"What difference did China’s high-yield agriculture make in China’s long-term growth and development?"

Shared master's students economics essays for LSE (London School of Economics and Political Science) MSc. 

EH446 Economic Development in East and Southeast Asia series 

For over two thousand years, the Chinese Empire was able to survive almost exclusively on its high-yielding agricultural sector. While many scholars have highlighted the short-term benefits, it is of equal importance to look at the long-term effects that high-yield agriculture had on the growth and development of the Chinese economy. When looking at the microeconomic side of Chinese growth and development, high-yield agriculture created prosperous conditions that had positive effects on the society. However, when looking at the macro aspect of Chinese economics, a different conclusion can be drawn. Many scholars have argued that while growth occurred throughout Imperial China, an emphasis on agriculture over any other sector ultimately stifled further economic development. Before delving into the question of whether long term economic growth and development occurred as a result of China’s high-yielding agriculture, one should first look at the social and economic conditions that allowed for and perpetuated the agrarian sector that is emblematic of Imperial Chinese economics. 

According to Deng, Imperial China was a physiocratic state whose society and economy were heavily impacted by their ability to harness and develop agricultural exploits.  Based upon a peasant-state relationship that was cultivated during the Qin dynasty, the majority peasant population was given land in exchange for loyalty and service to the emperor. That is to say, in order to expand territorial boundaries the Qin emperor employed rural peasants as soldiers and, in exchange for their services, they were rewarded a plot of land. This resulted in a system of ‘Chinese private land ownership’; an institutionalized sense of peasant entitlement linked directly to land ownership. Empire building in the early imperial period was based upon land proliferation and created pareto optimal conditions where the empire increased territory and tax revenue and the peasant class gained land and private property. As a result, Imperial China was largely rural and based on an agrarian or a  ‘customary’ economy.    As explained in his article Development and Its Deadlock in Imperial China, Deng explains that the Chinese socioeconomic structure had “three distinctive economic types - customary, market, and command - […and that] there were three main macrocomponents in the Chinese system” namely a rural sector, an urban sector and a combination rural/urban sector which contained amalgamations of the aforementioned three distinctive economic types. The rural sector made up the largest component of the Chinese economy and was marked predominantly by the customary type of economic activities with a smaller mercantile element.  The latter two, the urban and semi rural/semi urban types, made up smaller components of the economy. The urban type was predominantly mercantilist but also relied heavily on the customary sector for its survival.  The semi urban/semi rural sector was the state-run sector, which exemplified a command economy that “control[led] a considerable proportion of key commodities and their prices.”  It should be noted that, as a result of having a predominantly rural type economy, institutions that would protect private property and land holding would be of paramount importance in the Chinese social-state contract. In this way, land holding becomes part of the peasant endowment and the mass population becomes irrevocably linked to the land and her exploits. Together with institutions and an emphasis on the rural customary economy, the advent of a high-yielding agricultural economy as a hallmark of Imperial China is not surprising. With this framework of the Chinese economy in mind, it is now possible to explain how Chinese high-yield agriculture effected Chinese growth and development from a micro and macro standpoint. 

For the purpose of this paper, I will focus on two main elements that were greatly affected by high-yield agriculture. The first is that, due to an emphasis on agriculture, commercialization at the macro economic level was not able to evolve. At the micro economic level, commercialization did exist but was always overshadowed by the political, social and economic institutions that allowed for and maintained high yielding agriculture.

Throughout Imperial China, China’s economy was “fundamentally private and autonomous.”  That meant that while the state did collect taxes on agriculture, “[they] were normally low and predictable.”   In addition, the state was not responsible for providing welfare nets for its population. Therefore, individuals had to rely on their own productive capabilities to sustain themselves and their families. As a result, extensive land ownership and ipso facto high-yielding agriculture made it possible for peasants to support themselves. This is linked fundamentally with the idea of rational choice. As Deng explains:

“Any equilibrium [of a mixed economy between commerce and agriculture] could only be reached voluntarily by the choices of the majority in society. If voluntary, such choices had to be rational and if rational, then guided by economic incentives. These incentives had to be derived from particular institutions. The Chinese landholding system generated strong incentives for the farmer to stay in agriculture as his lifetime employment.” 

In other words, economic incentives were based upon the Chinese landholding system. In this way, people were tied to their land and would use their productive capacity to favor economic activities that took advantage of their land endowment. Since they did not rely on the state for their welfare, they had to be able to provide for it themselves through farming. 

While agriculture came first, farmers at the village level still needed to buy tools and purchase commodities. This facilitated the existence of local or micro level commodity markets and for proto-industrialization. Due to the ability to produce high yielding crops, many peasants found themselves with leisure time thus allowing them to participate in a wide range of non-agricultural activities. In essence, it was high yielding agriculture that “supported commercial activities in Imperial China whether spare time driven or spare produce driven. Here what the peasants aimed at was not economies of scale but economies of scope.”   While diverse commercial markets did exist at local levels, it should be noted that they did not exist beyond that because there were many disincentives for a peasant to completely rely on commercial activities. Since the livelihood of the peasantry relied so heavily on owning property and farming on it, rational choice pushed people away from becoming merchants or relying on commercial markets. The peasantry was greatly risk adverse and since there was little to no institutional security in sectors beyond agriculture, it discouraged people from increasing their productive capacity in something other than farming. As Deng explains, “to conceptualize this hyper propensity for land ownership, the opportunity costs for peasants to lose land [and hence, to leave agriculture] must have been very high - so high that only extra economic force was able to separate a peasant from his land.”   As a result, despite having entrepreneurial prowess, the peasantry would not leave agriculture and so, China would not see an integrated single market economy. 

Moreover, those that were in the merchant sector were also greatly affected by the emphasis on land ownership. Merchants would use their capital investing in land or education but not on continued commercial enterprise, as this was not seen as honorable. In this way, at the microeconomic level, there was a commercial market or mercantile element to the economic system based upon high yielding agriculture; “Chinese land ownership […] encouraged production, supported commercialization and induced urbanization but only to a degree.”  However, at a macro level, “China’s loosely connected localized markets [did not] converg[e] enough to be integrated into a single market.”   That is to say that the peasant, while being active in local markets, and gaining a surplus wage as a result, had no incentive to fully commercialize and give up the security they had intrinsic in the land ownership system. The opportunity cost of losing their endowment for potential high salaries was too high a risk since the state and economy did not readily support broad commercialization and merchants did not have the same assurances of sustainability, as did the rural agrarian society. In other words, linkages to land ownership pushed would be merchants away from creating larger, more diversified markets and forces the mass population to remain in agrarian modes of production. In this sense, high-yielding agriculture had a long run macro economic tendency to stifle increased and diversified commercialization. This had a profound effect on China’s long run development trajectory. 

The second element being addressed is the effect that a predominantly agrarian economy had on innovative technology as population increased. Due to a rural sector that could produce high levels of staple crops, the Chinese population grew at an alarming rate throughout the imperial period. However, as Myers points out, the “Chinese economy, after the eleventh century, merely grew larger in size”  but did not result in the development of a new production system based in something other than the agrarian model. The macro economic implication for the Chinese economy is that it did achieve growth but actually stifled technological development in that and other sectors. 

Before delving into this discussion further, it is useful to look at the Malthusian analysis of population growth and the subsequent work by Mark Elvin. First, Malthus observed that “a complex relationship among technology, population and available resources in any society inevitably produces two distinct trends.”  The first trend is that, a society’s capability to produce goods and services from a given resource base is directly correlated to the society’s use of increased technology and will cause an increase in living standards. It follows that as living standards increase, this will encourage growth in the population. At a given point, population “presses against the available resource base and the productivity of new entrants into the labor force steadily decline […] gradually lowering living standards.”  From here, Mark Elvin expanded upon the Malthus model to explain “the remarkable market organization and institutional changes that occurred [after the 17th century] and that supported huge population growth without fundamental economic development [could be conceptualized] as a high level equilibrium trap.”   

In other words, when placed in the Chinese perspective, the economy had “achieved impressive improvements in traditional technology alone” so much so that the Chinese economy had achieved very high productivity through the agriculture sector. The Chinese high-yield agricultural system had provided the population with its subsistent needs. At this point, it would follow that as the population grew, this sector would no longer be able to support the population at a subsistent level and this would necessitate a transformation in the technological capacities of the sector to allow for new sustainable capacities. However, as we see, population over growth did not cause for an institutional change nor did it bring about the traditional Malthusian checks on population, i.e. famine, disease - to limit the population growth. Due to the propensity of high yielding agriculture to produce a large enough food supply, the rural sector was able to postpone Elvin’s high-level equilibrium. This creates a situation where, in the macro economy, China saw growth but not an increase in development. By the end of the imperial period, high-yielding agriculture had created a population of subsistence farms.

At the crux of this second element lies the fact that high-yield agriculture truly stifled innovative technologies and prevented Chinese productive capacities to go beyond labor-intensive production. Bray, for example, speaks of Chinese “agriculture in late imperial [period] in terms of stagnation, involution or growth without development. [She] holds that although improvements in the micro-management of farming continued to produce small increases in crop yield, this was at the expense of the productivity of labor.”   

Magnus, via Perkins highlights this reality by explaining that while total grain output did rise in the same proportion as population,  the increase in agricultural yield was not due to technical innovation in the late imperial period. Rather, he, like Bray, characterizes this period as one of “technical stagnation mainly because there was little change in farm tools.”  Perkins attributes this high yield, rather, to the fact that land was under constant cultivation and that this sector was still riding on successful cultivating advancements of highly successful innovative technologies implemented in the Tang and Song periods through institutionalized adjustments. During that time, innovations in hydraulics, diffusion of agrarian practices, and official development of early ripening seeds, allowed for such high-yielding agriculture such as multi cropping of rice. So while these innovations occurred early on, there were no significant changes in the way that the peasantry farmed over several centuries. As Bray explains, by simply adding more labor inputs, agriculture was able to yield more without significant changes in the type of labor technology employed. This is not to say that farming did not undergo transformation, the key is that high-yielding agriculture perpetuated a system that allowed farmers to continue the type of labor they had successfully mastered for centuries without significant change in the skill set required to yield continued surplus. 

To further this argument, Boserup explained, “a distinction may be made between two types of innovations in farming technology - labor saving and labor using.”  In the case of Imperial China, it is clear that we are looking at a case of labor using innovations. Boserup points out that the two types of innovations differ in three important ways, first, “innovations of labor saving technology tend to raise the returns per unit of labor whereas opposite is true of with new labor using technology.”  Second, you would need to use greater amounts of labor to offset the initial disadvantage.  Thirdly, while new labor saving technology required invention in other areas, such as engineering, Boserup explains, “labor using technologies may be first invented in a few pockets of high population density.”  As such, we see that this is compatible with the fact that as the population grew, it was simply implemented into the production of high-yielding agriculture.  So while there was transformation in the cropping systems, Chinese farmers relied on labor intensity and not innovations of mechanized tools to support the growing population. With this emphasis on the use of labor and not on innovative technologies, high yield agriculture led to long run diminishing returns in labor, and diminishing standards of living. 

The high-yield agricultural system perpetuated an ever-resilient rural economy that significantly prevented long run development. While in the short run, “institutions that supported high yield agriculture [were] capable of alleviating short run human suffering, [but] China’s [agricultural…] resiliency prolonged its economic stagnation.”  The first element expresses that, while high yield agriculture did allow for localized markets, it did not allow for further development of commercial markets or non-agrarian sectors.  The effect was that there were no unified Chinese commercial markets and a very limited merchant class. In the long run, high yield agriculture forestalled significant development in non-agrarian markets.  The second element furthers the idea that long run development was not achieved as a result of high yield agriculture. As a result of production being so robust, high yield agriculture was able to support very large populations without necessitating extensive technological innovation. Moreover, since the peasantry could increase crop productivity by adding labor instead of introducing new technologies, there was no incentive to either change the methods of production or improve upon mechanical technology. While in the long run, high-yield agriculture allowed for population growth, it did not allow for technological innovations in this sector and prevented the population from shifting to another sector to sustain itself. In this way, long run development was significantly curtailed. As a result, reliance on high yield agriculture had a two-fold detrimental effect on Chinese long run development in terms of sector (especially commercial) diversity and technological development.  

Chinese high yield agriculture was ultimately more disadvantageous to Chinese long run growth and development. 

JC Economics Essays - This short series on JC Economics Essays is a set of shared economics essays on economic development, shared by my former classmates KVL and TZ with me when we were reading our MSc. at LSE, London, United Kingdom. We shared essays so that we could gain additional perspectives on how to craft good essays to get a high grade for the Master's degree at LSE, and that was a good way of sharing information and material. All the essays were graded highly by Dr Kent Deng, a very excellent and inspirational tutor and lecturer at the LSE when I was studying there. I hope you find the essays on economic development interesting or useful. Special thanks to KVL and TZ (both from the United States of America) for their kind sharing.

EH446 Economic Development of East and Southeast Asia

"In your opinion, was China capable of nurturing its indigenous Industrial Revolution?"

Shared master's students economics essays for LSE (London School of Economics and Political Science) MSc. 

EH446 Economic Development in East and Southeast Asia series 

Introduction

This essay aims to evaluate whether or not China was capable of nurturing its indigenous Industrial Revolution. In order to answer this question, it is important to first clarify the question by defining ‘indigenous Industrial Revolution’ and explaining what is meant by ‘capable.’ This essay will treat China’s ‘indigenous Industrial Revolution’ as the great achievements in science and technology during the Northern Song period.  ‘Capable’ is considered to mean China’s inherent ability to maintain and invigorate its technological momentum in the absence of outside forces (most notably, the pressure from Tatars and the Mongol invasion in the thirteenth century).

This analysis begins with a summary of the product and process innovations leading up to the thirteenth century, followed by the shift towards extensive-type growth in agriculture, transportation, and economics. An explanation of the role of the state will follow, highlighting the differing roles of ideology, competition, and science in order to compare the Chinese and British cases. Using the structure defined above, this essay finds that China possessed both inherent strengths and weaknesses for cultivating its indigenous Industrial Revolution. The positive factors that led to significant technological advancements in the Northern Song period persisted, as did economic (extensive) growth in the years that followed. China lost its ‘edge’ when intensive growth slowed due to government (dis)incentives and a lack of competition. By considering the debilitating impacts of these internal factors , this essay concludes that it would have been difficult for China to foster its own Industrial Revolution, even in the absence of foreign struggles.

Intensive Growth during the Northern Song

China’s great achievements during the Northern Song period did not happen overnight. Song success was the result of a long period in which a “well-functioning” system developed; by 300 B.C., China “had many characteristics of a market economy.”  From that point through the early twelfth century, an industrial revolution was in the making. Scholars point to China’s early arrival on the scene, predating the British Industrial Revolution by centuries. 

The Northern Song period witnessed the invention of many products including massive ships, the compass, and military tools.  As John Hobson points out in his critique of Eurocentric writers, objects designed for large-scale conflict and exploration were not the only innovations during this time period. While useful for military technology, iron was also used to produce commonplace items such as shovels, stoves, and nails.  Iron was not alone in its versatility; paper was also used widely in China before reaching the West, for such disparate functions as wallpaper, money, shoes, and even military armour. 

In addition to the various new products that surfaced during the incubation of China’s Song Revolution, many process innovations also occurred. Metal treatment technologies such as smelting, confusion, oxidisation, and decarbonisation were mastered during this period, rendering Chinese cast iron production and metallurgy practices less expensive and more diverse.  In the textile industry, the introduction of spinning wheels using hemp and silk marked a great procedural improvement in this field.  It was these technological innovations in products and methods that stimulated China’s economic growth through the Northern Song period.

Extensive Growth during the Southern Song and Later

During the transition from the Northern Song to Southern Song period (in the early twelfth century), economic growth continued but its foundation shifted; society was no longer propelled by the innovative vigour of the preceding years. By the time the Ming Dynasty came to power in 1368, a new trend had emerged. In The Lever of Riches, Joel Mokyr identifies the sources of this new kind of growth as the “expansion of internal commerce, monetization, and the colonization of the southern provinces,” also noting the growing population and agricultural “intensification” that continued through the nineteenth century.  

Agricultural “intensification” efforts differed from the agricultural inventions of the Northern Song period in that they were not unique, novel creations. In most cases, such efforts were manifested in the form of small improvements to existing products or practices.  In his article, ‘The Needham Puzzle: Why the Industrial Revolution did not Originate in China’, Justin Yifu Lin cites some examples, including the share plow for creating furrows in soil and the introduction of Champa rice to be grown in the southern provinces.  Seed drills, weeding tools, fertilizers, and pest control also emerged during this time. 

As the population shifted southwards and agriculture adapted to gain the most from this territory, transportation capabilities were also bolstered. The Chinese used internal waterways to send coal, iron, and steel south to meet the demand from these provinces.  In addition to the physical infrastructure, fiscal systems were also created to tax and regulate internal and international commercial activity.  The change from China’s intensive economic growth during the Song technology boom to the more extensive pattern in the years that followed was not simply a function of northern aggression and natural conditions. Institutions, ideologies, and methods of innovation also played a role in determining why China’s Song Revolution did not follow the same trajectory as the later British Industrial Revolution.

Institutions, Ideologies, and Incentives

The Chinese government played an integral part in the state’s economic development. Agriculture flourished in part because of government incentives and advantageous loan conditions.  The close alignment of the state apparatus with the economy created a kind of symbiotic relationship between the Chinese government and science and technology: when the state was strong, innovation thrived. In their essay, ‘The Evolution of Chinese Science and Technology’, Jin Guantao, Fan Dainian, Fan Hongye and Liu Qingfeng cite an example of this in the textile industry – noting that textile technology blossomed during the successful Song period, but then “degenerated as the dynasty collapsed and upheaval and destruction set in.” 

Scholars who attribute the stagnation of the Chinese Industrial Revolution to restrictive state action have been criticized for exhibiting a Eurocentric bias.  While this may be a valid contention, it is important to note the shift in ideology when the Ming Dynasty came to power. “Obedience” and “conformism” have been used to describe key values that prevailed during their rule.  John Hobson attributes the 1434 Ming ban on foreign trade to a return to Confucian principles; he asserts that it was more important for the Ming rulers to maintain the ban in theory in order to retain regime legitimacy, while the ban was loosely enforced in practice.  

One critical difference between the political climate of the technology revolutions in China and Britain was the lack of competition in the Chinese case.  The absence of public debate and a competitive market during the Ming slowed the type of accelerated growth that had been achieved during the Song and that was later seen in the British case. The strong state and its roots in Confucianism also stifled the kinds of scientific experiments that led to significant discoveries later in Europe. Confucianism valued knowledge learned from direct experiences over experiments, going so far as to deem the latter to be “witchcraft.”  The benefits of a system that intertwined science and technology were realized in Britain during the Scientific Revolution. In China, these remained discrete concepts and thus lacked the benefits of this kind of synergetic “feedback” mechanism. 

Conclusion

To answer the original question, was China capable of nurturing its indigenous Industrial Revolution, this essay has raised several points. First, although economic growth remained positive, there was a shift from intensive to extensive growth after the fall of the Song Dynasty, which was significant for the future of technological innovation. When this shift is considered in conjunction with state Confucian ideology, a lack of competition and the limited interaction between scientific methods and technology, China’s ability to maintain the technological strength of the Song Revolution even in the absence of external threats seems relatively weak. 

JC Economics Essays - This short series on JC Economics Essays is a set of shared economics essays on economic development, shared by my former economic history classmates KVL and TZ with me when we were reading our MSc. (Masters of Science) at the London School of Economics (LSE), London, United Kingdom. We shared our economic history essays so that we could gain additional perspectives on how to craft good essays to get a high grade for the Master's degree at LSE, and that was a good way of sharing information and material. All the economic history essays were graded highly by Dr Kent Deng, a very excellent and inspirational tutor and lecturer at the LSE when I was studying there. I hope you find the essays on economic development interesting or useful. Special thanks to KVL and TZ (both from the United States of America) for their kind sharing. Thank you for reading and cheers. 

EH446 Economic Development of East and Southeast Asia

"China’s high-yield agriculture was as much a result of suitable institutions as good natural conditions." Discuss.

Shared master's students economics essays for LSE (London School of Economics and Political Science) MSc. 

EH446 Economic Development in East and Southeast Asia series 

Introduction

This essay aims to analyse the relative importance and impact that good natural conditions and suitable institutions had on China’s high-yield agriculture. In order to discuss the relationship of these factors to agriculture as well as to one another, it is important to first identify the time frame in which to situate the analysis. Throughout the Qin and Han periods, institutions began to take root which would have lasting impact on the period of high-yield agriculture to follow.  A substantial shift in geographical focus to agriculture in the south of China during the Tang period  marks the start of the latter phase considered in this essay, extending into the Song Dynasty to cover the dissolving of large land estates and accompanying migration patterns.  

During this time period, China’s high-yield agriculture was both a result of good natural conditions and suitable institutions. This essay places an emphasis on the suitableness of those institutions to the natural conditions present and their responsiveness to changing circumstances and challenges presented by population growth and limited land capacity as instrumental in promoting China’s high-yield agriculture. The essay will begin with a brief description of the good natural conditions existing in China to promote an agricultural system, followed by an analysis of the institutions that mobilise this sector and the built-in response mechanisms that both contribute to high-yield agricultural sustainability as well as eventually lead to its stagnation. The conclusion offers a summary of the argument that high-yield agriculture in China resulted from a combination of a good natural environment and suitable institutions and their own mutually reinforcing relationship.

Good Natural Conditions

According to J.L. Buck’s Land Utilization in China, such natural factors as climate, topography, soil, and vegetation are important to consider in an analysis of the agricultural sector in China. These factors provided good conditions for high-yield agriculture in China, in part because of their wide variation across the vast territory. Lower elevations tended to be more suitable for large agricultural plots, the best soil could be found on valleys and plains, while rainfall levels varied by region and season. The sheer size of China and its varied geography allowed for a variety of crops and farming techniques to develop over time – from wheat, maize, and soybeans in the north to rice in the south – among many other variations from each and in between.  The challenging conditions in particular regions and seasons did pose some obstacles for farmers, but these could be overcome with developments in fertilizers and seed varieties.  These innovations were sponsored and encouraged by the institutions which developed during the Qin and Han periods.

Institutions

In order to maximize the productivity of the good natural conditions described by Buck, a number of institutions developed. Among these are private property and land ownership, small family farms, the land tax structure, and state investment in technology. There existed an overarching relationship between the state and the farmers in which both parties reaped rewards from the function of these institutions. For the state, agriculture was a “fundamental” cornerstone of the Chinese economy, a symbol of enduring prosperity in which it made ideological sense to invest resources.  There were not only philosophical benefits, but military and economic benefits as well, coming from “well-fed soldiers” and additional revenue.  Peasants depended on land from the state , so they derived benefit from this relationship and the institutions that supported it as well.

Private property and land ownership is important to high-yield agriculture in China because of its early development during the Qin and Han Dynasties. Its emergence gives rise to further patterns such as small farm sizes and tax structures. Under the Han Dynasty, economies of scale did exist for some non-rice crops in northern China, which gave rise to the formation of large scale farm estates. Later, this pattern was reversed, increasing the fluidity of peasant migration in the Tang and Song periods.  

Chao Kang uses the term “atomistic” to describe the many small farms (“production units”) that made their own individual decisions in the agricultural market.  The small family farm system had many benefits to high-yield agriculture in China. The land tax structure privileged small family farms. The state taxed farmers relative to the amount of land they owned, thus encouraging the smaller farms and protecting against rent-seeking behaviour of landlords who would otherwise try to monopolize surplus production.  In general, agricultural taxes were reasonable, Kent Deng notes, supporting the “moral economy of taxation in China.”  

Among one of the most important impacts of the small farm structure was the family’s ability to allow for a surplus population to exist in the agricultural production model. Chao makes a compelling argument that the family effectively shared their income within the same production unit and allowed the marginal product of labour to fall below subsistence cost.  This creates a situation where population growth is allowed to continue, and thus production also continues to grow but at a lesser marginal product of labour rate. 

Technological development responds in a similar manner, adapting to population growth and perpetuating the increase through investment in labour-intensive innovations. As the marginal productivity of labour declines, the system responds by increasing the marginal productivity of land.   Chao traces the technological innovation in China from labour-saving devices such as the shareplow until the 12th century, when this type of innovation comes to a halt in favour of labour-intense techniques such as raising more than one crop within a year and farming on previously uncultivated land.  As the population grew, migration to the southern region allowed a larger labour force to be successful in harvesting labour-intensive crops such as rice and to benefit from such techniques as double cropping and fast growing seeds.  Again, it was a case of the institutions, in this case, investment in agricultural technology, adapting to the constraints of a growing population and diminishing amount of available land.

Responsiveness

The key for good natural resources and suitable institutions to perpetuate high-yield agriculture in China was their compatibility with one another. Since natural conditions are natural, institutions need to be flexible to adjust to these as well as other variables (such as population). For Chao, the critical capability is redistribution. This property is evidenced in the family production unit structure, where the family production utility can be shared amongst the members internally, even though their individual members’ marginal product of labour is below subsistence level.  Thus, the family unit structure responds to the rise in population by allowing it to continue to grow. Similarly, technology and state policies and incentive structures allowed for agriculture itself to adapt and absorb a larger labour force.

The excellent responsiveness of institutions prolonged high yield agriculture in China. However, this institutional adaptability to a growing population on a fixed area of land led to a pattern of path dependency. The small farm structure and growth in labour-intensive agriculture impacted rational choices made by both peasants and the state. Within the family farm, despite the diminishing marginal product of labour, people continued to work and produce a greater total output rather than let the surplus labour sit idle.  Chao’s argument that the institutional ability to fix problems in the short-run contributed to long-run economic stagnation  provides a good explanation for high-yield agricultural success in China, while also acknowledging its shortcomings. Francesca Bray also touches on this stagnation point, dating it to around 1800 when China reached its geographical limits and the population finally surpassed the capacity of agricultural production. 

Conclusion

This essay has argued that China’s high-yield agriculture was a result of both good natural conditions and suitable institutions. The key to these factors’ ability to propel high-yield agriculture was their complementary nature. Having one without the other would not have provided the same rich platform for growth that was created by these conditions together. Institutions have been the focus of this essay because they are the factor over which the population has control. Institutions can be used to maximize the productivity of natural conditions, as they did through technological innovations to increase the marginal productivity of land, and state policies to encourage small family farms and labour-intensive crops. The assessments made by Chao and Bray attach importance to the roles of population and land capacity as constraints on agriculture for which institutions must correct. 

This essay has stressed the importance of institutional responses to these variables of population and land capacity. Institutions are critical to the development of China’s agricultural sector. During the Qin and Han periods, institutions such as private property and favourable tax structures maximize the use of existing good natural conditions (land, soil, and climate). Over time, particularly during the Tang and Song periods, family production units and labour-intensive technological development react to the limitations of natural resources as the population grows and agricultural space becomes constrained. How this responsiveness ultimately created an unsustainable path dependency that limited agricultural growth in the long-run is not the topic of this essay. However, it helps to illustrate the primary importance of institutions in managing good natural conditions in China for high-yield agriculture.

JC Economics Essays - This short series on JC Economics Essays is a set of shared economics essays on economic development, shared by my former classmates KVL and TZ with me when we were reading our MSc. at LSE, London, United Kingdom. We shared essays so that we could gain additional perspectives on how to craft good essays to get a high grade for the Master's degree at LSE, and that was a good way of sharing information and material. All the essays were graded highly by Dr Kent Deng, a very excellent and inspirational tutor and lecturer at the LSE when I was studying there. I hope you find the essays on economic development interesting or useful. Special thanks to KVL and TZ (both from the United States of America) for their kind sharing.

EH446 Economic Development of East and Southeast Asia

“Economic indicators such as real GDP per capita are the best way of measuring standards of living in a country”. Discuss. [25]

Introduction, Definitions, and Approach to Essay

This Economics essay discusses if economic indicators are the best way of measuring standards of living in a country. One such economic indicator is Gross Domestic Product. What is Gross Domestic Product (GDP)? Nominal GDP is defined as the nominal money value of all final goods and services produced by factors of production located domestically within a country, over a given time period, usually a year. 

Nominal GDP is often converted to real GDP, which measures the level of real output in an economy. Real output refers to the actual physical amount of goods and services produced, whereas in contrast nominal output refers to merely the money value of the goods and services produced. 

Per capita refers to the fact that real GDP has to be divided amongst the population of the country, so that it represents the output per person in a country. 

Why is this important? If a country’s national income has increased together with its population, we need to determine the national income per person, GDP per capita, the total output per person, in order to determine whether average output levels have actually risen. This is important because if Country A has both higher real national income and a larger population compared to Country B, the real GDP per capita for both countries is required for a fair and justifiable comparison of material living standards to be made. 

What are material living standards? Material living standards can be measured by economic indicators such as GDP and GNP (Gross National Product), where a country’s income level represents the ability of its residents to consume goods and services. The higher the national income, the greater the potential level of consumption, hence, the higher the material living standards.

Calculation and Interpretation Problems

However, there are problems in calculation and interpretation when using real GDP per capita to measure the standards of living in a country. 

First, the calculation problems in this respect include data collection problems, underground activities that are not recorded in GDP due to illegality and other reasons, and non-marketed activities which are not recorded in GDP. 

Secondly, interpretation problems include income distribution, composition of output, leisure and stress levels, negative externalities, differences in climate and intangibles.

All these will be discussed in this Economics paper. 

Data Collection Problems

First, data collection problems occur when mistakes arise due to the large numbers of firms and households that governments need to collect information from. This problem may be particularly serious in Less Developed Countries (LDCs) because of possible widespread illiteracy. Without the ability to read or write, some residents in LDCs are unable to fill in forms to accurately declare their income. 

This is often compounded by the problems of geography and inaccessible locations. Economic activities in geographically-inaccessible areas are also likely to be omitted because of poor transportation and telecommunications infrastructure, resulting in the standard of living in that particular country being understated, because these activities might raise the standard of living but simply cannot be measured or collected in the form of usable data.

"Underground" and Non-marketed Output

Furthermore, output that is non-marketed is not recorded in national income statistics even though they generate welfare for society. For example, the value of DIY (do-it-yourself) furniture, and DIY renovation, home-cooked meals, mothers' love, and childcare provided by parents or relatives are not recorded, while they contribute to standard of living. 

Also, particularly in developing countries (LDCs) such as some countries in Sub Saharan Africa, where there is often much subsistence farming, where people can grow crops and often rear animals for personal consumption, the size of the non-marketed economy can be quite substantial and the standard of living could be massively understated.

Differences in Climate and Weather

Also, differences in climate across different countries may also cause the standard of living measured by real GDP per capita to be less accurate, because countries in colder climates tend to spend more on clothing, insulation, and heating. Thus, while such expenditure raises real national income, their living standards are actually overstated as compared to other countries with better climates as these other countries spend less on clothing, insulation, and heating. Conversely, countries in the tropics also probably spend more than temperate countries on air conditioning, which will overstate their living standards as compared to countries in more temperate regions.

Stress and Other Intangibles

As an economy develops, people often end up working longer hours or more intensively. Many jobs also change from being routine to being more complex. With less leisure and greater stress, the rise in standard of living tends to be overstated by rises in national income. When comparing between countries, the standard of living would possibly be overstated for the country with relatively longer working hours, with poorer work-life balance, and possibly a more stressful work environment.

However, let's go one step further. Although calculation errors could be minimised as countries develop, currently there are few feasible solutions. Underground and non-marketed activities could be estimated by the values of such activities but those estimates are subjective and inaccurate. Hence GDP per capita still has its problems and limitations in measuring the standards of living in a country. GDP per capita could only measure the material standard of living and is unable to measure the non-quantifiable aspects of the country standards of living.

Alternative Ways of Measuring Standard of Living

On the other hand, economic indicators that measure material standard of living are not the only means of measuring standard of living. There are also other alternative ways to measure the standard of living in a country. 

Various Other Development Indicators

Examples include specific development indicators such as healthcare indicators, like life expectancy and infant mortality rates, while examples of education indicators include literacy rates and proportion of the population having primary, secondary, and tertiary education levels. Consumption indicators like the number of TV sets, refrigerators and telephone lines per capita are also commonly used. 

HDI and MEW

Two famous alternative indicators are discussed here - HDI and MEW. 

The Human Development Index (HDI) concept, originally suggested by research from the famous economist Amartya Sen, comprises data on PPP-adjusted GDP per capita, school enrolment, adult literacy, and life expectancy. The central economic idea here is that human development depends on the quantity of resources available to the people in the country, their ability to use the goods and services and the time they have to use these goods and services and the time they have to use these goods and services. 

Measure of Economic Welfare (MEW) comprises data on national income, with allowances made for leisure, non-marketed output, and services contributed by existing consumer durables. Offsetting deductions are made for “regrettables”, such as expenditure on commuting to work, national defence, law enforcement, negative externalities, and initial expenditure on consumer durables. 

While both approaches, HDI and MEW, are quite comprehensive in their attempt to capture a wide range of economic and non-economic factors affecting society's living standards, including the non- quantifiable aspects, estimating monetary values of some areas can be rather subjective and spurious, although this is a salutary corrective already.

Conclusions

In conclusion, while by using GDP per capita to measure the standard of living may have its limits, however, by using a uniformly accepted economic indicator of standard of living is arguably better than using economic indicators with differing opinions, standpoints, philosophies, and perspectives to compare across different countries. In fact, standards of living itself is hard to be defined, and thus GDP per capita with its uniformly accepted system may only be used to generalise the standard of living of different countries. 

JC Economics Essays: Tutor's Comments - This H2 economics essay on development and standard of living was adapted, edited, and changed from some essay contributions on my companion website. It is very well written, and has many good aspects to learn from. However, do please note that this was not written under "A" level timed examination conditions, which tend to be stressful, as A levels are time-based, difficult examinations with pressure.  Also, special thanks to MA for her suggestions on highlighting and bolding words that are important for the essay; unfortunately, this Economics blog is for Economics Essays and it's much too difficult to include a glossary. Thanks for reading and cheers!

What is Development Economics?

This is how another person attempted the question and analysed the issue of What is Development Economics?

Development economics can be seen as a branch of economics that deals largely with the economics of low income countries and their process of development. It is concerned with the “efficient allocation of scarce productive resources” and the “economic, social, political and institutional mechanisms… to bring about rapid and large scale improvements in the levels of living.” Development not only refers to an increase in gross national income, but includes other relatively less quantifiable variables such as improvements in healthcare, workplace, human rights and other measure of the standard of living.

However, development economics is not the mere extension of traditional economic analysis towards developmental issues. It differs from traditional economics in terms of methodology and assumptions.

In terms of methodology, Hirschman highlights that development economics is defined by the “rejection of the monoeconomics claim and the assertion of the mutual benefit claim”. As such, development economics opposes the view that there is only one kind of economics that can be universally applied. This implies that developing counties differ from developed countries in a few crucial characteristics that would require separate theories. Another tenet of development economics is that trade between developed and developing countries is mutually beneficial and the former can aid in the development of the latter.

In terms of assumptions, a key difference is that development economics also incorporates social and political institutions into its economic analyses by presuming a number of market failures that would result in a misallocation of resources. It is a policy science with a larger role for the government to play in order for economic development to occur, for instance in jumpstarting industrialization, as opposed to what classical economic theory would prescribe.

The existence and utilities of development economics can be justified most strongly by the argument that developing and developed countries have distinct characteristics that need to be accounted for differently in theory. For instance, developing countries were characterized by widespread rural unemployment, leading them to be stuck in a poverty trap, with low equilibrium levels, and late industrialization, which required a deliberate, intensive, guided effort. Early development economics also argued that more state intervention was required in developing countries because their markets fail more dramatically and frequently. Such differences in developing countries would require different economic analyses and policy prescriptions from that of developed countries.

In addition, development economics would allow us to focus on the diversities between developing and developed countries. Within the monoeconomic framework of traditional neoclassical economics, we would focus only on common factors which we have indentified in developed countries while examining developing countries. Rostow’s economic stage of growth outlines five stages of economic growth which are common to all countries. Conversely, Gershenkorn observed that factors which were seen as prerequisites of growth in developed countries were almost non-present at all in developing countries and proposed an alternative view of industrialization with an emphasis on the role of institutions.

Hence, development economics aids us in explaining reality better. The purpose of theory is to simplify the complex linkages of reality into a sequence of causality which the human mind can comprehend. Traditional neoclassical economics, with its’ ceteris paribus assumptions and assumptions on rationality amongst other assumptions, suffices as a broad theory which can be applied to a variety of markets and situations if these assumptions hold. Yet it is precisely this which oversimplifies reality. The utility of development economics lies in it allowing us to separate developing countries and observing their characteristics within a framework that draws our attention to the multidimensional view of development.

Moreover, development economics fulfilled a historical function in placing economic development on the agenda of policy makers. The differences from developed countries encouraged a greater role for the government to play in developing countries. Through its’ mutual benefit claim, development economics also encouraged aid from developed countries to developing countries.

Despite the utility of development economics, it faced a decline in the 1970s and 1980s. Even with government intervention, developing countries were not developing as they should, nor was convergence achieved. This led to critiques on development economics. Neo-Marxists condemned developmental policies as the exploitation of developing countries which led to polarization effects and income disparities while neo-Classicals argued that government intervention resulted in too much misallocation. Hirschman suggests two main reasons which were instrumental in forestalling a reply towards these attacks.

Firstly, there was the increasing diversity of developing countries. The theories of development economics were intended for a typical developing country, yet developing countries differ greatly in terms of population composition, availability of natural resources, dependence on agriculture, and social and political institutions. When policy recommendations suggested by development economics were applied, there were varied results in these developing countries, thus undermining the ability of development economics to formulate a unified theory applicable to all developing countries. For example, South East Asia achieved astounding economic growth and increases in national income but this was not replicated to the same extent in Latin America or Africa, which remained poor. This pushed development economics towards formulating a universal set of policy goals such as the Washington Consensus which could be applied to all countries.

Secondly, development economics had presumed that increasing national income would naturally solve social and political problems. Instead, it appeared to be followed by “development disasters” such as “civil wars” and “murderous authoritarian regimes” in developing countries. Economic development was driven not only by economics but by political forces as well, resulting in the inability of pure economic analysis to provide solutions to developmental issues. In addition, these government failures were seen to be more severe than the market failures, leaving development economists disillusioned. This had an opposite effect on development economics and it turned towards specialized technical tasks and focused on issues such as basic needs for the very poor countries instead of overall developmental strategies.

However, development economics still remains relevant and valid today. Development economics can make methodological improvements to incorporate the observed diversities among developing countries. Shin suggests that development economics should move towards the path of hetero-economics by focusing on a few countries and developing a combination of theories to highlight and explain the impact of these diversities. In doing so, the explanatory power of development economics can be further improved. Thus, the diversity which Hirschman saw as fatal for development economics need not be a limit on the potential of development economics.

In addition, while development economics may not be able to account for all the diversity among developing countries, neoclassical economics does not fare much better when applied towards developing countries. According to Chang, the implementation of neoclassical policies has also led to “growing inequality, intensified social tension… and other ‘social problems’”. In contrast, the growth of China and India may also suggest that government intervention may have a more important role in economic development than what neoclassical economics prescribes. The persistent failures of the application of neoclassical economics indicate that development economics, with its emphasis on characteristics of developing countries, may provide more relevant policy implications.

Development economics provides a better approximation to reality. Shin acknowledges this, but concedes that universal theories remain dominant due to lack of a unified methodological structure of development economics. He lays out a possible methodology for development economics to deal with diversity in causality. General theories based on universal factors are to be further refined to take into account of the economies to form second-stage theories. While this reduces the overall applicability of the resultant theory, what we gain in terms of a better approximation of reality and a better understanding of causality would compensate for this loss of generality.

As such, one would disagree with Hirschman’s views on the decline of development economics. Time has shown us that neoclassical economics is not necessarily more effective than development economics in averting developmental disasters or promoting economic development. The diversities that have once torn development economics apart can be reworked and re-incorporated into a hetero-economics framework. This sets out an alternative direction for development economics to move along in the future and should re-establish faith in development economists that the subject is still relevant and useful.

JC ECONOMICS ESSAYS: Special thanks to Y YL.

What is development economics?

Development economics is a distinct extension of traditional neoclassical economics and political economy that highlights an expanded and more determining role of the government in economic development. Although similarly concerned with achieving a steady growth of aggregate output over time, whilst ensuring an efficient allocation of scarce resources, development economics’ unique approach to the study of economic development makes it a synergy that is worth more than the sum of its parts. Uniquely, development economics focuses on not only on the economics, but also the social and institutional mechanisms required to enable rapid and large-scale improvements in the standards of living of the poor in developing nations. It goes beyond the traditional economics primary concern with the efficient, least-cost allocation of scarce productive resources and the long-term rise in capacity of such resources to supply increasingly diverse economic goods and services. It also covers the political economy domain that mainly studies the social and institutional processes through which power relations affect economic decision making in resource allocation.

This distinct approach stems from development economics’ standpoint that the unique characteristics of developing countries, such as rural underemployment and late industrialisation, warrant a special branch of economics that caters to the study of developing countries, instead of merely applying a universal orthodox economics. Unlike the neoclassical view that is premised upon the presumed universal efficiency of the free market in bringing about economic growth in any country, whether developed or developing, development economics rejects precisely what Hirschman terms the “mono-economics claim”. Instead, it calls for a stronger role of the government, both at the international and national level, in the formulation of appropriate public policies to effect economic, institutional and social change required for development among late developers in the context of local conditions and globalisation. As such, development economics is a policy science.

To warrant the existence of development economics is to justify that it is not just a mere amalgamation of different sub-disciplines in economics, political science, or any other subjects. It is deserving as a separate sub-discipline in its own right as it has unique utilities not found in any other disciplines alone. As aforementioned, it is a special synthesis of various disciplines that is particularly cognizant of the diversity not only between developing and developing countries, a key feature that stimulated its rise. Increasingly, diversity within developing countries is recognised by scholars as important considerations in creating a development economics that systematically accounts for such diversity. This will further enhance development economics’ sophistication as a development policy tool as conscious attempts are made to reconcile its aspirations with reality.

Indeed, historical evidence indicate that countries like China and India that have shown impressive growth had state intervention and planning, as called for by Gerschenkron’s theory of late industrialisation. The role of the state in other East Asian countries with good growth performance is undeniable. Such is the case of Korea’s state-initiated heavy and chemical industry, Taiwan’s high-tech firms attached to the government’s research institute and the Singapore government’s wooing of multinational corporations MNCs into specific sectors. Notably, subtle differences in these government policies that brought about growth indicate development economics is taking the right step in its original call for a hetero-economics stance. An example would be the postulation of the Beijing Consensus as opposed to the Washington Consensus.

Going forward, the convergence in policy mindset in development economics in spite of the split between micro and macro- development economics, which has also led to different methodology in practice , bears well for a more systematic approach that recognises diversity. Such pragmatism calls for the practical application of policy solutions crafted in recognition of the context of the country under study. The notion that there is no one-size-fits-all policy approach to economic development has been extended from the international arena between the developed and developing countries to within developing countries.

With “a billion slum dwellers in the developing world’s cities, a billion people in fragile lagging areas within countries, a billion at the bottom of the global hierarchy of nations”, development remains a challenge.

The existence and utilities of development economics in making is justified as it has delivered positive results and is improving in its methodology with appropriate convergence. Given the open and mixed economies in the world, the question is no longer whether the government intervention is needed but how public policies should be made. An evolving development economics has a central role to play.

According to Hirschman, the attacks from the neoclassical economists and neo-Marxists on the hybrid nature of development economics and, signs of weaknesses of development economics relative to its previous achievements and other growth strategies, contributed to the decline of development economics. Unsurprisingly, the neoclassical economists launched a coordinated and channeled attack on the main flaw of development economics – the misallocation of resources – which would not have been as detrimental had the free market been allowed to operate without government intervention. The neo-Marxists accused the development economists of the lack of analytical rigour in promoting a fundamental change in socioeconomic structure in developing countries and relationships with the developed countries, such that a new form of dependency results.

As such, some advocates of industrialisation became the harshest critics of development economics. Moreover, the decreasing returns of policies that had promoted industrialisation in the 1960s, albeit at the cost of inflationary and balance-of-payments pressures, gave less credence to the utility of development economics. The development disasters that coincided with the rise of development economics had been used to defile efforts at industrialisation. Export-oriented policies gained attractiveness following the successes of countries like South Korea and Taiwan and as world trade increased rapidly.

In addition, development economics’ initial unified approach to analysis and policy recommendations for all underdeveloped countries, which led to its rise, ironically became a source of its downfall as the premise of the typical underdeveloped country became increasingly unreal. Such a premise did not realistically take into account the diversity of developing countries that intensified as development proceeded at different rates and took different forms in Latin America, Asia and Africa.

However, the fatal blow dealt to development economics was its inability to promptly tap on the opportunity to re-synthesise decisive arguments against the incrimination of intellectual responsibility for developmental disasters in the developing countries in the 1960s and bolster the structure of development economics. The development disasters and its association with appalling civil wars, authoritarian regimes, failure of benefits to follow economic growth in social, political and cultural arenas, had a decisively disabling impact on the discipline’s self-confidence, much more than the neoclassical and neo-Marxist theoretical attacks.

Subsequently, the decline of development economics followed. Some practitioners narrowed the scope of their sub-discipline, relegating economic development policy to a technical task that is to be undertaken under an implicit Pareto optimality assumption and hope for efficiency improvements without making the society worse off. Others sought refuge in Freudian displacement and attempted to show that the scene was dismal on both the political and economic front. Economic injustice such as increasingly inequitable income distribution in spite of growth sounded the alarms that the narrow definition of development ought to be expanded to include the basic needs of health, food and education. As other experts on these areas are required on the study of development, Hirschman proclaimed what was to him the irrevocable fall of development economics.

JC ECONOMICS ESSAYS Special thanks to M Z for these Economics materials.