V iv , •:•/;•' Euroreu m nm iTr m m viE RECEIVED 1 6 Die. 1997 LIBRARY EUROPEAN UNIVERSITY INSTITUTE Department of Economics Overcoming the Last Obstacle in Sustainable Rural Development of Monsoon Asia The Japanese and Chinese Models and a Proposed New Model Jian-Ming Zhou Thesis submitted for assessment with a view to obtaining the Degree o f Doctor o f the European University Institute Florence, December 199' £^S3BKB3^ EgB«Eggfgm g«ggggBggSE£gB3gBB3^ g gg” g ^ M o a a n o n fa 1 European University Institute 22-0 EUROPEAN UNIVERSITY INSTITUTE Department of Economics Overcoming the Last Obstacle in Sustainable Rural Development of Monsoon Asia The Japanese and Chinese Models and a Proposed New Model LIB 330.950 ZHO Jian-Ming Zhou The Thesis Committee consists of: Prof. Michael Artis, European University Institute Stuart Holland, ARES, London, Supervisor Christopher Howe, School of Oriental and African Studies London Domenico Mario Nuti, London Business School, Co-supervisor Table of Contents Acknowledgements ......................................................................................................................vii Abbreviations ............................................................................................................................ xi G lossary.................................................................................................................................. xiii List of Tables .......................................................................................................................... xvii Part 1 Theories.......................................................................................................................... 1 Chapter 1 Introduction ........................................................................................................... 3 I. Monsoon A s ia ........................................................................................................... 3 II. A Remaining Obstacle Unresolved by the Japanese M odel.............................. 4 III. The Chinese Model ............................................................................................... 8 IV. The Agenda of the T h esis..................................................................................... 10 V. The Approach of the Analysis ............................................................................. 13 VI. Tentative Contributions of the T h e sis................................................................. 17 References ........................................................................................................................ 20 Chapter 2 Theories of Dualism, the Monsoon Asia Rice Economy and Variable Mixed Econom ies.............................................................................................23 I. Dualism ..................................................................................................................... 23 Concept of D ualism .......................................................................................... 23 Three Characteristics of the Traditional Agriculture in the Densely Populated Dual Econom y....................................................................25 The Significance of Dualism ........................................................................... 27 II. Market Forces and the Dual E conom y................................................................. 28 The "Vicious Circle" of Poverty .......................................................................28 "Backwash Effects" and "Spread Effects’' .................................................... 29 III. Monsoon Asia Nature and Rice Culture ........................ 34 Geography and C lim a te ......................................................................................34 ............... The Diversified Rice E conom y.......................................................................37 Natural Conditions and the Rice E conom y..................................................... 38 Natural Disasters in Rice Growing ..................................................................42 The Rice-Dependence of A griculture................................................................42 l i i , iii IV IV. The Prewar "Vicious Circle" of Poverty in Monsoon Asia ........................... 47 Labor-Intensive Production............................................................................. 48 Seasonal E m ploym ent.....................................................................................57 The Obstacles to Large-Scale Farm ing..........................................................60 Feudal Landlord Ownership and Persistent Poverty.....................................67 "Vicious Circle" of Poverty within Agriculture and hetween Agriculture and Industry.......................................................................................... 74 V. The Postwar Initial Conditions for Development in Monsoon Asia ...............76 Low Per Capita In c o m e ...................................................................................77 Vast Population and a Huge Labor F o rc e ..................................................... 78 Low Productivity in Peasant Agriculture ..................................................... 80 New Institutional Settings................................................................................83 The Interactions of the Initial C onditions..................................................... 84 VI. Variable Mixed E conom ies.................................................................................. 86 Concept of Mixed Economy........................................................................... 86 Concept of Variable Mixed Economies ........................................................87 Nuti’s Model of Market Socialism................................................................. 88 Government’s Role in Economic Development and Agro-Industrial Transition of Monsoon A s ia ...............................................................90 References ...................................................................................................................... 93 Chapter 3 Theory of Property Rights............................................. ..................................... 103 I. Incentives under Private Ownership and Possession of Public Assets .......... 104 Property R ig h ts................................................................................................ 104 Ownership ........................................................................................................ 104 Possession ........................................................................................................ 106 Incentive and Pareto Efficiency.................................................................... 109 Technological Efficiency .............................................................................. I l l II. Achieving Pareto Efficiency according to C o a s e ............................................. 112 Externalities..................................................................................................... 113 Coase T heorem ................................................................................................ 118 III. Reaching Pareto Efficiency When the Hypotheses of the Coase Theorem Are R elax ed ..................................................................................................... 125 Positive Transaction C o s ts ............................................................................ 125 Income Effects . ............................................................................................. 127 V Approaches in Assignment of Property Rights ........................................ 128 Private, Public or Corporate Land Ownership? A Transaction Costs A pproach............................................................................................ 134 IV. The Evolution of Property Rights Structures.................................................. 140 Timing of Changing Existing Properly Rights Structures....................... 141 General Methods of Changing Existing Property Rights Structures . 143 V. Relevant Concepts of Private O w nership......................................................... 144 Concept of Capitalist Ownership................................................................. 145 Concept of Individual Ownership .............................................................. 147 References .................................................................................................................. 148 Part 2 Comparative Practical Studies.................................................................................. 151 Chapter 4 The Japanese Model versus the Last Obstacle............................................... 153 I. The Significance of the Japanese Model ............................................................ 153 Theoretical D iscussion.................................................................................. 156 II. The Remaining Obstacle .................................................................................... 158 Theoretical D iscussion.................................................................................. 168 III. A New Model for Overcoming the Last O bstacle.......................................... 171 Conjectural Proposal 1 .................................................................................