How Asia Works, by Joe Studwell

Thesis: the recipe for success in economic development "is as simple as 1-2-3:1) household farming2) export-oriented manufacturing3) closely controlled finance that supports these two sectors" (i.e. by massive government-backed loans and subsidies conditional on entrepreneurs meeting export targets)

Why does this work? Because it enables poor countries to get more out of their economies before the population has high-value skills. "Governments manipulate economies which thereby forge ahead, and create wealth that paid for people (who cannot be neatly transformed by government policy) to catch up."

I'm going to quote quite at length because Studwell does summarise the book's thesis pretty well at the end:

History shows that markets -- with the primordial exception of [individuals exchanging nuts for berries] -- are created. Markets are shaped and reshaped by political power. Without the dispossession of landlords [in Japan, Korea, Taiwan and China], there would have been no increased agricultural surplus to prime industrialisation; without the focus on manufacturing for export, there would have been no way to engage 10s of millions of former farmers in the modern economy; and without financial repression, it would not have been possible to pay for an accelerated economic learning process.

"The economics of development is akin to an education process"; the economics of efficiency is only applicable at a later stage of development, and freer markets are more appropriate then. But the "intellectual tyranny of neoclassical economics -- the natural subject matter of rich countries" -- is screwing up poor countries, which are forced to lie about signing up to neoclassical orthodoxy while actually doing the kind of interventionist policies that are needed to become rich in the first place." (This is also how the US and Europe got rich in the first place). That said, you do need to deregulate at some point or else you'll end up with the "economic sclerosis" of Italy and Japan.

The "household farming" part of Studwell's model is pretty interesting -- let me see if I can summarise this well. The mistake with industrial agriculture at early stages of development is to try to maximise returns per-unit-of labour, at a time when you actually have a ton of surplus labour, so you should just use the surplus labour to maximise output regardless of efficiency. The winning strategy is a lot more like gardening than like farming. You can produce a ton in a tiny kitchen if you put a ton of time and work into it; the same techniques that work for a 100sqm gardens are the same that would work in 10k sqm (1 hectare) plot of land.

The impact is really extreme. A popular gardening blogger in the US calculated the yield from his home garden at $135,000 per hectare, while corn (the most common and successful large-scale crop in US) yields $2,500 per hectare (that's like... 140x less). So why doesn't every big farm in the US just do high-intensity veg? Because it would take 10 full time employees to do a hectare of this work, so they would each make $13.5k per year. For US farmers, it makes sense to buy tractors and get more output per work hour, rather than maximising yield per hectare. But when a country is super poor with a ton of unemployed labour, it's actually preferable (from a national/economic standpoint) for people to work really really hard and get very little per hour but maximise the yield overall.

How do you get farmers to do that? The trick to the first stage of development is doing real land reform, so that peasants can own their own 1 hectare plot and then be incentivised to put an entire family to work on it and absolutely maximise its output. This requires government to deposses rich/powerful landlords, and the difference between the Asian countries that succeeded at land reform and the ones that didn't explains a lot of econ development (per Studwell).

Overall, this is one of those books that feels so resoundingly right and so thoroughly convincing that you feel like everyone who ever fought against this is mad and terrible (also made me want to quit all my jobs and... somehow be responsible for introducing better land reform in countries that don't yet have it, even though that's obviously a political and local-power-fighting process that I have 0 expertise or suitability for). Specifically, this book left me with this horrible, horrible taste in my mouth about the World Bank and WB economists, wondering how incalculably much damage they've done to the world (and... how easily, in a slightly different time and if things had gone slightly differently for me, I would have been one. Ouch).

The author says the WB was very wrong, but he's not... cruel about them, or something, he just thinks they were very wrong. He says (paraphrasing) <it's now trendy to blame WB for everything, but harder lesson is: you don't have to take others advice>. And this is... interesting, because how often exactly is it true? Surely sometimes you actually should take outside advice?

The author also makes Korea's president (and military dictator) Park Chung-hee sound like one of the all-time world heroes, exactly by ignoring the WB and doing his own thing, including forcing Korean companies to do pro-national-development industry and huge amounts of technical learning instead of just rent-seeking in easy businesses that would have made the entrepreneurs rich. (This book makes me desperately want to read a good biography of Park + to invest all my money in Korea)

On a practical-reading-note, I read the first few chapters of this book in such intense detail, making so insanely many notes (as you'll see below), that I then put the book down for months and never looked at it again. I then raced through the last half of the book at 2x speed, so I could actually finish it. Something something the perfect as the enemy of the good.

Overall, highly recommend if you're at all interested in the topic + also possibly if you're not, there's probably some Deeper Philosophy to extract from this book even if I haven't fully articulated it here.

----- Notes from the book -----

Only way to develop an economy:1) first maximise output from agriculture, by restructuring ag as highly labour-intensive household farming, slightly larger-scale gardening. Makes use of all available labour AND pushes up yields to highest possible output level, albeit at tiny gains per person employed. Initial productive surplus that primes demands for goods and services2) next: move capital and entrepreneurs to manufacturing, where relatively unskilled labourers can create value using machines from the world market. Subsidies + export discipline from gov make this possible3) last: financial sector interventions, keep money targeted at fastest possible technological learnings rather than consumption or short-term business preferences
In the early 1990s, HK + Singapore and Malaysia + Thailand were misleading because they grew quickly, despite the fact that offshore finance centres are not representative (don't have agricultural). World Bank tried to push these examples to promote laissez faire. But were totally wrong. It's Japan, Korea and Taiwan that are actually replicable and sustainable.
The other important factor in development is demographics (baby booms etc), but all these countries had roughly the same demographic trends, so doesn't determine the differences.
Education is way less important than people think. Taiwan had tk65% illiteracy when it started growing post-war and 45% in the 1960s. (Beyond that: Cuba, Soviet Union had high tertiary learning and poor incomes). Most of the useful learning occurs inside firms. What matters is good industrial policy that leads to internationally-competitive firms where people learn important skills.
Also unimportant for growth:- pluralist / multi-party democracy (or authoritarianism). Japan was pluralistic and succeeded; South Korea and Taiwan were authoritarian but succeeded; Indonesia started democratic and then became autocratic, but didn't succeed under either; Philippines similarly. There's no clear pattern, and people cherry-pick the examples that suit their arguments. Pluralism and democracy are good goals in themselves, they're a part of development properly understood, but this book is about economic development.
- rule of law: China doesn't have it, but has boomed; South Korea didn't have it into the 1990s (nor did Britain or US in 1800s, mind); Japan had better protections and succeeded; Phillippines and Indonesia had bad Rule of Law but didn't succeed. Better to admit that it's not a driver of economic development; it's just another kind of important development in its own right.- geography and climate: many people think South East Asia is just too hot, and North East Asia is temperate. Imagine an 8th Century commentator noticing that Iraq, North Africa, and Tang Dynasty (Xi'an), saying that super-hot countries would succeed and the US, UK and Japan would always fail because of their cold climates.
The developmental destiny of a nation is in it's gov's hands.

Land: The Triumph of Gardening"I am the son of peasants, and I know what is happening in the villages. That is why I wanted to take revenge, and I regret nothing" -- Gavrilo Princip, assassin of Arch Duke Franz Ferdinand.
In early stages of dev, 3/4 of land is employed in ag. That's why ag is so important to do first.
Landlords/rentseekers are the original problem. They make more money renting out land to peasants at highest possible rate, but then peasants can't invest in their land, and landlords don't. The market fails. Concentration of ownership trumps improvement of yields. Only radical changes of land distribution -- land reform -- can save you.
The mistake is to try to maximise returns per-labour-unit, whereas you actually have a ton of surplus labour, so you should just use the surplus labour to maximise output regardless of efficiency.
It's a lot more like gardening than like farming. You can produce a ton in a tiny garden if you put your mind to it. Same techniques for a 100sqm gardens are the same that would work in 10k sqm (1 hectare).
e.g. start your seeds in trays indoors, then only grow them outside for maturation. Compost is more effective when deployed targettedly per-plant; similarly watering. Weeding is crucial. You want an almost-solid canopy of leaves for efficiency, but then you can't use machines. Intergrowing is more efficient (e.g. mix radishes and carrots -- radishes mature first, so can be picked before the carrots need more space), but again this means picking must be done by hand.
The diff is really extreme. A popular gardening blogger in the US calculated the yield from his home garden at $135k per hectare. Corn, the most common and successful large-scale crop in US, was $2.5k. So why doesn't every big farm just do high-intensity veg? Because it would take 10 full time employees to do a hectare of this work, so they would each make $13.5k per year. For US farmers, it makes sense to buy tractors and get more output per work hour.
When Taiwan did land reform, farmers put in 50% more labour. Crops moved from rice and sugar to mushrooms and asparagus -- labour expensive, but high-value.
You might think "gardening" style is right for some crops but not others. E.g. sugar, bananas, rubber and palm oil -- "cash crops". And it's true that sugar cane benefits from deep plowing, which can only be done by a tractor. But the sugar yield on small household farms in Taiwan is 50% higher than the yields on plantations in Philippines and Indonesia. Smallholders in Malaysia get better yields on rubber than plantations do. The obstacles are overcomable -- you can rent or share a tractor, for example. Note that British colonists directly and indirectly subsidised plantations and discouraged smallholders -- if plantations were more effective this wouldn't be necessary.
Note that you need a network of inputs for this to work. Failed land reform in Philippines floundered out of context. But good land reform in Taiwan, Japan, China and Korea -- centred on egalitarian household farming -- set up the world's most impressive development stories.

The Merits of Abundance
Gross output of foodstuffs increased by 50% (Japan) and 75% (Taiwan).
Good in general, but also prevents developing countries wasting their limited foreign currency reserves on importing food, when they need the money to import machines. Latin America was undone by this in 50s, 60s and 70s -- the "urban bias", where urban elites made the decisions, neglected agriculture and therefore stopped the region developing properly.
Finally, ag is an important welfare safety net. Laid-off factory workers can go back to their family farms in slack periods. So Taiwan and China have avoided the indigent poor and large-scale squatter camps (which happened in 18th C Britain, and modern Philippines).
Only one country has achieved even medium-term growth with land inequality (Brazil), and they ultimately crashed out due to agricultural shortcomings.
In Meiji Japan, 109 million titles to land were created in 3 years, and Big Land was pensioned out by the government and put them into peerage. The gov did squeeze farmers hard for taxes, but taxes in cash, and farmers were incentivised and enabled to increase yields. Rice yields roughly doubled. So there was no need to import food. Ag also fed Japan's early main export, silk, grown on mulberry trees on marginal land. Japan became the first country with a hugely agricultural base to industrialise, but fastest modernisation ever seen. Put Germany and US to shame; allowed Japan to win wars against Russia and China; but none of it would have been possible without the countryside. Meiji government had discovered the big developmental trick: "if you wish for industrialisation, prepare to develop agriculture".
But Meiji gov did make one mistake: although small farmers were given private titles, and the big landowners swept away, within farming communities considerable variation remained. There was always the risk that returns from renting out land and lending money would again outstrip returns from investing in the land, and this is what eventually happened. There was a tipping point around time of WW1: the supply of new ag land stopped growing, while population increased. Terms of trade between ag and manufacturing began to favour manufacturing, making life relatively more expensive for rural pop. While earlier jobs had created lots of small-scale textile work for women in the countryside, new manufacturing jobs became more concentrated in larger-scale industry in cities.

These cumulative changes showed up in lives of farmers with slightly less land or slightly fewer people. They borrowed money, and when couldn't repay their land was taken. There were few REALLY big landlords even by 1940 -- it was "small-time landlordism by attrition" -- adding a few tan at the expense of some less fortunate villager. But those with less land, or rented land, had to sell their crops as soon as they were harvested -- when the market was flooded and prices were low. While landlords stored their rice and sold it later when prices were better, then lent money at interest to those who had sold their rice earlier and now had no money. Tenanted land went from 20% under Meiji reforms to 50% by WWII. So output stopped rising: tenants never invest as much in their work as owners.
14% of Japanese land is cultivatable (!)

ChinaIn the 1920s, 80% of Chinese people lived in countryside, life expectancy at birth was 20 to 25 years [but does that include childhood mortality?]
Few truly big landlords, but enough pop growth to induce high-rent tenancy and stagnant output. Take Deng Wen Ming -- father of Deng Xiao Ping -- who owned 10 hectares in a village in Sichuan. Lived in a 22 room house and rented out 2/3rds of his fields. Didn't have limitless wealth, but still controlled the land of half a dozen average families.
R.H. Tawney, British economic historian: "there are districts in which the position of the rural population is that of a man standing permanently up to his neck in water, such that even a ripple is enough to drown him."

3 million had died of hunger, 400,000 women and children had changed hands by sale in last few years
Feces were so valuable (as fertiliser) that landlords demanded their peasants only defecate at work.
In late 1920s, CPC began forced land distribution, "land to the tiller", in the areas they controlled. Then united front with Chiang Kai Shek during war with Japanese, where they just demanded lower rents. But by 1945, bottom-up demand for redistribution (against landlords who had often even sided with the Japanese). In 1947, law passed for uncompensated expropriation of all land and cancellation of all rural debt. "10% of people own 70-80% of the land, exploiting the peasantry.
The land reform was great; the problem was when Mao decided to go for collectivisation. Great Leap Forwards, which caused 40mil deaths, 10% of population.
Kim Il Sung did land reform as well, and like CCP was hugely popular with farmers until later collectivisation.

America
The great power in Asia was the US, who seesawed between "property rights for existing owners" and "land reform is necessary for growth." Eventual, McArthur was persuaded to make Land For The Tiller policy in Japan, but failed to do so in South Korea. It was actually Kim Il Sung's reforms in the North who put South Korea on the spot. Only after Korean civil was land reform instituted.
In Japan, the fact that the reform was enforced from outside maybe made things easier, and let the tenants take over the land "almost apologetically".
Production rose by a "robust" 3% per year from 1955 to 1970.
Ag provided 2/5th of employment and 1/5th of national income in 1955

South Korea
Prior to reform, SK was most unequal of SEAsian states. Less than 4% of households owned 55% of farmland.

Taiwan
The most interesting story. Really SEAsian, not NEAsian, geographically.
After civil war, about a million mainlanders moved to the island, raising pop from 6mil to 7mil overnight.
Basically: reform was an attempt to win over farmers, and the new elite (Kuomintang who had fled from the mainland) didn't own land in Taiwan, therefore had less vested interest/objection.
American Agriculture-Dept-er, Wolf Ladejinsky, had huge impact -- he was born in Ukraine and trying to avoid collectivised/Soviet outcome.
Studwell's point is that land reform is more genuinely market-creating. Everyone has small amount of capital. Since property-income goes down, income from current WORK becomes more important, and therefore equality goes up + incomes rise.
Rice and sugar production went up by half, specialist ag doubled.

Asparagus takes 2,900x labour per hectare as rice, therefore job creation. Industrial job creation had not yet started in 1950s. Mushroom, Asparagus, tropical fruits were effectively Taiwan's first manufacturing export industry.

Philippines
Elites have prevented actual land reform, despite endless plans. So they have big landowners, and when peasants get hold of land through half-cocked land reform they end up losing the land through debt or leasing it back to the landowners. Since 1950s, gov has done absolute minimum it could to stave off civil war.
Marcos actually justified martial law by claiming it was the only way to implement land reform.
Philippines broke a cardinal rule of land reform: never let landowners negotiate directly with peasants, because the landlords will win. E.g. in Philippines, even the President herself (Aquino) avoided having her land broken up by giving farmers "shares" in her farm instead, which was allowed under the law, and this loophole is used in ways that prevent farmers getting real income. Or Boss Danding, who gives farmers the local minimum plus "35% of profits after all costs", which of course Danding calculates and decides.
It would be irrational for a Philippine peasant to be more efficient knowing that the profit would go to landowner or banks.
---- and here I stopped reading and noting in detail