A prime example is redistributive land reform, which could provide a foundation for both improving income distribution and raising agricultural productivity in many low-income parts of the world. Not only could land reform directly alleviate poverty in the countryside, but, as pointed out above in the discussion of schooling, the political power of large landholders is often a barrier to change in other sectors of society. Land reform could not only shift the distribution of wealth and income, but could alter the distribution of political power as well.
The equality enhancing impact of redistributive land reform may be relatively obvious, but its productivity enhancing role is not so widely recognized. Keith Griffin, Azizur Rahman Khan, and Amy Ickowitz (2002, p 286), however, make the argument quite effectively. They point out that the
“relatively low ratio of interest rates to wages faced by large landowners [as compared to small holders] encourages them to adopt higher capital-labour ratios in cultivation, i.e., to use more mechanized techniques…Similarly, the relatively low ratio of land rental rates to wage rates faced by large landowners encourages them to cultivate their land extensively, i.e., to adopt lower labour-land ratios…In other words, small farmers cultivate the land more intensively and generate more employment per unit of land. Given that capital is scarce and labour abundant in rural areas of developing countries, the methods of cultivation used by small farmers more closely approximate the socially optimal methods than the capital and land intensive methods typically adopted by large landowners…[Consequently] output per unit of land, or yield, often is higher on small farms than on large. Indeed, there is a great deal of empirical evidence showing that yields vary inversely with the size of farms.”42
Griffin et al also make two additional points especially important here. First, large land holders have and seek to maintain a monopsonistic position with regard to the labor market, and thus they tend to abstain from selling land to small peasants, even when it would seem that doing so would enhance their profits. They are, however, concerned with social control, preventing small peasants (and presumably landless peasants) from having alternatives that would undermine the large land holders’ power in the labor market.
Second, Griffin et al point out that a redistributive land reform would not only bring about poverty reduction in the rural areas, but would also contribute to poverty reduction in urban areas: “The reason for this is the incomes of the rural poor set a floor for urban wages, since no one will migrate from the countryside to the city unless they expect to be at least as well off as before migration. Higher rural incomes will therefore raise the ‘reservation wage’ of the urban poor and this will help to reduce urban poverty.” (p.
42 They cite Berry and Cline (1979) and Cornai (1985) regarding the empirical evidence.