Teddy Bloggie Blog Blogging

Markets are efficient for aggregating information I've been told; makes private information public. It seems the University of Iowa has taken that idea to the realm of politics. They've established a market for political outcomes. Is a market better at predicting the future than polls? I don't know, but I'm looking forward to buying some futures contracts on Kerry.

Brad DeLong's Semi-Daily Journal: A Weblog: Neocolonial Origins of Comparative Development

Neocolonial Origins of Comparative Development
Glaukon: The experience of East Asia does not fit Acemoglu et al.'s story of the colonial origins of comparative development at all well. Both Taiwan and (South) Korea are now rich--but they shouldn't be. Taiwan is almost as unhealthy as Hong Kong for European (and Japanese) settlers, and so sheer settler mortality along should have led to the imposition of "extractive" rather than "developmental" institutions on the island--as it should have in Hong Kong. And South Korea had a highly-productive and highly-developed rice-based agriculture: "extractive" institutions to maximize surplus extraction should have taken root there as well--see Acemoglu et al.'s "Reversal of Fortune." So what's their story?

Thrasymakhos: I think that they can tell a very good story along their lines for (South) Korea, Taiwan--and Hong Kong too. But you have to look later than the colonial period. The Japanese decapitated the landlord class in Korea and Taiwan, and then the KMT decapitated the Japanese collaborator class in Taiwan after it arrived in force in 1948. Both Korea and Taiwan, therefore, started the neocolonial period with very egalitarian and favorable distributions of land--making large scale extraction of resources with the assistance of a local comprador-landlord class impossible.

Glaukon: And?

Thrasymakhos: And then comes the Cold War. It is of the utmost importance to the United States during the Cold War that (South) Korea and Taiwan--and Hong Kong--shine when compared economically to Maoist China. So the United States makes itself as open to Korean and Taiwanese (and Hong Kong's, and Japan's) exports as it is to western Europe's. Plus there is significant economic aid. Plus (in Korea) the demand provided by the American army. An institutional complex more encouraging of "developmental" institutions could hardly be imagined. It's not the colonial origins of comparative development, but...

Glaukon: But it is the neocolonial origins of comparative development. Oh very good, very good indeed!

If this is the neoclassical origins of comparative development, the pattern bodes favorably for China. Foreign direct investment is very high, and land is favorably distributed.

When we visited a few villages in China, it was the land distribution in China that made the largest impression on me. Each farmer has about the same land as her neighbor in per capita terms (have women become the larger contributors to farm labor in China as men have been swept up in the urban migrant working population?).

How did it get so equitable? Well, large scale decapitation and humiliation of Chinese by other Chinese in the Mao-led political movements following 1949, a different experience than that of Korea or Taiwan, is responsible. Land is currently redistributed every five years in some areas (or when villagers come to a consensus), although the central government policy is to redistribute land every 30 years to account for deaths and births and relocations while giving farmers some incentives to invest in their land. These investments include fish ponds, orchards, plus the usual maintenance of irrigation and other infrastructure. As a result, there are very few landless poor in China; they're poor but not sleeping in the gutter landless.

There are some economists who are pushing for the privatization of land and the introduction of land rights so that farmers can sell their land to facilitate the rise of large scale farming and provide capital for the farmer to invest in other activities. Basically, economists are always pushing for markets to take over other institutions. I don't think that's a good idea in China. Clearly, you would have a large number people that would sink into poverty, landless poverty, just by the randomness of markets (they could lose their money in investments, or become jobless after a move to the cities). Right now, villages has their equitable land distribution as their basic social security. When recessions hit urban areas, migrant workers head back to their villages because their families (parents, siblings) have claims to agriculture land. You can still rent out the land in many places, but you can't sell it. The rural land rental market is getting larger and that's good because it will allow good farmers access to more land and will give bad farmers a small monetary reward for leaving farming and find other jobs.

This equitable distribution of land will also serve as a buffer for urban migration. It's going to happen during the process of development - rural households moving to urban areas - but it can't happen too fast. At least a hundred million migrant workers are now helping urban areas develop, working in construction, manufacturing, and service jobs; however, at the same time the numbers are stressing the housing, healthcare, and other infrastructure. If migration rate increased (or, hypothetically, if China had rich landlords who could replace and force workers off the land through mechanization), you would be seeing brazilian style favelas or shanty towns springing up on the outskirts of cities. So far I haven't seen that, which is a really positive sign after 20+ years of reforms.

I think Thrasymakhos is right that equitable land distribution is an important part of development, and it will help to make rural China "developmental" instead of "extractive".