"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

Discuss, using examples from the United Kingdom, whether high levels of research and innovation are best achieved in competitive compared to monopolistic markets. (25 marks)

This Economics paper argues that high levels of research and innovation are best achieved in monopolistic markets, compared to competitive markets, because dynamic efficiency is best achieved when companies have the willingness and ability to conduct costly research and development (R & D).

First, what is dynamic efficiency? Dynamic efficiency means that companies can invest in education, research, innovation, and other creative processes that help them increase their efficiency over time, and in the long run will help them earn supernormal profits above opportunity costs and explicit costs. Competitive markets are markets with low barriers to entry, and can be idealised using the model of perfect competition.

What is perfect competition? Perfect competition is the market structure where there are many buyers and sellers of a single homogeneous product with perfect substitutes, low barriers to entry, suggesting that they earn normal profits in the long run, and where there is perfect information.

This is in contrast with monopoly, which in theory is a firm that sells a product with few close substitutes, with high barriers to entry, and which thus earns supernormal profits in the long run.

It can be argued that competition might not lead to research and development. Taking perfect competition to benchmark competitive firms in the UK, because they earn normal profits in the long run, they have neither the incentive nor the willingness to invest in research and innovation. For instance, small shops along the streets of London, especially monopolistic competitive firms, will not engage in research. 

However, having said that, if these firms are able to borrow from capital markets or get funding, or perhaps even due to external events causing temporary supernormal profits due to changes in demand and supply, they could have the willingness to invest in innovation so that they can because more “monopolistic”, when they produce a highly differentiated product.

It can be argued that monopolistic markets have firms that earn supernormal profit, because of their high barriers to entry. They therefore have both the ability and willingness to innovate to keep their monopolistic position. First, they have the ability because they earn supernormal profits, and can allocate massive funds to R&D. Second, they have the willingness because if they are in monopolistic markets that could potentially be contested by more efficient firms that could displace them to take over their market, they need to innovate to maintain their long term dynamic efficiency. 

For instance, Rolls Royce which manufacturers engines and aeroplane systems is a dynamic company probably because it has incentive and ability to innovate. BAE Systems plc is also another such company, and in fact both Rolls Royce and BAE are multinational companies, companies that span international borders with their unique product chains that require high levels of research and development. In fact, it can be said that some monopolies are monopolies because they have developed a product that is unique, differentiated, and wanted by consumers.

However, having said that, on the other hand contestable markets are usually perfectly competitive or competitive in nature, and as such competitive markets could help dynamic efficiency better in that respect. Thus competition might also lead to research and innovation, but the level could be lower than that of monopolies that have incentive and ability to do research and innovation.

Also, there are problems with monopolies. It can be argued that monopolies sometimes have x-inefficiency, where they do not act energetically to curb costs, and they could therefore become slothful and inefficient firms. This is because they may preserve their position through the use of patents, laws, legislation, and other legal means that have nothing to do with their level of technology or the sophistication of their product.

In the final analysis, this paper argued that high levels of research and innovation are best achieved in monopolistic markets, compared to competitive markets, because dynamic efficiency is best achieved when companies have the willingness and ability to conduct costly research and development, even though there are indeed some limitations to monopolies such as x-inefficiency. Competitive markets may have the incentive to conduct some research, but their levels are lower, and most of the time they neither have willingness nor ability due to the lack of barriers to entry which ensure supernormal profit. 

JC Economics Essays (H2, H3 A levels): Economics Tutor's Comments - This Economics paper on research and development and comparison of monopolistic and competitive firms was crafted under model examination conditions and has a few good points that one can learn from, but also some problematic areas, such as simplistic analysis and lack of many other relevant examples from UK manufacturing or service industries. Do think: if you were an Economics tutor, what advice would you give this student to help him make the Economics essay better? Perhaps you could focus on an area of improvement, such as the structure or organisation of this essay. Think of how this Economics paper could be made better. Thanks for reading and cheers!