Better living through software:

Joe Studwell’s “How Asia Works” is one of the best economics history books I’ve read. It’s as if Studwell sets out to prescribe the cure for the disease described in “Confessions of an Economic Hitman“, and succeeds brilliantly. The cure he prescribes dates back to Meiji-era Japan and German economist Friedrich List. The antidote explicated by List was applied successfully by Japan, South Korea, and modern-day China. Ironically, the antidote was forcibly administered by Americans, in the first two successful instances — in the case of Japan, by General MacArthur.

The first rung of the development ladder prescribed by List (and successfully implemented in Japan, South Korea, and China) is “land-tenure policies that support smallholder farmers”. Studwell compellingly argues that, without this first rung, no country has ever reached the higher rungs of development. Ever since the dawn of agriculture, the inexorable trend is for rent-seekers to capture an increasing share of the value, and eventually enslave 90% of the population in serfdom. This is the topic of Perkins’ book (and the genesis of what we call “bullshit jobs” — a topic for another post). But in the case of MacArthur (and List), the antidote was clear: land-tenure polices that redistributed land from rent-seekers to smallholders, resulting in full employment and skin-in-the-game for everybody. Overall profit drops, but individual productivity skyrockets.

When we fail to follow List’s (and MacArthur’s) advice, we see exactly the situation that Perkins predicted. Studwell holds up the Philippines as an example of a country that did a particularly poor job of agrarian reform (echoing the often-hilarious accounts in “Sons of the Yellow Emperor“). The rent-seekers capture government, and the fringes fall away and become sympathetic to “terrorist” groups like Abu Sayyaf.

The necessary reforms are unlikely to come from within, and simply forcing countries to become “democratic” isn’t the answer. But imposing these policies from the outside has been successful in the past, and would be a better use of our influence.