Thursday, September 29, 2005

Land reform gone awry

The Philippines has been conducting what is probably the longest running land reform program in the planet. The latest news on the Hacienda Luisita dispute illustrates the iffy situation in implementing land reform in corporate farms. The background is that in these farms, workers are entitled to the corporation's land, but not its other assets. The owners of the corporation have the option of liquidating their company and leaving the workers (now landowners) to fend for themselves. However both parties may be interested in continuing the existing arrangement. A number of options is open, one being the "Stock Distribution Option" (SDO). In lieu of land ownership, the workers receive a share of the corporation's stock.

According to the investigation of the HL case, the terms of the agreement governing the SDO were routinely violated by the majority owners. If the SDO is revoked, legally land ownership would revert to the workers (and their shares back to the Hacienda). Expect more litigation, and more delays.

This sad affair should not obscure the fact that there are many corporate farms in which land reform was implemented without much controversy or friction. This is true for many big farms in Mindanao (Southern Philippines). Often workers remain landowners, but enter long term leases, or contract farming, or similar such arrangements, with the corporation owners. The business more or less continues undisturbed. In many of these arrangements, workers find themselves better off.

I hope the HL problem remains merely an isolated case of business dispute, against the norm of a healthy relationship between landowners and capitalists in large-scale farms.


masterbetong said...

stock options for agrarian reform is a bogey. i still believe that genuine land reform is through distribution & support. i guess CARP is a failure in this sense.

my 2 cents worth.

Econblogger said...

What if the agrarian reform beneficiaries voluntarily opt for the stock option? They may consider continuing the corporation (often a profitable entity) as superior to your ideal of complete takeover with support, particularly if that support (from government) is ill-defined (because costly). However, the beneficiaries could be "duped" on a case-to-case basis. For example, the land value is understated, leading to low total share equivalent, leading to inadequate voice in the corporation. While I am unfamiliar with the details of the HSL case, I suspect something like this happened.