Dryden Zoning

Several months ago I mentioned the proposed local Dryden zoning changes. To me, its primary drawback is that the proposal forbids anything not specifically allowed, rather than allowing anything not specifically forbidden. Since these proposals are only adjusted every 30-50 years, there's a lot of room for new ideas we don't know we're forbidding (like organic agriculture or internet services that we couldn't predict 30-50 years ago).

The other problem is that land owners are deeply concerned that down-zoning their property lowers the value of their property. Though there are arguments the down-zoning could also increase value, it's not abundantly clear that the positive externalities from being in an area with a lot of open land are large enough to counter the loss of flexibility for what you are allowed to do with your own property. A new article in the American Journal of Agricultural Economics by Liu and Lynch (an ungated version here) asks "Do Zoning Regulations Rob Rural Landowners' Equity."

They find that if you own agricultural land, there is no effect. On the surface, it appears that non-agricultural land loses 50% of its value, but at least half of that comes from being in an area that is considering down-zoning. Once you account for political decision making (endogeneity), down-zoning reduces non-agricultural land values by 20-28%.

Come on, Dryden. Don't do this.

Land Grab

The so-called African land grab grabbed a lot of headlines at the end of 2009: Guardian, NYTimes, BBC, not a bad collection, all available through the African Agriculture blog.

Malibya, the Libyan government's development company in Mali, has built one of the largest canals in Africa. The largely critical article from The Guardian [who apparently failed to ask permission to be on the company's land] notes that 150 families were forced off their land for the canal with minimal compensation and worries that this is only the beginning.

"The government are bandits. What they are doing is completely against every law," says Ibrahim Coulibaly, president of the Coordination Nationale des Organisations Paysannes, which has been organising protests. "Even if the land does belong to the government, the people living on it still have rights, and we will do everything to fight against this injustice."

Mapping systems are said to be quite poor, causing construction workers to dig up several cemeteries which led, very understandably, to further local opposition. There are also serious concerns about water rights issues. A NYTimes article mentioned that " 'In Mozambique, one investment company discovered an entire village with its own post office on what had been described as vacant land,' said Olivier De Schutter, the United Nations food rapporteur. ... The agreement signed with the Libyans grants them the land for at least 50 years simply in exchange for developing it."

Kofi Annan, former UN secretary general, says that “The food security of the country concerned must be first and foremost in everybody’s mind. Otherwise it is straightforward exploitation and it won’t work. We have seen a scramble for Africa before. I don’t think we want to see a second scramble of that kind.”

Of course, statements like this from the state-funded companies do little to help:

Kassoum Denon, the regional head for the Office du Niger, accused the Malian opponents of being paid by Western groups that are ideologically opposed to large-scale farming. “We are responsible for developing Mali,” he said. “If the civil society does not agree with the way we are doing it, they can go jump in a lake.”

One US project is supporting 800 farmers to acquire title to about 12 acres of land each.

How large are the parcels of land being transferred to foreign governments? The World Bank estimates that, between Jan-Nov in 2009 alone, enough land to match California and West Virginia combined, more than 10 times the size of annual land transfer deals worldwide before the food price spike. In Mali, the range is between 600k [as reported by the foreigners] and 1.5 million hectares.

BBC reports that Ethiopia is selling off an area the size of Belgium populated largely by ethnic minorities at about $10/yr/ha. "The Ethiopian government stipulates that foreign investors will have to satisfy domestic food needs before they can export." The government claims that the land is unused, but there are millions of pastoralists in the country, many of whom pass through that area and none of whom are being compensated.

More posts on the Africa "land grab," and a general article mentioning several of the larger deals and concerns. Senegal is reportedly in talks with Saudi Arabia about a parcel of land 4 times the size of Manhattan.

Five Second ... Hayek 2 - Planning, Democracy, and Rule of Law

In Part One I covered chapters 3 and 4 of The Road to Serfdom by F. A. Hayek. Tonight we'll try summarizing chapters 5-8. As a reminder, Hayek emphasizes that his position is not that all of these conclusions are inevitable but that they are the logical conclusion from following a path that relies on state planning to govern a society rather than on individual liberty. Though I don't quote much of it, he presents a number of arguments detailing why a properly run planned society will want to move in this direction if there are not other forces opposing it. In chapters 5 and 6 he points out that planning is directly inimical to democracy and to the rule of law while chapters 7 and 8 build on the general theme of what it means to have one person or group of people controlling everything.
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Best quotes:
It is the price of democracy that the possibilities of conscious control are restricted to the fields where true agreement exists and that in some fields things must be left to chance.

Democracy is essentially a means, a utilitarian device for safeguarding internal peace and individual freedom. As such it is by no means infallible or certain.

Formal equality before the law is in conflict, and in fact incompatible, with any activity of the government deliberately aiming at material or substantive equality of different people, and that any policy aiming directly at a substantive ideal of distributive justice must lead to the destruction of the Rule of Law. To produce the same result for different people, it is necessary to treat them differently. ... It cannot be denied that the Rule of Law produces economic inequality -- all that can be claimed for it is that this inequality is not designed to affect particular people in a particular way.

To say that in a planned society the rule of Law cannot hold is ... not to say that the actions of the government will not be legal.... It means only that the use of the government's coercive powers will no longer be limited and determined by pre-established rules. The law can ... legalize what to all intents and purposes remains arbitrary action. If the law says that such a board or authority may do what it pleases, anything that board or authority does is legal - but its actions are certainly not subject to the Rule of Law. By giving the government unlimited powers, the most arbitrary rule can be made legal; and in this way a democracy may set up the most complete despotism imaginable.

The state can do a great deal to help the spreading of knowledge and information and to assist mobility. But ... the kind of state action which really would increase opportunity is almost precisely the opposite of the "planning" which is now generally advocated and practiced.

The economic freedom which is the prerequisite of any other freedom cannot be the freedom from economic care which the socialists promise us and which can be obtained only by relieving the individual at the same time of the necessity and the power of choice; it must be the freedom of our economic activity which, with the right of choice, inevitably also carries the risk and the responsibility of that right.

The choice open to us is not between a system in which everybody will get what he deserves according to some absolute and universal standard of right, and one where the individual shares are determined partly by accident or good or ill chance, but between a system where it is the will of a few persons that decides who is to get what, and one where it depends at least partly on the ability and enterprise of the people concerned and partly on unforeseeable circumstances.

How governance develops

Chris Blattman is pondering different reasons for the state to exist:

European and Asian states provided police, military control, and access to justice (of a sort) long before they provided schools, clinics and electricity.

Donors, however, have encouraged developing countries go the other way 'round.

To borrow a phrase from Tyler Cowen: “Views I toy with but do not (yet?) hold”:

• State weakness in Africa may be exacerbated by attempting to graft the West’s idea of a 20th century developmental state onto structures not fully capable of providing the basic bits of law and order.
• The international system and aid can exacerbate the problem by pushing the state to build a public education and health system ahead of more core state functions.
• Conspicuously, there is no Millennium Development Goal for access to a court system, or freedom from crime and violence. Everyone has heard of UNICEF, few have heard of UNPOL.
• I would bet that more donors and non-profit organizations focus on microfinance than justice, by a factor of five to ten.

Among the questions to be asked are: to what extent does it matter? If the original social contracts of the West were built around providing security to the richest and worked their way down to poorer members of society, what prevents a social contract built around providing other public goods to the richest and working their way down to poorer members of society? Is the problem that the contract is between donors and government rather than citizens? Is the problem one of capacity: if it requires more capacity to provide education and health care than police protection and property laws, the one builds into the other. Is the problem that the rich do not need the government to provide the modern public goods and so are not on board while it is harder to get the poor into the social contract? Is the problem ethnic diversity or other lack of social capital that slows any contract formation? Is there no problem - it just takes a little longer?

When "bad" governance is popular

Over at Aid Thoughts there is a fascinating discussion of the origins of Zimbabwe's current economic plights. Ranil makes a few very important points.

First, Mugabe is popular in his own country:

It’s difficult for Westerners, particularly those who have come of political age in the last ten or fifteen years, to understand it, but Mugabe remains popular. Almost everyone accepts he has overstayed his welcome, but still hold affection for him. Malawi inaugurated a Robert Mugabe Highway just a couple of years ago; similar roads are found in most major African cities. Yet, in the West, his name is a by-word for economic mis-management, suppression of rights, and all that is wrong with governance in Africa.

This divergence he argues is largely to due to differences of opinion about the land grab ten years ago. He points out that several things hit Zimbabwe at roughly the same time: structural adjustment led by the WB and IMF, the land redistribution, and a drought not the least of them. Ranil claims in the comment section that his main point is that Zimbabwe's present economic difficulties stem from many factors outside Mugabe's control, and simply linking "bad man = national poverty" is a gross over-simplification. I read a different main point:

the land seizures were and remain overwhelmingly popular policies within Zimbabwe – because they rectify an injustice that was only a couple of generations old, and one which blacks had never been allowed to question until 1980. ... When land reform finally occurred, Mamdani points out that in economic terms if not political ones, it was a democratic revolution: more than one hundred thousand small owners joined the base of the property pyramid.

The costs from the land redistribution have not been even across agriculture:

the white commercial farms, focusing on export crops such as tobacco, have been devastated by land reform. Meanwhile, the large plantations run by corporations, untouched by land reform, have continued as normal, producing sugar, tea and coffee. And maize, the most important food security crop, is largely a peasant crop – land reform has not damaged it, though drought has reduced production by almost 90%. In fact, research by IDS in Sussex suggests it is these small farmers who have been most resilient to the political end economic turmoil, as well as drought.

 And replacing Mugabe alone will not bring about prosperity. What is needed? Here's a partial list:

the land seizures were popular, remain so and will not and should not be reversed – they simply address an older injustice. The agriculture sector will need to be reimagined as one split between plantations and small- and medium-sized farms. To make this work will require an explicit economic strategy. The urban economy is still in complete tatters: no industry still stands in Zimbabwe, and the process of rebuilding them after the damage of structural adjustment will take far longer than it took to break them down.

I hope my readers appreciate the irony of discussing all this immediately after discussing Easterly's three cheers for democracy. But even in Easterly's post, he acknowledges that almost nothing is correlated with economic growth, neither democracy nor this sort of popular bad governance. A complex subject, nicht wa'?

Taxpayers, Meet Your Tenants

More evidence on the sullied history that is rent control (HT: Newmark's Door):

By the 1980s tenants were paying rents 30 years out of date. Waiting lists stretched out 22 years in Stuyvesant Town, 100 years for Peter Cooper Village. (If rent-controlled tenants don't leave feet first, they usually pass the apartment on to relatives.) ... The house-to-house warfare was so intense that New York had created special housing courts to handle the pandemonium. ... So why is this of interest to anyone outside New York? Well, through the magic of federal mortgage guarantees, the U.S. taxpayer will soon be shouldering the burden of subsidizing 25,000 regulated tenants... .

In any normal housing market, landlords are focused on attracting tenants, fixing up properties and maintaining a reasonable level of service. With rent control, however, you want to get rid of your tenants. ... Deprived of any chance of evicting tenants, the only thing the landlord can do is reduce services. So another layer of law is necessary saying that if landlords don't provide heat or make repairs, the tenant doesn't have to pay rent. Now the tenant has an interest in seeing things fall apart. One of the most common confrontations involved a rent-controlled tenant refusing admission to the repairman sent to fix the leaky sink. In the end, the tenant can just create his own violations -- a missing smoke alarm, graffiti in the halls. "Paying rent in New York is really optional," one landlord after another told me. "It's lucky more people don't know the law."

...One Chinese woman, whose property-owning family had been murdered by the Communists, had been running an apartment house in Harlem. After one tenant refused to pay rent for two years, she finally got an order of eviction. The tenant responded by firebombing her office. She took him to criminal court. The judge looked at the case and said, "This isn't a criminal case, it's a housing matter." Back they went to housing court. The housing judge overturned the eviction. For firebombing her office, the tenant got to keep his apartment. "I think I'm going back to China," she told me. "Over there they just kill you and get it over with. Here they torture you first."...

It was Margaret Thatcher who said, "Socialism never works because you eventually run out of other people's money." In New York, this has definitely been true for the poor. Their landlords' money eventually ran out -- which is why the city ended up owning 100,000 abandoned apartments in poor neighborhoods. (Officials put decals in the windows to make it appear people were still living there.) The great advantage for affluent tenants, however, is that the money never seems to run out. First Met Life, then Tishman Speyer, and now the U.S. Treasury are always there to be endlessly exploited.

And, so, Mr. and Mrs. American Taxpayer, you're the new landlord! Welcome to your job of subsidizing 25,000 New York City rent-regulated tenants.

Long-lasting institutions and the value of work

From a Thanksgiving article last year by Benjamin Powell:

Many people believe that after suffering through a severe winter, the Pilgrims’ food shortages were resolved the following spring when the Native Americans taught them to plant corn and a Thanksgiving celebration resulted. In fact, the pilgrims continued to face chronic food shortages for three years until the harvest of 1623. Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages.

Why, Holmes, you astound me. Then what did?
Economics, my dear Watson:

In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on equality and need as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. ... The problem was that young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. Because of the poor incentives, little food was produced.
Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. ... While not a complete private property system, the move away from communal ownership had dramatic results. ... they never again faced the starvation and food shortages of the first three years. It was only after allowing greater property rights that they could feast without worrying that famine was just around the corner. We are direct beneficiaries of the economics lesson the pilgrims learned in 1623.

William Bradford (above), who as governor had only reluctantly given way to allow the move away from communal property, conceded because people "have this corruption in them, God in his wisdom saw another course fitter for them" than communal property.

A new paper by Daniel Berger similarly looks at the long reach of institutions in Nigeria. For administrative reasons, the British divided colonial Nigeria into two sections in 1910. The southern government got its revenues from the seaports while the northern government had to tax its people. Berger argues that this taxation forced the governments north of the 7˚10′ N line of latitude to build capacity, to respond to complaints of the governed, and in general to develop better systems of governance than local governments just below that line. To this day - 50 years after the British left and 100 years after the arbitrary, exogenous line of demarcation was extended - "People living in areas where the colonial tax system required more bureaucratic capacity are much happier with their government, and receive more competent government services, than people living in nearby areas where colonialism did not build bureaucratic capacity."

He explains the differences in the initial conditions in the two halves that developed into long lasting social norms:

In the first, the local government does little except extract what few bribes it can….There is no incentive for hard work, as bureaucrats will neither be able to extract appreciably more rents (due to the limited amount of money available in the local economy) nor will they be able to improve government functioning on their own (since efficient functioning requires the entire bureaucracy working together). This also leads to a knock on effect on the human capital available to the local governments as the families which control the local government have no reason to steer their smartest children into local government service.
The second equilibrium is one in which significant services are actually delivered. Here, the local government is capable of delivering local basic public services with a reasonable level of efficiency and honesty. This grants sufficient legitimacy to the local government that they are able to collect local taxes, which never go to the center. They can then pay themselves regularly despite the fact that they are not regularly receiving the transfers they are due from the center. Here hard work does make a difference.

Hat tip to Aid Watchers.