The Interaction of Land and Economic Reforms in the Modernization of Chilean Agriculture

• Development Workshop

Date and Location

Tuesday, June 12, 2018, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

This paper analyzes the interaction of land and economic reforms in the remarkably rapid transformation of the Chilean agriculture sector in the second half of the 20th Century. The sector was technologically and organizationally backward until the mid-1900s, producing behind tariff walls almost exclusively for the domestic market and then, in a short period, became an advanced sector exporting high value products to diversified international markets, with corresponding changes in farm management, labor, and upstream and downstream linkages. In analyzing the forces that contributed to the rapid growth experienced by Chile’s agricultural sector, I place special emphasis on land reform, i.e., its causes, design, and implementation and its role in bringing about agricultural modernization.

Land reform was largely justified as an effort to increase efficiency on Chile’s large farms. Many have argued that land reform caused a sharp decline in output and decapitalized agriculture, causing long run damage. I argue that it had positive effect on economic growth in both the short and longer term. Land reform was largely a political event, intended to reduce the economic and political power of the landed elite. It largely achieved that goal, but it had its most profound and lasting effects by radically changing the institutions that formed the “incentive structure” (North, 1994) of Chile’s rural sector. Whether land reform was either good or bad in an economic policy sense is difficult to judge, as the benefits and costs are complex and require subjective judgment. Moreover, other important events like the fruit boom and the subsequent economic reforms strongly affected the results of land reform, making it difficult to identify or evaluate the precise effects of any single event. This paper explores these issues and, in doing so, reflects on how and why Chile’s agricultural sector evolved as it did, and why its evolution was so distinct from those of the agricultural sectors that underwent land reform in several Asian countries.