Paper prepared for the EHS 2010 Annual Conference, Durham 26th – 28th March, 2010.
Was Land Reform Necessary?
The access to land in Spain, 1904-1934
Juan Carmona Pidal†
Joan R. Rosés†
Preliminary and Incomplete not for quotation
Abstract
A land reform involving the breaking-up of large Southern estates was a central issue in Spain during the first decades of the 20th century. It was justified on grounds of economic efficiency, social equity and the distribution of political power. Empirical analysis of the economic reasons for such major policy reform is, however, scant and often contradictory. This paper uses new provincial data on land prices, together with provincial-level variation in wages to address some of the unresolved issues of earlier studies. The results suggest that land reform was not necessary given that access to land market was improving significantly during the period. The paper draws important implications for the historiography on Spain, particularly from the fact that the observed impact of the operation of rural factor markets seems to have been positive for development.
Keywords: land markets, wage-land prices ratio; landless peasants;
JEL Codes: N54; N53; Q15.
Juan Carmona Pidal: Departamento de Historia Económica e Instituciones and Instituto Figuerola, Universidad Carlos III de Madrid, C/Madrid 126, 28903 Getafe, Spain.
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Joan Ramón Rosés: Departamento de Historia Económica e Instituciones and Instituto Figuerola, Universidad Carlos III de Madrid, C/Madrid 126, 28903 Getafe, Spain.
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† The authors acknowledge financial support from the Spanish Ministry of Science and Innovation projects “Consolidating Economics” within the Consolider-Ingenio 2010 Program and SEJ2006-08188/ECON. An earlier version was presented at EHES Conference held at Geneve (2009). The usual disclaimer applies.
Was Land Reform Necessary? The access to land in Spain,
1904-1934
1. Introduction
Land reforms are a major issue in economic history and development economics.[1] The redistribution of land from the hands of large landowners to the hands of poor peasant families is today in the political agenda of many countries, parties and social organizations. This policy measure is commonly justified on economic efficiency grounds and also for equity reasons. Inefficient land markets exhibit substantial entry barriers for landless participants and dramatic price distortions, which sometimes are translated into monopolistic gains in hands of landowners, considerable fluctuations in land prices, and distress land sales by poor peasants. It is important to point out that these market imperfections have far-reaching impacts on equity giving that for many rural households land is not only a factor of production but also their most valuable asset. Furthermore, many argue that land redistribution to landless workers is a powerful and straightforward poverty reducing tool (Swinnen, 2001) and increases the bargaining power of potential tenants (Deininger and Binswanger, 2001: 410).
On the other hand, an increasing literature is sceptical about the advantages of this kind of redistributive intervention. Then, it has been argued that land reforms not only exacerbated social conflict but also fail to increase agrarian welfare. For this reason, policymakers and international institutions begin to advocate for other types of policy interventions more market-oriented. In particular, it has been proposed measures to facilitate the efficient operation of tenancy markets and the access to credit of peasants.
During the last decades of the 18th century and the first half of the 19th century took place a land reform in Spain; the so-called Liberal Reform. The main objective of this reform was to secure property rights and to eliminate the restrictions for the free operation of good and factor markets.[2] The authorities derogated the legal apparatus of the Old Regime. The feudal rights were eliminated, together with the restrictions for land sales, grain commerce and labour contracts. Many of the old forms of land tenancy that complicated the definition of property-rights were simply abolished and was established the private property of land. Furthermore, to alleviate their budget problems and to finance wars and infrastructures, successive governments put into the market the properties of the Church, the municipalities and the communal lands, which were sold in auction. All these measures resulted in a moderate expansion of agrarian production but did not redistribute land in hands of landless peasants.[3] Like in other European countries, the privatisation of communal lands favoured an increase in average landholding size and the concentration of land in hands of richer peasants (Koning, 1994: 63).
The opportunity for a new land reform with the objective to redistribute land from large landowners to the hands of poor peasants was a central question during the early decades of the 20th century.[4]During these years, large farms started to break down and were sold to small farmers in many Western Europe countries (see section 2 below). Simultaneously, the behaviour of the Spanish agrarian economy experienced notable transformations due to the increasing population pressure, the development of the cities, the alteration of international markets, and the subsequent changes in crop specialization. Surprisingly, however, the mid-19th century land property structure persistedpractically untouched (particularly in the Southern provinces) during the first three decades of the 20th century. This state-of-affairs was finally altered during the Second Republic (1931-1939) when several reforms affecting land ownership were implemented with the support of a large part of the Republican Parliament.[5]
The need of thisredistributive land reform was justified for reasons of economic efficiency, social equity and the distribution of political power. Implicitly, Republican reformers believed that land sales markets failed miserably and that the unmitigated operation of agrarian factor markets would generate persistent equity problems. In economic terms, several contemporaries claimed that Southern large estates had diseconomies of scale and that substantial efficiency gains could be raised by transforming them into small landholdings, where extensive production could be replaced by intensive farming. It was also argued that rural workers were not rewarded for their work and that landlords obliged to pay abusive rents to their tenants. According to Pascual Carrion (the most notable reformer of the period), the absence of small properties leave peasants in the hands of landowners who get higher rents due to their monopolistic power and the widespread hungry for land.Finally, politicians believed that large landlords, particularly the members of the nobility, take advantage of their economic power, which was directly generated from their ownership of large estates, to coerce rural electors and to get sits into the parliament.
Our research challenges this earlier, and until now well-established, view. In a previous article (Carmona and Rosés, 2009), we have shown that land sales and prices responded quickly to market stimulus and that Spanish land prices were driven by fundamentals.So, we conclude that land markets were efficient and competitive. In a competitive market, land will be allocated to the most efficient users and uses making land reforms unnecessary and detrimental for overall welfare. In consequence, from the economic efficiency point-of-view, a land reform redistributing land to poor peasants was nor efficient neither necessary. Completing these first results, we will show in this paper that the ratio between rural wages and land prices grew significantly. In other words, the relative price of land was decreasing in Spain, particularly in the most dynamic regions. As a consequence, access to land for landless rural workers was improving, as their standard-of-living, during the first decades of the 20th century. For all these reasons, we conclude that land reform was not justified on equity grounds.
The rest of the paper is organized as follows. In the next section, we briefly review the extensive recent literature on land markets reform policies. Section 3 outlines our new database, and methodology to be used to study the land markets. Section 4 reviews the evolution of wage-land prices ratios by provinces between 1905 and 1935. Finally, we provide some concluding remarks and suggestions for further research.
2. The necessity of policies for redistributing land
A substantial literature has claimed that the actual operation of land markets in developing countries, including both land sales and tenancy markets, are neither conducive tosocial equity nor economic efficiency. Regarding to equity issues, it is commonly argued that: cultivation rights and the concentration of land tenure observed historically across the countries were an outcome of power relationships; powerful landowners employed their capacity to coerce and distort markets to extract economic rents from their tenants, peasants and labourers; and, land sales transactions tend to exacerbate inequality and rural poverty by making possible the concentration of land tenure by hands of a few wealthy landowners in spite of the existence of well-defined property rights (Deininger, 2003). In consequence, for some authors, given the failure of land market to reduce the skewed distribution, a land reform which redistributes the land from landowners out to small farmers in small plots would lead to an increase in overall production and welfare (Binswanger et al., 1995).
Many also argued that land redistribution is central for reducing poverty in rural areas. In particular, Deininger and Binswanger(2001: 410-1)pointed out that these policy measure may increase the bargaining power of potential tenants, their ability for getting external creditand, where credit markets and product markets are incomplete, access to land may have a large impact on nutritional welfare as land ownership fulfils an important role as an insurance substitute. More prominently, these authors argued that these nutritional gains are larger than the redistribution of output or income generated by the same land.
At the heart of the argument about the efficiency failure of land markets is the observation that small farms in poor countries tend to be more productive than larger farms. In a pioneer study, Berry and Cline collected numerous evidences for several Latin American and Asian countries showing that “larger farms make relatively poorer use of their land in countries where the distribution of land is more unequal” and finding “no evidence of faster growth of agricultural output in countries with larger average farm size” (Berry and Cline, 1979: 43).
The most popular account associated the inverse relationship between farm size and productivity per unit area cultivated to a certain labour market dualism. For example, it is alleged that peasant households face lower opportunity costs of labour than hired-labour farms; consequently, the expected marginal value of domestic labour applied in farmhouse cultivation is less than a market wage-based measure of the opportunity cost of labour (Chayanov, 1966; Hunt, 1979; Sen, 1975). Others consider that the high transaction costs associated with the supervision of hired labour render less effective larger farms (Feder, 1985). In a similar vein, Hayami and Otsuka (1993) and Allen and Lueck (2002) argued that the fact that agricultural production is affected by seasonal time sequences and location specificities give a crucial costs disadvantage to large exploitations over the owner or family operated farms.
Yet another view is presented by those authors who argued for other types of market failure as reason for this skewed land distribution. In particular, some pointed out the presence of failures in the same land markets and in the related insurance and credit markets. At first sight, the very astringent microeconomic conditions for competitive markets are difficult to satisfy in agricultural land markets. Perfectly competitive markets require a homogeneous good, free entry of buyers and sellers, absence of market power in any side of the market, and complete and perfect information for all participants into the market. It is obvious that land is not a homogeneous good since its characteristics vary with geography, geology and climate.[6] In this sense, Deininger and Feder (2001) posit the segmentation of land markets given that land sales across farm size are highly limited. It has been also underlined the difficulties for small farmers to get enough credit and risk-insurance. Credit constrained producers may encounter difficulties to participate in land sales generating segmented markets. They may also suffer distress land sales and, for this reason, small farmers may prefer to hold a portfolio of less risky assets but less productive (Kevane 1996, Dorward 1999, Bezemer 2004). Also, the failure of credit and insurance markets converts land in a portfolio investment with few alternatives (Swinnen, 2001: 375). In consequence, land price reflect a premium and peasants could only buy land with their own savings given that the price of land is greater than the capitalization of the rent, and so the repayment of credit would impede any capital improvement of the land.
However, the latest works give some room to debate.The inverse relationship between farm size and productivity per unit area has been put in doubt in its empirical and theoretical grounds. If some adjustments for soil quality are made, the inverse size relationship turned to be less important (Gorton and Davidova, 2002, Benjamin, 1995). Furthermore, Banerjee (1999) has argued for the presence of technological economies of scale in agricultural production, since it is necessary a minimum amount of land to make full use of machinery and even a draught team, and in the subsequent processing and marketing stages.
This new literature has also pointed out that land reform policies have generally failed to improve land use efficiency and social equity (De Janvry et al., 2001; Otsuka, 2007). More prominently, several studies which compare the effect of land redistribution and land sales show that, in certain countries, the operation of markets is superior to land reform policies.[7] In effect, Deininger(2003) concludes that well-functioning land markets can improve significantly the rural economy in several ways. First, when the ownership distribution of land is not optimal, land markets can allocate land to more productive producers and thus increase overall efficiency and welfare. Second, the possibility of transfer land facilitates the reallocation of labour from rural to urban jobs, something that is likely to boost the off-farm sector. Third, the possibility of land transfer makes land investment more attractive and enables the arrival of capital from the rest of the economy to the farm sector. And, finally, if land is easy to transfer, it can be used as collateral for credit operations which could also be offered at lower cost. In any case, when credit and land markets fail,land rental markets are very efficient in transferring land to the poor and more productive farmers(Otsuka, 2007). Moreover, from a dynamic point of view, land rentals can provide an entry point into an ‘agricultural ladder’ for landless peasants (Sadoulet et al., 2001: 199).
The European historical experience during the late decades of the 19th century and the first decades of the 20th century gives strong support to the idea that the free and efficient operation of land markets could improve significantly the position of landlesspeasants and generate a ‘spontaneous’ (market-based) land reform. The fact is that in many European countries different forms of direct cultivation gained momentum in the years prior to World War I and the interwar period. Koning (1994: 88) also pointed out that, in spite of the legislation in favour of small farms put in place by France, Germany and the Netherlands, the market was the main force behind the decrease in the relative importance of large estates in these countries. More specifically, in many regions in France and Belgium, with no mechanization and population growth, the marked rise of the small family farm provoked that large scale farming, based on wage work, gradually disappeared from the agricultural scene (Van Zanden 1991: 216). Large farms were increasingly seen as an obstacle for agricultural growth after 1873 (Koning, 1994: 80), and the fact is thatbetween 1875 and 1895 large holders started to sell their estates (Swinnen, 2001). Land sales even increased after the World War I using the extraordinary war benefits (Auge Laribe, 1923; Swinnen, 2001). In Germany, the expansion of creditled to an increase in the amount and relative importance of small family farms (Souchon, 1899, 132). In England, despite the problems of getting an accurate measure, the relative importance of large holdings decreased by one fifth(Federico, 2005). According to Dovring (1965: 123), this decrease in the importance of large farms was spontaneous and, hence, based on the operation of land markets. Similarly, in Eastern Europe, the revolutionary dismantling of large farms, to a considerable extent, happened spontaneously and independently of any measure of land reform. The fact is that in Russia and Poland, many of the large estates were crumbling by themselves, under the pressure of land hunger among increasing peasant masses, in combination with economic difficulties of the estate owners. The same process also applied, at a slower tempo, to the Eastern German Junker estates, despite their politically favourable situation (Dovring, 1965: 122).