Government Has No Business Acquiring Land

Why both the statist-socialists and statist-capitalists are wrong on Land Acquisition.

The most amusing thing about the recent debate on land acquisition is that it has magically educated the left about the real world effects of governmental economic powers. Fortunately it has also exposed those, not on the left, who claim to be pro-market as actually being pro-business.

The free marketers cannot afford to miss this opportunity to explain to both, sincere statist-socialists and sincere statist-capitalists, what we actually mean when we talk about the ‘panacea’ called ‘free market’.

The problems with the left’s ideology are too self-evident to merit a long discussion. This is just a case where a broken clock points to the correct time once every 12 hours. Let’s focus on the arguments for governmental land acquisition coming from those who call themselves anti-left, by briefly analysing the left’s position.

The left’s argument

Their stand represents a stark contrast to the world view they otherwise espouse! Should societal welfare take precedence over individual property rights? The left would generally say ‘yes’. But actually, both the question and the answer are meaningless.

Are societal welfare and individual property rights actually at odds with each other? Do you necessarily need to choose one over the other?

Such questions arise from a deep misunderstanding of what a society actually is. Heartless as it may sound to some, a society is nothing but a collection of individuals. A society’s welfare is nothing but the welfare of every individual. Here’s the most important point: Welfare means different things to different individuals. I might consider a school to be the best investment of the scarce resources the society has, because I am healthy. You might consider a hospital the best investment of the scarce resource the society has, because you are educated.

Should then the society not build both? The key term here is ‘scarce resources’. It does not mean that we all should go hungry due to scarcity. It just means that every extra bench in the school is coming at the cost of a bed in the hospital and vice versa. If this were not the case, we need not even have this discussion.

Should we then not decide through democracy what should be built?

As both theory and practice have taught us again and again, majoritarianism is a very inefficient method for making economic decisions. The majority does not sell food and, hence, if allowed, might legislate that food should be available for free. This would guarantee that food becomes scarce and of low quality. The left, which finds majoritarianism abhorrent on about every issue, and rightly so, magically starts loving majoritarianism when it comes to economic decisions!

What is societal welfare?

So then, what exactly is society’s welfare? It is nothing but every individual being free to pursue his/her own welfare while being bound not to tread on the other.

Isn’t this crude rugged individualism? What about cooperation? Cooperation is voluntary association to achieve some goals. Forcing people to ‘cooperate’ is not cooperation. That is coercion.

A free market is the embodiment of cooperation in the real sense. The real world will automatically propel self-interested individuals to cooperate because no one can build Rome single-handedly. You don’t need to impose cooperation on a society; it’s built in the structure of human wants. The only thing imposing cooperation — in the manner of Marx, Castro or Nehru — achieves is, to prevent weeding out of unproductive associations resulting in a USSR, Cuba or Nehru’s India.

Societal welfare and individual property rights are equivalent. The left has got its stand on land acquisition right purely by chance.

The multiple seller problem, the positive externality argument and the existence of Nash Equilibrium

Most justifications for governmental land acquisition coming from the non-left, centre around the positive externality argument. A capitalist buyer needs a lot of land and, hence, must buy from multiple owners of contiguous land. A deal with any single land owner necessarily increases the market price of the adjoining land because the buyer’s options are limited as soon as the original deal is done, and also due to the expectation of land use change. This is a positive externality for the other land owners caused due to the original transaction. This provides an incentive for land sellers to continuously keep moving to the end of the negotiation queue, hence, no Nash Equilibrium exists.

This argument is wrong for the simple reason that there exists an upper limit on the price any capitalist will pay readily, for any stretch of land. So the process described above which concludes the non-existence of a Nash Equilibrium cannot go on forever. When the sellers discover that the buyer is not ready to pay any higher total cost for the whole stretch of land, the process cannot continue any further, and Nash Equilibrium is reached. At this point, any individual seller trying to negotiate a higher price would mean a fall through of the transaction.

Yes, this might lead to a very high price for the capitalist. But it is a price which the capitalist has agreed to and has factored into his profit/loss calculations. This is the fairest price possible.

An argument might be made that the sellers who agreed to the transaction earlier got a raw deal. But the fact is that, they voluntarily agreed to the transaction. No government intervention can make the transaction any fairer than it already is. Can you suggest any other rule which does not have worse side-effects?

The free market will automatically develop a system of land options, very similar to stock options, where a prospective seller gives the prospective buyer the right to buy the land at a future date at a mutually agreed, pre-decided price in exchange for a present payment. If the capitalist buyer’s plans of buying other lands don’t materialise, the land option will simply lapse.

Is contracting with multiple land owners very inefficient? It might very well be. But the choice is not between having and not having this inefficiency. The choice is between the private party which benefits from this transaction paying the cost, or the government getting involved and every citizen of the country paying the cost. It is quiet fair to have the capitalist who benefits, pay all the costs associated with the transaction.

Missing land titles

What about cases where land ownership is not clearly defined? It definitely stands as a problem. But the solution is for the government to actually distribute real land titles to the current users and let the market work. This should be done irrespective of whether any land acquisition plans are on the horizon or not.

This will also solve many other problems in the society which generally arise due to shared or undefined ownership.

Risk of exploitation due to power asymmetry

Are the sellers, who are generally uneducated farmers, at the risk of being exploited by greedy capitalists?

Interestingly, the only case in which government intervention is impelled by the non-left is when the poor uneducated farmer is not ready to sell his land. If the government is supporting a transaction which the poor do not want, can it be argued that it is preventing exploitation of the poor? The capitalist always had the option of offering a higher price to persuade the poor to sell his land off. But, if the government is being pulled into the transaction by the capitalist, it cannot be to negotiate a higher price and favour the land owner.

If the capitalist uses coercion, intimidation, violence etc. to force the poor to sell his land, that is precisely where the government should intervene to prevent the transaction from taking place. The role of the government should be limited to this intervention, in a free market.

Can the rich capitalist trick the poor into selling off his land at a very cheap price? Yes, that can happen in any transaction, and the standard solution from the left is for the government to set the price — the same government which is bought out by the rich capitalists, according to the claims make by the left! Yes, it does look like a solution if you are a leftist.

Yet this criticism raises a much more important point. If the poor farmers are so gullible, who will protect them from the socialist politicians who have been tricking them into surrendering their economic freedom since independence, while keeping them poor so that they can continue to trick them? The biggest danger to the gullible farmers is the socialist politician, not the capitalist.

In summary the only case in which we can say that the government prevented exploitation is when it prevented a transaction to which one party was not voluntarily agreeing. Governmental land acquisition where the government facilitates the transaction is the exact opposite of preventing exploitation.

Land use laws

The complications arising due to change of land use and the associated price changes are presented as another reason for the government to interfere. This is a classic case of the results of one illogical government intervention being used to justify more governmental interventions.

Why should the government dictate and lock land use, as long as the owner does not violate anyone else’s property rights? Yes, if I construct a factory on my land which deposits soot on the neighbour’s house, there is a case for government intervention. But why should it matter if I choose to farm on my land or build a house or a school or a factory without violating my neighbour’s property rights?

The actual problem here is the land use laws themselves and we should take the necessary steps to relax them as much as possible.

Acquiring forest land

What if a capitalist is interested in using land which hitherto is covered by a forest? Is this a case for governmental intervention? It maybe, if the forest is not inhabited by any tribes whom we can be considered as the rightful owners. Any forest which is inhabited by tribes should be handed over to them as their rightful owners and they should be able choose what to do with the forest. My friends on the left who abhor free markets would be surprised to hear how free markets most effectively protect the rights of the tribal much more than their paternal approach of making them dependent on the state. For those who argue that even though this is ideal but never happens in the real world, they should remember that the prime reason this does not happen is due to more and more discretion given to government which these critics themselves are at the forefront of demanding.

For any piece of land where no owners can be identified, what is the right policy? Should governmental discretion be allowed in such cases? I think this is the only case where governmental discretion is inevitable, though I would be happy to be proven wrong.

The rehabilitation maze

Leftists think that rehabilitation clauses benefit the poor land seller. They don’t realise that free markets are even better because they prevent the transaction from happening if the poor land seller is in any way dissatisfied.

Also, free markets don’t give unrestricted power to the poor land seller because the capitalist buyer also has the right to not enter into the transaction if he is not happy with the terms. The legislations mandating intricate rehabilitation processes are not just detrimental to the farmer’s interest but are inefficient for the society as a whole. Rehabilitation requirements only serve to reduce the amount of money which a farmer can demand from the capitalist, remember that rehabilitation is not over and above the price the farmer gets for his land, it just depresses the price the capitalist is willing to pay for the land because he now factors in the rehabilitation costs when he decides on the maximum price he is ready to pay.

Intricate rehabilitation rules maybe a leftist’s idea of justice but just like other leftist ideas, they end up harming those they ‘intend’ to help.

But then how will we have ‘development’?

The ‘development’ loving crony capitalist section of the middle class fires its salvos, claiming that government intervention is necessary to fast track what is an essentially a ‘socialist’ notion of development. Not involving the government in land acquisition does not mean development will not happen. It only means that ‘development’ allowed by the market will take place. Varying number of factories might be built by the supposed gainers of the employment opportunities, but only to a certain extent. Taking from the poor against their will and giving it to the rich can never be the basis of any notion of development. Such development is no different from, the central bank moving resources from the poor to the rich through Keynesian expansionary monetary policies. Free markets create more balanced and sustainable development than any governmental intervention can. Most advocates of ‘sustainable’ development who turn leftists, need to re-evaluate if more governmental discretion actually achieves the goals they intend.

Dousing the price flare

Freely floating prices work as flares and guides in a pitch black night directing society towards efficiency, sustainability and fairness. Governments that claim to be able to guide you better dousing these flares, though facing the same pitch black night themselves, are either deliberately cheating you or are ignorant. If the government were to keep its hands off, prices would lead capitalists to use those lands which are otherwise least useful for society. This is not to say that only prices can or should guide a capitalist’s actions. It means that unfettered market prices should be one of the ingredients a capitalist uses while making decisions about his business plan. Government action can only disturb this price signal higher or lower, both of which can only lead to inferior outcomes for the society.