Dilemma of Land Reforms An Incursion to the Private Property Rights

1. Dilemma of Land ReformsAn Incursion to the Private Property Rights Private Property Rights: The Economic Foundation of a Free SocietyEconomic Freedom Network of Asia September 18 – 19, 2008University of Asia and the Pacific, Manila, Philippines Krishna Neupane President Limited Government (Nepal) www.lgn.org.np

2. Nepal, at glance • Nepal’s population dependent on agriculture for their livelihoods, > 75% • A greater emphasis has been laid with the implementing land reforms and providing land to the landless people and giving tenancy right to the tenants Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

3. Research Questions • How has the confiscation of the land from aristocrats and imposition of the artificial restrictions helped the peasants keep poor? Specifically it addresses, • Did the living standards of Nepalese farmers increased with the implementation of government policy? • Does government policy give incentives for capital investments in agriculture? • Does the current policy provide for a stable food supply for the citizens of Nepal? • Why policy induced Land Fragmentation mired people into poverty (disguised underemployment) and "Re-distributing did not improved the productivity"? Thus specifically, it addresses what are the effects of land reform on the productivity farmers in Nepal? Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

4. Importance of Property Rights • Land reform is critical to achieving overall political and economic stability. • Owners have incentives to use resources productively and to conserve where possible. • Private ownership of property provides an incentive for good care that is lacking under government control. • A resource owner has legal rights against anyone who would harm the resource. • Property rights provide long-term incentives for maximizing the value of a resource, even for owners whose personal outlook is short-term. Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

5. Land Ownership • Two stages of Land Ownership: Pre-1964 and Post-1964 • Ownership of land (Pre-1964) in Nepal is traditionally vested in the State: • As state offering lands to private individuals (birta), • Government current employees (jagir), • Royal vassals and former rulers (rajya), • Religious and charitable institutions (guthi) and • Communal land ownership (kipat). • A series of Land Acts were subsequently enacted in the 1950s until 1964 retaining only the raikar and birta as the main forms of tenure with objective of securing the right of land holders and tillers so that land productivity could be enhanced (Lumsalee, 2002). Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

6. Area under the different forms of Land Tenure Before 1950 Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

7. Features of the Land Reform Act, 1964 • Abolition of the Zamindari System. • Land Ceilings: • On land ownership of 17 hectares in the Terai, 4.11 hectares in the hills, and 2.67 hectares in Kathmandu Valley. • Of tenancy holdings of 2.67 hectares in the Terai, 1.02 hectares and 1.51 hectares in Kathmandu Valley and the hills respectively. • Security of tenancy rights. • Fixing of rent at no more than 50 per cent of production. • Abolition of sub-tenancies. • A compulsory saving program to provide an alternative source of credit, and the interception of loan repayments to private lenders. Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

8. Theoretical background To create an efficient market is entailed both a set of political and economic institutions that provide for low transaction costs and credible commitment that makes possible the efficient factor and product markets underlying economic growth(North, 1992) Well-defined and secure property rights are seen to be the sine qua non for the emergence and continued function of decentralized markets, and the efficient use of resources (Brazel, 1997) Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

9. Features of the Land Reform in Nepal Source: Central Bureau of Statistics, 2001, 2006 Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

10. Land Ceiling prior to and after the Fifth Amendment (1998) of the Land Reform Act, 1964 Source Ministry of Land Reform and Management, 2006 Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

11. Summary Statistics Number and Area of Holding, Nepal, 1961/62 to 2001/02 Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

12. Outcomes Kept people fool (disguising unemployment): In between 1961/62 and 2001/02 seen from the perspectives of population growth rate of 2.45 the farm population has grown by 2.26. Unemployment rate 46% (Index of The Economic Freedom of the World, 2007) Increased Land Fragmentation: At the national level, the average number of parcels has been declining from 6.8 in 1961/62 to 4.4 in 1981/82 to 4.0 in 1991./92 and finally to 3.3 in 2001/02. Incomplete Registration: It cannot be said that the data available through the government sources by no means accurate in the present context as it was recorded nearly five decades back. Owner tiller feuds and Rise in the cases in the court: One of the main sources of conflict in the country is related to land. Annual average land cases in lodged in the supreme court tops the entire cases consiting an average of the 51. Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

13. Outcomes…. Incidence of Poverty among Farm Households (percent) Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

14. Outcomes… • Food Security (stability of Food Supply): • Nepal’s first food crisis in 1971-73. • Second food crisis: A total of 42 out of the 75 districts in Nepal are estimated to be food-deficit in 2006/07. Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

15. Conclusions • Well-defined and secure property rights are seen to be the sine qua non for the emergence and continued function of decentralized markets, and the efficient use of resources. • With respect to the consequences of land fragmentation results in • (1) Increasing the production costs • (2) reduces productivity and technical efficiency and • (3) increases the food insecurity and • (4) land ceilings are the major contributory factor in generating the land fragmentation. Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

16. Way Forward • First premise: The role of the state in land reform is crucial. • Two important aspects of the relationship between government policies and property rights are • the effects of government policy in the allocation of property rights, and • the effects of property rights on political stability. Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

17. In general, people with a legal title to their property: • invest more in their property (de Soto and Litan 2001) • develop demand for electricity and insurance • enjoy more public services and security from the state • are brought into the “system” of capitalism and are therefore less likely to resent and/or rebel against it • have the opportunity to borrow against their property, which creates a legitimate source of capital for entrepreneurs • are not physically tied to their land. With their property rights secure, they are free to enter into long-term rental or lease agreements and enjoy greater mobility of labor (Panaritis 2001). Krishna Neupane, Limited Government (Nepal), www.lgn.org.np

18. Thank you Krishna Neupane, Limited Government (Nepal), www.lgn.org.np