Politics and Economics of Land Reform in the Philippines: a survey∗ By Nobuhiko Fuwa Chiba University, 648 Matsudo, Matsudo-City, Chiba, 271-8510 Japan [email protected] Phone/Fax: 81-47-308-8932 May, 2000 ∗ A background paper prepared for a World Bank Study, Dynamism of Rural Sector Growth: Policy Lessons from East Asian Countries. The author acknowledges helpful comments by Arsenio Balisacan. Introduction Recent developments in both theoretical and empirical economics literature have demonstrated many aspects of the negative socio-economic consequences of high inequality in the distribution of wealth. High inequality tends to hinder subsequent economic growth (e. g., Persson and Tabellini 1994?), inhibits the poor from realizing their full potential in economic activities and human development through credit constraints (e. g., Deininger and Squire 1998), encourage rent-seeking activities (e. g., Rodrik 1996), and seriously hinder the poverty reduction impact of economic growth (e. g., Ravallion and Dutt ??). The Philippines is a classic example of an economy suffering from all of these consequences. The Philippines has long been known for its high inequality in distribution of wealth and income; unlike many of its Asian neighbors characterized by relatively less inequality by international standards, the Philippine economy has often been compared to Latin American countries which are characterized by high inequality in land distribution. Partly due to its historically high inequality there has long been intermittent incidence of peasant unrest and rural insurgencies in the Philippines. As a result, the issue of land reform (or ‘agrarian reform’ as more commonly called in the Philippines, of which land reform constitutes the major part) has continuously been on political agenda at least since the early part of the 20th century; nevertheless land reform in the Philippines has been, and still is, an unfinished business. Against such a historical background, the main objective of this essay is to synthesize a broad range of existing literature on the various aspects of land reform policies in the Philippine context as relevant for today’s policy makers. The paper is meant as a stock taking exercise delineating what is known and what is not. We will pay attention to both political and economic issues arising from the land reform policies since both of these aspects are equally important for policy making. Furthermore, in our attempts to derive some lessons/implications for the current policy makers we will draw on both historical experiences in the Philippines and recent land reform experiences from other developing countries. The paper is organized as follows; section 1 provides a historical overview of the land reform legislation and the implementation records in the Philippines for the past forty years; section 2 focuses on the political dynamics behind the evolution of the land reform legislation and implementation records as reviewed in the previous section; section 3 turns to the major economic issues involved in land reform by drawing on both theoretical development and accumulated empirical evidence; based on the previous sections, section 4 focuses on major issues involved in the design of land reform schemes in the contemporary Philippine contexts, drawing on recent policy experiments in other developing countries as well as on the theoretical and empirical literature from the Philippines; and final section pulls together our survey results and concludes the paper. 1. Historical Overview of Land Reform Legislation and Implementation Record in the Philippines 1-1. Evolution of Land Reform Code 1 A series of land reform programs have been legislated and, to a lesser extent, implemented by successive administrations during the last several decades in the Philippines. In this subsection, we will review a few distinct episodes in the evolution of land reform legislation, mainly in terms of its stated goals and its design. We will take a closer look at the actual implementation of land reform laws in the next subsection. Land reform policies have been continuously on political agenda in the Philippines since the early part of this century. Generally, the land reform initiatives of the government have been combinations of (though not limited to) regulation on land tenancy, resettlement to public lands, and appropriation and redistribution of private lands. Since the Commonwealth period, among these three broad categories of land reform measures, governments in the past tended to rely more heavily on the first two (tenancy regulation and resettlement) rather than on the politically contentious land redistribution. However, as the relative scarcity of land increased due to the closure of the frontier areas, and in response to the continuing peasant unrest, redistributive land reform has become increasingly high on policy agenda more recently. The land reform initiatives by the Philippine government since the 1950s are broadly in line with the series of initiatives taken by President Manuel L. Quezon’s administration (1935-41). More specifically, President Quezon’s initiatives included regulation of tenancy relations, an anti-usury law, organized land settlement in Mindanao for the landless of Luzon and Cebu, issuance of free patents to homesteaders on cultivable public land, and a “landed estates” policy which provided funds for the negotiated purchase of large holdings for resale to tenants. Strongly influenced by the American land reform policy at the time, the main focus was on resettlement and tenancy regulation rather than on land redistribution. (e. g., Hayami, et al. 1990). The land reform initiatives by the successive administrations of Manuel Roxas (1946- 48), Elpidio Quirino (1948-53), and Ramon Magsaysay (1954-56) generally fell along these lines although each had its own policy initiatives. In particular, a series of land reform legislation during the Magsaysay administration is seen by some as “the first significant legislation toward land reform in the post-war Philippines.” (Wurfel 1988) The 1954 Agricultural Tenancy Act limited land rent at 30%, placed an interest rate cap of 8 –10% per annum, and increased tenants’ exceptions from creditors’ liens. The 1955 Land Reform Act embraced the idea of compulsory land expropriation for rice lands but the retention limit was set generously at 300 contiguous hectare for private lands planted with rice, 600 hectare for corporate farms, and 1024 hectares for private farms other than rice. (Takigawa 1976, Putzel 1992, Riedinger 1995) Agricultural Land Reform Code of 1963 One of the major turning points in the recent history of land reform legislation (if not implementation, as we will see later) appears to be the 1963 Agricultural Land Reform Code. 2 The stated goal of the 1963 Code was “to establish owner-cultivatorship and the economic family-sized farm … to make the small farmers more independent, self-reliant…”. A distinct feature of the Code was that, unlike in the earlier land reform initiatives, land reform was considered as a means to increase agricultural productivity, which, in turn, was based on the need for supply of cheap food for urban consumers as well as the ‘Marshallian view’ of inefficient share tenancy which was widespread among young economist-technoclats of the day. (Hayami, et al. 1990; see below for more on the ‘Marshallian view.’) In its attempt to increase agricultural productivity by creating owner-cultivatorship, the Code stipulated a two step procedure for land redistribution: (1) “Operation Leasehold,” which was to convert share tenancy to leasehold with the fixed rent at 25 percent of the average harvest in the three normal years preceding the Operation, and (2) “Operation Land Transfer,” where the government was to expropriate land in excess of the retention limit of 75 hectares, with compensation to landowners of 10 percent of the land value in cash and the rest in interest- free Land Bank bonds, and then was to resell to tenants for annual amortization payments within twenty five years. Such reforms were to apply only to land planted with rice or corn. While the Code can be seen as a major advance in land reform legislation, there were serious limits in design as well. For example, the reform Code covered only rice and corn land (which represented ??% of all agricultural land and ??% of tenant farmers as of 1960), thereby excluding land planted with sugar, coconut, fruits and other crops. This also meant that landowners could avoid land reform implementation simply by shifting their crop away from rice or corn. Another fault in design was that there was no sanctions against evasion through transforming land use or transferring ownership to family members, which were common means of sabotaging land reform implementation. Furthermore, the initial version of the Code included progressive land tax, which was subsequently deleted in the final version. Indeed, these limits generally persisted through the subsequent land reform codes (1971 and 1972) until the enactment of CARP in 1988 (see below). Land Reform under Marcos Presidency While President Ferdinand Marcos took office in 1966, it was not until the early 1970s that land reform program made any major advance. First, in responding to the pressures from farmers’ protests supported by a highly politicized student and workers’ movement in 1971 (see below for the political process leading to the legislation), Congress passed the Code of Agrarian Reform (Republic Act No. 6389). It established the Department of Agrarian Reform, declared the entire Philippines a land reform area (the 1963 Code, on the other hand, required that the National Land Reform Council should first declare a given region to be covered by the program before actual implementation could proceed in a given region), provided for the automatic conversion of tenancy to leasehold tenancy in all areas and declared share tenancy illegal, included regulations on interest rates, on the sale of farm animals and implements and on the conversion of agricultural land into other uses, and finally, reduced the landlord retention limit from 75 hectares to 24 hectares.