Introduction
The term “Asian Tigers” has come to mean fast-growing economies engaged in the production of high-technology products such as cars and computer chips using complex manufacturing processes. Consequently, economic development has come to mean becoming a manufacturing hub as quickly as possible.
While there is some merit to this view, it also suffers from recency bias. The truth is that in economic development – as in life – there are no overnight successes; the point at which the world sits up and takes notice of a phenomenon is always long after the mechanisms for its emergence have begun to operate. And so it is with the Asian Tigers; to date their pre-eminence from the take-off of their industrial production is to mistake the iceberg for its tip.
In this article the author intends to show that the path to Asian dominance began in agriculture – and in small-scale, rural agriculture at that (as opposed to large-scale, plantation agriculture). The article follows on from last week’s discussion, in which the author posited that such small-scale agriculture is one solution to our country’s greatest economic problem – unemployment.
What happened in Japan?
Prior to the start of the Second, so-called “World” War, almost half of arable Japanese land was rented out to farmers, so that 70% of farmers rented out at least some of their fields. Rents were steep – amounting to 50%-60% of crops.
There then followed what has been called “probably the most complete and drastic land reform in history.”[i] A 3-hectare limit on farm sizes was imposed: 2 million families lost land, and about 4 million families gained land. In addition, the reform law restricted the sale of land after redistribution was complete. The central mechanism for achieving this redistribution was localised land committees on which local tenants and owner-farmers outnumbered landlords. As a result, nearly 40% of cultivable land changed hands.
(It is necessary for us to pause briefly in our narrative here, and take off our hats to the memory of the man on whose advice this land reform was carried out, Wolf Ladejinsky. It was written of Mr Ladejinsky that he had “an abiding intolerance of avoidable poverty.” Such holy indignation should suffuse us all, and every economic advisor should aspire to achieve at least as much good as Ladejinsky did.)
Although landowners were compensated using 30-year bonds paying 3.6% interest, the land was valued at below-market rates.
The government of Japan then provided support to farmers in the form of rural infrastructure, an extension worker per village, and relatively low-interest credit.
The results were dramatic. The average annual rate of increase in agricultural production was 3.9% for the years 1951-60, so that total output increased by nearly half. Japan became self-sufficient in food, and rural employment boomed – 40% of employment was agricultural in nature during that time.
Agricultural production laid the foundation for Japan’s economic miracle. It resulted in economic development with high levels of equality (due in part, no doubt, to land redistribution) and provided a jumping-off point for the growth of manufacturing capacity in rural towns. Local firms learned critical lessons from rural population with whom they had a natural cultural affinity; Toyota and Nissan, for example, grew by building robust cars for unpaved roads after World War II.
What happened in Taiwan?
Taiwan’s own lift-off began in 1953 with – predictably – land redistribution. Landlords who owned more than 3 hectares of land had land in excess of this amount expropriated. Once again – and again on the advice of Wolf Ladejinsky – village-level committees – that included tenants – oversaw the redistribution process. Landlords were compensated at less than market value, using low-yield bonds. Tenants, meanwhile, got the land virtually for free, because they paid for the land over a 10-year period in instalments that were roughly equivalent to the annual rent that they had paid to the landlords.
The short-term effect of this land reform, it has been estimated, was equivalent to 13% of Taiwan’s GDP passing from one group of people to another; whereas slightly more than 30% of agricultural land was farmed by owner-farmers in 1945, by 1960 64% of the land was cultivated by owner-farmers. The nation’s Gini coefficient fell from 0.56 in the early 1950s to 0.33 in the mid-1960s.
The Taiwanese government added to this auspicious start by investing in rural infrastructure, and by significantly ramping up agricultural extension. It also providing marketing support, in part by guaranteeing minimum prices for export-oriented produce, limiting farmer risk. Foreign aid was harnessed to develop high-yield varieties for traditionally-grown crops, and to market alternative high-value crops.
The long-term effects of these combined efforts were as or more dramatic. Per-hectare yields of traditional crops like rice and sugar went up by half. Yields of specialist fruit and vegetables doubled. Processing of foodstuffs, which began with sugar and moved on to asparagus, mushrooms, tropical fruits and other crops, constituted Taiwan’s baby steps at “manufacturing” for export; in the 1950s, raw and processed agricultural goods comprised fully two-thirds of Taiwan’s export receipts. So significant were farmers’ earnings that their savings helped build Taiwanese factories. Real farm incomes more than doubled in the 1950s, so that farmers themselves were the key market for early manufacturing output.
What happened in Korea?
In 1945, slightly more than 10% of South Korean agricultural land was farmer-owned. Land reform legislation was (reluctantly) signed into effect in 1949, and redistribution was completed by 1952. Once again, a 3-hectare retention limit was imposed. However, South Korean land reform differed in one important respect form land reform in Japan and Taiwan – it was far more centrally-managed, so that there was far less tenant farmer participation. As a result, a large amount of land was sold by landlords outside the reform process – including to their own relatives. In addition, tenancy reappeared in South Korea, such that by the late 1970s 25% of agricultural land was tenanted once more. Despite these obvious drawbacks, owner-farmers increased from slightly more than 10% in 1945 to over 70% in 1964.
Initially, output did not increase as fast as it did in Japan and Taiwan, because the South Korean government forcibly procured rice at less than the cost of production. After the 1961 coup, the government raised procurement prices, increased investment in rural infrastructure and established domestic fertiliser plants. Rice yields then rose from 3 tons per hectare in the mid-1950s to 5.3 tons per hectare in the mid-1970s.
Korean outcomes were not as spectacular as outcomes in Japan and Taiwan. This lends itself to two important lessons. The first is that half-hearted land reform will result in sub-optimal outcomes. Secondly, even well-managed, decentralized land reform is insufficient to cement explosive growth; market support, extension services and investments in rural infrastructure are key.
Nevertheless, it is still the case that Korean agriculture gainfully employed vast numbers of people until industry was ready to absorb them. Korean agriculture also provided cheap food to urban workers through subsidised state procurement, and it generated considerable local consumption for the early output of Korean manufacture. It also removed the necessity to import food.
What happened in China?
The land reform phase of China’s development story was violent in character. In 1947, 10% of the rural population held approximately 70%-80% of the land. It is estimated that the death toll arising from forcible land redistribution was in the hundreds of thousands – possibly in the millions. This bloodshed is the only metric this author has to measure the extent of redistribution. It is worth noting that the motivation of land redistribution was what gave the communists victory in the Chinese civil war.
Next, the Communist Party of China instituted a more progressive tax regime that allowed farmers to keep more of their produce than had been allowed previously. Mutual aid groups were formed to share machinery and draft animals. Land reclamation and irrigation works were undertaken at the village level, and the first rual cooperative banks were established.
As a result, output rose by 40%-70%; grain output rose from pre-World War II levels of 140 million tons per annum to 200 million tons per annum. Chinese farmers an unprecedented “holiday from want” that was remembered as a golden era by older Chinese for decades.
There then followed a tragic interregnum, occasioned by Mao Zedong’s obsession with collectivisation. Twenty years of development were lost. (Before we point fingers at the Chinese, we would do better to remove the log in our own eye, for we have lost more.) In a sad and sordid episode, 30 million Chinese lives were lost as a result of the attempt to implement Chairman Mao’s Great Leap Forward. Not until the accession to power in 1978 of 74-year old Deng Xiaoping – a leader none other than Lee Kuan Yew spoke highly of – did China’s growth trajectory resume. Through the reinstitution of household farming on plots of just over 1/3 of a hectare (just under one acre), grain output grew from 305 million tons (1978) to 407 million tons (1984) to 500 million tons (late 1990s). Farmers did have to sell a share of their crop at a fixed price to the state, so that it could feed its urban population cheaply.
The government supported this growth by providing extension services, as well as storage and marketing services. In a crucial lesson for Kenya, the Chinese government prevented private traders and moneylenders from cornering the profits of farming. Chinese rice and wheat yields are among the highest in the world – 70% ahead of what is achieved by scale farming in the United States[ii].
Conclusion
The mists of time have no doubt obscured the lesson that economic growth in East Asia was first of all agricultural in character. The author hopes to have demonstrated that the widely-envied economic lift-offs of these countries was kick-started by agriculture – indeed by small-scale agriculture. In other words, “Made in Taiwan” was preceded by “Grown in Taiwan” or “Produce of Taiwan;” it was then succeeded by “Grown and packed in Taiwan,” followed by “Grown and processed in Taiwan”, before culminating in “Made in Taiwan.” Successful East Asian economies lend credence to Michael Lipton’s dictum: “If you wish for industrialisation, prepare to develop agriculture.”
In the next article this author will attempt to discuss the policy implications of adopting this approach to development in Kenya.
The author – indeed the world – is indebted to Dr Joe Studwell and his phenomenal book How Asia Works: Success and Failure in the World’s Most Dynamic Region for all of these insights. I have received his extraordinarily kind permission to share just a few of the insights from that book here. The entirety of his book, however, should be in the minds and on the shelves of all self-respecting development practitioners, and development-conscious citizens as well.
[i] Ohkawa, K. (1961) “Significant Changes in Japanese Agriculture Since 1945,” American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 43(5), pages 1103-1108.
[ii] In 2021, Chinese wheat yields stood at 5.74 metric tons per hectare compared to 3.34 metric tons per hectare for the United States – a 72% difference (World Agricultural Production, United States Department of Agriculture.)