase the efficiency and reducing the cost of land transactions; making national bodies that administer customary land lease, as competent as possible
  2. Accurate legal mapping of borders, if not of actual customary land borders (which would be very problematic) but of the packages of land that are to be leased.  Clarity of the terms of lease.
  3. Reduction in processing time of leasehold applications
  4. Community-sanctioned and legal enforcement of the terms of the leasehold agreement.  General efficiency of the legal system and speed at which disputes are resolved.  Also, the opportunity left open for a tenant to renew a lease.
  5. and 6: Clarity of terms of eachlease agreement.  The conditions established for fully informed consent of landowners to lease the land, particularly where high value is involved.  Excellent quality of valuation of the land.  Bringing customary land lease values into line with freehold values or at least the capitalized value of the best use of the land.

7.   All of the above would contribute to reduction in the number of land disputes.

More clarity, better information and valuation, low cost and high speed in land administration and enforcement.  These points are just a sample of the large number of policy recommendations that might come out of the seven points above that economic theory suggests.

Aside from questions of whether pure economic efficiency is the sole criteria on which to reform a land system, the next question is: as we always have limited human and capital resources to devote to any problem in the Pacific, which of these areas is the highest priority?

Elinor Ostrom’s Conditions for Common Property Resource Management

Elinor Ostrom was the first woman to win the Nobel Prize in Economics, for her work in institutional economics and political economy, and primarily for her book “Governing the Commons: The Evolution of Institutions for Collective Action”.  She outlines eight conditions for stable and efficient common pool resource management.  These are most relevant for looking inside customary landowning units.  It has been noted that customary landowning units are not communism more are they exactly common property, nor do they suffer from the ‘tragedy of the commons’ but I think that within the boundaries of each unit, they do exhibit elements of systems of well-organised common property resources and they do have group ownership, even if they combine this with individual use rights.  So I thought it might be interesting to post Elinor Ostrom’s eight “design principles” of stable local common pool resource management:

  1. Clearly defined boundaries (effective exclusion of external unentitled parties);
  2. Rules regarding the appropriation and provision of common resources are adapted to local conditions;
  3. Collective-choice arrangements allow most resource appropriators to participate in the decision-making process;
  4. Effective monitoring by monitors who are part of or accountable to the appropriators;
  5. There is a scale of graduated sanctions for resource appropriators who violate community rules;
  6. Mechanisms of conflict resolution are cheap and of easy access;
  7. The self-determination of the community is recognized by higher-level authorities;
  8. In the case of larger common-pool resources: organization in the form of multiple layers of nested enterprises, with small local CPRs at the base level.

Each of these criteria has been carefully thought through and explained by Ostrom in her book mentioned above, and it does not do these principles justice to list them so briefly.  Having said this, I think on first reading that except for number 1 which is met only partially, and the perhaps irrelevant number 8, customary landowning units do appear to meet these criteria, WITHIN the units.  Any further comments on this, especially from anthropologists, would be interesting.

Having said that common property is not a fair representation of customary land ownership in the Pacific, there are as Tim Curtin notes in his presentation (link above) very large tracts of land in PNG over which “no individuals have uncontestable rights of exclusive access. This lack of differentiable access does much to explain the relative ease with which foreign logging firms have been able to appropriate significant areas merely by playing one group of putative owners against another.”  It is clear that in this situation Ostrom’s condition number 1 listed above is not met in the slightest degree, and thus the resource is open to the tragedy of the commons.

A few further Questions 

A few other interesting questions, but not ones I shall attempt to answer are:

  • To what extent can landowners in the Pacific be assumed to maximise profit?  Do customary landowners exhibit more satisficing behaviour, ergo, they produce just as much as they need and no more, and simply do not take advantage of commercial opportunities because they are not profit maximisers?
  • Is this an explanation for why valuable land is not used?
  • Can this situation be changed through a more efficient lease system so that valuable land can be lent out?  Should landowners be encouraged to take on a more commercial mindset? Or would this be deleterious to Pacific Island culture?
  • Do leaseholders also exhibit only satisficing behaviour or do they maximise profit?
ENDS
*I am indebted to Spike Boydell from UTS (formerly USP’s director of Department of Land Management) as well as Ken Chambers, current Director of USP’s School of Land Management and Development, for helpfully providing me with links to the authors listed here some months ago and being instrumental in my own education on this topic.
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