Debunking the paradox of land expropriation without compensation

I had a colleague of mine lambast my views in the Farmer’s Weekly of the week of 27 March 2017 where I argued why expropriation without compensation is not a viable alternative. Before I debate my views, it’s important for me to point out that I am a firm believer of social justice, and I believe in land reform as a means to addressing inequality. The only difference between myself and my colleague lies in the manner through which this goal is attained.

Some strong believers of social justice argue that, since land was expropriated from the black population without compensation, the white population that now owns it should be afforded the same courtesy. Though logical, the reality however is not that straight forward. There are two reasons why land should not be repossessed without compensation.

The first reason why it is now imperative to pay for land that was taken for free is that South Africa needs to maintain a delicate system of confidence – otherwise known as the economy. Today, South Africa is the most dynamic and complex economy in Africa – much more sophisticated than what it was back in 1913 when the Land Act was passed.

So complex is this system of confidence that the expropriation of land will in itself not be the problem, but rather, the perceptions around it – namely its weakening of property rights and the perceived risk of capital to be securely invested within the agricultural sector and the rest of the economy.

The second reason, why it is important to pay for land that was taken for free is that, expropriating land without compensation, in effect, strips the land of its intrinsic value. When you make land a free commodity, the system of confidence can no longer accept it as collateral because it will be perceived to no longer hold its value. Some analysts will argue that one could consider collateralizing agricultural output instead of the land itself.

That proposition, however, does not resolve the enormous risk created by weak property rights at farm level. The system of confidence will not afford farm-level agriculture any capital without a significant premium. This premium – otherwise known as the cost of capital, or simply as interest – will adjust upwards because the cost of money has to match the level of risk associated in investing within a system that has weak property rights.

The inherent problem is that, returns in agriculture are generally low, and do not match this risk premium. As a result, the potential risks will outweigh the returns to agriculture. The result is that capital will seek higher returns with lower risks in other sectors of the economy. Without any investment in agriculture, you end up with is land that has no value, and a system of confidence that cannot accept land as a safe haven of investment.

Given the foregoing, my argument is that you cannot restore human dignity through land if such land becomes a dead asset. You cannot empower a landless population sustainably by giving out a valueless asset. Real economic empowerment lies, rather, in giving people a productive asset in which the system of confidence offers its true intrinsic value – you cannot have one without the other.

For many land reform radicalists, the principle of compensating land that was taken away at no cost under the apartheid system is one that sounds counter-intuitive at best, and even anti-poor, at worst. And I know many will reject the rationale articulated in this opinion piece, not on the basis of merit, but ideology.  With due respect to the pain and suffering of the poor, many of whose stories are yet to be told – I believe that as the nation reflects on the failures of past land reform efforts, a new collective wisdom can emerge to craft a new progressive model.

*This article was published in the Farmer’s Weekly edition of the 24th April 2017

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