The Market Distorting Effects of "Free Land" at Kerinci Seblat National Park

Encroacher dwelling inside KSNP

I just returned from a trip to the field where I visited an area that is experiencing a pretty high rate of forest encroachment.  One of the hypotheses that I had when I started doing my fieldwork is that the park has become a kind of subsidy for the districts around it.  According to this hypothesis, people farming illegally in the park produce commodities that are then sold on the market, which provides income to the district.  At the same time, I assumed that because the park absorbs excess labor, the surrounding districts are under less pressure to spend money for things like job training or other programs that would increase opportunities for those that have none.  Thus I was expecting to find encroachment on the part of small-scale farmers and the occasional industrial plantation that had planted some oil palms or other tree crops in the park on the sly.  I have found both of these, but it is the existence of another driver of forest encroachment that has led me to the idea that I'm going to describe in this post.  In many places around the park where encroachment is rampant I've found that local officials, including district headmen, police officials, army officers, and the higher-ups at the various district offices have actually "invested" in park land; they have opened up land in the park and hired laborers to cultivate it.

The Kerinci Seblat National Park Gold Rush....

Forest encroachment is currently the number one threat to the integrity of Kerinci Seblat National Park.  "Encroachment" means that someone, either an individual or a corporation, clears park land and converts the forest to agriculture.  Thousands upon thousands of hectares of forest land have been lost to encroachment, and the park seems to be powerless to stop the trend.  This has been a problem for a long time, but the trend seems to have increased since regional autonomy laws were passed in the wake of the fall of longtime dictator Suharto in the late 1990s.  These reforms devolved a lot of power to the district governments, which formally had been part of a top-down authoritarian system directed from Jakarta.  Now districts have more control over their budgets and who gets hired to work for the district government.  Also significant is the fact that district assemblies and headmen are democratically elected.

As I mentioned in the introduction, a significant amount of encroachment is indeed done by individuals, and there are some corporations that "cheat" on their concessions (which are often at the edge of the park) by cultivating in the park.  Much of this is because of a lack of enforcement, but to be far the park doesn't have nearly the requisite manpower needed to effectively patrol its 2500-kilometer border.  But I've also found that a great deal of land opened up in the park is "owned" by district officials.  One village secretary in an encroachment-prone area told me as much as 30% of the land was owned by district officials.  These people don't actually work the land themselves; rather they pay laborers to do it.  Sometimes these laborers are other farmers that work the land as a side job, sometimes they are people from outside the region that are attracted to the park because of work opportunities.  These newcomers often become landowners themselves after some time working as laborers.

Much of the park's land is quite fertile because it's never been farmed and the soil is volcanic in origin.  High yields draw people in, but besides that the park land is essentially free in most cases for anyone that wants to open it up.  Thus illegal farmers often experience very high rates of return for short periods of time; I've heard that the standard rule is that people expect a 100% return on their initial investment in a period as short as 2 years.  As you can imagine, with so many local government officials gaining from illegal cultivation, there isn't much incentive on the part of the local government to do anything about the problem.  On the other hand, there is a great deal of incentive to make infrastructural improvements, like better roads, to encroachment areas, because this increases profit by decreasing transport times and costs.  Higher profitability will in turn draw more people to the area to open up more land.  

Encroachment and the Market for Land...

Another phenomenon I've noticed in my fieldwork is that the farmers often use relatively unsustainable, inefficient methods to grow crops.  They tend to use a lot of fertilizer and pesticides, and they really push the land for maximum yields, which in the medium and long term will exhaust the soil making it virtually useless.  There is a lot of erosion as well.  When I ask farmers why they do this they tell me that they don't know any other way to farm.  However there is a small percentage of farmers, maybe 20%, that have actual training in agriculture.  The yields as well as the long-term sustainability of these farmers far out-perform those of their less-skilled neighbors.  This has always perplexed me because this is an agricultural society, and they've been farming for hundreds of years.  Thus I expected that there would be a fairly high level of "traditional ecological knowledge" (TEK) which has been handed down from generation to generation.  But this isn't the case.

I think this is because the land in the park is free, and so it distorts the market value of all the land in the districts causing land to be used in less-than-efficient ways.  If you have to pay for land, you will make sure that you get the most out of it.  But if land is free and readily available, you have less incentive to ensure that the land continues to produce over the long term.  In addition, in most places here the rural population is growing.  Now according to orthodox economic development theory, you would expect to see, in a developing country like Indonesia, people leaving the land to move to urban areas.  They leave because there are no opportunities in the village.  While this influx of people into metropolitan areas comes with its own raft of problems, it provides a ready supply of cheap labor for industrialization and economic development in the city.  And according to the orthodox thinking, while most new city residence will experience a certain degree of misery since they live under overpasses or along train corridors and other marginal places, eventually they will move out of these areas as they integrate themselves into the urban economy.  So it's a stepping stone.  While we observe this dynamic in Jakarta on Java, where all the land has been exhausted, it doesn't seem to be happening to the same degree here on Sumatra.  I think this is possibly because protected forests have assumed at least some of the role cities are supposed to have in the absorption of excess labor.  Instead of moving to the city, people just stake a claim in a national park or other protected area.  I believe this has negative impacts not only for the environment, but from a macroeconomic standpoint for the greater economy in general.

Capital Formation and Development...

From the standpoint of economic development, one key determinant in healthy, growing economies is capital formation.  "Capital formation" refers to "the transfer of savings from households and governments to the business sector, resulting in increased output and economic expansion".  In other words, capital formation happens when surplus income from lots and lots of households is gathered together, forming a pool of money that can be used to invest in businesses.  Theoretically banks play a really key role in this process because people save their money in banks, and then the banks loan out the money to businesses or individual entrepreneurs to invest in some enterprise that will bring greater returns down the road.  So if you have a great idea for a business but don't have enough money to get it started, the idea is that you can go to the bank, convince them to give you a loan, and implement your vision.  Stock markets, at least theoretically, are supposed to operate along the same lines.  Thus according to this minute bit of economic theory, savings rates are very important in economic development.  In fact if you look at analyses of the Japanese Miracle period of development in the 50s and 60s when that country was shattering all previous records for economic growth, or at South Korea and Singapore as more recent examples, you'll find that the traditionally high rates of savings in those countries is considered to be instrumental in the high economic growth rates.


Why is this important for Kerinci Seblat National Park?  Well, I believe there is a strong possibility that the "gold rush" I described above undermines capital formation at the local level.  Since so many people are "investing" in land within the park, there is less capital available to entrepreneurs and other enterprises.  In addition to this, the high rates of return on illegal cultivation skew people's expectations about returns on investment.  Remember, we are talking about a 100% return on investment within 2-4 years.  However, when you invest in a bank the best rate you are going to get is somewhere around 3%, which leads to a 100% return on your investment in a bit more than 23 years.  With the stock market the best you are going to get is 10%, and that's really good, but you only double your money every 7 years at that rate.  So as you can see, it makes more economic sense to invest in park land as long as you can get away with it.  In addition to limiting capital available for economic development, I think the easy availability of free land also probably stymies local creativity; instead of trying to identify a new way to make money people that have a surplus simply open up new land.  At the same time capital formation makes money available to local governments in the form of bonds.  In the US, when a municipality or county government wants to make improvements to say, the sewage system, they probably don't have enough tax revenue to pay for the expensive improvements all at once.  In this case they will often sell bonds to the public, which is essentially a loan.  Thus they can raise a lot of money all at once to pay for infrastructure improvements.  People buy the bonds because there is an interest rate and so they get a return, and because the bonds are issued by the government they feel reasonably confident that there isn't going to be a default.

In Indonesia, at least in the places I work on Sumatra, they don't use the bond system.  Rather to fund projects most district governments, because they aren't able to raise very much money themselves, rely on grants from the central government.  But these funds are directed from the top down; in other words the district government doesn't get to decide what the money is spent on.  I've heard many district officials complain about how funds from the central government aren't consistent with local needs.  And because the money comes from outside the district there is usually a pretty high level of corruption involved (skimming money off the top, inflated budgets, etc).  I think that relying more on bonds would have two positive effects: 1) it would allow the district governments more freedom in deciding how money is spent, and 2) since the debt would be "owned" by local people there would be more accountability in how the funds are spent.  People aren't likely to buy bonds if they know a good bit of the money is going to be wasted on corruption.

This is my current thinking on the structure of encroachment at the park, and though there are a lot of assumptions this model seems to fit all the data I've gathered in the field and everything I've seen and heard while on the ground.  There is a lot going on here, and it will take me some time to really analyze my data to see if I'm right.  In addition, though I have some passing knowledge of everything I've described in this post, much of it, including the parts about capital formation, are outside my expertise as a geographer.  So when I get back to the University of Hawai'i and start writing my dissertation I'll have some work to do to bring myself up to speed on these issues.  But as a working model I think this is pretty good because it goes to show how complex the encroachment problem actually is, and how to really understand it we need to see it in the context of the bigger economic and social picture.