If you want land reform, make it easy with nudges and incentives
Part two of a series on land reform calls for policies to be designed according to how humans actually behave, rather than how they should behave
The recent report by the presidential advisory panel on land reform and agriculture proposes the design of a number of policies and white papers to be drafted by the government and stakeholders. Several commentators have already raised concerns over this — SA does not have time for a drawn-out process. My view is therefore that the government should avoid this at all costs and focus on policy incentives that could efficiently bring about a sustainable land reform process and growing agricultural sector.
The design process can be kept short by implementing lessons from modern policy design, which has moved on from the standard top-down designed programmes backed by budgets and bureaucrats. Many countries (the UK, Canada and Australia) are now making use of behavioural insights to design policy instruments and programmes. Behavioural insights are used to improve understanding of how context, biases and other influences affect the behaviour of people and organisations and focus on understanding what actually drives citizens’ decision-making, rather than relying on assumptions of how they should act. In essence, the approach is to create effective incentive mechanisms, or more generally to increase social wellbeing by designing policy differently.
The insights from this new strand of economic theory suggest that economic incentives that reward co-operation can be an efficient means of addressing complex problems (such as land reform in the SA context). The bottom line of this approach, as argued by Nobel economics laureate Richard Thaler, is: “If you want people to do something, make it easy.”
The report by the advisory panel briefly refers to this theoretical argument when it proposes the introduction of a “recognition mechanism” (page 63) that could have a significant and sustainable impact on the land reform process without costing the government a cent. However, this principle was not integrated into the report as a whole and is not listed as a major recommendation. As a result it has gone unnoticed. Yet it is key to a successful and sustainable land reform programme and should have been the main piece of advice to the president and cabinet.
The purpose of the “recognition mechanism” is to:
- Avail land to beneficiaries and target communities;
- Enable private financial contributions to the land reform fund;
- Ensure land reform beneficiaries who are settled on redistributed land are immediately integrated with the value chains, input supplier network and commercial agricultural system so that all the elements for successful farming are delivered in a co-ordinated fashion; and
- Support the delivery of farmland for the land reform objective outside the bureaucratic mechanism of the state and outside the network of political patronage.
The mechanism could incentivise the delivery of land for the land reform programme in two ways. First through the voluntary release of land (by corporations, state-owned enterprises, mines, churches, etc) directly to beneficiary households, communities or to a land depository — an entity that will record the transaction as part of the envisaged improved land administration system (ideally now all digitised and georeferenced). This entity will keep a proper record of all of these land parcels and provide a certificate for recognition to the donor.
Second, for larger commercial farming operators there could also be an opportunity to contribute or donate land by:
- Donating land without any conditions attached, as in option one;
- Subdividing land and allocating viable portions of land to workers (for farming or housing), tenants and potential beneficiaries (with registered titled deeds). Ease of subdivision is key and an efficient and quick registration of new owners critical; or
- Joint ventures with privately identified beneficiaries who obtain land in their own right with the assistance of existing farmers/agribusinesses. These joint ventures could access subsidised capital, water rights, market contracts, etc to expand agricultural output.
This option largely operationalises the opportunity for commercial farmers and agribusinesses to offer land for the land reform programme in a proactive manner. The commercial farming sector should create a process whereby well-located farmland is identified and committed for land reform, beneficiaries selected, and finance, mentorship and support put in place, as envisaged in the National Development Plan. With this option we ensure that all elements for successful and sustainable land reform are in place concurrently and immediately without having to wait for lengthy bureaucratic approval processes and the unsynchronised delivery of all complementary inputs.
Commercial farmers who participate in this manner should receive a certificate of recognition so that their contribution is recorded. Incentives should be created for participation. Guarantees regarding future tenure security for contributing farmers will go a long way in attracting more commercial farmers to participate.
A number of steps now need to be implemented in a specific sequence to make the above proposal happen. It largely follows from the panel report, with some additions and more details to direct implementation. These steps are:
- Allow the fast and easy subdivision of land where it can advance the objectives of redistributive land reform. Therefore the panel’s recommendation to assent the Subdivision of Agricultural Land Act 64 of 1998 into law is supported.
- Modernise and digitise the land administration system and create the “virtual” land repository where land made available for redistribution and settlement is recorded.
- Design and legislate the recognition mechanism whereby voluntary contribution as outlined above can be incentivised and recorded.
The elements of the mechanism that should entice altruistic behaviour towards the land reform imperative should include a number of elements:
- A certificate that will entitle the holder to certain benefits, such as procurement preferences, or a wide range of preferential financial arrangements (via the land reform fund);
- Some “empowerment" recognition level. The recent decision on the “once empowered, always empowered” principle might be a particularly important commercial incentive for farmers and owners of land to participate. This status remains with the property as an enhancement and has significant commercial value. In attaching the status to the property, it becomes generally applicable so would pass constitutional scrutiny and would be value-enhancing;
- The speedy transfer of title deeds/long-term and tradable leases to beneficiaries of land reform, including those who occupy land already procured for land reform purposes; and
- Allocation of water rights and access to preferential finance from the land reform fund for joint farming ventures with beneficiaries.
These few nudges could give SA much-needed progress on land reform at minimal cost. Most importantly, they would also increase private sector participation, which could bring some level of efficiency on the implementation of land reform to the process to the benefit of the beneficiaries. The land reform redistribution mechanism driven by the state has presented many frustrations, specifically among aspiring young black farmers. The new approach proposed here should change all of this.
Part three of this series will cover the creation of the land reform fund and define the roles for farmers, agribusinesses, banks and large corporates.
• Prof Kirsten is director of the Bureau for Economic Research at Stellenbosch University.
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