Monday, April 18, 2011

Economically feasible extent of land

I was in conversation with some elders recently about the whole land reform process in the early seventies, where each couple were restricted to 50 acres of land, and the excess taken over by the state. In fact the veritable World Bank had advised that due to the excessively unproductive performance of the estates of a few thousand wealthy people, with in their view a return of less than 1%, that land be restricted to 25 acres per individual. Even if the UNP of Dudley Senanayake was elected he would also have imposed land reform at 25 acres as recommended by the World Bank. It was NM Perera of the Sirimavo Bandaranayaka government that came into power in 1970, who felt 25acres was too uneconomical, that hence it was increased to 50acres.

There appear in hindsight, many mistakes that lead to not an increase in productivity, but a decrease as a result of these reforms. There were two fundamental errors made. One was that the unproductivity of estates was an accounting method for the wealthy to hide their income by way of showing losses on the land by new cultivations, and other improvements, as well as fertilizing as profits from employment and other areas could then be offset against losses in agriculture. It must remembered today that agricultural income is tax free, and profits from other sources cannot be offset against agricultural losses, a completely diametrically opposed law.

Secondly it had originally been determined that the land and houses taken over would be compensated at market value, so these educated landowning classes would use this money to invest in productive enterprises, thereby stimulating the economy, and in the long run they also would be financially better off, without the weight of unproductive property around their necks. This did not happen as the government lacked the funds to compensate them and some are still waiting for compensation over 35 years later.

It is also clear that those to whom land was distributed were to henchmen and for political patronage, and the recipients had little knowledge in improving the small lots of an acre or more to increase production, and instead treated it as ranchettes to build their homes and home gardens, a total waste of previously productive agricultural land. One must always remember that this lead to huge agricultural lands that could have been turned into more productive units, by studious use of technology and investment, been turned into wastelands as the recipient received it free, with no cost to them and therefore no value attached to the property.

We have still not learned the lessons of the past and continue to make the same mistakes today.