On Ownership and Tenancy
After World War II, the overwhelming opinion was that the
personal interest the private owners had in production and
profit would suffice to ‘turn sand into gold.’
An exception were the socialistic countries where the prevailing
opinion was that private ownership of the scarce production
factor land leads to exploitation and should be abolished.
There are enough examples to prove both arguments empirically.
Alternatives do certainly exist, such as the communal control
of land in Africa and the Mexican ejido with hereditary rights
of use, but they are too unique to exercise much influence
on the debate.
Unfortunately the ‘sand into gold’ argument,
which has more than one grain of truth in it, has become an
ideology. In the debate, the fact was often forgotten that
the positive results cannot be taken for granted, but rather
that they depend on the existence of certain prerequisites.
If these do not exist, it is unlikely that positive effects
ensuing from private ownership of land will take place, and
unfortunately these prerequisites do not exist in many regions.
The prerequisites of positive effects of private ownership
of land are:
- Sufficient size of land. If the land available to a cultivator
for cropping becomes too small, as is the case in many developing
countries due to partitioning of land as a result of inheritance,
indebtedness and poverty are the consequence.
- A certain attitude towards work, saving and investment
is necessary, i.e., qualities we usually admire in family
- Institutional support by the public sector in those areas
in which the individual cannot help himself such as cooperatives
or similar institutions for providing credit, supplying
inputs, marketing and advisory services.
- Freedom for the peasant to make the decisions on farm
management, who at the same time carries the burden of all
of the risks.
The major alternative, state or socialistic ownership of
land, has proved to have sever limitations. Production suffered
in particular, partially because state planning and intervention
in the details of land management caused many mistakes. This
was mainly due to what Otto Schiller had already called ‘human
failure’ around 1950. The system gave little incentive
to the work force because extra efforts caused any increase
in benefits for the individual. An example were the ‘household
plots’ on which the individual families were able to
cultivate vegetables, fruit and small animals for their own
consumption as well as for selling privately. In this case,
labour input and production were much higher than on the large
This situation was important for the recent changes in socialistic
countries. The transformation is not yet finished. It has
resulted in some openings for the market and its incentives
– although incomplete. Several countries hesitate to
introduce private property in land again. The process is still
being debated and is made difficult by the fact that collective
workers have had no experience in independent farming for
three generations and have no buildings, machines or other
capital. Furthermore, no supporting institutions exist for
small farmers, and – last but not least – dismantling
the collective estates would erode the basis of social security
for all of the people belonging to them who in the past drew
their pensions from the estates.
The experience of the last 50 years has led to a more differentiated
point of view on the issue of private land ownership. Property,
including property in land, is a basic element of the economic
order. Its clear definition, which is uniform for all of man,
is a basic requirement and usually regulated in the constitution.
It is necessary to differentiate between property as such
– which may be held by various institutions (state,
collectives) – and private property in land. The latter
is one possibility that has developed historically and culture
specifically. It gives the owner security, provides a planning
horizon, provides incentives and, thus, makes investments
possible as long as the prerequisites mentioned above exist.
In many countries, private property in land has led to long-lasting
and remarkable progress in the development of agriculture.
In a number of cases, some of the private landowners became
too successful and exploited others, a development which resulted
in dependency and poverty on the part of the masses.
In many countries, private property in land is an important
basis for farmers to receive credit. Land as collateral for
easy credit for landowners is listed as an important argument
in favour of private property and privatization.
However, this argument is frequently overemphasized. While
mortgages are an easy and successful instrument for assuring
credit for middle and large size farms, it has severe limitations
in the case of smallholders. Loans granted on the basis of
what you have and not according to the needs for making a
specific investment are detrimental to a good credit policy.
The fact is more important that mortgages – the instrument
for guaranteeing institutional credit – are hardly granted
in the case of small farmers. Banks do not usually deal with
small farms, and – with variations between the countries
– probably three-quarters of all of the cases of loans
or credit are granted by informal lenders, even more so in
the case of smallholders.
These informal lenders are relatives, neighbours, merchants,
traders and other personal acquaintances of the borrower,
and they do not usually request a formal mortgage to cover
the limited amount of money borrowed to pay for final inputs
such as fertilizer of chemicals (crop loans), or for the consumption
needs during the last weeks before the new harvest is brought
in. One’s ‘reputation’ and ‘social
sanctions’ are used as alternative forms of collateral
in agrarian societies with close social relations. A person
who defaults on a loan risks becoming an ‘outcast.’
Even in the case of banks, mortgages are more of a threat
than reality. Banks frequently have difficulty selling land
in remote villages because of the solidarity among the villagers.
Cooperatives likewise hesitate to take land away from members
because of the negative effect on the ‘cooperative spirit.’
More recent developments in the field of credit such as the
Grameen Bank and similar institutions also do not rely on
While mortgages are definitely an established instrument
for granting credit to medium and large size market-integrated
farms, it does not suffice as a sole argument for the private
ownership of land. This has its place in societies which have
a tradition of private property in land (which in most cases
is only 200 to 300 years old). One should be careful transferring
it to countries with another historical background.
Changes in land-use rights are related to the question of
ownership of land. In many countries, land-use rights played
a significant role in the history of the countries, but under
the influence of the Europeans, they became limited to the
various forms of tenancy.
The period following World War II saw a trend to prohibit
tenancy. This was considered the correct answer to the lasting
difficulties in regulating tenancy in a way that would do
justice to both partners. It was not only the unequal position
of the partners on the leasing market which made it easy to
circumvent regulations. The regulation of tenancy requires
annual control, while the abolition of tenancy is a one-time
However, enforcing the laws abolishing tenancy proved impossible
because the institution of tenancy had already been rooted
in the society for generations. Furthermore, tenancy was necessary
as an instrument to easily adjust the requirements of the
landowners with respect to labour capacity, which could change
over time and in the case of unforeseen personal calamities.
Therefore, the laws were never strictly enforced. Sometimes
management contracts which provided for payment in the form
of a share of the harvest – an arrangement that has
existed for centuries – presented a completely legal
opportunity to circumvent the laws.
A serious impact on tenancy took place around 1970 in the
‘green revolution’ regions. Many landlords dismissed
their tenants and used the ensuing potential to make money
by means of the new technologies by cultivating the land themselves
in the form of centralized farms. Many others transformed
the traditional share-tenancy into cash-tenancy, a change
which brought some improvement in the relation between both
partners. This change in the characteristics of tenancy was
further influenced by a widespread change in the characteristics
of lessors. Today it is often not the large landowner who
rents out land – he has frequently begun to cultivate
the land himself – but rather increasingly the smallholder
who wants to give up farming, especially with the change of
generations. As non-agricultural jobs are insecure in the
beginning, the family often keeps the land in order to be
able to return to farming if the choice of a new job should
prove to be a failure. In the meantime, the land is partly
cultivated in the form of part-time farming, while other parts
are rented out in order to reduce the workload. As a result,
the lessor is in reality frequently not a large landowner,
but rather a neighbour, a relative, or a person of a similar
status. This has certainly not eliminated all of the problems
in the lessor-tenant relation, but it is definitely an important
step in the type of tenant-lessor relations.
All of these developments increased the need for the institution
of tenancy to allow easy adjustment of land and labour. In
more recent times, the abolition policy has hardly been enforced.
Instead the trend has been to advocate a new form of tenancy
under a different name such as the ‘entrustment of land’
in Taiwan. This development will and must spread. With progressing
economic development, more and more people will change their
occupation and lose interest in farming, especially with the
change of generations. This requires a functioning land market
in order to facilitate a smooth transfer of land to people
who are interested in cultivation. As the sale of land is
unlikely due to the high land prices and the desire to retain
land as security is prevalent, forms of leasing land are necessary.
Changes also occurred with respect to the type of lessee.
Many ‘progressive farmers’ and ‘economic
holdings’ increase their acreage today by renting land
in order to economize the use of machinery and enlarge the
scope of their activities. Entrepreneurs partly invest in
agricultural production based on rented land. (2)
For a long time, sharecropping was regarded as being inefficient,
following Alfred Marshall’s argumentation. More recent
studies come to the conclusion that sharecropping can be regarded
as a compromise between work incentives (when seen alone,
fixed rent would be better) and the sharing of risks for risk-adverse
peasants. The costs of supervision also appear to be lower.
The most recent impact on tenancy originated in Vietnam
and a few other transformation countries which maintained
the ownership of land in the hand of the state. At first,
land was leased to cultivators for a period of 6 years, but
later the rights of use were granted for 20 or 50 years, with
an option for renewal. They were also made inheritable and
transferable. This arrangement provided a level of security
and a horizon for planning and investment similar to the case
of private ownership of land. It proved to be a strong incentive,
respecting tradition. These long-term transferable leases
were even accepted as collateral for loans. This system, which
resembles the historical tradition in many countries, is still
rather new, but it should be observed careful for it might
prove to be a model for other countries. (3)
(2) Details based on empirical studies are given by Bhaumik,
Sankar Kumar, Tenancy Relations and Agrarian Development:
A Study of West Bengal, New Delhi 1993. Also see Birthal,
Pratap Singh and Singh R.P., “Land Lease Market, Resource
Adjustment and Agricltultural Development” in: Indian
Journal of Agricultural Economics 46, 1991, No. 3.
(3) Cf. Haque, T., Technical Report on Tenurial Reforms and
Sustainable Agricultural Development in Viet Nam, FAO, Rome
1994; Agricultural Policy Analysis for Transition to a Market-oriented
Economy in Vietnam, FAO Economic and Social Development Paper
No. 123, Rome 1994; as well as Weismann, Joshua, “Long-term
Leases as an Alternative to Ownership” in: Kolbert,
Colin (Ed.), The Idea of Property in History and Modern Times,