Tianyang Xi
In China, the Heilongjiang province contributes one thirtieth to the agricultural outputs and one fourth to the inter-province sale of grains across the country. In Heilongjiang, most of agricultural lands are cultivated by households separately but are owned and overseen by state farms. Recently, there is an increasing number of disputes regarding the management of lands between household farmers and the managers of state farms. According to the article by the Southern Weekly, both sides have been complaining about sharing too much cost of operation. In particular, the household farmers contended that they were charged heavily and did not get a “fair” share.
In China, the Heilongjiang province contributes one thirtieth to the agricultural outputs and one fourth to the inter-province sale of grains across the country. In Heilongjiang, most of agricultural lands are cultivated by households separately but are owned and overseen by state farms. Recently, there is an increasing number of disputes regarding the management of lands between household farmers and the managers of state farms. According to the article by the Southern Weekly, both sides have been complaining about sharing too much cost of operation. In particular, the household farmers contended that they were charged heavily and did not get a “fair” share.
In economic theory, it is well known that the separation of ownership and control right leads to agency problems. This incentive problem in Chinese agriculture was apparently solved by the adoption of Household Responsibility System in the early 1980s. Under the HRS, the household farmers obtain a significant share of the agricultural yields: the revenue net of tax and state procurement. The majority of the scholarship on Chinese economy seems to believe that the adoption of HRS significantly enhanced the agricultural productivity. However, this claim is essentially made without systemic supporting empirical evidence. Despite the well cited anecdote about heroic farmers in the Xiaogang village, it is unclear whether the adoption of the HRS in the countryside was by and large a voluntary choice by individual households as opposed to a policy imposed by the central government.
An obvious constraint on the development of productivity under the HRS seems to be the under-provision of public goods and the lack of return to scale. While the household farmers complained about too much intervention and extra charge by the managers, they might just maximize individual benefits by free-riding the large system: why pay for roads, irrigation, refurbishment, and security if you could get them for free? Notice that under this hybrid land ownership, farmers contribute only partially to agricultural yields because of their partial ownership. The managerial inputs provided by the bureaucrats at the local level can be significant in determining the total revenue. Without a contract specifying the compensation for the managerial inputs (which is next to impossible), the allocation of expenses for public goods is almost sure to be a source of conflicts.
I do not believe that privatization is a feasible solution in this case. The household farmers lack the human capital for the successful running of large-scale farms. Selling the farms to other investors will cause new rounds of layoffs and the agricultural workers do not have outside options. By and large, I think the story being told makes the case that this hybrid system is actually an equilibrium given what we have got. The reason why it is so explains the limit of its efficiency.
An obvious constraint on the development of productivity under the HRS seems to be the under-provision of public goods and the lack of return to scale. While the household farmers complained about too much intervention and extra charge by the managers, they might just maximize individual benefits by free-riding the large system: why pay for roads, irrigation, refurbishment, and security if you could get them for free? Notice that under this hybrid land ownership, farmers contribute only partially to agricultural yields because of their partial ownership. The managerial inputs provided by the bureaucrats at the local level can be significant in determining the total revenue. Without a contract specifying the compensation for the managerial inputs (which is next to impossible), the allocation of expenses for public goods is almost sure to be a source of conflicts.
I do not believe that privatization is a feasible solution in this case. The household farmers lack the human capital for the successful running of large-scale farms. Selling the farms to other investors will cause new rounds of layoffs and the agricultural workers do not have outside options. By and large, I think the story being told makes the case that this hybrid system is actually an equilibrium given what we have got. The reason why it is so explains the limit of its efficiency.