Agrarian Reform and the Developmental Divide: A Comparative Look at Economic Statecraft in Taiwan &...

Agrarian Reform and the Developmental Divide: A Comparative Look at Economic

Statecraft in Taiwan & Brazil

Dan Starkman

August 2014

Market, Society, & State

Mercado, Sociedad, y el Estado

Professor Eric Langenbacher

Georgetown University

Master of Arts in Development Management and Public Policy

Universidad Nacional de San Martín

Maestría en Políticas Públicas y Gerenciamiento del Desarrollo

Keywords: Economic Development, Developmentalism, Economic Policy, Social

Policy, Agrarian Reform, Industrial Policy, Brazil, Taiwan, Asian Economic Miracle,

HPAEs, Latin American Development

I. Introduction

The East Asian Miracle (EAM) generated a contentious debate among political

economists as to the nature and role of the state in development. The period of rapid

industrialization and growth starting in the 1960s among the Highly Performing Asian

Economies (HPAEs - Taiwan, South Korea, Hong Kong, and Singapore) was

simultaneously taken as evidence for neoliberal1, augmented or “simulated market,” and

governed market theories of development. The role of the state in the development of

HPAEs has problematized the neoliberal critique of developmentalist policies.2 Since the

acceptance by mainstream economic authorities, such as the World Bank, of the

important role played by HPAE governments in the Miracle, the question has largely

revolved around the preferred mix of policies appropriate to the set of developmental

challenges facing a particular country.3 Subsequent studies in comparative political

economy have largely vindicated the salience of state policy in development and

therefore also rehabilitated its centrality in theory. The essential question has been

rendered as ‘what kind?’ rather than if it all.

Results have varied critically from between regions and from state to state. In

Latin America, where developmentalist policies have been pursued since the post-WWII

era, growth and development has fluctuated and produced greatly unequal results. In

Brazil, deep structural problems persist that impede sustained social and economic

development. The disparities in results achieved by the HPAEs and Latin American

countries can perhaps be attributed to central dispositions that capture a wide range of

interrelated factors. The contention explored by this paper, is that successful development

policy depends on at least two key conditions: (1) effective economic statecraft which in

turn depends on mature institutions; and (2) an effective mode of capital accumulation for

the purpose of industrial investment, which in underdeveloped countries often depends on

1 “Key to Asia's economic success as the failed god of the command economy is laid to rest across the globe, something called five-market capitalism is being celebrated…” Brick, Andrew B. "The Asian Development Miracle: Taiwan as Model." The Heritage Foundation, 3 Aug. 1992. Web. 07 Aug. 2014. <http://www.heritage.org/research/lecture/the-asian-development-miracle-taiwan-as-model>. 2 Kay 1047 3 World Bank. 1993. Main report. Vol. 1 of The East Asian miracle : economic growth and public policy. A World Bank policy research report. Washington, DC : The World Bank. http://documents.worldbank.org/curated/en/1993/09/698870/east-asian-miracle-economic-growth-public-policy-vol-1-2-main-report

the structure of the agricultural sector. For the purposes of a comparative approach, this

paper will review and analyze the cases of development policy in Taiwan and Brazil.

This paper suggests that early land reform and a high degree of embedded autonomy of

the state contributed to Taiwan’s developmental advantages over Brazil.

In Economic Backwardness in Historical Perspective (1962), Alexander

Gerschenkron observed that late-developing countries faced at least two significant

impediments to initiating the process of industrial development. First, late-developers

tend to lack the institutional maturity required for development to occur. Successful

large-scale economic coordination, particularly in markets, requires an extensive system

of norms, standards, and contractual enforcement. Whereas early developers saw such

non-state institutions as guilds and banks cultivate this important matrix, late developers

like Russia introduced it largely through the vision of the state.4 Second, Gerschenkron

observes that industrial development takes place in periods of spurt-like growth.5 In order

for a country to initiate such a period a development, there must be some significant

degree of initial capital accumulation - human, financial, and technological. The later a

country’s development begins, the more difficult it is for it to accumulate this initial

capital reserve, and thus increasingly centralized mechanisms are observed in

development processes. In Russia’s case, Gerschenkron highlights the role of the state in

extracting surplus from the agricultural sector to finance urban industrialization. 6

Industrial urbanization then serves as the central process through which accumulated

surpluses are converted into human and technological capital, thus actualizing

developmental transformation.

On Peter Evans’ view, the state as a Weberian construct has a multifaceted

interest in fostering economic development. Growth is both a means to military

competition in geopolitics as well as a source of legitimacy in itself.7 In Embedded

Autonomy (1995), Evans argues that the state’s role in “economic transformation” is

twofold. First, the state becomes “implicated in the process of capital accumulation” and

4 Gerschenkron, Alexander. Economic Backwardness in Historical Perspective: A Book of Essays. Cambridge: Belknap of Harvard UP, 1962. Print. 49 5 Gerschenkron 37 6 Gerschenkron 47-49 7 Evans, Peter B. Embedded Autonomy: States and Industrial Transformation. Princeton, NJ: Princeton UP, 1995. Print. 5

the wealth creation comes to be seen as a function of the state as well as the market.

Second, social antagonistic pressures for distributionary reform, arising from displaced

class tensions, create the impetus for the state’s “transformative role.” This

transformative function involves the state’s active role in finding and actualizing new

sources of growth in the nation’s economy.8 On the debate over whether development is

best achieved through “liberal” or “interventionist” regimes, Evans argues that “state

intervention is a given. The appropriate question is not ‘how much’ but ‘what kind.’”9

Evan’s question of “what kind” of state intervention translates into a question of capacity

for and performance of economic statecraft.10 The question of capital accumulation

differs from one state to another, based on the corresponding economic structural

fundamentals. As will be expounded below, capital accumulation for use in the

transformative function of the state is largely derived from the agrarian sector in

developing countries. The ability to mobilize agrarian surplus for use in developmentalist

policies is intimately tied to questions of state-agrarian-sector relations and agrarian

reform. This paper seeks to examine this “transformative” function in Brazil and Taiwan,

focusing on differences in economic statecraft and agrarian reform, thus hoping to

partially explain the developmental divergence between the highly performing economies

in East Asia (the HPAEs) and Latin America.

II. Divergent Development

Both Taiwan and Brazil have seen substantial growth and development in the

post-WWII era. However, Taiwan and the East Asian tigers have seen faster, more

sustained, and more transformative growth than Brazil and other Latin American

countries. Taiwan experienced around twenty-five years of sustained 8% or greater

compounded growth starting in the early 1960s. This period led to a dramatic

improvement in Taiwan’s relative position among world economies on a number of

measures. In terms of per capita Gross National Product (GNP) per capita, Taiwan moved

from 85th in the world (comparable to the Peoples’ Republic of the Congo at $170) in

8 Evans. Embedded Autonomy. 6 9 Ibid. 10 10 Cristóbal Kay uses the terms “state capacity and policy performance or ‘statecraft’” (Kay, 1073)

1962, to 387h in the world (Comparable to Greece at $3,580) in 1986.11 This rise in

economic output was not merely quantitative, but also qualitative. Taiwan shifted from a

predominantly agrarian economy with a limited light and low-tech manufacturing sector

to an economy with a complex manufacturing-base in higher order industries. By 1986,

Taiwan had moved from the 28th to the 10th largest exporter of manufactured goods in the

world – a status remarkable for a country that (in 1986) only comprised .41% of the

World’s population with 18.7 million people.12

Following the adoption of the “national-developmentalist” paradigm in 1930s,

Brazil underwent significant economic growth and industrial transformation between the

1940s and 1960s. The state’s assumption of this transformative role (especially during the

Vargas era) had even been enshrined in the country’s federal constitution, where the term

“development” is mentioned over 50 times.13 Despite start-and-stop patterns of growth,

the composition and scale of Brazil’s non-agrarian economic sectors was clearly moving

it away from the periphery. From 1939 to 1973, the share of GDP composition

represented by agriculture in Brazil’s economy shrunk from nearly 26% to 15.3% (with

the rest made up of industry and services).14 Today that share stands at 5.5%.15 In terms

of GNP per capita, Brazil started in 1962 at 67th on par with El Salvador at $240. By

1986, Brazil had caught up to semi-peripheral countries like South Africa at $1,811.16

During this time period, Brazil moved from 30th to 20th place in terms of global share of

manufacturing exports. Brazil’s growth and industrial transformation has resulted in a

measure of development across its population. In the first decade of the 21st century,

poverty fell by 51% and the per capita income of the poorest 50% rose by 68%. The

11 Wade, Robert. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization ; with a New Introduction by the Author. Princeton, NJ: Princeton U, 2004. Print. 34 12 Wade 36 13 Dauvergne, Peter. "The Rise of Brazil as a Global Development Power." Third World Quarterly 33.5 (2012): 903-17. JSTOR. Web. 07 Aug. 2014. <http://www.jstor.org/stable/10.2307/41507212?ref=no-x-route:26cd5f646d7a6d63b3325fd74e2da42b>. 14 Evans, Peter B. Dependent Development: The Alliance of Multinational, State, and Local Capital in Brazil. Princeton, NJ: Princeton UP, 1979. Print. 71 15 "Brazil." Central Intelligence Agency. Central Intelligence Agency. Web. 06 Aug. 2014. <https://www.cia.gov/library/publications/the-world-factbook/geos/br.html>. 16 Wade 34-36

country’s GINI (inequality) index is at its lowest point since measurements began in

1960.17

It is evident that while Brazil has also seen significant growth and development,

however, there are clear indications that the HPAEs have “overtaken” Brazil and other

emerging markets in Latin America. Today, Brazil outranks Taiwan with the world’s 11th

largest manufacturing output to Taiwan’s 15th. However, as of 2012, the value of

Taiwan’s manufacturing output stands at $5,818 per head, and accounts for 26% of its

national output – both indicators significantly ahead of Brazil’s $742 per head and 13%

of national output.18 Taiwan also leads Brazil on a number of more general measures of

development. As of 2013, the International Monetary Fund ranks Taiwan at 16th in terms

of Gross Domestic Product at Purchasing Power Parity (GDP - PPP) per capita at

$39,767, placing it above Belgium, Denmark, and the United Kingdom. Brazil was 79th at

$12,221. 19 According to the United Nations Development Programme’s 2014 Human

Development Report, Brazil’s Human Development Index is .744, placing it at 79th in the

world.20 Taiwan’s HDI is estimated to be .882, placing it above Belgium at 21st.21 One of

the key differentiating markers has been the unequal development in Brazil as opposed to

the relative equity seen in Taiwan’s development. This is perhaps most starkly evinced by

disparity in GINI index. As of 2011, Taiwan ranked 94th in inequality among the

countries surveyed by the Central Intelligence Agency World Factbook with a GINI

index of 34.2. As of the latest measurement available, in 2012, Brazil was the 16th most

unequal, with a GINI index of 51.9.22

In his comparative study of development in the HPAEs and in Latin American

economies, Cristóbal Kay identifies several key factors in their diverging performance

17 Dauvergne 908 18 Rhodes 2 19 "Report for Selected Countries and Subjects." Report for Selected Countries and Subjects. International Monetary Fund, Apr. 2014. Web. 07 Aug. 2014. <http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/index.aspx>. 20 "Human Development Reports." Human Development Report 2014. Human Development Programme, n.d. Web. 07 Aug. 2014. <http://hdr.undp.org/en/content/human-development-report-2014>. 21 National Statistics Briefing for HDI & GII. Rep. Directorate General of Budget, Accounting and Statistics, Republic of China, 21 Nov. 2011. Web. 6 Aug. 2014. <http://www.google.com/translate?hl=en&ie=UTF8&sl=auto&tl=en&u=http%3A%2F%2Fwww.stat.gov.tw%2Fpublic%2FData%2F1112116124371.pdf>. 22 "Country Comparison :: Distribution of Family Income - Gini Index." Central Intelligence Agency. Web. 06 Aug. 2014. <https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html>.

which correspond with both Gershenkron’s and Evans’ frameworks. These are: (1) the

capacity for and performance of economic statecraft, (2) agrarian reform and it’s effects

on “equity and growth,” and (3) interplay between the two in states’ development

strategies.23 James McGuire’s study comparing development in the HPAEs and in Latin

American economies stresses the importance of five policy dimensions: “comprehensive

land reform, universal basic education, promotion of labor-intensive production, a shift to

light manufactured exports before heavy import substitution, and performance-based

incentives to industry.”24 These dimensions fall broadly into the two factors being

discussed: agrarian reform and transformative economic statecraft that stimulates the

formation of crucial industrial capacities, including human capital (as implied by the

importance of universal basic education). In Governing the Market (1990), Robert Wade

outlines the characteristics of successful economic statecraft employed by the HPAEs

under what him terms the “governed market theory of East Asian success.” Wade

identifies six key financial, commercial, and industrial policies that will be elaborated

below, as well as “redistributing agricultural land in the early post-war period.” 25 The

seminal 1993 World Bank report on the “East Asian Miracle” (EAM) that overturned the

“free market theory of East Asian success”26 promoted by institutions such as the

Heritage Foundation, has explicitly identified Taiwanese land reform as a contributing

factor to Taiwan’s exceptional progress. 27 This paper will first elaborate on the

differences in agrarian reform between the Taiwanese and Brazilian economies.

III. Land Reforms in Taiwan

As stated by the World Bank report on the AEM, Taiwanese land reform policies

starting in the post-War period “fostered social and political stability” and allowed for

capital accumulation (“earned foreign exchange”) through exports that was later crucial

23 Kay, Cristóbal. "Why East Asia Overtook Latin America: Agrarian Reform, Industrialisation and Development." Third World Quarterly 23.6 (2002): 1073-102. JSTOR. Web. 07 Aug. 2014. <http://www.jstor.org/stable/10.2307/3993564?ref=no-x-route:fe6c1011fb9cadc543a4d494fe21eec3>. 24 Mcguire, James W. "Development Policy and Its Determinants in East Asia and Latin America." Journal of Public Policy 14.2 (1994): 205-42.JSTOR. Web. 07 Aug. 2014. <http://www.jstor.org/stable/10.2307/4007572?ref=no-x-route:127370c613d743b8b2f63bb1039b0c5d>. 205 25 Wade 27 26 Ibid. 22 27 World Bank 32, 131

for industrialization.28 The post-War structure of Taiwan’s agrarian economy was largely

influenced by Japan’s colonial administration of the island. Having expropriated native

landlords, 29 the Japanese colonial administration sought to increase Taiwanese

agricultural output so that resulting surpluses could be appropriated for others uses (by

Japanese corporations and Imperial entities).30 According to Samuel Pao-San Ho, the

output of small-scale tenure and family farming were bolstered through the use of

farmers’ associations that diffused technological and agro-scientific expertise as well as

agricultural cooperatives that made credit more accessible in rural areas.31 Strategies such

as these resulted a steady increase of Taiwanese agricultural output under Japanese

colonial administration from 1900 to 1940 of about 3% compounded annual growth.32

However, records of historic caloric intake suggest that the Taiwanese did not benefit

commensurately from this increase and that most of the surplus was appropriated through

imperial processes (such as Japan’s monsopsony on rice exports).33 Though the victim of

imperial exploitation under Japanese administration, Taiwan had the ultimate advantage

over Latin American economies of having been rid an entrenched landlord class, thus

paving the way for agrarian surplus to be more easily appropriated for developmentalist

policies.34

Largely spurred by political imperatives of the Guomindang, Taiwan’s post-War

government instituted wide-ranging land reforms that reinforced the structural

characteristics mentioned above. In 1949, the government implemented a rent-reduction

program, followed by the sale of public lands in 1951, and a “land-to-tiller” program in

1953 – all three policies bolstered “small-scale family operations with an average size of

about 1 hectare.” 35 The rent reduction policy specifically limited farm rents to 37.5

28 Ibid. 131 29 Kay 1077 30 Ho, Samuel Pao-San. "Agricultural Transformation Under Colonialism: The Case of Taiwan." The Journal of Economic History 28.3 (1968): 313-40. JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/2116462?ref=no-x-route:04d6ed68b3ab30a0c0aa47e2c100679b>. 339-340 31 Ibid. 326-333 32 Ibid. 315 33 Ibid. 336-338 34 Kay 1077 35 Huang, Sophia Wu. "Structural Change in Taiwan's Agricultural Economy."Economic Development and Cultural Change 42.1 (1993): 43-65.JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/1154612?ref=no-x-route:c3eaca1b3ca9fd6d079eaa4b33d5ec5c>. 50

percent of the annual major crop output, down from 50%.36 The These policies continued

the diffusion of land ownership well into the 80s, with household tenure under 1 hectare

increasing from 66.5% of total land ownership in 1960 to 75.2% in 1990. Farms of over 3

hectares decreased from 3.3% to 2.5% of total ownership during the same time period.

The reforms have also had positive effects on the incidence of tenant farming, with rates

of tenant farmer households dropping from 39% fin 1949 to 21% in 1953 and finally only

4% in 1989. Owner-cultivator household rates grew from 36% to 55% during the same

time, and finally reached about 86% in 1989. 37 These statistics all point to a more

equitable distribution of agrarian surplus and less extraction through rents. While

increases in agricultural productivity and output cannot be solely attributed to land

reform, there is widespread agreement over favorable effects that land reform has had on

production, on farmers’ income, and a host of other positive externalities.38, 39

Park and Johnson studied the positive externalities that greater rural effective

demand had for industrial development in Taiwan. In their findings, they stress that “The

multiplier effects of demand externalities can depend as much on the distribution of rural

assets and income as on the magnitude of income increases.”40 Conversely, “in countries

with large landed classes, such as the Philippines [and Brazil and other Latin American

economies], the consumption multipliers of increased productivity and incomes may not

be very high.”41 Key in their findings was that early industrial growth in post-War

Taiwan was largely concentrated in industries that corresponded closely to patterns of

rural household demand: food & beverage, tobacco, textiles and apparel, wood &

housing, transportation equipment, machinery, and metal products. By the 1980s, the

36 Kao, Charles Hsi-Chung. "An Analysis of Agricultural Output Increase on Taiwan, 1953-1964." The Journal of Asian Studies 26.4 (1967): 611-26.JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/2051239?ref=no-x-route:3dd59c21cfd5d881d2d7a05c909cd2e4>. 621 37 Huang, Sophia Wu. 50 38 Kao 622 39 Kay 1080 40 Park, Albert. "Rural Development and Dynamic Externalities in Taiwan's Structural Transformation." Economic Development and Cultural Change 44.1 (1995): 181-208. JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/1154261?ref=no-x-route:b0f4ffba83b264d53628c25ce708d399>. 184 41 Park 187

range of products had expanded to paper, plastics, and electronics,42 just as Taiwanese

exports were truly penetrating global markets.

The success of land reforms in Taiwan helps explain the role of the state in the

first of the two crucial prerequisites for economic development: a source of capital

accumulation for the later transformative function of economic statecraft. As Kay

elaborates, increased agricultural productivity resulting from the reforms kept wage low

(because of low food prices), thus boosting industrial profits and exports. The robust and

distributed agricultural sector provided the state with a reliable tax base from which

resource could be channeled into industrial development policies. 43 Agriculture in

Taiwan “could thus provide a generous investible surplus for the rest of the economy

(Wade).” Consistent with this attribution are tax record which show that “the total tax

burden on agriculture was significantly higher than for the non-agricultural sectors: for

1957-61 about 25 percent of farm income went to taxes, against 19 percent of

nonagricultural income.”44

IV. Brazil’s Agricultural Sector

Land reform in Brazil became an increasingly salient political issue and generated

substantial social agitation in the 1950s and 60s.45 Land reform as such had scarce been a

demand in and of itself during progressive and revolutionary movements in the country’s

past. Present agitation for agricultural redistribution and reform largely find their roots in

peasants’ associations in Brazil’s Northeast in the 1950s.46 The degree of land inequality

around the year 1960 is very stark. Land holding totaling over 1,000 hectares accounted

for 47.3% of total agricultural land in Brazil, those between 200 and 1000 accounted for

another 24.28%, those between 50 and 200 accounted for 15.41%, those between 10 and

50 accounted for 10.78%, and land holdings of less than 10 hectares accounted for only

42 Park 188 43 Kay 182 44 Wade 76-77 45 Smith, T. Lynn. "Land Reform in Brazil." Luso-Brazilian Review 1.2 (1964): 3-20. JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/3512793?ref=no-x-route:c52db1e61f3521d0064b6323ab4c05c4>. 3 46 Chacel, Julian M. "Land Reform in Brazil: Some Political and Economic Implications." Proceedings of the Academy of Political Science 27.4, Economic and Political Trends in Latin America (1964): 56-77. JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/1173310?ref=no-x-route:abb4ecd7c6aab2007aac413b09909290>. 56-57

2.23%.47 This structural composition of the Brazilian agrarian sector is indicative of

latifundismo, which entails the prevalence of “large landed [estates] which, [are]

maintained… at… a very low stage of productivity.” Low taxes at the state and municipal

level (a key aspect of regional elite agenda) have minimized the incentives for highly

productive sues of the land. Large landowners, usually absentees to a greater or lesser

extent, have thus used land not primarily as a factor of production, but as a “an asylum

for capital,” power, and prestige.48

One of the key differences between Taiwan and Brazil in terms of the relationship

between the state and the agricultural sector is the historical ability and will of the state to

instrumentalize the former in pursuit of developmentalist goals. Taiwan’s agricultural

sector, largely comprised of small-scale landholders, was better positioned for the state’s

pursuit of this goal. The following passage from Anthony Pereira’s analysis of Brazil’s

agrarian reforms provides insight into the distinct historico-institutional impediments to

the same practices taking hold in Brazil:

The oligarchic and patronage-based features of these policies are rooted in the

agrarian past. Land in Brazil has traditionally been not merely a factor of

production but a reward for service and proximity to power, as well as a

foundation for the accumulation and maintenance of more power and privilege.

This power includes the ability of large landowners to direct the legal and

coercive apparatus of the state in their region. It also entails landlord control over

and obligations to subaltern populations.49

Thus, the state’s instrumentalization of the agricultural surplus was largely impeded by

the historico-institutional instrumentalization of the state apparatus by traditional elites to

reinforce their own accumulation of the agricultural surplus. This trend has remained

strong into the mid-20th century and later, as when President Vargas set out on a program

of industrial development and was precluded from either promoting land reform or

cutting subsidies to the coffee industry.50

47 Ibid. 61 48 Smith 6 49 Pereira, Anthony. "Brazil's Agrarian Reform: Democratic Innovation or Oligarchic Exclusion Redux?" Latin American Politics and Society 45.2 (2003): 41-65. JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/3176979?ref=no-x-route:8abe22b6faea0b265e3b2129948ff7e2>. 42 50 McGuire 230

Since 1985 (the election of a civilian president), land reform has been a salient

political issue and numerous administrations have promised progress on this front. Many

of the implemented reforms had followed a largely neoliberal logic of reduced subsidies

and government support such as preferential credit while neglecting broader structural

issues such as concentration of tenure and tenancy rates. While Brazil’s agricultural

industry began to see a significant increase in productivity and exports in the 80s and 90s,

increased productivity without structural changes have brought about the displacement of

small landholders and the dismissal of farm workers. In 1990, one third of the rural

population lived below the poverty line.51 Critiques of the direct social impact of such an

approach aside, the lessons from Taiwan’s distributed rural demand driven early

industrialization suggest that such high rates of dispossession and inequality may be a

significant retarding force in Brazil’s economic development.

Starting in the mid-90s, the Brazilian government began to implement more

effective land reforms including the 1994 Plan Real, which reduced land speculation, a

1996 land tax regime which was progressive with respect to estate size and heavily taxed

unproductive land, and 1998 legislation that facilitated the expropriation of unproductive

land and upheld the rights of occupiers.52 While these reforms represented important

gains for hundreds of thousands of marginalized farmers, the overall structure of the

agrarian economy remains highly unequal with large dispossessed populations.53 From a

comparative, historical perspective, these reforms also came very late. They came late

both relative to the early reforms experienced by Taiwan as well as relative to the

development of Brazil’s industrial sector. As Brazilian industry was growing, its

domestic market was greatly underdevelopment and confined due in large part to an

archaic and an inequitable agrarian economy. As Kay argues, “A more egalitarian income

distribution would have resulted in a more appropriate industrial structure that would be

more labour-intensive and less demanding of foreign exchange. It might thus have made

the industrialization process more sustainable by, for example, avoiding the ‘exhaustion’

or crisis experience by ISI because of the [domestic market and forex constraints].”54

51 Pereira 44-47 52 Ibid. 54 53 Pereira 60-61 54 Kay 1077

V. Economic Statecraft in Taiwan

For Wade, apart from agricultural reform, the key elements of economic statecraft for

the AEM were the following: (1) the subordination of financial capital to industrial

capital, (2) monetary and fiscal policy stability for an amenable investment climate, (3)

strategic use of industry protections and foreign reserves, (4) the promotion of exports as

part of industrial policy, (5) the active promotion of technology acquisition, and (6) the

selection of key industries for development assistance.55 Macroeconomic stability in

Taiwan including high interest rates, limits on financial speculation, regulations on

currency speculation, the promotion of a high savings rate, and labor supply stability.

This paper’s primary interest is industrial policy.

Industrial policies in Taiwan followed four primary patterns, all requiring

substantial government coordination and governance. During the 1950s, until around

1958, Taiwan’s development model was centered on import substitution industrialization

(ISI).56 This first phase involved the selection of key nascent, labor-intensive industries

such as plastics, synthetic fibers, cement, glass, fertilizer, plywood, and textiles.57 ISI

principally consisted of market protections for domestic industrial products, subsidies

financed by the tax base, and thus the substitution of domestic goods for imported

intermediate and capital goods.58 In addition to the tax-subsidy-tariff dynamic of ISI, this

period of Taiwanese development policy included active planning and coordination on

the part of the government. One illuminating example was in the plastics industry. After

identifying plastics as suitable industry for investment, the government’s chief economist

K. Y. Yin found a private citizen through bank records that fit the profile of an able

entrepreneur. Yin subsequently “told him to do it” – to invest in and build a plastics plant.

The plant was then realized under government supervision and handed to the

entrepreneur for management. This particular businessman went on to become head of

Taiwan’s leading plastics group.59

55 Wade 27-28 56 Wade 52 57 Wade 77 58 Zhu 2 59 Wade 80

Between 1958 and 1962, the Taiwanese development model largely shifted

toward export-oriented industrialization (EOI).60 Taiwanese EOI is not a neoclassical

development model in the traditional sense, as it included a host of interventions and

active market governance. EOI is centered on the promotion of exports of labor-intensive

products.61 Focus of industrial policy shifted away from the ISI complex, and enterprises

were incentivized to produce for export. One example of such export-oriented supports

include government rebates on tariffs and duties on imports used in the production of

exported goods. 62 Another example is a number of export incentives such as tax

exemptions, preferential government lending regimes, the formation of export cartels,

and during the 80s, a undervalued fixed currency exchange rate that bolstered exports.63

The third phase, beginning in the early 70s and extending through the 80s

consisted of transitioning to higher-value added products, the promotion of skill-intensive

industries, and the promotion of heavy and chemical industries.64 The fourth phase,

beginning in the 80s was centered on the development of technology-intensive products65

Alice Amsden describes how the Taiwanese government played a central role in the

financing, organization, and subsidization of the Taiwanese microelectronics industry,

from founding and promoting venture capital groups, to directing educational policy

toward electric engineering.66

The central themes of this analysis of Taiwan’s economic statecraft are perhaps best

characterized by Peter Evans’ concept of embedded autonomy. Taiwan is an example of a

strong, centralized, developmentalist state which both navigates a crucial set of public-

private network ties (embeddedness) while still retaining the autonomy necessary to steer

economic development.67 Even as embedded autonomy is present to a degree in Brazil,

Evans characterizes it as an “intermediate case” (between the developmentalist and the

60 Wade 53 61 Zhu, Rethinking Import-substituting Industrialization. "Rethinking Import-substituting Industrialization: Development Strategies and Institutions in Taiwan and China." United Nations University. JSTOR. Web. July 2006. 2 62 Wade 54 63 Wade 139-148 64 Zhu 2 65 Zhu 2 66 Noble, Gregory W. "Review: Beyond Late Development: Taiwan's Upgrading Policies." Journal of Economic Literature 43.2 (2005): 518-19. JSTOR. Web. 08 Aug. 2014. <http://www.jstor.org/stable/10.2307/4129441?ref=no-x-route:144e4838a75afb5491e67242e3ff7657>. 67 Evans. Embedded Autonomy. 54-60

predatory state). While Brazil and Taiwan had employed largely similar ISI schematics, a

crucial difference was manifest in that “[Taiwanese] ISI… was not captured by the

entrepreneurs it had created.”68

VI. Economic Statecraft in Brazil

Brazil’s economic statecraft finds its impediments largely in the inability the

bureaucratic elite to simultaneously establish meaningful networks with the emerging

industrial sector while remaining autonomous as the developmentalist administrators of

the state apparatus. At the height of ISI policy, during the crucial period of industrial

capacity building, “the military regime,” Evans writes:

Proved unable to construct an “administrative guidance” kind of relationship with

the local industrial elite. The regime was “highly legitimate in the eyes of the

local bourgeoisie, yet unconnected to it by any well-institutionalized system of

linkages. Instead of becoming institutionalized, relationships became

individualized, taking the form of what Cardoso (1975) called “bureaucratic

rings,” that is, small sets of industrialists connected to individual bureaucrats.69

While there is evidence of private-public relationships playing a strong role in the

planning stages of the nascent industrial sector (as in the plastics factory anecdote), Yin’s

actions were not primarily the result of personal interests. The businessman Yin selected

was chosen precisely because he was thought to have the potential to bring to fruition the

state’s plan. While such linkages certainly played a role in Taiwan, they were embedded

in a larger framework of policies that could be conceived of as a statewide development

project.

Both the structural effects of an unreformed agricultural sector and bureaucratic

capture by emerging industrialists led to the “exhaustion” of the ISI phase of

industrialization. Productivity returns on capital invest were thus reaching a limit while

the domestic market was simultaneously restrained by high rates of inequality and

poverty.70 In the 1970s, Brazil engaged in export supports, similar to those used in

68 Evans. Embedded Autonomy. 57 69 Evans. Embedded Autonomy. 63 70 Kay 1097

Taiwan, for manufactured goods and non-traditional primary products.71 When EOI type

policies were attempted, there was significant pushback from local industrialists (who

were strongly linked to policymakers) against the loosening of protectionist policies.72

While ISI followed by export supports saw substantial success in Taiwan, this

entrenchment by industrial elites proved a severe hindrance to the development of

Brazilian competitiveness in global markets. While Brazil was indeed able to achieve

significant progress in the transformation of its economy, it likely missed the opportunity

for earlier, more robust, and sustained development.

VII. Concluding Remarks

As the review and analysis above suggests, there are two overarching factors in

the development of underdeveloped economies: the reform of the agricultural sector and

economic statecraft within the context of embedded autonomy. Agricultural reform is

crucial for underdeveloped economies because it is an extremely important source for

early capital accumulation for use in transformative economic policies. A more equitable

agrarian sector is associated with higher agricultural productivity, a wider tax base, and a

greater proclivity to be instrumentalized by the state for financing industrial policies. The

latter aspect is likely due to the great resistance by landholding elites to the appropriation

of agricultural surplus by the state. Thus, the late and relatively mild land reform in

Brazil likely had a retarding effect on its developmental transformation.

The capacity for and effective performance of economic statecraft is ultimately

dependent upon the state’s degree of embedded autonomy. The importance of market

governance and industrial policy throughout various phases of development is

paramount. In Taiwan, the elected model was ISI followed by EOI, and then further

employment of both, in varying manifestations, as internal and external contexts evolved.

While Brazil also built initial capacity through ISI and then pursed EOI, weak

governance at each stage inhibited the success of the entire project. Linkages between

state bureaucracy and private industry are needed, but such personal links must be

subordinated to a clear vision of development policy. In Brazil, the state machinery was

71 McGuire 219 72 Kay 1095

partially captured by emerging industrialists, and therefore the country’s industrial

development was less robust during the transition from ISI to EOI. Ultimately, Brazil

seems to have historico-institutional detriment to development in that elites

instrumentalize the state for their own projects of accumulation of capital, prestige, and

power. This routinely impedes the state’s developmental projects.

Bibliography

"Brazil." Central Intelligence Agency. Central Intelligence Agency. Web. 06 Aug. 2014.

<https://www.cia.gov/library/publications/the-world-factbook/geos/br.html>.

Brick, Andrew B. "The Asian Development Miracle: Taiwan as Model." The Heritage

Foundation, 3 Aug. 1992. Web. 07 Aug. 2014.

<http://www.heritage.org/research/lecture/the-asian-development-miracle-

taiwan-as-model>.

Chacel, Julian M. "Land Reform in Brazil: Some Political and Economic Implications."

Proceedings of the Academy of Political Science 27.4, Economic and Political

Trends in Latin America (1964): 56-77. JSTOR. Web. 08 Aug. 2014.

<http://www.jstor.org/stable/10.2307/1173310?ref=no-x-

route:abb4ecd7c6aab2007aac413b09909290>.

"Country Comparison :: Distribution of Family Income - Gini Index." Central

Intelligence Agency. Web. 06 Aug. 2014.

<https://www.cia.gov/library/publications/the-world-

factbook/rankorder/2172rank.html>.

Dauvergne, Peter. "The Rise of Brazil as a Global Development Power." Third World

Quarterly 33.5 (2012): 903-17. JSTOR. Web. 07 Aug. 2014.


route:26cd5f646d7a6d63b3325fd74e2da42b>.

Evans, Peter B. Dependent Development: The Alliance of Multinational, State, and Local

Capital in Brazil. Princeton, NJ: Princeton UP, 1979. Print.

Evans, Peter B. Embedded Autonomy: States and Industrial Transformation. Princeton,

NJ: Princeton UP, 1995. Print.

Gerschenkron, Alexander. Economic Backwardness in Historical Perspective: A Book of

Essays. Cambridge: Belknap of Harvard UP, 1962. Print.

Ho, Samuel Pao-San. "Agricultural Transformation Under Colonialism: The Case of

Taiwan." The Journal of Economic History 28.3 (1968): 313-40. JSTOR. Web.

08 Aug. 2014. <http://www.jstor.org/stable/10.2307/2116462?ref=no-x-

route:04d6ed68b3ab30a0c0aa47e2c100679b>.

Huang, Sophia Wu. "Structural Change in Taiwan's Agricultural Economy." Economic

Development and Cultural Change 42.1 (1993): 43-65. JSTOR. Web. 08 Aug.

2014. <http://www.jstor.org/stable/10.2307/1154612?ref=no-x-

route:c3eaca1b3ca9fd6d079eaa4b33d5ec5c>.

"Human Development Reports." Human Development Report 2014. Human

Development Programme. Web. 07 Aug. 2014.

<http://hdr.undp.org/en/content/human-development-report-2014>.

Kao, Charles Hsi-Chung. "An Analysis of Agricultural Output Increase on Taiwan, 1953-

1964." The Journal of Asian Studies 26.4 (1967): 611-26. JSTOR. Web. 08

Aug. 2014. <http://www.jstor.org/stable/10.2307/2051239?ref=no-x-

route:3dd59c21cfd5d881d2d7a05c909cd2e4>.

Kay, Cristóbal. "Why East Asia Overtook Latin America: Agrarian Reform,

Industrialisation and Development." Third World Quarterly 23.6 (2002): 1073-

102. JSTOR. Web. 07 Aug. 2014.


route:fe6c1011fb9cadc543a4d494fe21eec3>.

Mcguire, James W. "Development Policy and Its Determinants in East Asia and Latin

America." Journal of Public Policy 14.2 (1994): 205-42. JSTOR. Web. 07

Aug. 2014. <http://www.jstor.org/stable/10.2307/4007572?ref=no-x-

route:127370c613d743b8b2f63bb1039b0c5d>.

National Statistics Briefing for HDI & GII. Rep. Directorate General of Budget,

Accounting and Statistics, Republic of China, 21 Nov. 2011. Web. 6 Aug.

2014.

<http://www.google.com/translate?hl=en&ie=UTF8&sl=auto&tl=en&u=http%

3A%2F%2Fwww.stat.gov.tw%2Fpublic%2FData%2F1112116124371.pdf>.

Noble, Gregory W. "Review: Beyond Late Development: Taiwan's Upgrading Policies."

Journal of Economic Literature 43.2 (2005): 518-19. JSTOR. Web. 08 Aug.

2014. <http://www.jstor.org/stable/10.2307/4129441?ref=no-x-

route:144e4838a75afb5491e67242e3ff7657>.

Pack, Howard. "Is There a Case for Industrial Policy? A Critical Survey." The World

Bank Research Observer 21.2 (2006): 267-97. JSTOR. Web. 08 Aug. 2014.


route:1db83138bc2545afb771ab8bbfd82708>.

Park, Albert. "Rural Development and Dynamic Externalities in Taiwan's Structural

Transformation." Economic Development and Cultural Change 44.1 (1995):

181-208. JSTOR. Web. 08 Aug. 2014.


route:b0f4ffba83b264d53628c25ce708d399>.

Pereira, Anthony. "Brazil's Agrarian Reform: Democratic Innovation or Oligarchic

Exclusion Redux?" Latin American Politics and Society 45.2 (2003): 41-65.

JSTOR. Web. 08 Aug. 2014.


route:8abe22b6faea0b265e3b2129948ff7e2>.

"Report for Selected Countries and Subjects." Report for Selected Countries and

Subjects. International Monetary Fund, Apr. 2014. Web. 07 Aug. 2014.

<http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/index.aspx>.

Rhodes, Chris. Manufacturing: International Comparisons. Rep. Economic Policy and

Statistics, 26 June 2014. Web.

<http://www.parliament.uk/business/publications/research/briefing-

papers/SN05809/international-comparisons-of-manufacturing-output>.

Sloan, John W. "Review: Politics within the State: Elite Bureaucrats and Industrial Policy

in Authoritarian Brazil." The Journal of Developing Areas 27.3 (1993): 424-

25. JSTOR. Web. 08 Aug. 2014.


route:a939c92b5d5c6284ac46ec1fd19b779c>.

Smith, T. Lynn. "Land Reform in Brazil." Luso-Brazilian Review 1.2 (1964): 3-20.

JSTOR. Web. 08 Aug. 2014.


route:c52db1e61f3521d0064b6323ab4c05c4>.

Wade, Robert. Governing the Market: Economic Theory and the Role of Government in

East Asian Industrialization ; with a New Introduction by the Author.

Princeton, NJ: Princeton U, 2004. Print.

Zhu, Rethinking Import-substituting Industrialization. "Rethinking Import-substituting

Industrialization: Development Strategies and Institutions in Taiwan and

China." United Nations University. JSTOR. Web. July 2006.

Agrarian Reform and the Developmental Divide: A Comparative Look at Economic Statecraft in Taiwan &...

Documents

Transcript of Agrarian Reform and the Developmental Divide: A Comparative Look at Economic Statecraft in Taiwan &...