Road Blocks to a Market Economy in Ethiopia
Land Policy & Ethnic Regionalism
By Sisay Asefa
Ethiopian Review, February 1996
The Ethiopian economy has suffered from two decades of command economic policy. Agriculture, which is the backbone of the economy, has taken the severest blow under the Derg’s misguided policies of forced villagization, resettlement, state farms, collectivization, and control of agricultural trade and prices. While some economic liberalization such as price decontrols and currency devaluation have taken place since the demise of the Derg, significant road blocks to economic revival and transition to the market economy remain. These include a two decade old policy of state ownership of land and the newly created policy of ethnic regionalism.
Land Policy
The rationale for the current government’s decision to continue the land policy of the Derg era, as officially stated, often goes as follows: First, in absence of “social security” payments to 85 percent of the population who are engaged in agriculture, allowing private land ownership which enables peasant farmers to sell land may result in eviction. Second, in some regions of the South, peasant farmers are afraid of a possible return of the “neftegna” who might expropriate land. These political arguments, which were also the official views during the Derg period, may appear convincing on the surface, but they are no more than political justifications for a land policy whose actual effect has been to deny economic freedom or self determination to the overwhelming majority of the population engaged in agriculture by preventing full ownership and productive use of land.
The failure or success of the state ownership of farm land as a viable instrument of economic development has now been empirically verified based on Ethiopia’s own experience with land nationalization during the last two decades. The comparative and historical experiences of other nations, who have succeeded in using agriculture as a basis of economic development, also clearly demonstrate that state ownership and control of farm land has been a failure almost every where. There is a big gap in economic performance between those nations that have followed the market system and those that have adopted a socialist command economic system which includes land nationalization. In other words, why have East Asian nations such as Japan and Taiwan, and more recently Malaysia, Indonesia, and Thailand moved their economy forward under private ownership of land? On the other hand, why did nations who have nationalized land such as the former Soviet Union and East Germany experienced economic disintegration and collapse? Within the African continent, why has the economy of Kenya out performed the basket case economy of formerly socialist Tanzania? (Tanzania has recently replaced Ethiopia as the country with the second lowest per capita income in the world). Why has the Ethiopian economy taken a great leap backward from where it was in 1974? In West Africa, why is Ivory Coast far ahead of Guinea, in spite of the fact the two ex-French colonies began with about the same resource base at independence in the early 1960s? In reflecting upon these questions, one reaches the inevitable conclusion that government ownership and control of the economy in general and agriculture in particular, including land ownership by the state, has a crippling effect on the economy of a nation. The collapse of the former USSR and the communist economic system has to do, for the most part, with the denial of property and land rights by the government to citizens. In fact, a country cannot really have a market economy if a major factor of production such as land is owned by the state. The primary (unstated) motive for the communist states’ ownership and control of land has been to control citizens lives by making them dependent on the government.
It has failed to achieve that political goal in the long run. In the case of Ethiopia, there is no evidence to support the validity of the standard political arguments in favor of the state ownership of land. The most recent research on land reform in Ethiopia points to the exact opposite, i.e., farmers want the ownership and control of land, which includes the right to sale and exchange land. Furthermore, in evaluating the merit of the standard official rationale for state ownership of land, we must consider the following crucial points:
First, eviction of peasant farmers, although quite unlikely in the future, occurs if there is a corrupt and/or an undemocratic government which is not able or willing to enforce laws and regulations that protect farmers from eviction. For instance, the primary reason for eviction of peasant farmers and herders in the Awash valley and some areas of Arsi in the early 1970s has to do with the nature of the mechanical and capital intensive technology used, and the inability or unwillingness of the government at the time to protect farmers and herders from eviction. It is not a direct result of private ownership of land. Yet, this historic incident is often used as a rationale against privatization of land by politicians in Ethiopia.
Second, the argument assumes that peasant farmers are ignorant and do not care about their own household and welfare, and that they will simply sell land and choose to expose themselves to poverty or starvation. The fact is that peasant farmers are wise and knowledgeable about the choices that affect their economic livelihood. If peasants sell land, it may be because they are making economic choices that they believe will make them better off, such as moving to another location, or investing on their children’s education, etc. The effect of this top-down policy that forces farmers not to own or exchange land is to deny them a very important economic decision and choice. The primary constraints of peasant agriculture include technology and lack of an enabling policy which includes land tenure insecurity that stems from lack of land ownership rights.
Third, basic economics and experience point to the fact that state ownership of land adversely affects land tenure security, agricultural production incentives and adoption of technology, which are necessary to move the economy forward. Land nationalization creates a continuous dependency of citizens on the state. In the case of Ethiopia, the government becomes a de facto “employer” of the 85 percent of the population whose livelihood depends on land. In effect, the majority of the population is denied economic freedom, which is a necessary element of true democracy.
Fourth, state ownership of land also has a damaging impact on the environment by contributing to accelerated deforestation. Some of the most severe environmental damages in the world today are found in the ex-communist states, and it is directly related to lack of property and land ownership rights. Farmers do not have any incentive to conserve the environment such us by plating trees. My own personal observation from a recent visit to Ethiopia is that deforestation has accelerated to a dangerous level compared to some 25 years ago, primarily due to the combined effects of population growth, poverty and lack of property rights.
Fifth, the evidence about land use among Ethiopian peasant farmers is that it is very dynamic, and that farmers have always exchanged land through various means, even when it was illegal under the Derg. The reason for such economic behavior is simply because it is in their best interest, and that it is “natural.” What is not natural is when a central government forces farmers not to use land in their best economic interest, which includes the right of exchange, sell or transfer land.
Sixth, in the long run, for successful “agricultural led industrialization” (which is the current officially stated economic strategy in Ethiopia) and economic development to occur, land must move to its most productive use. Enterprising peasant farmers must be able to expand farm size and production. This will allow labor to be released for non-farm economic activities. Currently, 85 percent of the Ethiopian population is engaged in farming, which in about 10 years may decline to 60 or 70 percent. This can only happen if agricultural technology and productivity improve, farm sizes increase, and the other sectors of the economy absorb some of the labor that leaves agriculture. But, the adoption of a land policy that “chains” 85% of the population to the land by prohibiting the ownership of land by a constitutional decree is likely to perpetuate continued sub-division of land into uneconomic units that leads to rural poverty and stagnation. Many successful modern economies such as Japan and the United States have historically used agriculture as the prime mover of economic development. In none of these countries has their governments denied individual land ownership right to their citizens, which is the major reason why market based economic development strategy has succeeded in these nations. For instance, about 100 years ago some 40 percent of the American population was engaged in farming. Today, there are less than 2 percent in agriculture, who feed the rest of the population and produce surplus for exports. If American farmers were denied to own and sale land a century ago by their government, perhaps most of them may still be practicing backward technologies, and the United States may still be an underdeveloped nation. Land policy is not a simple issue that can be settled by a constitutional decree. In the Ethiopian case, it contributed (with the other misguided policies such as villagization, and resettlement), to massive poverty and famine over the past two decades.
The post Derg move to deregulate trade and to liberalize certain sectors of the economy, including the devaluation of the currency, is generally on the right track. These policies are likely to bring about long-term economic benefits although they impose some short-term social costs on some groups. But a major structural impediment of land reform, which will impede the potential benefits of such policies, remains. The “land to the tiller” question is an unfinished business twenty years after the Derg’s Land Nationalization Decree of 1975 in Ethiopia.
“Land to the state,” which gives a de facto monopoly ownership of farm land to a “single land lord”the government in this caseis not the answer. There are more effective alternative policy instruments for “social security” or combatting poverty. As a major input to agricultural and food production, land quality has to be upgraded to effectively contribute to agricultural development. The current land policy in Ethiopia, by immobilizing land has the potential to impede the long-term positive effects of the other policies of economic deregulation and liberalization that have been adopted. These economic liberalization policies can actually increase the level of poverty and unemployment as long as the major structural impediment such as land policy remains in tact.
Ethnic Federalism or Regionalism
The second part of this essay is concerned with the impact of the current policy of Ethnic Federalism or Regionalism on economic development and performance. Although under current law any Ethiopian regardless of ethnicity is allowed to live, work, and travel anywhere in the country, the practical realities in some of the regions are quite the opposite. One often hears some horror stories in this regard from both inside and outside the country. Some of these may be exaggerated, but they point to a real problem. For instance, can an Ethiopian of another linguistic group be able to engage in trade, invest, or work in some of the regions other than his or her own linguistic/ethnic home? Yet, historically, enterprising merchants from various linguistic groups have played a significant role in inter regional trade and investment, and have made a valuable contribution to their own economic well-being and to that of the country. Ethnic regionalism has the potential to deny such individuals the right of mobility in search of opportunity due to no fault of their own. It therefore contributes to an economic decline. It has been stated under the current policy that there is an implicit goal of pursuing the creation of a free trade area or regional economic integration in the Horn of Africa. It is true that a free trade area is a desirable goal that will benefit the peoples of these states. But, it is only a long-term goal that can be realized if free trade within individual countries of the region is first promoted. Ethiopia, as the most populated country in the region, must take the leadership role in promoting ethnic reconciliation and free trade within itself. Other states of the region can then join in forming a free trade area and/or a customs union in the Horn of Africa. But, to jump into free trade within the Horn of Africa, while promoting ethnic federalism at home, becomes like putting the cart before the horse.
Ethnicity in Ethiopia (or any where for that matter) should take a “natural course.” Ethnic diversity should be respected for its own sake. A person’s racial or ethnicity identity is a natural condition that should not be taken as a policy instrument to achieve a political goal. It can and has been abused by extremists on both sides of the issue with a disastrous result.
The alternative is to promote non-ethnic democratic federalism. We know that some of the most successful modern democracies such as the United States and Canada are multiethnic federal nations. The constructive thing to do is to promote ethnic reconciliation and unity within diversity. For instance, South Africa is starting out on the right track in managing ethnic and racial conflicts. It has had both historically and currently a much bigger and potentially more explosive ethnic and racial conflict than Ethiopia. But, it is emerging from the now defunct system of Bantustanism under the enlightened leadership of Nelson Mandela. If a nation has a genuine system of justice and can fairly enforce the laws that protect individual rights, it will also protect ethnic rights. The reverse is not true. It is quite possible to create a structure where ethnic group rights are protected but individual rights are suppressed. In other words, in the current course of ethnic federalism in Ethiopia, it is possible for local or “mini-dictators” to emerge in some of the regions. Non-ethnic based federalism where the local or the regional population can freely elect officials on their own, without interference by ethnic political cadres controlled by the center, is the best way of dealing with this problem.
Some Insights for Politicians & Policy Makers in Ethiopia
Economic development should not be held captive by politics. Ethiopians are weary of two decades of destructive politics, which has produced more conflict, poverty, and famine. What is urgently needed today is to engage the population in productive economic activities. The best way to achieve this is for the government to privatize or “release” urban and rural land so that private citizens and entrepreneurs can productively utilize it. This way, a growing number of the urban and rural unemployed youth can be engaged in building houses, working on farms, and factories initiated by private sector. Rural to urban migration can be slowed.
The growing shortage of urban housing will be reduced, as new houses and apartments are built. The current land lease policy will do very little but to perpetuate confusion, corruption, uncertainty, and to prolong or add to the serious urban unemployment and housing shortage. The state can raise more revenues in the long run than through taxation of productive land and a growing economy under private ownership than from direct ownership and lease of land. Thus, there is an urgent need to change this policy, which is derived from seventeen years of communist dictatorship that has ruined the economy.
The promotion of ethnic and political reconciliation without compromising ethnic diversity and equality should take center stage. The government should reach out to the large human capital of trained Ethiopians outside the country and invite them to come home to visit, invest, consult, and teach. International investment and trade should be actively promoted and encouraged. The open door policy that has been practiced during the transitional period should be enhanced.
Once peace and stability is achieved, it is crucial to put economics before politics by focusing on economic reform and development and by promoting ethnic and political reconciliation. The transition from a command economic system to a market economy is difficult, but not impossible. This transition is based on successful implementation of some crucial elements that include: privatizing government enterprises and land, promoting competition, removing price controls and other forms of unnecessary state controls on the economy, opening the domestic economy to international trade and competition, and limiting or reorienting the role of government in the economy to its basic essential functions such as enforcing laws and regulations, and providing basic infrastructure such as building and maintaining roads. For the market system to grow and to serve as an effective instrument of economic reform and development, the legal system must ensure a clear demarcation between political and productive economic activities. Laws that govern land and property rights should be clearly defined and enforced. Talented and innovative business persons and entrepreneurs who can create productive enterprises and employment, should not be “crowded out” by political opportunists.
Real democracy is only possible under a free market economic system. Democracy and the market system are not perfect systems, but they are far better than any alternative system of political and economic organization. The rigid retention of the current land policy and ethnic regionalism, by impeding the development and/or the transition to a market economy, will continue to trap Ethiopia in the current state of poverty and food insecurity. On the other hand, if appropriate policy changes in the two crucial areas of land and ethnicity are made, the agriculture and economy of Ethiopia should have a chance to move forward into the 21st century. This will also give democracy a chance to grow and mature.
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Sisay Asefa, Ph.D., is professor of Economics at Western Michigan University.