The yuan surplus

by Keith Smith

Land Reform and Economic Development in by Victor D. Lippit. A Study of Institutional Change and Development Finance International Arts and Sciences Press, White Plains, New York 1974 (183 p.).

Readers of this journal will not need to be reminded that, too often, the rural economy and its social and political problems appear within development thinking only in a subordinate relation to the analysis of industrial growth and "modernization," which tends to occupy centre stage in the economics and sociology of development. Many theories of industrialization treat the agricultural sector simply as a source of surpluses (of men, of material products, of money), which can be well or badly applied to investment for growth. This "extractive" approach to agriculture characterizes many interpretations of the Soviet strategy of the 1930s as well as, for example, the Lewis model and its derivatives. The correction of this imbalance, however, should not be effected by a simple reorientation of emphasis, which reverses the theoretical suppression of rural problems and gives the prime emphasis to agriculture. This is because there is a real problem in development, to do with the relation between agricultural transformation and industrialization: a problem that is not just how to maximize extraction from the former to underpin growth in the latter, but rather bears on how processes of agricultural and industrial change can correspond to each other, and excercize mutual support. Lippit's study deals with one aspect of such problems; he aims "... in general terms, to explore the relationship between institutional change and economic development in China, and more specifically, to quantify, to the extent that it is possible, the impact of one of the most important of these changes, land reform, on the share of national income available for investment in China." In fact, the initial general relationship is hardly explored at all; it is the latter, quantitative, relation that is subject to an exhaustive and careful analysis.

Changed hands

In the Red areas prior to 1949, and throughout the whole of China during the 1950-52 period, the People's Republic carried out an extensive land reform that expropriated virtually all landlords and many rich peasants, and redistributed land to the poor and landless. Some 44 percent of China's arable land area changed hands. During the same period, net domestic investment as a proportion of net domestic expenditure rose to 15.4 percent from a level that has been calculated as, effectively, zero; the following year, the investment rate climbed to 20.2 percent. It is the coincidence of these processes that forms the author's point of departure: what is the connection between them? His answer involves the construction of a model of economic classes (property owners, luxury-good producers, subsistence-good producers, capital-good producers), and a quantitative depiction of the income relationships between them in pre-revolutionary China (1933 is taken as the year of analysis). A change in land ownership hypothetically changes the distribution of these flows (though not their total amount), and simultaneously applies them to different end uses; it is this final change that affects the investment rate.

Underlying this approach, of course, is the idea that the vicissitudes of the economic surplus must be accorded primacy in the analysis of development; Lippit, therefore, produces a concept of surplus (broadly similar to that proposed by Paul Baran in his Political Economy of Growth) which, when applied to prerevolutionary China can show how much was available, in money terms, for redistribution as either increased consumption or investment This involves identifying the surplus with the "property share" of agricultural income, which is then quantified through the categories of land rent payments, interest payments, farm business profits, and taxes and special levies. Picking his way through a minefield of statistical problems, the author shows that these categories accounted for 10.7, 2.8, 3.4 and 2.1 percent respectively of net domestic product in 1933 "The principal impact of the land reform," argues Lippit, "was in redirecting this income flow of some 4.9 billion yuan (out of 1933's NDP of 28.86 billion yuan) away from the owners of property and, initially, into the hands of the poorer peasants"

But, as the author has earlier warned, "... the reduction of leakages (into luxury consumption and dissaving) did not in itself guarantee that new ones would not appear: it remains necessary to determine what part of the diverted funds found its way into investment." He, therefore, goes on to analyse the quantitative impact of the land reform on investment finance. Bearing in mind that most capital formation occurred through the state budget, there are broadly two forms that the contribution of land reform could take: there could be an increase in total agricultural output, which would enable increased investment through taxation, or there could be a change in the structure of income flows (with more or less static output) such that increases were possible both in producer consumption and government appropriations for investment purposes. Lippit argues that the latter case occurred in China: almost the entire agricultural income flow was redirected toward the smallholding peasants. This rendered possible a certain increase in agricultural taxation and in state profits based on procurement and resale of grain. Both of these appropriations were negligible, however, compared to the surplus that the state was able to extract through manipulation of rural-industrial terms of trade following increased demand for industrial products. It is argued that this control of the terms of trade yielded, in 1952, 3.88 billion yuan out of a total flow from agriculture to the state of 5.04 billion yuan.

On the face of it, therefore, there is a substantial flow from agriculture to the state as a result of land reform. But, argues the author, this must be seen in the context of the total redistributed income flow to the peasants, by comparing these 5.04 billion to what would have flowed to the prerevolution landowning class, and which was effectively handed over to the peasants as a whole. Lippit calculates this redistributed income flow as 9.39 billion yuan, and concludes that, "as a consequence, the land reform brought both higher real incomes to most of China's peasantry and an increase in the national savings ratio."

Really at stake

This study is useful and scholarly. Readers may wish to compare its findings with those of the recent debate on the contribution of agriculture to Soviet industrialization, a particularly interesting comparison.! Although Lippit avoids many of the weaknesses of contemporary Western sinology, he nevertheless uncritically deploys too many of the conventional categories of Western development thought: many of his concepts (institutional change, traditional agriculture, etc.) are ill-fitted to analyse the process of transition, which is what is really at stake in this kind of analysis. Despite the fact that the Chinese refer to themselves as "underdeveloped," the concept of "development" is certainly less important in the strategies of party and state than the concept of the "transition to socialism"; the latter concept refers to a process of transformation of the social relations of production and the social division of labour, not simply to the growth of productive capacity that characterizes most Western notions of development. This aspect of transition transformation is only tangentially present in Lippit's analysis, which is somewhat economistic and extractive as a result. This is an important omission when one considers Chinese criticisms of Stalin's agricultural policy of rapid (and forced) collectivization, in relation to the aim of transition, and the significance of the aim of transition in their own agricultural policy, but this criticism by no means vitiates the value of Lippit's work.