by Feyi Fawehinmi
I like to think of myself as a fiscal conservative when it comes to economic policy – countries should do their best to spend no more than they earn. Invariably this means small governments. I love free markets and loath governments that think they understand every little detail of how an economy works and thus try to direct it.
This book is very unkind to my econo-political persuasions. Indeed it mocks them and refers to people like myself as hide-bound ideologues by always putting free marketers in quote marks.
Nevertheless I will be the first to admit that the quality of government is not fixed. Perhaps if I had been born a Dane or Kiwi, I wouldn’t have grown up to view big governments as the embodiment of evil that I now think it is. ‘How Asia Works’ [HAW] presents the story of what governments can do to drive incredible economic and social change for good.
One of the first things you realize is that ‘Asia’ is not a particularly helpful term when discussing the economic success of the region. So it seeks to group the successes –Japan, Taiwan and South Korea – together while showing up the rest who haven’t done as well as those 3 – Thailand, Philippines, Vietnam, Indonesia etc. In doing this, we see how often times identical policies (at least in intention) parted ways dramatically when it came to implementation.
How did some countries manage rapid economic transformation leading to them joining the club of rich countries in a remarkably short period of time? The author, Joe Studwell, breaks it down into 3 ‘critical interventions’ – Agriculture, Manufacturing and Finance in that order.
I am writing this from the point of view of Nigeria and we are still way off the last 2 interventions so the rest of this review focuses on the first bit i.e. agriculture and land reforms.
In all the countries under consideration that went from very poor to very rich, HAW shows how it all started from the bottom so to speak. All of those countries had land systems that favored landlords over tenants. So in South Korea for example (before the intervention), 55% of the land was owned by 4% of the people. Backed by the Americans (who were afraid of inequality making people cast a longing eye towards Communism), comprehensive land reforms began in Japan with the government acting as a referee between the haves and have-nots and overseeing the redistribution of land.
Everyone was given a piece of land essentially for free – the rents they previously paid now went to the government – while the former landlords were given bonds for less than market value and which paid far less than inflation. In short, landlords were screwed heavily. This role of government acting as a referee was incredibly important because in the countries where land reform failed like the Philippines, the government left landlords to negotiate redistribution with tenants and left all sorts of loopholes in the policy.
The purpose of this land reform wasn’t simply to feed the people as you might think. It was simply to create as much employment as possible. The government wasn’t really encouraging farming, it was encouraging gardening but on a national scale. So rather than encourage farmers to plant rice in Taiwan, it encouraged them to plant asparagus for export because asparagus used up 2,900 times more labor than rice farming for the same output. Carrots and tomatoes were similarly encouraged for the same reasons. The result of all this employment was to, you guessed it, prime the population to start consumption backed by real earnings or the creation of a ‘consumption shock’ as Mr. Studwell put it.
How did the governments manage to subsidize all this production while maintaining discipline and keeping the corrosive power of corruption at bay? The answer is that even though the government gave hefty support to farmers, almost all support was tied to export growth. You couldn’t, as an entrepreneur, collect support and then claim you were serving the local market while the government protected you from foreign competition. There was no way to hide exports – you were either producing or you weren’t. The success of these policies in Taiwan was stunning to say the least and the evidence is there to be seen today as to how the country does not look anything like a country that started from very basic agriculture – 60% of Taiwan’s exports in the 1960s were agricultural products. Today it exports $300bn+ worth of computers, medical equipment and flat panel televisions. History is not destiny.
Where I started to panic reading the book was when I got to the bits on Philippines, Indonesia, Malaysia and Thailand i.e. the countries that bungled land reform. On every page you see Nigeria. Philippines passed ‘land reform’ in 1988. It is still ‘implementing’ it today. It has done everything but do the real thing that needs to be done. It left landowners to negotiate the transfer of land with the supposed beneficiaries. As stated earlier, the ‘reforms’ were riddled with so many loopholes – people were given extra land for each child they had. Surprise surprise, some people turned out to have very many ‘children’ – as to completely negate the intended effect. When the reforms weren’t working, the government started to doctor the stats so as to give itself a pass mark and ‘move on’.
In Thailand the government took to supporting and creating big agri-businesses at the expense of smallholder farmers. The problem was that in the typical manner of many governments, it ended up creating monopolies that then screwed the small farmers turning them effectively into salaried workers.
Along the way the book also challenges several orthodoxies including;
- Is education a pre-condition for development? The evidence suggests otherwise. At the time South Korea and Taiwan took off, fully more than half of their populations were illiterates. This problem has disappeared today. Could it be that it is economic development that then makes people desire education without being coerced. In fact, education before economic development gives you Cuba, which produces more doctors than it needs leading to the ‘export’ of 25,000 to other countries at subsidized rates.
- Sometimes, something might look like the most socialist of policies but on closer inspection turns out to be something else. Seizing land from rich people looks like something out of the communist handbook but in the countries where this happened, it turned out to be perhaps the greatest free market experiment the world has ever seen – give everyone the same amount of capital/land and fire the starting gun. The results will amaze even the most die-hard free marketer.
- Are big farms always more efficient than small farms? Again the evidence suggests otherwise. Alas this is something that is pretty much unquestioned ‘wisdom’ of which yours truly has always been guilty. A surprise discovery in Malaysia by British colonialists who were trying to fix the price of rubber is one of the more startling revelations from the book. If this is the case, it makes a lot of what passes as agricultural policy in the developing world today candidates for the recycle bin.
Land reform is a purely domestic affair for every government as such it is the best test of how useful a government is to its people. If a government cant get it done, it is unlikely to be able to achieve anything else meaningful. It is also important to understand that land reform is not just about producing food. It is about labour and capital and how it gives everyone in an economy a fair chance of escaping often what is crushing debilitating poverty. This is why in a matter of a generation in the countries that got it right, children of farmers were rising up to the very highest levels in society – General Park Chung-hee and the Hyundai founder, Chung Ju-yung were notable examples of sons of farmers in Korea.
You will tire of seeing examples of the opportunities Nigeria has wasted in this book – there is no way to farm palm oil in a way that is not very labour intensive. Even Malaysia that is a global champion of palm oil production now has to import cheap labour from poorer parts of Asia to produce its palm oil. This can thus kill 2 big birds – poverty and unemployment – with one stone. But today in Nigeria, the palm oil cabal seems totally uninterested in growing any palm oil. It is only interested in collecting a bail out from the government and then tariffing imports to protect its members without having to be disciplined in a way that a focus on exports forces you to be.
The experience of these countries as documented in HAW leaves you asking yourself uncomfortable questions as a Nigerian.
Given how our legislators continue to do the minimum amount of work for the maximum amount of pay whereas in South Korea in 1948, several lawmakers voted for comprehensive land reform against their own interests and the reforming agriculture minister who stood up President Rhee (who was bent on stifling the reforms) was executed after being called a spy of North Korea.
Given the very disturbing similarities between Nigeria and those who failed to get it right and nothing at all in common with those who got it right.
Given how, when a country continues to miss these reform opportunities, it then gets locked in a vicious cycle, which makes reform harder and harder as the days go by. Today, Governors are so powerful and entrenched in the status quo that they reflexively oppose land reform just because.
Given that those who did all the things Nigeria didn’t do have found their way into rich man’s club today despite starting at worse levels than Nigeria – at the time South Korea took, its life expectancy was lower than that of Ethiopia and it was much poorer than Nigeria.
Given all of these things, is there any hope, any at all, that Nigeria can somehow make it into rich man’s club and deliver its people from this cycle of underdevelopment and poverty?
Don’t be silly
The book has a blog here www.howasiaworks.com. It goes without saying; you should buy and read it as soon as you are able to.