Agriculture and Economic Development in East Asia

From Growth to Protectionism in Japan, Korea and Taiwan

Joanna Boestel, Penelope Francks, Choo Hyop Kim

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415178860
• eBook ISBN: 9781134682744
• Edition: 1
• Topic: Social Sciences
• Subtopic: Ethnic Studies
• Index: Social Sciences

A comparative study which describes and analyses the contribution of agriculture to the economies of East Asia. Until now, little attention has been paid to the agricultural sector which actually underpins industrial and commercial development. Recently, this sector has become the focus of increasingly bitter economic disputes, especially over protection and the use of import tariffs. A comparative framework is used, employing case studies from Japan, Taiwan and South Korea to highlight both the common characteristics of agriculture's role in East Asian development, and features particular to the political economy of agriculture in each country.

1 Agriculture and industrialisation

The East Asian case

One way of defining the difference between developed and developing countries is in terms of the extent to which the nation’s resources have to be devoted to the production of food and the other basic necessities derived from the cultivation of the land. Almost without exception, rich countries devote only a small proportion of their labour and capital to agriculture, whilst poorer ones of necessity devote more, and development is frequently described and modelled as a process of resource transfer out of agriculture and into an expanding industrial sector. Like it or not, development is equated with industrialisation and the role of the farm household in the process has essentially been to discover ways of contributing its labour and output to the growth of the non-agricultural sector.

In due course, therefore, in cases of successful industrialisation, agriculture is bound to become a declining and increasingly less significant area of economic activity. As incomes rise, smaller and smaller proportions of them are spent on food and the technical constraints on the growth of agricultural output make it increasingly difficult for farm households to match the income growth experienced by their urban industrial counterparts. For farmers and policy-makers in industrial countries, agriculture then comes to present new kinds of problem involving complex mixes of issues, ranging from intersectoral income distribution through food security to the environment and the cultural and spiritual value of the countryside.

Until relatively recently, the only examples of the long-term development of agriculture’s role in industrialisation were to be found in ‘the West’ and the nature of the issues involved was defined, on the one hand, by the pattern of European and American industrialisation experience and, on the other, by the responses of farmers within the particular forms of agriculture practised in those environments. However, the emergence of first Japan and then South Korea (hereafter Korea), Taiwan and the other newly industrialising ‘tigers’ and ‘dragons’ into the ranks of industrial countries has in many ways revolutionised our understanding of the possibilities of industrialisation and opened up the prospect of new forms of rapid development in East and South East Asia and perhaps beyond. What the ‘East Asian miracle’ also demonstrated, though, was the process of development within economies and societies based on forms of agriculture organisationally and technologically very different from those of Europe and North America. For example, for the first time we have been able to observe industrialisation in the context of irrigated rice cultivation, the paradigm of agriculture in many parts of the Third World.

Much has been made of the idea that the East Asian economies have produced a new model of the industrialisation process. Students and policy-makers may take their pick amongst a variety of versions of the model, with key features ranging from the adoption of strategies based on free trade and comparative advantage to the interventionist methods and institutions of the ‘developmental state’, from luck, timing or US aid through to the tenets of Confucianism. In the excitement generated over the rapid industrialisation of these countries, however, little was heard of or from their farmers. This contrasted sharply with the situation in many other parts of the Third World, where the problems of agriculture, arising from slow growth, inappropriate technology and growing inequality, were often severe. Ironically, it was only as Japan and then Taiwan and Korea emerged as significant players in the world economy that their dwindling numbers of farmers began to make their presence felt. The levels of protection given to agriculture in Japan, and now also in Taiwan and Korea, have risen to exceed even those applied in Europe and have generated not only increasing friction with trading partners but also the idea that the East Asian development model may carry within it the seeds of a different and more intractable agricultural adjustment problem than that confronted by earlier-industrialising countries.

This chapter will explore the role that agriculture has played, in theory and practice, in the process of development, as it has been experienced historically in the now-industrialised West and more recently in the developing Third World. It will look both at agriculture’s contribution to the first stages of industrialisation and at its long-term adjustment within an increasingly industrially-dominated economy, and will seek to pinpoint the factors which need to be considered in analysing agriculture’s part in East Asian development. First of all, however, it will be useful to outline the characteristics of East Asia’s particular mode of industrialisation as the context within which the region’s farmers made their contribution and formed their response.

East Asian industrialisation

The ‘East Asian development model’ which has by now become an accepted part of the development literature is principally based on the industrialisation experience of Japan, Korea, Taiwan, Hong Kong and Singapore. The model is nowadays also often applied to some of the rapidly-industrialising South East Asian countries – the World Bank’s East Asian Miracle study, for example, also includes Indonesia, Malaysia and Thailand among its ‘high-performing’ Asian economies – and sometimes to parts of China, but nonetheless it is only in Japan and the ‘four tigers’ that ‘East Asian industrialisation’ has been carried through to completion. As far as agriculture’s role in the process is concerned, however, the island city-states of Hong Kong and Singapore have to be excluded from consideration as exceptional cases of industrialising economies without agricultural sectors of any significance. This leaves Japan, Taiwan and Korea as the central examples of the complete operation of the East Asian model in the context of an initially agricultural economy and it is these countries that constitute ‘East Asia’ for the purposes of this comparative study.¹

The rise of first Japan and then Taiwan and Korea to the status of industrial economies is remarkable perhaps above all for its speed and unexpectedness. Japan was, of course, well on the road to industrialisation before the outbreak of the Pacific War, but still in the late 1930s around half its labour force was employed in agriculture. Although its heavy industrial firms had mastered the basics of the technology on which the strength of the West was seen to lie, and its exports of products such as textiles had carved large holes in the Asian markets of its Western competitors, nonetheless much of its industry, particularly in areas such as consumer-goods production, remained small-scale, labour-intensive or ‘traditional’ in its technology and often closely linked to the rural sector. The war itself devastated large sections of Japanese industry and infrastructure and left the nation close to starvation in 1945. Meanwhile, as Japan began the process of recovery in the late 1940s and early 1950s, its former colonies, Taiwan and Korea, were engulfed in civil strife which destroyed much of the investment in rural and urban infrastructure and industry which had been built up during the colonial period. South Korea after the end of the Korean War in 1953 and Taiwan after the Nationalist take-over in 1949 were amongst the poorest countries in the world at the time, and heavily dependent on American aid.²

Japan’s rise to economic super-power status during the ‘economic miracle’ period, from the mid-1950s until the ‘shocks’ of the early 1970s which ushered in the ‘era of slower growth’, is by now too familiar to need recounting in detail. On the basis of their massive investment in plant and equipment embodying the backlog of technological advances made in the West over the years of their country’s isolation, Japanese manufacturers caught up with and, through their own innovations, surpassed their Western competitors in many significant industrial fields. In addition, their expansion of production for the growing home market, and in due course for export, drew the majority of the Japanese labour force into urban industrial and service-sector employment. By the 1970s, Japan was a fully-fledged industrial economy poised to continue to grow, at a slower but steady pace through the subsequent decades, into the rival of the United States as the world’s greatest economic power.

The rise of Taiwan and Korea to the status of industrial economies began, perhaps not coincidentally, a decade or so after Japan’s economic miracle but was in some respects even more spectacular. During the 1950s, the governments of both countries pursued the kind of import-substitution industrialisation strategy then widely advocated as the means to escape from underdevelopment and dependency. However, although some would argue that these phases of their development provided the basis for subsequent growth, the industrial capacity established remained limited, inefficient and over-protected and, for a variety of political and economic reasons, in both countries the early 1960s saw a switch to a new development strategy based on the promotion of manufactured exports. The removal of restrictions on export production or, alternatively, the active assistance and subsidy provided to exporters stimulated unprecedented rates of growth in manufacturing output and a consequent rapid expansion in industrial employment. Through the 1960s and 1970s, as technological capacity increased and wages in due course began to rise, investment shifted towards more capital-intensive and technologically sophisticated lines of production, so that, by the 1980s, in terms of income per capita and the scale and productivity of industrial activity, both countries were deemed to have joined the developed world.

Thus, Japan, and even more so Taiwan and Korea, achieved the transformation from predominantly agricultural to predominantly industrial economies in unprecedentedly short periods of time and agriculture’s involvement in and subsequent adjustment to the growth of the industrial sector – processes which had evolved over, in some cases, generations in Europe – were compressed into decades in East Asia. However, rapidity is not the only feature distinguishing the industrialisation processes of Japan, Korea and Taiwan from their equivalents in the West, and others of the characteristics which they share may also have significant implications for agriculture’s part in East Asian development.

As already suggested, there is no general consensus as to the causes or strategies that have produced the East Asian miracle, but there is broad agreement on the ‘stylised facts’ which describe it.³ First, it is generally accepted that East Asian industrialisation has not resulted in the kinds of dualistic inequalities, both within the industrial sector and between it and the other sectors of the economy, that have arisen elsewhere in the developing world. The rapid expansion of labour-intensive forms of industry generated employment considerably more successfully than did the capital-intensive industrial development achieved elsewhere under import-substitution strategies and despite what are often seen as limitations on the development of labour movements, real wages have generally risen as industrialisation has proceeded. As a result, East Asian income distributions remain substantially more equal than those generally observed in other developing and industrial countries.⁴ Furthermore, levels of education and welfare amongst the broad mass of the population have been consistency high and the general neglect of infrastructure provision for those outside the privileged modern industrial sector, which has been such a feature of ‘urban-biased’ developing countries elsewhere, has not emerged (see e.g. Teranishi 1997:286–7).

Second, the East Asian countries stand out as economies whose development has hinged crucially on relations with the outside world. All are resource-poor and heavily dependent on imported raw materials. For Taiwan and Korea, with their relatively small home markets, exports have represented a vital source of demand, with at times as much as half of Taiwan’s output being sold abroad. For Japan, exports have generally generated a much smaller proportion of GNP but nonetheless constitute a highly important market for significant sections of Japanese industry. For all three countries, the acquisition of technology from abroad, whether or not embodied in direct foreign investment, has been a major source of growth in output and productivity. The extent to which East Asia’s infant industrial sectors were protected from import competition, and the significance of the methods used to provide that protection, remain the subject of debate but it is undeniable that, as they grew, they took advantage of, and became heavily embedded in, the world economy. East Asian agricultural sectors have therefore had to seek to respond and adjust to industrialisation within economies which depend on outward-looking relationships with the world trading network.

Third, whether or not the role of the state has been, as is often suggested, the secret behind East Asia’s rapid development, it has to be accepted that Japan, Taiwan and Korea are all societies in which the influence of government over the economy is pervasive. Where Japan has operated, since at least the inter-war period, within a democratic political framework, Taiwan and Korea have been governed, until quite recently, by more-or-less authoritarian leaderships, but in all cases, the day-to-day operation of economic policy has been in the hands of an elite, apolitical and, to a large extent, respected bureaucracy. As Chalmers Johnson’s seminal work showed, the forms of intervention in the economy used by East Asian governments conform neither to the liberal ideology of the Anglo-American world nor to the model of Soviet-style planning.⁵ Rather, East Asian bureaucrats adhere to the benefits of the market economy, but within that framework seek to ‘guide’ private-sector businesses, by means of ad hoc, pragmatic, often informal, carrots and sticks, to pursue the course seen as most likely to achieve the national objective of economic growth. The very success of East Asian industrialisation, whether or not attributable to the methods of the ‘bureaucratic developmental state’, has consolidated such forms of government/private sector interrelationship and this, combined with the strong sense of national identity of relatively homogeneous populations and the existence of clear outside threats, has meant that pluralistic political opposition has emerged only fitfully and interest groups have represented the main form of organisation through which individuals’ concerns have been expressed. It is within this broad political culture that East Asian agricultural policy has been devised and implemented.

Finally, just as government/business relations have been held to represent a distinctive element in the picture of East Asian industrialisation, so too have organisations and relationships within the business sector itself. Various terms have been coined to describe what is seen as a different form of capitalist market structure from that observed in ‘the West’ (‘alliance capitalism’, ‘Confucian capitalism’, etc.), one in which not only is the internal organisation and management of the company different from the standard model, but so too are the relationships between individual companies. Thus East Asian industrial sectors tend to be dominated by one or other form of ‘industrial group’ (zaibatsu, keiretsu, chaebol, etc.) within which firms are linked together, financially, technologically and through sales, in long-term mutual relationships.⁶

Again, the developmental value of such relationships, as a means of ensuring the allocation of scarce capital funds to the larger-scale, modern-sector firms best able, managerially and technologically, to make use of them, can be debated, but what is striking about the industrial structures which have emerged within and around the industrial groups in East Asia is the significance within them of small firms (see e.g. Campos and Root 1996: 60–4). Japan and Taiwan in particular contrast sharply with many other industrial economies in the proportions of their output and employment still derived from the small-scale business sector.⁷ Where the standard model of the development process sees a modern sector dominated by large-scale businesses gradually absorbing ‘traditional’ small-scale firms, the East Asian model sees large and small firms surviving and developing alongside one another, in mutual interrelationships or within their own niches in the economy. An industrial structure in which the informal sector of small firms continues to play a part not only in the developing but also in the developed economy presents farm households with rather different opportunities, as regards their production activities and employment possibilities, from the usually assumed either/or choice between large-scale factory employment or remaining on the farm.

There are of course many differences between Japan, Taiwan and Korea, both in the nature of their industrialisation processes and in the industrial structures that have emerged, and the effects of these differences on their agricultural sectors will be explored in later chapters. Nonetheless, few would disagree that there is enough in common within the East Asian economies, and enough that contrasts with the ‘Western’ model of a perhaps equally varied reality, to talk of a distinctive East Asian pattern of industrialisation. This being so, the purpose of this study is to examine the ways in which this distinctive pattern affected, or indeed was affected by, the contributions, responses and adjustments that agriculture made to the growth of industry.

Agriculture’s role in development

Economic development as it has been experienced over the past two centuries or so has always been assumed to begin from a ‘state of nature’ in which the bulk of the economy’s resources are devoted to agriculture and the production of goods to meet basic needs, and to encompass the growth of manufacturing sectors employing forms of technology and industrial organisation which are not constrained, in the same way as agriculture is, by dependence on natural resources and the environment. Approaches to the analysis of what happens to agriculture during the industrialisation process, going back to the work of some of the earliest economic theorists, have always tended to assume that agriculture’s role was to provide the resources of capital and labour needed to fund and man the growing industrial sector. The key to development was the emergence of an ‘agricultural surplus’ which could be creamed off to provide the resources for industrialisation without reducing the availability of agricultural output, and the secret of success lay in devising the mechanisms whereby the surplus could be transferred. However, the experience of Third World countries attempting to achieve industrialisation since World War II has cast doubt on the applicability of this approach to their circumstances and has led to a substantial reappraisal of agriculture’s role in a successful development process. It is within this context that we need to assess the part played by the agricultural sector in the development of the East Asian countries, to date the only economies to achieve high levels of industrialisation within an agricultural environment much more akin to that of significant parts of the Third World than to that of Europe or the United States.

The earliest post-war attempts to model the process of industrialisation – Rostow’s famous ‘stage theory’, for example – were based on an understanding of the historical experience of the existing developed countries of Europe and North America and assumed that an ‘agricultural revolution’ which raised output and productivity in the agricultural sector and generated the essential ‘surplus’ was a precondition for the ‘take-off into industrialisation. The existence of the surplus would enable agriculture to fulfil what was seen as its dual role in the development process, on the one hand, as the source of the savings which made possible capital accumulation in the industrial sector and, on the other, as the supplier of the ‘wage goods’ required by the growing industrial labour force. In this conceptualisation of the intersectoral relations which underlie the development process, industrialisation is made possible by the transfer of the surplus agriculture can generate, via the mechanisms of the financial markets, which shift agricultural savings voluntarily into industrial investment, or the ‘forced savings’ produced by agricultural taxation and movements in the agriculture/industry terms of trade.

This was a depressing conclusion for those concerned to promote the development of the vast areas of Asia, Africa and Latin America where population density was high and/or land and labour productivity in agriculture low. Where the mass of the population was close to subsistence level and the rural rich had no incentive either to allow themselves to be taxed or to invest in risky industrial projects, it was difficult to see how an agricultural surplus could possibly be mobilised, short of some kind of drastic political revolution and land reform. However, a possible way out of this impasse emerged with the appearance of development models based on the idea that the agricultural...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• List of Tables
• Preface
• Conventions
• 1. Agriculture and industrialisation: The East Asian case
• 2. East Asian agriculture: Patterns and trends
• 3. The role of agriculture in Japanese industrialisation
• 4. The state and agricultural adjustment in industrial Japan
• 5. Agriculture and industrialisation in Korea
• 6. Agricultural adjustment in industrial Korea
• 7. The role of agriculture in Taiwan’s economic development
• 8. Agricultural adjustment in industrial Taiwan
• 9. Conclusions: The past and future of East Asian agriculture
• Notes
• Bibliography
• Index