Thoughts on Chinese Land Reform

After reading The Economist's story about Chinese land reform, I became very interested with the land certificates (dipiao) program being launched in Chongqing and Chengdu as an experimental land reform policy. The goal of the land certificates is to improve land utilization so that China can urbanize faster while simultaneously maintain the net farmland in the country.

From what I understand of the land certificates, land developers pay to have residential rural land to be converted into farmland. By converting residential land to farmland, developers now have a certificate that allows them to build on an equivalent piece of farmland elsewhere. The land certificates will allow land developers to shift farming land toward areas that are less valuable for urban development. In theory, the land certificates sound like an ingenuous way to improve land utilization in China. The program will help China to make better used of rural land abandoned by rural emigrants (slides 9-11). The ideal scenario is that rural land being converted will belong to individuals who have already emigrated to urban areas. However, rural residents needing new housing as a result of the land conversion would likely need some form of subsidized urban housing.

The need for subsidized urban housing for rural emigrants highlights an important obstacle to any land reform designed to increase urbanization within China. Rural residents are given less generous welfare/social benefits compared to urban residents. Urban immigrants from rural areas are often treated as second class citizens forced to work less desirable (and lower paying) jobs. The current land system essentially provides a social safety net for rural residents. The rural land gives residents a guaranteed source of income and subsistence during old age and unemployment. Many rural residents are hesitant to partake in urbanization because there is not an adequate social safety net in place. The Economist reports that 85% of the land certificate value will go to rural residents, which is a good financial incentives grounded in the socioeconomic reality of China's rural population. However, the actual payment to rural residents is likely to be lower given the rampant corruption that is common during land exchanges.

Another important aspect to consider is the impact on agricultural yields of the land certificates program. The impact of the program on agricultural yields will depend on the definition of an "equivalent" piece of rural land and the geographic boundaries of the program. It may be the case that, in many situations, rural land that formerly contained residential property is less fertile and will yield lower output. Therefore, the definition of an "equivalent" piece of farmland might need to factor in the fertility and productivity of the land in order to avoid declines in farming output. It is also unclear how these land certificates would work on a national scale. The land certificates would likely only transfer within a province or county but a full scale national certificates transfer might lead to biases in the allocation of urban vs. farmland within China.

The program sounds like a very clever way to improve land use in China but its success will depend on a collection of reforms to the treatment of rural residents and the crackdown on government corruption. The land certificates must be implemented carefully and comprehensively if it is to be a revolutionary change intended to improve economic growth.

A Look At The Swiss Basic Income Initiative

The Swiss initiative to provide an unconditional income to all citizens is an interesting proposal for a number of reasons. It is a policy initiative that lands itself right in the field of battle between liberal and conservative ideologies. I will write a post later that examines the potential economic impacts of such a program but, for now, the ideological arguments is what interests me.

Conservatives are likely to view it as a disaster that will cause perverse incentives for an even larger portion of a nation's society instead of those benefiting from welfare programs. For conservatives, the basic income is a diabolical way to buy the approval of middle income citizens. The number that has been floated for the Swiss initiative is that every citizen will be given $2,800 per month. Theoretically, this monthly value could be strategically placed as the buy the favor of the median voter. For example, if the median voter pays $2,750 in taxes every month, then the transfer will make them better off and they will approve of the program. Anyone paying more than $2,800 per month in taxes will be worse off and the program will be a redistribution of their income to the rest of society.

Liberals are likely to view the policy as the endgame toward which most social welfare programs have been striving toward. It is finally a program that can effectively fight income inequality within a society without legal loopholes and arduous application requirements. A guaranteed state income would finally free important social groups from the need for financial survival. Struggling families will now have more time to spend raising their children properly and artists will break free of financial incentives to create an explosion of creative expression.

The interesting development in these discussion will be to determine how many conservative thinkers will be persuaded to support the initiative. A basic income program might actually reduce the bureaucratic mess of government because the program eliminates the need for many others. A basic income is unemployment insurance, food assistance, and social security all rolled into one. The complex process of applying/qualifying for government programs would be eliminated by simply sending the same check to every citizen. Conservative social values might be strengthened by such a program as divorce rates drop due to more stable marital relationship, absent the pressure of financial circumstances.

The basic income program is unlikely to pass in the short-term because it is too radical. It would be very surprising to see such a dramatic paradigm shift in the government of a developed nation in such a short period of time. However, the initiative will create some very important questions about the ideal future of human society.

REVISION:

I neglected to mention another aspect of the basic income initiative that will appeal to conservatives in my rush to type this up during my lunch at work. A basic income could actually improve the incentive structure of the economy by eliminating the cliff effects inherent in qualifying for many welfare programs. A person will no longer need to avoid getting a raise because it would actually make there circumstances worse by reducing the welfare they receive from the state.