A National Compensation Policy as an equilibrium to achieve stability, efficiency and fairness

Part 5


1. Introduction

What is the glue that holds conflicting economic and social forces together? One of the implications of this question is whether there is a practical correlation between supernatural interventions in order to coordinate human behaviour in human interactions. However, because we are not dealing with abstract issues in real life interactive situations, we need practical explanations. Is it the constitution or laws which coordinate human efforts and conflicting social and economic interests designed to ensure the economy is fit and better able to realise its growth potential in a balanced manner? Interestingly, constitutions and laws are merely words on pieces of paper.

David Hume holds that a social contract holds together like a drystone wall or a masonry arch. In Ken Binmore’s words, the same idea is expressed by saying that the rules of a stable social contract succeed in coordinating our behaviour on equilibrium. This profound assertion terminates the need for a social equivalent of abstract mental inventions intended to explain practical interconnections of physical phenomena. In a sense, there is nothing beyond the natural physical world or a supernatural creative intelligence lurking behind that which coordinates human effort.

For a social contract conceived for expropriation and compensation to be operative – stable, efficient and fair, it needs consensus coordinated on a particular equilibrium. This equilibria framework would enable agents to cooperate and coordinate their actions in situations where the pursuit of self-interest prevents this. In the context of policy framework, a structural reform on compensation would create a necessary framework where human beings would cooperate and coordinate efforts. In order to create equilibrium, it is crucial for policymakers to determine the rules of negotiation in detail as well as to level the bargaining area. In order to hold together, the three (3) levels of priority that are key to creating a conduce compensation environment are:

  • Stability,
  • Efficiency, and
  • Fairness.

In order to realise these 3(three) priorities Lesotho has international and national obligations to create conducive conditions to level the playing field. These conducive conditions may include formulation, adoption and implementation of policy, legislative and other measures, to the realisation of the right to conditions that will enable development. In this particular instance, compensation for expropriated lands is the primary focus. Expropriation process is a game which needs to be stable, efficient and fair, most importantly because there is a pressing and substantial need to protect the rights of the vulnerable people whose land is to be acquired.

2. Stability

Any social contract needs internal stability to survive and thrive. Its efficiency depends on its stability. Stability, together with efficiency of any interactive system is essential in determining its fairness. An appropriation process is a game in which people (often juristic and natural) of different bargaining powers plan to achieve particular pay-offs. In this game, each player has a set of strategies in order to maximise the outcomes. An equilibrium would be reached when a profile of strategies from each are perfect replies to the strategy of another.

There are two important reasons why expropriation games should be played at equilibrium. The most important reason is that pay-offs, given the existing legal framework, correspondent to how fit the players are and this process has most often favoured the most fit at the expense of the less fit. The second is that there is a need for common knowledge among players in order that there be a rational solution. With much left to the discretion of the fittest, the other players cannot play optimally.

For example, Section 39(1) of the Lesotho Highlands Development Authority Act, 1986 gives the LHDA power to enter and take possession of any land or exercise any right or power conferred upon it by the LHDA Act before any conveyance or ascertainment of the price or compensation for the land or right or interest in the land is done. The proceeding subsections then place the whole compensation substratum to the expropriating authorities. As could be ascertained, such a framework already gives an unfair advantage to the most capacitated player which a threat to the stability of the compensation mechanism given that each player often maximises his or her outcomes.

3. Efficiency

The moment an expropriation process kick-starts, the first priority is stability which is crudely modelled using an idea of equilibrium in a game. The next priority is efficiency, which means nothing gets wasted. In other words, nobody should be better off while someone else becomes worse off.

An interesting observation was made in Latin America where compensation for expropriated land was deemed extremely high. A typical example is from Sao Paulo, Brazil where compensation was deemed 30 times higher than the market value. This led to a situation where the expropriator, which was the municipality, came under severe debt. This also created a market where investors could hold on to land strategically located land since they knew they would be very well compensated during expropriation process.

The inverse is true in Lesotho; the expropriating authorities are accused of paying a pittance. This has illustrated a core issue of expropriation; it was done on a free and open market. Unequivocally, due to the unavailability of clear and consistent policy and regulatory guidelines on how to calculate compensation, the system has been inefficient. The utility of the compensation policy is two-fold: to protect the interest and livelihood of those who are dispossessed and to protect the interest of the expropriating authority.

4. Fairness

Fairness lies at the heart of human notions and conceptions of justice. Stability of any given social contract dictates the need for a situation where opposing forces or influences are balanced. The desire for an efficient system where nobody gets better off at the expense of someone getting worse off assists in solving this problem. Essentially, a compensation framework would provide equilibrium where land expropriators and land holders coordinate.

In different interactions and situations, fairness, equality and reciprocity are paramount. If there is reciprocity then reaction/response to a friendly action is more favourable and cooperative. This predisposition precedes a situation where each player has his or her own self-interest to protect. Conversely, where the law gives players so much latitude, the less fit tend to suffer and mostly, these are the vulnerable and the ones whose livelihood is being threatened.

A compensation policy would ensure that at least the playing field is fair and equitable. Essentially, a compensation policy and law would engender a situation which at least has structural fairness. What fairness and equity are may be different to different people especially when unpredictable and complex human factors and external forces such as individual character, societal norms and religious beliefs are considered. However, at least a common departure point with an element of certainty has to be put in place where rational human beings interact and when it comes to decision making.

A compensation policy and law would assist in overcoming basic human instincts like self-interest. It would also assist in restraining the economic interests of the expropriating authorities or any third party corporate entity acquiring the expropriated land. The law and policies find their relevance at the centre of all conflicting interests. The law sets in to divert self-interest from either party fairly to avoid chaos. The structural regulatory framework would exist to encourage a more altruistic human nature which promotes fairness, equality and reciprocity.  In this regard, a compensation policy framework shall guarantee participation, transparency and access to information to the affected persons and the public at all, in all stages of the compensation process

5. Conclusion

The analysis aims to highlight that the expropriation process would suffice in a conducive environment which is stable, efficient and fair. An expropriation process must be stable for it to survive. The expropriation process further needs to be efficient to avoid any player gaining undue advantage over the other; this is to ensure that nobody gets better off at the expense of someone else being worse of. Effective and fair compulsory acquisition cannot exist without good governance and adherence to the rule of law. Without an existing legal framework to pin down the interest on the vulnerable to, the expropriating authorities have so much discretion and latitude to act dishonestly and unfairly to gain advantage over the vulnerable.

As stated earlier, it is reiterated that in the context of a policy framework, a structural reform on compensation would create a necessary framework where human beings would cooperate and coordinate efforts fairly. In order to create equilibrium, it is crucial for policymakers to determine the rules of pertaining to who will be compensated, how compensation will be calculated and what compensation will be in order to foster a stable, efficient and fair arena.

Under the Department of Social Justice, the Transformation Resource Centre (TRC) identified a problem with the compensation after expropriation scheme and it is advocating for structural reforms in that regard. That is to say, TRC is promoting and advocating for designing and adoption of policies and regulatory framework to ensure that the compensation schemes for expropriation are fit and able to realise the need to balance the economic need to improve the infrastructure or to engage in development projects without leaving the most vulnerable worse off. To this extent, the TRC has a draft National Compensation Policy ready to assist the government. The current essay is one of the 5 essays to be published as a series for 5 consecutive weeks. The purpose of these essays is to analyse and explain how expropriation of land and property are undertaken in an effort to clarify the dire need for formulation of a uniform comprehensive framework to influence stable, efficient and fair compensation practices.