How Asia Works: Success and Failure In the World's Most Dynamic Region
320
How Asia Works: Success and Failure In the World's Most Dynamic Region
320eBook
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Overview
An Economist Best Book of the Year from a reporter who has spent two decades in the region, and who the Financial Times said “should be named chief myth-buster for Asian business.”
In How Asia Works, Joe Studwell distills his extensive research into the economies of nine countries—Japan, South Korea, Taiwan, Indonesia, Malaysia, Thailand, the Philippines, Vietnam, and China—into an accessible, readable narrative that debunks Western misconceptions, shows what really happened in Asia and why, and for once makes clear why some countries have boomed while others have languished.
Studwell’s in-depth analysis focuses on three main areas: land policy, manufacturing, and finance. Land reform has been essential to the success of Asian economies, giving a kick-start to development by utilizing a large workforce and providing capital for growth. With manufacturing, industrial development alone is not sufficient, Studwell argues. Instead, countries need “export discipline,” a government that forces companies to compete on the global scale. And in finance, effective regulation is essential for fostering, and sustaining growth. To explore all of these subjects, Studwell journeys far and wide, drawing on fascinating examples from a Philippine sugar baron’s stifling of reform to the explosive growth at a Korean steel mill.
“Provocative . . . How Asia Works is a striking and enlightening book . . . A lively mix of scholarship, reporting and polemic.” —The Economist
Product Details
| ISBN-13: | 9780802193476 |
|---|---|
| Publisher: | Grove/Atlantic, Inc. |
| Publication date: | 09/01/2018 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 320 |
| File size: | 4 MB |
About the Author
Read an Excerpt
CHAPTER 1
Part 1
Land: The Triumph of Gardening
'I am the son of peasants and I know what is happening in the villages. That is why I wanted to take revenge, and I regret nothing.'
Gavrilo Princip, assassin of Archduke Franz Ferdinand of Austria
Why should land policy be so important to development? The simple answer is that in a country in the early stages of development, typically three-quarters of the population is employed in agriculture and lives on the land. East Asia after the Second World War was no exception. Even in Japan, which began its development in the 1870s with a three-quarters rural population, almost half the workforce was still farm-based at the start of the war. With most resources concentrated in agriculture, the sector offers poor countries the most immediate opportunity to increase their economic output.
The problem with agriculture in pre-industrial states with rising populations, however, is that when market forces are left to themselves agricultural yields tend to stagnate or even fall. This happens because demand for land increases faster than supply, and so landlords lease out land at increasing rents. They also act as money lenders at high rates of interest. Tenants, facing stiff rents and expensive debts and with little security of tenure, are unable to make the investments — for instance, in improving irrigation or buying fertiliser — that will increase yields on the land they farm. Landlords could make the investments to increase yields, but they make money more easily by exacting the highest possible rents and by usury, which adds to their land holdings when debts cannot be paid and they take over plots that have been pledged as collateral. A situation arises where 'the market' fails to maximise output. At the time of the Second World War, this scenario was present — in varying degrees — everywhere in east Asia, from Japan to China to Indonesia.
In conditions of a growing population, low security of tenure and no restrictions on the charging of interest, a market in land arises in which concentration of ownership trumps improvement of yields as the easiest source of income for land owners. The problem has plagued agriculture in poor countries around the world. What is different in some states in east Asia is that after the Second World War they made radical changes to land distribution and structured a different kind of agricultural market. It was a rural arrangement in which market forces tended to maximise output. There has been no equivalent policy change of such magnitude and effect anywhere else.
The vehicle for the change was a series of land reform programmes undertaken in China, Japan, Korea and Taiwan. Although the first was orchestrated by communists, and the second, third and fourth by anti-communists, the objective was the same in all cases. It was, roughly speaking, to take available agricultural land and to divide it up on an equal basis (once variation in land quality was allowed for) among the farming population. This, backed by government support for rural credit and marketing institutions, agronomic training and other support services, created a new type of market. It was a market in which owners of small household farms were incentivised to invest their labour and the surplus they generated towards maximising production. The result was hugely increased yields in all four countries.
Output booms occurred in conditions in which farming was essentially a form of large-scale gardening. Families of five, six or seven people tended plots of not more than one hectare. To most economists, theory dictates that such an arrangement must be inefficient. So-called 'free marketers' and Marxists are united in insisting that scale is fundamental to efficiency. For Marxists in China, North Korea, Vietnam (and Russia before them) this — fatally for millions of people — meant switching household farming to large collectives.
In reality, the question of efficiency depends on what outcome you are looking for. Big capitalist farms may produce the highest return on cash invested. But that is not the agricultural 'efficiency' that is appropriate to a developing state. At an early stage, a poor country with a surfeit of labour is better served by maximising its crop production until the return on any more labour falls to zero. Put another way, you might as well use the labour you have — even if the return per man hour looks terribly low on paper — because that is the only use you have for your workers. A gardening approach delivers the maximum crop output, as any gardener knows.
Try this at home
Fruit and vegetable gardeners will tell you (indeed they may already have done, at length) just how much you can produce on a tiny plot of land if you put your mind to it. What they omit to mention is the grotesque amount of labour involved. The techniques that maximise output in a backyard garden of a hundred square metres are also broadly those that will maximise yields on a small family farm of 10,000 square metres (one hectare, or 2.47 acres).
The list of time-consuming interventions is almost endless. One of the most effective is to start off seeds in trays indoors so that they are only put in the ground for the more rapid maturation process. Soil-bed temperature also greatly affects yields and can be regulated by using raised beds in temperate climates or pits in tropical climates. Compost is most effective when applied with diligence — high-yield fruit and vegetable gardeners deploy fertiliser on a plant-by-plant basis. Targeted watering (taller plants, for instance, tend to need more) and constant weeding also have a big effect on crop size. The most productive plots utilise an almost solid leaf canopy because close planting minimises water loss and discourages weeds; but this rules out access for machines. The use of trellises, nets, strings and poles — all set up by hand — maximises yields through 'vertical' gardening; a single tomato plant can produce 20 kg of fruit. Inter-growing of plants with different maturities saves more space (the cognoscenti place radishes and carrots in the same furrow because the radishes mature before the carrots begin to crowd them out; but then the radishes can only be harvested by hand). Equally, shade-tolerant vegetables like spinach or celery can be raised in the shadows of taller plants to ensure that no space is wasted; but again, this must be done by hand.
The world of the home fruit and vegetable gardener — including that of the contemporary, rich-world family growing its own organic produce — is very familiar to the post-war east Asian peasant family with its mini-farm. Of course each person in the Asian family tends an area of soil thirty or more times greater than that of the hobby kitchen gardener. But the logic of the labour-intensive gardening approach to cultivation is the same wherever you do it: it gets more out of a given plot of land than anything else.
In the United States, as one example, well-managed vegetable gardens yield 5 — 10kg of food per square metre (1 — 2lbs per square foot) per year, which equates to USD11 — 22 per square metre at shop prices. In 2009 Roger Doiron, a blogger for the popular website Kitchen Gardeners International, weighed and checked the retail prices of all 380kg of the fruit and vegetables that his 160-square-metre kitchen garden produced; the garden's retail value was USD16.50 per square metre. That meant a total value from his plot of USD2,200 — equivalent to USD135,000 per hectare (USD55,000 per acre). As a very loose benchmark, the wholesale price of the US's most common and successful crop from large-scale farming, corn, equated to USD2,500 per hectare in 2010.
So why doesn't everyone do it? The problem is that the gardening level of output needs so much labour. If Mr Doiron gardened full time, he might be able to maintain his yields for 1,000 square metres of land. But that would still require ten Mr Doirons to earn USD135,000 across one hectare before costs. Consequently, American farmers are sensible and use big tractors to grow corn on farms that average 170 hectares. Indeed, the agglomeration of US farms, which started out — except in the southern plantation belt — as much smaller units in the early nineteenth century when the country was opened up by immigrants, is the story of gradually rising labour costs and the consequent pressure for mechanisation over two centuries.
After the Second World War, China and the north-east Asian states were countries in which agricultural labour was far more abundant than in nineteenth-century America, and about to become more abundant because of rapidly rising populations. These countries were ready-made for high-output gardening. In Taiwan, for instance, surveys before and after the shift to equalised household farms showed that there was an increase of more than 50 per cent in the work days invested in each hectare of land after the shift. Although the island continued to produce large volumes of rice and sugar, its new boom crops of the 1950s and early 1960s were asparagus and mushrooms — two of the most labour-intensive crops there are. Taiwan, the most successful agricultural development story in the whole of Asia, really is a story that vegetable gardeners can relate to.
Some economists — again, principally dogmatic free marketers and Marxists — argue that even if small-scale household farming can sometimes work, then its principles do not apply to 'cash crops' grown on plantations in some parts of Asia, such as sugar, bananas, rubber and palm oil. It is certainly true that the plants involved require different types of nurture to household vegetables or subsistence crops like corn and rice. Sugar cane, for instance, takes almost a year to grow to maturity and benefits from deep ploughing that can only be done by a tractor. It seems plausible that this kind of crop should be grown on larger, more mechanised plantations. Yet, the sugar yield on small household farms in Taiwan or China has traditionally been 50 per cent more than on pre- or post-colonial plantations in the Philippines or Indonesia. From the 1960s, Taiwan's household farmers were also more successful on the world banana market than those from Asian plantation economies. In colonial Malaysia, surveys of natural rubber production revealed in the 1920s that the yields of smallholders were far higher than those of plantations. Most agronomic requirements which suggest a need for large farms can, on inspection, be overcome quite easily — for instance, by leasing a tractor or sharing one through a co-operative in order to plough sugar land or replant rubber trees. It is striking that in so many countries in both Asia and Africa, such as Malaysia, Kenya and Zimbabwe, where European colonists introduced large-scale agriculture, they actively discouraged smallholder competition by native farmers and subsidised large-scale production, either directly or more indirectly, by funnelling tax revenues to infrastructure that supported plantations. If scale plantation agriculture was so efficient, this should not have been necessary.
The arguments about the efficiency of small-scale farms are not without their complexities. The very high yields achieved in Japan, Korea, Taiwan and China are not simply the outcome of farm size, but of farm size combined with complicated infrastructures that have been set up to deliver inputs like fertilisers and seeds, and to facilitate storage, marketing and sales. Without adequate supporting infrastructure, small farms struggle anywhere, as has been the case after failed land reform attempts in places like the Philippines. It is impossible to say with absolute certainty that radical land reform would have produced the stunning yield increases it facilitated in north-east Asia for every country and every crop grown in east Asia. However, the evidence of what occurred in China, Japan, Korea and Taiwan is powerful: good land policy, centred on egalitarian household farming, set up the world's most impressive post-war development stories.
The merits of abundance
In the first ten to fifteen years following the shift to small-scale household agriculture in successful east Asian states, gross output of foodstuffs increased by somewhere between half (in Japan, which was already the most productive country) and three-quarters (Taiwan). Increases in agricultural output are traditionally represented as important by economists because they lead to increased surplus, which implies more savings which can then be used to finance industrial investment.
However, big yield gains also mean big increases in rural consumption — something that may be even more important when farmers create demand for consumer goods. Famous east Asian corporations from Meiji Japan to post-war Korea and contemporary China made their first millions adapting products to the exigencies of extensive but cash-limited rural markets. Local firms learned critical lessons about marketing from rural populations with whom they had a natural cultural affinity. Examples from Japan include Toyota and Nissan building robust cars for unpaved roads on small truck chassis after the Second World War, or Honda's early 50cc engines being used to convert cycles into motorcycles. More recently, in China, firms have grown to scale through rural markets for rooftop solar water heaters and cut-price mobile phone systems that use existing fixed-line infrastructure.
A third way of thinking about the benefits of agricultural output maximisation is from the perspective of foreign trade. States beginning their economic development never have enough foreign exchange, and one of the easiest ways to fritter it away is to spend more than is necessary on imported food. This erodes a country's capacity to import the technology — usually, machines for making things — that is essential to development and learning. For instance, although poorly understood at the time, a large part of what undermined Latin America's efforts to industrialise after the Second World War was that the region proved itself much better at increasing manufacturing exports than at increasing agricultural output. As a result, as incomes rose and people ate more food — including meat, which is more land-intensive to produce than vegetable crops — different Latin American countries either reduced their agricultural exports or increased their agricultural imports. Either way, the net effect was that agriculture tended to bleed away any foreign exchange that industrial exports (or reduced imports) created. Latin America was undone in the 1950s, 1960s and 1970s by a developmental strategy characterised by what the economist Michael Lipton dubbed 'urban bias', or the tendency of the urban elites that run poor countries to undervalue farmers. Like most developing countries — there are strong echoes of this scenario in south-east Asia today — Latin American states paid far too little attention to agriculture. This wasn't just bad for farmers, it was bad for development overall.
Finally, household farms play a vital, and much under-remarked, welfare role. Poor countries do not offer unemployment benefits or other welfare payments. In periods of economic downturn, the opportunity for laid-off migrant factory workers to return to their family farms is therefore of great importance. In Taiwan, an estimated 200,000 factory workers returned to farming during the first oil crisis in the mid 1970s; similar, temporary de- migrations have occurred in slack periods in recent years in China. Asian countries where land reform has worked have avoided the legions of indigent poor or acres of squatter camps that have characterised nations with larger scale farming, ranging from eighteenth-century Britain to the contemporary Philippines.
North-east Asian states gave themselves the best possible start in their economic development by the attention they paid to agriculture. However, the impetus to development was greater still because of the means by which maximisation of agricultural output was achieved. By giving rural families equal amounts of land to farm, governments created conditions of almost perfect, laboratory-like competition. This was the kind of competition involving large numbers, no barriers to entry and freely available information about which mathematical economists fantasise (and at which many other people scoff because it occurs so rarely). But in this case conditions akin to those assumed by textbook economics were indeed created.
Every family had its bit of capital — its land — along with the ability to access technical support, credit and markets, and so competed on a remarkably equal basis with its neighbour. In the United States, American government support for land reform in Japan, Korea and Taiwan was attacked domestically in the 1950s as socialism by the back door. But it was quite the opposite. It represented the creation in north-east Asia of the most idealised capitalist free market ever established for developing economies. For once, there were no landlords born with silver spoons in their mouths and (almost) no landless peasants without capital; everyone was given the chance to compete.
(Continues…)
Excerpted from "How Asia Works"
by .
Copyright © 2013 Joe Studwell.
Excerpted by permission of Grove Atlantic, Inc..
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Table of Contents
Author's Note,
Introduction,
Part 1: Land: The Triumph of Gardening,
Journey 1: Tokyo to Niigata,
Journey 2: Negros Occidental,
Part 2: Manufacturing: The Victory of the Historians,
Journey 3: Seoul to Pohang and Ulsan,
Journey 4: Across Malaysia,
Part 3: Finance: The Merits of a Short Leash,
Journey 5: Jakarta,
Part 4: Where China Fits In,
Epilogue: Learning to Lie,
Notes,
Bibliography,
Acknowledgements,
Index,
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