Field v factory

tauringhuang.

Sep 17th 2008
From Economist.com

Finding a truce between industry and agriculture


IN HIS 1891 novel Tess of the D’Urbervilles, Thomas Hardy lamented the depopulation of the English countryside. To him urbanisation was not a natural tendency. It was instead “the tendency of water to flow uphill when forced by machinery.”

In the Indian state of West Bengal, Mamata Banerjee (pictured) is doing her best to sabotage that machinery. The leader of the state’s principal opposition party, the Trianmul Congress, she has appointed herself the champion of the farmers in their struggle against industry. She is waging a loud and intimidating campaign against Tata Motors, which is now threatening to flee the state where it hoped to build its Nano, touted as the world’s cheapest car at only 100,000 rupees ($2,300).

APTata was lured to West Bengal by the promise of cheap land, which the state government expropriated on its behalf from the farmers who tilled it. This compulsory purchase, or “eminent domain” as it is called in America, invoked the 1894 Land Acquisition Act, which allows the government to take private land for a public purpose. The authorities were obliged to pay compensation, but over 2,000 farmers refused to accept.

For some farmers, no money is enough to compensate them for the loss of their land. Farming in many parts of India is a tradition not a trade. Their property gives them “a certain stability of aim and conduct”, as Hardy put it.

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The dispute thus pits farm against factory, illustrating India’s deep attachment to its agrarian past and its ambivalence about its industrial future. But it also divides the loyalties of India’s liberals, who favour industry but also cherish the sanctity of property rights.

Mint, an Indian business newspaper, has argued eloquently that the government is abusing a colonial-era act. The definition of a public purpose should be limited to “public goods”, ie goods which are non-rival (your consumption does not detract from mine) and non-excludable (you enjoy it even if you don’t pay for it).

But this is not the only economic justification for those powers. According to Thomas Miceli and Kathleen Segerson of the University of Connecticut, a better rationale for eminent domain is to overcome the power of “hold-outs”. If an investor needs fifty patches of land adjacent to each other, the last landholder can hold it to ransom, because the whole project hinges on acquiring the fiftieth parcel.

It follows that governments need not invoke their powers of eminent domain for all public goods—only those that require lots of contiguous patches of land. Conversely, the authors argue, the government may be justified in using those powers on behalf of private projects that do need such stitching.

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Tata insists that the Nano project requires just such careful stitch-work. The mother plant needs to nestle in close proximity to its suppliers. Any distance between them will add to the cost of production, jeopardising the Nano’s symbolic price tag. In acquiring the 997-acre lot, the government identified over 13,000 people with some claim to the land. The company could not have bargained with each one in turn.

Landholding is so fragmented because West Bengal is a crowded corner of a densely populated country. A flight into Kolkata reveals the state’s patchwork of wet fields, which glisten in the sunlight like the scales of a fish. According to the state government, landholdings per head average only 0.82 hectares (two acres), well below the Indian average of 1.41. Landholdings this small are “economically unviable to sustain a family,” the government says.

“The only way out for agriculture is industry,” Chairman Mao once said. If India is to prosper in the coming decades it must undergo what economists call a “structural transformation”: agriculture’s share of employment and output must fall; industry’s share must rise. Farms cannot thrive unless factories thrive, and vice versa. The factories need the farms to feed their workers cheaply. The farms, in turn, need factories to draw underemployed field-hands off the land, transforming them from surplus labourers into consumers.

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Almost every country that has prospered has gone through this process, and in every country it inspired political tension. According to Peter Timmer of the Centre for Global Development in Washington, D.C., “successful agricultural transformation has been painful to every society that did it.”

In Hardy’s England, rioters would smash threshing machines and maim cattle. Nonetheless, the pastoral world he described eventually made space for the very different world recorded by Charles Dickens. Agrarian India and industrial India will also need to find a way to coexist. The bullock cart and the people’s car will need to share the road ahead.