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
EH446 Economic Development of East and Southeast Asia
