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A Case Study on Land Law In Thailand


A secured loan has important advantages for the lender. The first is that without collateral, a lender may have difficulty in forcing a borrower to pay; however, upon default of a secured loan, the lender is legally entitled to accelerate the loan and demand payment. If the lender fails to pay the whole amount, the lender may foreclose on the secured asset by selling it a foreclosure sale. The process of foreclosure depends on three essential factors: the property right secured by the lender must be legally alienable; the lender must be able to confirm easily that the borrower actually owns the secured property at the time the loan is made; and the legal system must provide a relatively efficient mechanism for the lender to enforce his right to foreclose on the secured asset.(31)

Unfortunately for Farmer B, he cannot offer the institutional lenders his land as security because it is not legally freely alienable.(32) Nor will the bank accept B's land as collateral because his "ownership" rights in the land are too indefinite. In Thailand, as we have seen, roughly 64.4% of the privately utilized land is not legally marketable. These farmers, like Farmer B, cannot use their land to secure loans from institutional lenders. As a result, they are generally relegated to traditional credit mechanisms such as khaifak.

Traditional credit mechanisms charge a higher interest rate than institutional lenders.(33) Three basic reasons explain the higher rate of interest. The first is that traditional sources of capital are generally a last resort for borrowers deemed too great a risk for a loan by institutional sources. The higher rate of interest reflects this greater risk. The second is that these lenders hold an unregulated--traditional lenders are not subject to usury laws--monopoly.(34) Interest rates are high because these farmers have no choice.(35) The third reason is that traditional lenders have a high degree of covariability on their loans.(36) In a given loan portfolio, a high degree of covariability means that the chances are higher that either all loans will be paid or all will be in default. Since traditional creditors make loans of essentially a local character to agricultural producers, the lenders are exposed to the risk of local crop failure. Institutional lenders, by diversifying their loans geographically and to different types of enterprises, have a lower covariability or overall risk on their loan portfolio.

From these factors it follows that the traditional lender--more specifically, the "mortgagee" in the khaifak system--would demand a higher rate of interest, given the greater risk of the loan. Moreover, traditional lenders will also limit the amount of capital a borrower will receive to well under the full market value of the property. Thus the traditional credit system has two effects. The first is to increase the cost of capital to those farms without secure ownership rights. The second is to cap or limit the total amount of the loan. A third possible effect that specifically relates to a khaifak transaction is that the mortgagor is deterred from investing the funds he receives into the land because he is uncertain that he will be able to redeem his land. To this extent, we would expect that most farmers relying on a khaifak system for cash would probably use the funds for current consumption rather than capital investment. All of these effects will inevitably impede agricultural development by increasing the cost of needed capital and diverting capital away from capital investments. As a result, our analysis indicates that the Thai government should emphasize the issuance of secure ownership rights on all privately utilized lands in order to support the commercialization of agriculture.


In the first chapter of this paper we criticized authors within the law and development movement for failing to address and to state explicitly the causal interaction between law and development.(37) We have attempted to untangle the Gordian knot of the relationship between law and development, but have only partially succeeded. Our analysis has shown that the historical process of Thailand's emergence into the world market played a crucial role in creating the context for the emergence of commercialized agriculture; without the Bowring Treaty and the concomitant increase in the price of rice and of land, the process of commercialization probably would have been delayed indefinitely. But, given these changes, the legal innovation of title imposed by King Chulalongkorn helped to further and to deepen the process.

The impact of our analysis on the possibility of the revitalization of the law and development movement is also qualified. Earlier we argued that the relevance of the movement depended on the extent to which one could conceptualize law as an independent, or at least a re-enforcing, variable in the process of socio-economic change.(38) Our case study has shown that law cannot be convincingly seen as an independent variable. Instead law plays a more modest, yet still important, role as a re-enforcing variable in the process of social change. These observations are important for advocates of law and development to keep in mind. Overstating the importance of law leads to absurd practical results and academic scorn. Yet, practitioners can do important work at both a practical and theoretical level if we are sensitive to our field's inherent limits.

Our analysis of the emergence of commercialized agriculture in Thailand has demonstrated our basic theoretical propositions respecting the causal relationship between law and development; in general, law, through the development of a formally rational legal system, and in particular by providing the legal concepts required to provide secure ownership rights, spurred or reinforced the process of the commercialization of agriculture in Thailand. Yet, without increasing demand for rice, the innovation of title would not have led to the commercialization of agriculture. The major way in which law fostered development was through the increased legal certainty and calculability which the title system afforded in the context of mortgages. Secure ownership rights reduced, for those plots of land in Thailand where they was adopted, the hold of traditional credit mechanisms such as khaifak mortgaging and thereby removed them as a barrier to the commercialization of agriculture.


We have used our understanding and interpretation of the Weberian approach to organize the historical data and to analyze the case materials. While other theoretical approaches are not discredited merely by suggesting the plausibility of one approach, we are satisfied that the Weberian approach has greater explanatory power, at least in this context, then either the Marxist or World System approaches.

A Marxist approach would have stressed the alternative explanation that the innovation of title was simply the legal system adjusting in an epiphenomenal manner to the introduction of a capitalist mode of production in the agrarian sector and to the concomitant emergence of a nascent bourgeoisie. While one could understand our case study in this manner, two basic problems plague this type of explanation. The first is that the reforms of King Chulalongkorn were not a culmination of the political ascendancy of the Thai bourgeoisie. Indeed, the reforms have the same flavor as those undertaken in Japan following the Meiji Restoration. In both Thailand and Japan, the traditional elite seems to have led the process of social change for mainly nationalistic reasons in order to ensure their society's independence from colonial power and their continued social and political dominance. Thus, the innovation in title is better understood not as the epiphenomenal adjustment of the legal system to the new economic and social reality of commercialization of agriculture and the political ascendancy of a Thai bourgeoisie, but rather as an attempt by traditional elites to force feed the economy to avoid loss of national autonomy.

The second major problem with a Marxist explanation for this case study is that Thailand has not witnessed a generalized convergence of land tenurial systems along a capitalist model as Marx presumably would have predicted. In stead, as we have seen,(39) Thailand has a continuum of tenurial systems. One can compare the Thai reality with the land holding pattern in the United States, where virtually all privately held land is titled. Perhaps one could defend the Marxist approach by arguing that the process is still under way in Thailand and that, eventually, the Thai system will have only titled land as well. Yet this would hardly conform to Marx's description of a revolution in productive forces--and, thus, in law--that capitalism would inevitable bring to the Third World to knock down "Chinese walls." The Weberian approach yields the more plausible explanation that the legal innovation of secure ownership rights, acting as a re-enforcing variable, will only be adopted where the underlying context for commercialization already exists.

The Weberian theory also seems more persuasive than an explanation based on the World System's theoretical framework. While the continuum in the Thai tenurial system seems to support the general proposition we teased out of the World System approach--that legal systems in the Third World would follow their own model and would reflect the status of the given country's role in the international division of labor(40)--considerations exogenous to the examination of title seem to undermine the whole approach. While the World System approach does not deny some adjustment in the role of a given nation state in the international division of labor, its advocates argue that all gains are essentially a zero sum game. Yet the dynamic capitalist development that has occurred in Asia and, for that matter, in Thailand throughout the last twenty years amounts to more than one area of the world system gaining at the expense of another.

In comparison to both the Marxist and World System approaches, the application of a Weberian perspective to the case study demonstrated the latter's relatively greater explanatory power. Weber's typology of legal systems provided a powerful analytical framework with which we could meaningfully organize the historical data. Kronman's s discussion of the ways in which Weber saw law as affecting social change provided us with the main analytical tools with which to show how title had promoted the commercialization of agriculture. We think that the Weberian approach, envisioning law as a reinforcing variable, has utility in the context of case studies on comparative law and social change.

Part 13


(31) G. Feder cites evidence that the legal system in Thailand does have an orderly process for foreclosure by lending institutions on mortgaged property. Id. at 49.

(32) All of the commentators agree that, despite legal prohibitions on alienation of land held under many of the various types of "ownership" rights, all types of land are sold in Thailand. But land prices reflect the type of "ownership" right under which the plot of land is held. The Feder study shows that the mean land price per rai varies depending on whether the seller holds a "Certificate of Use" or some other less secure document. For example, in Nakhon Ratchasima the mean price per rai for lowland plots varied from 4,210 bahts for plots without a "Certificate of Use" to 11,085 baht for plots with a "Certificate of Use." While in other Provinces the differences are not as great, it seems clear that the market is placing a higher value on land held under a "Certificate of Use" principally because of its value as collateral. Id. at 35. The formal illegality of sales of land held under insecure "ownership" rights prevents banks from allowing farmers to use this type of land as collateral.

(33) See supra, note 29.

(34) G. Feder, supra note 7, at 47-48.

(35) Traditional credit mechanisms offer farmers some important advantages over institutional loans despite their high interest rates. The most important is that these loans have a generally low transaction cost associated with them. Traditional money lenders are usually from the same community as the borrower and, as a result, have a good idea of the credit worthiness of the borrower. Consequently, loans are processed more quickly and the farmer does not have to travel to a outside the community. Furthermore, these costs are roughly the same for large and small loans. If we factor these transaction costs into institutional loans, traditional loans for small amounts may actually be less expensive for a farmers. Id. at 45.

(36) Id. at 48.

(37) See supra, at p. 34.

(38) See supra, p. 34.

(39) See supra, at pp. 44-46.

(40) See supra, at p. 47.