Source: IDEAS AND INSTITUTIONS | ISSUE #34
Analysis
Should Land Pooling Be Mandatory?
In an essay last year, I explained how the increased costs of land acquisition since 2013 are driving Indian government bodies toward land pooling as a viable instrument for urban development. This has also been the case in Delhi, where the Delhi Development Authority (DDA) notified a scheme for land pooling in 2013 and reissued it with modifications in 2018. According to news reports, the scheme has not seen too many takers yet. This is a significant issue since the draft Delhi Master Plan 2041 envisages land pooling as one of the main mechanisms through which the bulk of additional housing required in Delhi will be developed.
In this essay, I argue that even though land pooling is less contentious than land acquisition and more financially viable for the state, there is a specific set of practices that make land pooling successful. Further, I argue that many of these practices are absent in Delhi’s land pooling scheme being operated by the DDA.
The Holdout Problem
Any scheme to consolidate land owned by different individuals faces a collective action problem. Some landowners are either unconvinced of the value of the proposed development or are holding out in expectation of a better deal. While land acquisition deals with this problem by taking the issue of landowner consent out of the question by expropriating them, land pooling leaves this largely to the landowners themselves. The degree to which land pooling is voluntary for non-consenting landowners varies according to the design of the specific scheme, but in general, pooling relies on landowners understanding the value of pooling their land.
The holdout problem seems to be particularly bad in Delhi’s land pooling scheme. As further outlined below, according to the most recent news reports, while more than a third of all landowners in the scheme area are willing to pool their land, this proportion does not add up to contiguous areas of pooled land. Contiguity is a necessary prerequisite for developing pooled land. Delhi’s land pooling scheme divides up the entire area under the scheme into 138 sectors. In each of these sectors, the scheme requires “a minimum of 70% contiguous land of the developable area within the sector, free of encumbrances.”
Once landowners holding 70 percent contiguous land within a sector apply to the DDA for land pooling to be implemented within their sector, the DDA issues them a notice to form a consortium, a representative body that will hold the pooled land on behalf of the landowners and intermediate with the DDA for the implementation of the scheme. The consortium is then supposed to apply for land pooling, get a plan approved by the DDA, and enter into an agreement with the government agency. This is therefore the stage at which infrastructure development under the pooling scheme commences.
The process of consortium formation has progressed very slowly. Even though “landowners of 36% of the land pooling area have shown willingness to pool their land so far,” their land parcels are not contiguous. According to another recent news report, 70 percent pooling has been accomplished in twenty out of the 138 sectors, while the notice for consortium formation has been issued in just two sectors.
This is symptomatic of a serious problem. Nonparticipation at this scale implies that most landowners do not yet see the value proposition in pooling their land together for development. However, this also potentially highlights flaws in the design of the scheme and DDA’s approach.
One of the key features of Delhi’s land pooling scheme is just how much of the collective action problem is left to the landowners to solve themselves. First, it is completely up to the landowners within a sector themselves to decide if they wish to avail of the benefits of pooling their land. Second, interested landowners have to convince others to reach the 70 percent threshold for forming a consortium. Third, the plan proposal (“layout plan”) for developing the pooled land, minus the area taken over by the DDA for public amenities and infrastructure, has to be created by the landowners and implemented by the consortium. This is likely to involve contentious issues like the respective shares of landowners in the pooled land, the location and designs of their houses, and so on. Fourth, the management of the consortium itself is left to the landowners, though the DDA has set up grievance redress mechanisms.
Other Experiences of Land Pooling
Delhi’s land pooling scheme is different in design and approach from other land pooling schemes employed in India and elsewhere. Gujarat, for example, follows a variant of land pooling for urban development and redevelopment under its Town Planning Schemes (TPS)—land readjustment. Land readjustment is similar to pooling in the sense that it relies on a consensual model of acquiring land from landowners, and the readjustment process results in improved planning, infrastructure, and amenities. There is no displacement of landowners, and they receive a final parcel of land/property in lieu of their original land parcel. The main distinction is the degree of state involvement and the state’s approach toward such redevelopment.
As scholar Reshmy Nair describes, the local planning authorities are much more involved in the readjustment process, as follows:
“The process includes a detailed topographical survey of the proposed TPS area; preparation of a base map by collation of the ground survey and the cadastral maps; marking of the boundary of the TPS area on the final base map; publication in local newspapers; design… drawing up of plots for amenities; assessment of Final Plot (FP) size, compensation payment to landowners and assessment of the value of FPs and betterment charges. A public meeting of the landowners is called to present the draft TPS, and suggestions/objections are solicited, following which the draft TPS is modified and published. It is again put for objections and suggestions from the landowners.”
Nair further outlines how the officer in charge of the readjustment process subsequently conducts “three individual hearings to each landowner and revises the preliminary TPS, if required.” As can be seen, the Gujarat TPS solves collective action problems through proactive state action, whereas the Delhi pooling scheme leaves each of these activities to the consortium of landowners themselves. In Delhi, while the DDA approves the layout plan, it is not involved in negotiating with the landowners.
Land pooling was also employed as the mechanism for acquiring land for the creation of Amravati, the proposed new capital of a bifurcated Andhra Pradesh. Unlike in Delhi, pooling in Amravati was done by a specific, newly created state entity, the Andhra Pradesh Capital Region Development Authority (APCRDA). As the scheme document further describes, the necessary legislation and rules were enacted in December 2014, but the policy underwent changes in 2015 and 2016 after consultations with affected farmers.
The APCRDA and other relevant authorities were highly consultative. The imperatives of creating a new capital meant that very generous incentives were provided to landowners. The master plan was discussed through a series of consultations; the zoning regulations and layout plans were prepared by the APCRDA and other agencies, again in consultation with landowners. Consultations were held again after the state agencies created draft layout plans, and time was given for making objections and suggestions. Plot allotments were made through a digital lottery, and landowners were given a land pooling ownership certificate.
In Amravati as well, there was intensive state activity to ensure the land required for the capital was pooled on time. The state took ownership of key components of the scheme where coordination or collective action would have been a problem. The processes and the role of the state in the pooling scheme were closer to the TPS readjustment in Gujarat than Delhi’s land pooling.
Other countries too have similar practices. Germany, one of the first countries to use land pooling, also has land pooling practices that are initiated and negotiated by the state. The land pooling plan is negotiated between the relevant government authority and the individual. The plan is officially formulated and adopted by the land readjustment department, but the landowner is given a hearing prior to the plan’s adoption. In order to do this, any readjustment plan in Germany is formulated and implemented by a team of urban planners, lawyers, land managers, real estate valuers, and project managers. The government bodies have therefore developed the necessary internal capacity to deliver on the key aspects of the land pooling scheme’s implementation.
Misidentifying the Problem: Proposed Amendments to the DD Act, 1957
Last year, in response to the low participation rates and difficulties in consortium formation in Delhi, the central government proposed amendments to the Delhi Development Act, 1957. Clauses 6 and 7 of the proposed amendments read:
“6. The Central Government, if it so determines as being necessary, under special order, direct the Authority to declare and notify mandatory pooling of land in identified Sectors to ensure time bound planned development, notwithstanding the fact that minimum threshold of voluntarily participation as specified in the Land Pooling Policy may not have been achieved. Upon such notification, the sectors so notified shall be deemed to be eligible for land pooling.
7. Once a sector is notified as eligible for land pooling, it shall be obligatory for all landowners of the sector to mandatorily participate in land pooling.”
These amendments basically empower the DDA to overcome the holdout problem by making pooling mandatory, even when the required area of contiguous land—70 percent—has not been achieved. So, this is not about dealing with the unpooled land beyond the threshold of 70 percent. It is designed to overcome the problem of not being able to reach the 70 percent threshold itself.
As the discussion above highlights, while lack of landowner interest may be one of the issues in the slow implementation of the scheme, lack of state action in preventing collective action problems is also an important issue. In the examples discussed above, the holdout problem in every example was prevented or foreclosed because the relevant state agency (a) prepared the necessary plans and developed or modified them in consultation with landowners, (b) decided on key issues like the location of the returnable plot by itself in consultation with landowners, and through these practices (c) reduced some areas of uncertainty for landowners, and reduced the scope of issues that they would have to negotiate with other landowners.
While making pooling mandatory may solve holdout problems in some cases, it would not solve the problem of the lack of state involvement in Delhi. Instead, it may give rise to more grievances and more litigation. To respond correctly, the DDA will have to adapt institutionally from a land acquirer using eminent domain to a facilitator and consultative planner. This change in approach will have to be complemented by a change in the policy design, where some of the key points of uncertainty and friction that arise when private parties negotiate are solved through government action. Policy designs like land readjustment in Gujarat and other states and the experience of land pooling in Amravati are examples of such designs working.
Therefore, in order to successfully transition to using land pooling for urban development, there is a need for both elements: better policy design and institutional adaptation.
—By Anirudh Burman
Review
Robert Bates’s Theory of Political Economy
Most of those who study development focus mainly on policies that governments make or should make. Much fewer researchers focus on the politics that shape these policies. Therefore, there is a vast literature on the economics of development but a much smaller one on the politics of development. Further, much of the journal-published research that makes causal claims regarding development uses quantitative analysis, typically based on randomized controlled trials or natural experiments. Both these trends have shaped the thinking on development for several decades.
Robert Bates of Harvard University is in the minority on both these counts. His work on development takes a political perspective, trying to understand how political power shapes developmental outcomes. He has also taken a different methodological line—he is among those who have for long advocated the use of analytic narratives, which apply game theory to transform qualitative data into causal explanations. This method involves “identifying the actors, the constraints they face, the alternatives available to them, the responses they anticipate, and the payoffs that then accrue,” and then identifying the strategies the actors are likely to pursue assuming they are rational. Bates and others have argued that this method can supplement or be an alternative to the quantitative approaches toward identifying causal explanations.
During his distinguished scholarly career spanning more than five decades, Bates has helped build considerable knowledge on the political economy of development. In The Political Economy of Development: A Game Theoretic Approach (2021), Bates gives us the summa of much of this work. The book is comprised of nine chapters. Other than the introduction and the conclusion, all the chapters have previously appeared as papers. By consolidating them in an analytically meaningful manner, Bates helps the reader see the buildup of his theory of development. In this essay, we present the essentials of his theory.
Bates uses the term “development” to refer to the rise of prosperity and the attainment of security for life and property. Many societies have achieved considerable development in this sense, achieving prosperity that raised their GDP per capita by fifty to sixty times over a period of just five to six generations and building capable states that are able to provide security for life and property to a great extent.
Bates starts by showing the limitations of stateless societies, drawing on E. E. Evans-Pritchard’s anthropological work on the Nuer—a stateless society in what is now South Sudan. Through a simple model with families who may choose between the use of force and the renunciation of force, Bates shows that the use of force is the rational choice for both families, because renunciation would mean that the other family would be able to exercise force to take hold of its property. This is a classic prisoners’ dilemma. In such a situation, peace is always fragile. Evans-Pritchard seeks to explain how the Nuer then achieved peace despite the absence of a state. Bates provides game theoretic models for Evans-Pritchard’s explanation, which was based on two sets of mechanisms: conflict resolution and dispute settlement mechanisms and facets of Nuer culture.
The “tribe” as a political community and the “leopard-skin chief” as a community leader help develop compensation and arbitration mechanisms for those against whom violence has been inflicted. Compensation changes the incentives for those looking to inflict violence so that it becomes preferable to abjure violence. Following Evans-Pritchard, Bates emphasizes the chief’s role as a communication link between conflicting parties so that the party that inflicts violence gets messages on expected compensation, failing which vengeance would be sought. In the absence of a coercive state, these mechanisms work because the Nuer willingly employ them and generally comply with their outcomes. Why do the Nuer do so?
One fundamental factor is the presence of deterrence—the Nuer clearly communicate their willingness to inflict violence against predators. Credible deterrence drastically reduces the probability that the other party assigns to the payoffs in which they will gain at the cost of the one signaling the deterrence. The existence of credible threats changes the payoff matrix to expand the set of strategies to include not just the use or renunciation of violence but also the contingent use of violence. In this matrix, Bates shows that the use of violence does not represent a dominant strategy, that is, the best strategy no matter what the other family chooses to do.
Other fundamental factors that enable voluntary acceptance of conflict-reducing mechanisms among the Nuer are crosscutting ties, such as exogamy and dispersed residence, and religion. Based on Elizabeth Colson’s work, Bates shows how exogamy helps in this regard—women play an important role in mediating disputes between clans, as daughters and sisters of one clan are wives of another clan. Further, based on Max Gluckman’s work, Bates argues that since members of a family do not cluster in a single village, when an injury is inflicted by one family upon another, the dispute often divides the residents of villages, which goes against their interests. This creates incentives for a quick and peaceful settlement of the conflict. Religious belief also plays a role—ill feeling generated in others is believed to have the mystical power to bring misfortune upon a person. A variant of this belief is that one person’s ill feeling could lead to collective misfortune in the form of disasters. This creates incentives for the clan to ensure that its members do not inflict harm. Such beliefs change the perceived net gains from violent predation.
However, in the absence of a state, such mechanisms only go so far. As prosperity increases, the temptation to use force to acquire property also increases. So, in such a society, prosperity may increase insecurity. Bates writes, “when control over the means of violence remains in private hands, there can be no development.” This is because to remain prosperous, one must be prepared to fight, and to be secure, it is best to have nothing worth stealing. People would like to have more of both prosperity and security, but the institutions in a stateless society do not allow this.
Bates then explores the relationship between prosperity and security in a stateless society more broadly. His argument proceeds from private individuals allocating their resources between production, leisure, and fighting. Through a model, Bates demonstrates that in societies where coercion is privately deployed for raiding and protection, behavior in equilibrium is likely to entail the unproductive use of resources in military preparations and activity, making it difficult to achieve the first best allocation of resources between work and leisure. This “anarchy equilibrium” exists in kinship polities. Further, as prosperity increases in a stateless society due to improving production, it becomes less likely for the first best allocation to prevail without investment in the means of violence. Bates summarizes this dynamic as follows: “In societies without states, then, the price of prosperity is the cost of preparing for war.” To escape this equilibrium, such societies might seek the introduction of a centralized form of political order, something that would enable them to develop.
Bates then sets out the conditions in which state formation can happen so that it becomes possible to prosper while remaining secure. He starts by recounting the history of the emergence of a centralized state following a period in which a rise in prosperity was accompanied by an increase in violence. Bates then formalizes the argument by introducing an agent “G,” or government, that specializes in the use of violence but refrains from predation and instead employs its power to protect the generation of wealth. Under such an agent, the citizens would refrain from violence, engage in productive labor, enjoy their leisure, and pay taxes. Bates describes the situation in which these choices persist in equilibrium as a “cooperative governance equilibrium.” Analysis of this equilibrium suggests that it can sustain as long as the tax rate is such that private agents are willing to pay and that G finds it sufficiently attractive to refrain from predation. Bates also derives certain conditions in which this political order will collapse. For instance, if there is an increase in G’s prospects off the equilibrium path, it would choose predation. Similarly, if the private agents’ military capabilities relative to those of the government increase, they may choose predatory violence.
While the creation of a state is necessary for development, it is not sufficient. Those who preside over the state can themselves turn predatory. Bates then turns to building a theory of “restraining the Leviathan,” delineating the conditions under which the state does not turn predatory and remains focused on enabling prosperity and security.
The first part of this theory focuses on the incentives that shape the behavior of the bureaucratic institutions comprising the state. Bates shows that the state is more likely to be developmental when politicians preside over bureaucracies that are: longer-lived than their members, with overlapping generations serving at the same time; marked by a division of labor with mutual interdependence between generations; hierarchical (with the possibility of growth for the juniors); and rule-governed. Through a model of a leader and a deputy (who is looking to become the leader later) working with rules, Bates shows how these conditions are sufficient to make those ambitious for power willing to sacrifice economic consumption to secure political office, with the consequence that they obey a set of rules that provides a stable environment for investors. Bates shows that for a certain tax rate, the equilibrium strategy for both leaders and deputies is to “obey the rules.” Bates also shows that this requires that the “shadow of the future looms sufficiently large to constrain present behavior.” If the horizon shrinks—the discounted future returns of being a leader become lower than the level of ambition—those leading the state could turn predatory.
The other part of this theory of when state power is restrained focuses on the government’s need for income. Bates shows that a government’s need to bargain grows as its tax base becomes more mobile. Taking the example of England under Edward I, Bates shows how the taxation of trade and moveable goods marked a qualitative shift in the relationship between the crown and the taxpayers. While the taxes on trade and moveable goods were much more lucrative than other taxes, they were also easier to avoid. So, the crown had to bargain with the taxpayers. This created an impetus for political representation, which is a mechanism of consent. France chose to rely more on direct taxes. Certain corporate forms emerged—among other purposes, these served as mechanisms of cooperation and consent in tax matters with the monarchy. All this worked to moderate the predatory use of force by the monarch.
In chapter 7, Bates turns to a puzzle regarding the politics of structural transformation. On the one hand, in a developing country where agriculture has a large share in the economy and employs the largest number of people, why does the polity support policies that depress the relative prices of agricultural products, thereby boosting growth in industry and facilitating structural transformation? On the other hand, in developed countries where agriculture is a small contributor to GDP and employment, why do many governments champion the fortunes of agriculture by, for example, subsidizing agriculture? This disconnect between the economic contribution and the political prominence of sectors of the economy is a puzzle that many have tried to unpack. Bates sets out to unpack this puzzle through a model that, while based on individual farms and firms, generates political winners and losers at the sectoral level. At the core of the model stand “interest groups” rather than sectors. Bates’s model is built on the assumption that the actors are both producers and consumers. So, while forming a coalition to seek a price rise, any group has the incentive to exclude those other groups that produce things that form a large part of the consumption basket of the group. Food forms a large part of the consumption basket of the average household in developing countries.
Bates shows that in a simply stylized relative prices game, strong incentives exist for the formation of a winning coalition that consists of more than half but less than all of the industrial groups. The groups that are excluded are those whose goods comprise the highest share of a typical consumer’s budget. Among them are farmers. In developing countries, food is a large part of the consumption basket, and while manufacturing firms are specialized in specific products, farmers typically do not specialize. They produce several crops during the course of a year, and farmers in different geographies or within a geography produce different food products at any given time. Farmers are therefore unattractive coalition partners—if they get a price rise, it would be costly to all other coalition members. As an economy develops, the share of food in the consumption basket drops. Food production also becomes more specialized as farmers specialize in particular food items. So, agricultural producers become more viable partners in coalitions seeking changes in relative prices.
In the penultimate chapter, Bates offers a political economy analysis to explain the variety and volatility in the growth experiences of developing countries, as shown by Lant Pritchett and others. Bates focuses on the link between political instability, political risk, and economic performance, illustrating how varying degrees of political insecurity can generate the growth paths traced by many developing economies. He uses the standard Lewis two-sector model of the economy, in which development results from the movement of resources from the less productive “informal” or “traditional” sector to the “formal” or “modern” sector of the economy. Bates argues that modern firms are more productive but also more vulnerable to predation because they are more visible.
When a polity turns predatory, it often targets the more productive formal sector. The citizens choose whether to operate in the formal or informal sector. The a priori distribution of the government’s type and of its policy choices determines the citizens’ assessment of political risk and thus the growth of the economy. The government’s decision to predate or exercise restraint then sends signals, which the citizens respond to. The government’s predation generates immediate benefit for it, but restraint enhances political optimism, encouraging citizens to enter the formal sector. An opportunistic government trades off the immediate costs of restraint against the benefits of future predation. Its strategy mixes predation and restraint. In addition to the impact on growth, the government’s decision also impacts inequality—if a government becomes more predatory, it feeds inequality because those in the formal sector get a premium for the risk of predation, thereby raising the income difference vis-à-vis the informal sector.
This book is the culmination of a body of work that Robert Bates has developed with his co-authors over many years, but it is also built on a vast amount of work by anthropologists, historians, political scientists, economists, and others. The analytic narrative approach championed by Bates and others requires substantial, high-quality case material that lends itself to the creation of formal models that can yield insights into development. In the conclusion of the book, Bates writes that a major goal of this book was to “place politics at the center of development studies.” A careful reading of this book compels us to agree that Bates has succeeded in this effort. However, the broader trends have only changed marginally. While in recent years we have seen more “mainstream” works on the politics of development than we did earlier, much of the discussion on development is still quite innocent of politics.
—By Suyash Rai