Robust Property

Robust property rights the key to tackling the legacy of dispossession
African property

Written by: Terence Corrigan

The start of a year is invariably a moment to refresh and take stock, to acknowledge the mistakes made in the past and to commit to doing better in the future. With the freight of profoundly important questions that South Africa is shouldering, this is an opportunity that ought not be squandered.

In its New Year's message, the Presidency pledged that its programme Radical Socio-Economic Transformation would "be the main focus of government in the year 2018 and it will inform the delivery of our programmes". One might have sympathy with this. South Africa has suffered anaemic growth for years, even as global growth was on an uptick. Perhaps more importantly, there seems no solution in sight for the unemployment malaise, and scant opportunity for those trapped in poverty to escape it.

South Africa needs a 'radical' turnaround - if by 'radical' one understands that problems are properly analysed and dealt with as they exist, thoroughly and systematically.

This is, unfortunately, not what the term has come to signify. It denotes a profoundly ideological agenda in pursuit of a utopia. A case in point is the policy proposal adopted at the ANC's elective conference for the seizure of land without compensation.

As a policy direction, expropriation without compensation rests on the premise that the failure of South Africa's land reform programme has substantively been the consequence of resistance, both direct and indirect. Since 1994, only around 10% of agricultural land has been transferred out of white ownership through state programmes. In this narrative, the state has had to negotiate a labyrinth deliberately constructed to stifle transformation. This includes uncooperative property owners, malicious and venal price inflation, these having been enabled by compromises made in the writing of the Constitution – a "compromise tilted heavily in favour of forces against change", as former Minister Ngoako Ramatlhodi once put it. In some quarters, the very notion of private ownership is suspect.

In 2018, the time has now come to settle this account. Expropriation without compensation will, supposedly, reverse South Africa's great historical injustice, allowing a benevolent, activist state to reconstitute the asset base of the country. With the constitutional protection of private property abolished or greatly weakened, and a suitable set of laws in place, the financial constraints and legal objections standing in the way of "radical action" will disappear. This will open a direct route to the empowerment of South Africa’s poor. From this will flow security and prosperity and the dignity that these provide.

The reality will be very different. 'Radical' transformation, as it is understood in South Africa's political conversation, misreads the challenges confronting the country, and so comes off with misguided solutions.

To be sure, the seizure of privately owned land might be rationalised with reference to South Africa’s past, but it is far from clear whether this will address the socio-economic problems of the present. The tragedy of the failure of land reform is not just that it has failed to ‘transform’ agricultural landholdings (indeed, there is evidence that market transactions between white and black individuals has done a great deal to do this, possibly more than government action), but that most land reform projects have fallen short of expectations. It is estimated that between 70% and 90% of such projects have failed. This has left the ‘beneficiaries’ little better off, and in some cases, noticeably worse off.

What explains this?

The Constitution is wholly blameless for the distressed state of South Africa’s land reform initiatives. Section 25 – the property clause – offers conditional protection of property, making it clear that this is not to undermine the state’s redistributive efforts. It explicitly recognises the importance of land reform. (Somewhat ironically, at its adoption, it was the perceived weakness of property protection in the Constitution that drew criticism.) As the late Dr Hans Binswanger-Mkhize once wrote: "This constitutional and policy framework is one of the most favourable in the world for successfully and rapidly implementing land reform."

Financial constraints – the unaffordability of compensation – is frequently invoked as a rational ground for embarking on expropriation without compensation. The state simply does not have the resources to pay for landholdings.

There may perhaps be some truth to this. But with overall budgeted expenditure of some R1.6trn for the 2017/18 financial year, money is not the defining limitation confronting land reform. Rather, land reform has simply not enjoyed the prioritisation in budgeting that it is increasingly being accorded in political rhetoric. Funds budgeted for agriculture, rural development and land reform in 2017/18 totalled some R26.5bn – hardly small change, but a mere 1.7% of expenditure.

Whether landowners are ruthlessly escalating their asking prices is another long-standing allegation. A 2008 report by the Centre for Development and Enterprise found that there was little evidence that it was taking place. Nevertheless, agricultural insiders concede that instances of this have occurred, allowing well-placed landowners to profit from state purchasing.

But this is as much a comment on the faltering capacity of officials to negotiate competently (and manage these transactions) as it is on the integrity of the owners involved. Organised agriculture has offered government its assistance in dealing with this, to little avail.

Compromised state capacity has had a much wider impact. The Green Paper on Land Reform admitted that this is a major challenge. It has been manifest in various ways: from lengthy delays in processing claims to outright corruption. Current policy orientations make this problem all the more serious. Land redistribution initiatives currently seek to retain state ownership with leases extended to tenants. With the state ultimately in control of these landholdings, weaknesses in its operations have the potential to be extremely damaging.

Taking this together, the High Level Panel on the Assessment of Key Legislation and Acceleration of Fundamental Change, chaired by former president Kgalema Motlanthe, commented: "Experts advise that the need to pay compensation has not been the most serious constraint on land reform in South Africa to date – other constraints, including increasing evidence of corruption by officials, the diversion of the land reform budget to elites, lack of political will, and lack of training and capacity have proved more serious stumbling blocks to land reform."

"Radical socio-economic transformation" offers little to address these problems. It offers an ideological framework, not an empirical one.

Really radical action would start by dealing with the problems as they exist. These are easy to identify: a higher priority for land reform in the budget; proper costing of initiatives; the upskilling of staff. More than this, the ideological aversion to property rights must be dispelled. Land reform can, and should, extend assets and opportunities to those who were hitherto denied them.

This is both beneficial for the beneficiaries and for the economy at large. There is nothing radical about denying property rights, and insisting on state stewardship – it is deeply regressive. As the High Level Panel commented: “It is of great concern to the Panel that recent policy shifts appear to default to some of the key repertoires that were used to justify the denial of political and property rights for black people during colonialism and apartheid.”

Indeed, to deal with the legacy of dispossession and the socio-economic malaise in which so many South Africans are trapped, it is difficult to imagine an alternative to a robust system of property rights. That would, in a word, be truly ‘radical’.

- Terence Corrigan is a Policy Fellow at the Institute of Race Relations, a liberal think tank that promotes economic and political freedom.

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