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Kornai goes to Kenya

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Abstract

János Kornai developed soft budget constraint logic to explain the socialist world’s dysfunctional economies. We extend his logic to explain dysfunctional land reform in the developing world. International development organizations such as the World Bank provide support for land privatization to developing-country governments, softening their budget constraints. Softer budget constraints encourage developing-country governments to pursue land privatization even when its social value is negative. Kenya’s land reform program illustrates the soft budget constraint syndrome.

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Notes

  1. Leeson and Harris (2018a) develop a theory of “wealth-destroying private property rights”, illustrated by Kenyan land reform. They consider how property decisionmakers’ incentives to pursue wealth-destroying land reform depend on whether the decisionmakers are residual claimants. Our analysis complements theirs: it considers how external subsidies for land reform, which soften property decision makers’ budget constraints, affect their incentives to pursue wealth-destroying land reforms.

  2. Kornai’s taxonomy of budget-softening instruments varies throughout his work (see, for instance, Kornai 1980, 1986, 2001; Kornai et al. 2003). We follow the latter’s taxonomy.

  3. This is a (very) generous assumption. Realistically, only a small share of taxes collected accrue personally to government actors who make land reform decisions. The smaller that share is, the smaller is the share of the reduction in wealth associated with land reform that decisionmakers internalize; hence, the more likely it is that government actors will pursue land reform that benefits them privately but destroys wealth (see Leeson and Harris 2018a).

  4. Or private individual holdings; however, those ownership arrangements remained relatively uncommon until after the Livestock Development Project officially had ended. We discuss subdivision—the creation of private individual titles from group ranches—below.

  5. The government of Kenya did not maintain accurate statistics or accounting records, as it was supposed to do under its agreement with international development organizations. The resulting “shortage of reliable production data prevented [auditors] from producing…economic rates of return for the project as a whole and its main components” (World Bank 1976b, p. 20). The World Bank’s assessments therefore were based on rough estimates.

  6. Support figures were arrived at using information in World Bank (1968) and were converted to 2019 USD using the CPI calculator at measuringworth.com.

  7. Support figures were arrived at using information in World Bank (1986) and were converted to 2019 USD using the CPI calculator at measuringworth.com.

  8. This legislation consisted of two laws: the Land Adjudication Act, which provided a legal framework for titling land, and the Land (Group Representatives) Act, which provided a legal framework for group ranch administration. Both laws were passed in 1968.

  9. Government actors were not the only parties who benefited privately from Kenya’s wealth-destroying land reform, however. For example, group ranch committee members and ranch managers—private officers mandated by 1968’s legislation—benefited personally too. Following subdivision, the amount of land allocated to the average group ranch committee member was nearly twice that allocated to other members of his group (Rutten 1992, p. 370; Mwangi 2007a, p. 133). Moreover, since committee members exercised some control over who on the group register received which parcel of the subdividing group’s land, they were able to extract bribes from parties seeking better parcels (Mwangi 2007c).

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Acknowledgements

Leeson thanks Montecristo Churchill for encouragement.

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  1. George Mason University, Fairfax, USA

    Peter T. Leeson

  2. St. Olaf College, Northfield, USA

    Colin Harris & Andrew Myers

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  1. Peter T. Leeson
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  2. Colin Harris
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Correspondence to Peter T. Leeson.

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Leeson, P.T., Harris, C. & Myers, A. Kornai goes to Kenya. Public Choice 187, 99–110 (2021). https://doi.org/10.1007/s11127-020-00782-w

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