Should Government Have a Role in Land Acquisition?

According to Mint, a Parliamentary Standing Committee on Rural Development ‘recommends that private companies and public-private partnerships have to buy land in the open market’ rather than having the privilege of government compelling people to give it over.  Frankly, this is marvelous.

The standing committee adroitly noted that “in developed countries such as the US, Japan, Germany or Canada, land is purchased by enterprises.” And, “Mani Shankar Aiyar, a senior Congress leader and a member of the panel, said, ‘The three principal factors of production are land, labour and capital. Since there is no question of the state acquisition of labour or capital, there is no logic at all for (the) government to acquire land.’”

The panel seeks to make the definition of public purpose much narrower, remove suggested exemptions for projects such as nuclear power plants, mines, highways, etc., and move 95% of land acquisition into the market.

People may be afraid that this will lead to a halt in “development.” But this seems unlikely to me.  Private property and markets make other people’s demand an opportunity cost to land owners (just as with any other resource).  If entrepreneurs (due to consumer demand) can afford to pay farmers and tribals a price that exceeds their opportunity cost, these farmers and tribals will sell.  But they will only do so if it is also in their interest, if they are offered a better alternative.  Let people decide what is best for themselves.  That’s the principle of free market liberalism.

Many, on the other hand, argue that eminent domain is essential for “development.”  Rural development minister Jairam Ramesh for instance argued that in India “where land records were maintained under antiquated systems. ‘We must recognise that we are not in a stage of development where government role in land acquisition can be completely eliminated and abandoned.’”

Governments have been trying to redistribute resources, tilt the playing field in favor of one group or another. For years people have been trying to keep India an agricultural paradise, and now some want to make it an industrial one.  When has government succeeded in creating coordinated, sustainable development? Intervention piles on intervention until the playing field is a warped web of mis-aligned and unproductive incentives, barriers, and uncertainty.

A narrow definition of public purpose would reduce crony capitalist deals and allow market prices to emerge that recognize people’s local knowledge and interests.  Development could happen organically, locally, based on entrepreneurial initiative, individual values, and voluntary negotiation.  Any development that would take place would be mutually beneficial to all of the transacting parties.

Of course, insofar as there are government failures that undermine market transactions, governments should look upon themselves to see what kind of reforms will facilitate voluntary trade and association.  Government should focus on clarifying and protecting customary and explicit property rights, enforcing of contracts, and removing red tape and governmental impediments to decentralized development.  This is much more likely to lead to coordinated, sustainable development than relying on yet more central planning and blunt force to organize economic activity.