For an underdeveloped feudal economy transitioning towards a modern industrial
growth path, one that is not isolated by hostile forces such as foreign
embargos, the problem is not that economic surplus being too small, but that
the way the economic surplus is produced and appropriated is not conducive to
capital formation.
In feudal economies, the main forms of economic surplus are land rent, usury
interest rates and middleman profit. Only a small part
of the surplus is capitalist profit in feudal economies because land assets
have not found ways to become monetized capital, which remained trapped in land
that was not commercially traded.
Participants in the feudal economy, its agrarian sector in particular, were
predominantly landlords, moneylenders and commodity traders, while capitalists
played no major role. The participants in a feudal economy produced their
surpluses from narrow direct financial margins by rack-renting tenant farmers,
squeezing debtors through usurious interest rates, hoarding to manipulate
prices, and so forth, but the surplus was not invested to increase productivity
or output.
This type of surplus were merely income transfers from the property-less class
to the class that monopolized property in the form of land or money, and who
had little incentive to improving productivity. Landlords in feudal societies
were generally conservatives who felt threatened by changes, even changes
towards productivity. They consumed their surplus through non-agricultural
construction such as luxurious goods and grand estates. Traders by definition
were not interested in increasing production, only in high profit margins.
Usurers were interested only in transferring to themselves, from distressed
debtors, ownership of collateralized assets that required no further capital
investment.
At the time of the founding of the People's Republic in 1949, China's feudal
economy was producing surpluses that were mostly socio-economically
unproductive. The developmental problem then was how to transform these
structural socio-economic unproductive forms of surplus into new productive
forms, leading to a rise in capital formation and hence in national income.
Under capitalism, the approach to transformation was a conservative, socially
elitist and narrowly based one of reforming but preserving the system of landed
private property. Land reform took the path of paying financial compensation to
landlords, and redistributing the land thus acquired through the market by
selling to those who had money to buy. This method structurally limited land
redistribution to a minority with money, or with access to money, and excluded
the majority of the peasants who worked on the land and who needed land most.
Thus, capitalism of the landed elite was promoted at the expense of a
broad-based peasant socialization of capital.
By contrast, the revolutionary socialist path was a socio-economically
broad-based one of abolishing private ownership and the associated system of
rent and interest on debt. This was achieved by seizing the landed property of
rentiers without compensation, namely confiscating it in the name of the
people, followed by a free and egalitarian redistribution to peasants who
actually worked on the land, and writing off all outstanding confiscatory
mortgages. Given their improved economic status, the peasants then would evolve
capitalist efficiency production "from below".
In Japan, the conservative path was exemplified by the Meiji land reform during
1869 to 1873, which abolished the feudal right to rent-cum-tax of the nobility
(daimyo and the samurai) only by paying them compensation,
namely, the capitalized value of their rents as cash and bonds; and then taxed
the farmers heavily to finance the compensation.
After World War II, US occupation regime in Japan under General Douglas
MacArthur, whom historian William Manchester labeled an American Caesar,
instituted land reform in 1945, under which all land with resident lords in
excess of one cho (2.45 acres) was acquired and redistributed to the
tenants on it at a nominal payment, while absentee landlords were not allowed
to keep even one cho, but had to surrender all their land for
redistribution.
The insistence of the US occupation regime in Japan in the post-war period on
land reform, up to that time the most comprehensive ever in Asia, arose from US
perception that the twin pillars of Japanese militarism had rested on the zaibatsu,
monopolistic conglomerate, and the prevalence of petty tenancy as opposed to
owner-occupied land.
In contrast, the revolutionary path was exemplified by the confiscation and
free distribution of land in the Soviet Union after 1917, and by the land
reform in China after 1949. In this revolutionary approach, the egalitarian and
free distribution of land to peasant households was thought of as the
successful completion of an essentially capitalist task of doing away with
feudal property, and as a transitional phase to the eventual establishment of
production cooperatives and collectives, in which individual ownership of the
material means of production would be replaced by cooperative and collective
ownership in enlarged units.
Prior to land reform in China in 1952, the total of landlord net income in
rural areas by way of land rent, usury interest and profit amounted to 16.9% of
the value added in agriculture. Adding a 2.1% tax paid by land owners, a total
of 19% of value added in agriculture (9.39 billion yuan at 1952 prices) was
taken from the farming peasants. Of this total, some 4.5 billion yuan was
retained by farming peasants after land reform and 4.9 billion went to the
government in new taxes.
Thus the peasants benefited, and at the same time the new socialist state had
access to resources released by land reform to support socialist construction
which included road building, hydroelectricity development, free education and
health care. This transfer of surplus from the agrarian sector to the state
budget, expressed as a percentage of total gross and net domestic investment in
the economy in 1952, amounted to 34.7% and 44.8%. Land reform thus contributed
significantly to needed development finance.
Yet further capital formation for socialist development needed to come from
development planning since the increased income of peasants after land reform,
while in theory could provide more saving for investment, was too low and given
the residual abysmally low standard of living of the peasants before land
reform, all the additional income from land reform was immediately consumed,
for on a per family basis it worked out only to about 55 yuan in 1952.
Thus egalitarian land reform, while eliminating a parasitic landlord and
taxation system, did not in itself generate a rapid rise in productive
investment needed for output growth. In effect, poverty was being equitably
shared by egalitarian land reform unsupported by wealth creation government
measures.
Yet egalitarianism by itself is never the cause of poverty or prosperity. It is
just that egalitarianism can enhance prosperity more effectively when effective
wealth creation policies are functioning.
A case in point in history is that of the founding Civil Emperor of the Sui
dynasty (518-618), who, after his coronation, took 5,000 buffalos from
government lots and distributed them free to impoverished farmers, helping to
restore farm production. He also opened state land reserves to the landless,
forbade the military to draft men under the age of 21, reduced the annual tax
burden by as much as 80%, shared with the people revenues from state monopolies
on wine and salt, exempted the elderly, those over 50, from taxes and reduced
the state's take from farm harvests by one third. A central bureaucracy was
established and staffed with literati selected on merit through public
examinations. As a result, within a few years of his socialist reign, the
economy recovered totally from three centuries of war and destruction and grew
with unprecedented prosperity. By the final year of his 15-year reign, the
state grain reserve was so large that it was sufficient to feed the nation for
the next 60 years, albeit the population was only 50 million in size.
In recent centuries, both as a result of population growth and shrinkage of
territory from persistent Western imperialist encroachments, China has become
an agricultural economy deficient in cultivatable land for the size of its
population. Thus China, like England in earlier centuries, must either adopt an
industrial policy to support agricultural imports, or an emigration policy, or
a population policy.
In the socialist perspective, land reform in itself is a bourgeois measure
taking socioeconomic evolution no further than the French Revolution had over
two centuries ago. Land reform constituted a necessary condition for further
institutional change towards a cooperative society.
The urgent need to amalgamate peasant efforts for the purpose of socialist
investment is underscored by the accelerating level of environmental
degradation and deforestation in China before 1949 and after 1979. Countering
the massive problems of large-scale deforestation, soil erosion and land
degradation could not be realistically done on an individual basis or through
the market mechanism. It requires the socialization of hundreds of millions of
individual households on a network of local projects, not driven by individual
profit incentives but by a unified sense of national purpose.
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