A Forgotten Chapter in the "East Asian Miracle":

The Contribution of Agriculture

The Structural Transformation

in Historical Perspective
(Harvard Econ 2390a)
Final paper

Octavio Damiani

Cambridge, MA
April 1995
I. Introduction

The recent World Bank report The East Asian Miracle: Economic Growth and Public
Policy1 has been one of the most controversial studies of East Asian development. The role of
the state on the impressive record of high economic growth experienced by many East Asian
economies and the type of policy interventions necessary to promote industrialization have been
at the center of the polemic. The World Bank report recognizes that some East Asian
governments intervened extensively, but it argues that the explanation of success has to do with
a "market-friendly approach" and "getting the basics right." In other words, the fast growth rates
of these countries relates to reaching high savings and investment levels, investing heavily in
education, limiting price distortions, and opening themselves to foreign investment. While the
report recognizes that broad government intervention characterized policies of most Asian
countries, it argues that the high performing East Asian economies could have grown as fast or
even faster if their governments had intervened less or not at all. Furthermore, it stresses that
industrial policies were ineffective because little evidence is found to demonstrate that they have
affected the industrial structure and productivity.

This paper focuses on issues neglected by "The East Asian Miracle": the important role
played by agriculture in these countries' early stages of development, and the relevance for
overall economic growth of specific policies that their governments implemented toward
agriculture and rural development.2 The neglect of agriculture characterizes not only the World
Bank's "East Asian Miracle", but also most of its critiques. For example, Amsden (1994)
emphasizes that the evidence presented by the World Bank's report is weak and filtered, failing
to cite original sources and to incorporate in the debate opposing views from major scholars in
the fields of trade, finance, and labor organization. Lall (1994) emphasizes that the empirical
evidence is selective and incomplete, and the interpretation tendentious and biased. In addition,
she stresses the problem of looking at each intervention separately rather than as a part of an
overall strategy, which makes it impossible to evaluate it. For example, she argues that credit
interventions would not have worked if they had not been integrated with other policies, such as
protection and technological promotion. Perkins (1994) stresses that the World Bank
oversimplifies the interpretation of East Asian development, trying to force into a single model
at least three different models of development. While these authors emphasize that the
governments of these countries were highly interventionists, they hardly make reference to the
role of agricultural policies, implying that what mattered most in the success of East Asian late
industrializers was policy interventions toward the industrial sector.

In this paper, I review the experience with agriculture of three success stories in East
Asia: Japan, Taiwan, and South Korea.3 Many reasons explain the neglect of agriculture in most

1
World Bank (1993). The East Asian Miracle: Economic Growth and Public Policy. New York: Oxford
University Press.
2
Agriculture is here broadly defined in terms of the primary sector, including food and non-food crops,
livestock, fisheries, and forestry.
3
The review includes studies of agriculture in these three countries, most of them under a historical and
1
interpretations of these economies' success. First, all three countries have a small land per capita
ratio, which is frequently erroneously associated with an unimportant agricultural sector.
Second, the analysis of the three economies in the last two decades shows a relatively small and
declining agricultural sector both in terms of output and employment. During the 1980s, the
average share of agriculture in the Gross Domestic Product (GDP) was only 2.6% in Japan,
5.9% in Taiwan, and 12.6% in South Korea (Hayami & Yamada 1991). Third, the governments
in all three countries have consistently protected agriculture against foreign competition with
high tariffs during the last two decades. Such a high protection reinforces the idea of an
inefficient agriculture.

The reasons mentioned above contribute to the generalized idea that the agricultural
sector in Japan, South Korea, and Taiwan has always been unimportant and inefficient, and that
the success of their economies relates exclusively to the implementation of policy interventions
targeting the industrial sector. In contrast to these views, I argue that agriculture played an
important role in the process of industrialization in at least two of these cases--Japan and
Taiwan. While the governments in these countries taxed agriculture heavily and transferred
resources to develop the industry, they also considered agriculture important, providing it with
resources and a favorable policy environment at early stages of development. These policies led
to high rates of growth of output and productivities in agriculture and had a substantial impact
on overall economic growth and income distribution.

The paper is divided into four sections. The first section focuses on the contribution of
agriculture to the process of structural transformation through the transfer of labor and capital.
The second section concentrates on government interventions toward increasing the productivity
of agriculture and on the effects of agricultural growth in overall economic growth. The third
section focuses on the effects of land reform on promoting broadly distributed economic growth.
The fourth section presents a summary and the conclusions of the paper.

II. The contribution of agriculture to industrialization

The contribution of agriculture to the process of structural transformation in the three cases
studied here took place in three ways:

a) The agricultural sector was a source of elastic labor supply for the industry in all three
cases. Migration of rural labor to urban areas prevented the rise in the wage costs of the industry
in spite of the increase in the urban demand for labor, providing the basis for a rapid
accumulation of industrial profit. In Japan, for example, the movement of the labor force from
agriculture to industry in the Meiji era was about 170,000 workers per year (Namiki 1957,
Umemura 1970). This represented a growth in the supply of labor in the non-agricultural
industries of 3% to 4% annually (Umemura 1970).
b) Agriculture provided surpluses that governments mobilized to finance industrialization
when there was no accumulated industrial capital in Japan and Taiwan. In Japan, for example,
revenue from the land tax comprised the main government source of funds in early stages of
industrialization, making up almost 80% of the Meiji governments' fiscal revenue (see table 1).
sectoral perspective.
2
The tax burden on agriculture remained as high as 10% of total net agricultural income until the
late 1920s, compared to 5% of the net income of non-agricultural activities (see table 2). These
revenues were largely used to finance public investment for industrialization and to import
modern plants and technology through government programs (Ranis 1959, Rothacher 1989).
Also, landlords invested a high portion of their rent income in banks and other non farm
activities (Kato 1969).
In Taiwan, farmers had to sell their rice to a government agency, the Taiwan Provincial
Food Bureau, which paid a price lower than the market price. 4 In addition, the government
provided credit for working capital to farmers and monopolized the supply of chemical
fertilizers. Farmers had to pay back both credit and fertilizers in terms of rice valued at the same
low government price. Land taxes and land received from the agrarian reform also had to be
paid in terms of rice. All these gains were higher than the income tax until 1960 (see table 3).
From 1951 to 1955, the net outflow of capital from agriculture was about three-fourths of the
total capital formation (Lee 1971, Yager 1988). The relative importance of this capital outflow
fell during the rest of the 1950s, and its total size declined in the 1960s.

Table 1. Share of the land tax relative to the government total tax revenues in
Japan.
Year Land tax
(% of total tax revenues)
1870 73.9
1880 72.9
1890 51.7
1900 24.6
1910 15.9
1920 6.2
1930 4.8
Source: Based on data from Ranis (1959), p. 43.

4
The share of rice under government control was higher than 60% in average between 1950 and 1959 (Kuo
1983).
3
Table 2. Tax burden on agriculture and non-agricultural activities in Japan.
Year Tax burden on Tax burden on
agriculture non-agricultural
(% of net income) activities
(% of net income)
1878-1882 16.9 2.2
1884-1887 22.1 3.0
1888-1892 15.5 2.3
1894-1897 12.4 2.0
1898-1902 12.1 3.2
1903-1907 11.2 5.4
1908-1912 12.6 6.4
1913-1917 11.8 4.5
1918-1922 9.2 5.4
1923-1927 10.5 5.2
1928-1932 9.7 4.3
1933-1937 7.8 4.2
Source: Based on data from Ranis (1959), p. 48.

Table 3. Government "hidden tax" from the purchase of rice.

Year Hidden rice tax
(% over rice revenues Hidden rice tax
at market as a % of income tax
prices)
1952 42.7 107.2
1955 38.4 106.1
1960 43.2 104.6
1965 33.1 82.5
1970 20.5 14.3
1971 16.4 8.5
Source: Based on data from Kuo (1983), p. 35.
Note: The "hidden tax rice" comprises the collections resulting from the
government purchase of rice at prices lower than the market price.
4
 In contrast to Japan and Taiwan, the agricultural sector did not contribute substantially to
the mobilization of domestic savings in Korea (Jo 1982, Bal et al. 1982). Foreign savings
represented the main source for the import of capital equipment and inputs for the industry, with
agriculture and taxes to the agricultural sector not contributing substantially to capital formation.

c) Agriculture also provided foreign exchange necessary for purchasing machinery and
technology for industrial development. In Japan, for example, agricultural exports of products
such as tea and silk comprised 80% of the total exports during the Meiji restoration (Ogura
1963, Hemmi 1970). In Taiwan, agricultural exports comprised more than 90% of total exports
between 1950 and 1955, and they were as high as 58% in 1965 (Yager 1988). Korea,
agricultural exports comprised more than 50% of total exports until the Second World War,
declining to 22% between 1961 and 1965 (Ban et al 1980). These earnings were used essentially
to finance machinery and industrial technology imports (Rothacher 1989).

III. Agricultural growth and overall economic growth

Although the governments of Japan, Taiwan, and Korea took resources from agriculture
and used them to promote industrialization, they supported agriculture in the early stages of
development, investing heavily in infrastructure, promoting rural education, creating institutions
of agricultural research and higher agricultural education, and supporting farmer associations.
This led agricultural output and productivity to grow at high rates in the three countries before
and during the early period of industrialization, which had a positive impact in overall economic
growth.

Japanese agriculture was characterized by rapid growth between 1880 and 1920, with
similar growth rates than the industry (see table 4). After stagnating in the interwar period,
agriculture recovered rapidly after the Second World War and continued to grow at high rates
until the middle 1960s. Agricultural output in Taiwan grew 3.6% between 1913 and 1937, and
land and labor productivities increased almost 3% annually, far higher than the rates in Japan. In
Korea, technological improvement lagged behind before the Second World War, but agricultural
output and productivities grew at high rates in the post-war period.

Table 4. Growth rates of agricultural output, inputs, and productivity in Japan,

Korea, and Taiwan.
Total Total Total Labor Land
output input productiv productiv productivit
ity ity y
Japan
1880- 1.8 0.5 1.3 1.9 1.4
1935
1950- 3.2 0.8 2.4 6.3 3.1
1970

5
 1970- 0.5 -0.6 1.2 4.3 1.2
1985
Taiwan
1913- 3.6 2.6 1.0 2.9 2.7
1937
1951- 4.1 2.5 1.6 5.1 4.0
1981
Korea
1920- 1.6 1.6 0.0 1.1 1.5
1939
1946- 3.8 1.2 2.5 3.9 3.4
1980
Source: Based on data from Hayami & Yamada (1991), pp. 50-52.

The success of Japanese agriculture was the result of decisions taken in the Meiji period.
Public investments in agricultural research and the support of research institutions led to the
development and diffusion of land-saving innovations, such as high-yielding varieties of major
cereal crops--especially rice (Hayami 1975, Hayami & Yamada 1991). The government
complemented these efforts with investments complementary with the seed-fertilizer technology,
mainly irrigation and drainage facilities. It also created agricultural development banks to
provide long-term credit between 1896 and 1900.These banks received subsidies and other
special privileges, which enabled them to provide long-term credit at lower interest rates than
ordinary banks (Kato 1970).

Agricultural growth in Taiwan and Korea--both under Japanese colonial rule before the
Second World War--was highly affected by the need of the Japanese to supply their own food
needs. In Taiwan, the Japanese focused on the production of rice and sugarcane. In order to
increase production, they introduced chemical fertilizer, improved rice and sugarcane varieties,
and irrigation--irrigated land rose 70 percent in the period (Ho 1966, Ho 1978, Koo 1968). As a
result, multiple-cropping increased substantially. In addition to large investments in new
technology, the Japanese colonial authorities created rural institutions, including farmer
associations and experiment stations, which facilitated the diffusion of new crop varieties.
Besides, Japan contributed with a continuous inflow of Japanese technical and professional
personnel. For example, the Japanese established a cadastral system, classifying the land in
categories following a detailed investigation of quality and ownership. This raised tax revenues
and paved the way for land reform. In Korea, the Japanese focused on the promotion of rice.
The Japanese Colonial Government created an extension service and made agricultural credit
available (Ban et al. 1980). Large amounts of rice were exported to Japan, while Koreans
themselves shifted to eating a larger amount of the coarser grains.

The growth of agriculture at early stages in the development process affected positively
overall economic growth in many ways:
6
 First, the dynamism of agriculture provided food at low prices, which allowed to meet
the demand of an increasing urban population and to maintain the wage costs of the industry
stable. In Japan, for example, foodgrain production alone grew at 160 percent the population
growth rate between 1880 and 1920 (Hayami 1975). In Korea, agriculture grew at 3.5 percent
annually between 1952 and 1971, a higher rate than most regions in the world 5 and higher than
its population growth (Hayami 1975). Without such a fast growth of agriculture, food prices
would have increased and pushed up the wage rate in the industrial sector.

Second, agriculture contributed to the growth and quality improvement of industrial

activities through demand and consumption linkages. One-quarter of the occupied population in
rural Taiwan and about one-fifth of those in rural Korea were engaged in non-agricultural
activities in the early 1930s. Rural industries accounted for 41% of the total employment in
manufacturing in Korea as late as 1960; in Taiwan, they accounted for 37% of the employed in
manufacturing in 1956 (Ho 1982). While part of these manufacturing activities involves the
processing of agricultural products (forward linkages), such as the canning of fruits and
vegetables, an important proportion consists of metal-work shops that manufacture and repair
simple agricultural tools (backward linkages) and the production of goods consumed by the rural
population, such as furniture, cakes, and sweets (consumption linkages). Ranis and Stewart
(1987) stress that agriculture in Taiwan developed substantial consumption linkages because
rural incomes were equally distributed. A large part of these industries are small scale and use
labor-intensive technologies. Ranis (1978) argues that the growth of industries and services
mutually interacting with dynamic agriculture was a decisive force behind the good income
distribution because it provided additional employment and income to rural households,
especially to the landless workers--the poorest of the "freed" agricultural labor force. These
non-agricultural activities determined the absence of a massive rural-urban migration.

IV. The effects of agricultural price policies

Another mechanism by which agriculture played an important role in the development of

these countries was through the effects of price stabilization on the reduction of risks for
investors and on income distribution. In Japan, for example, the state has intervened actively to
stabilize the price of agricultural products. Price policies were framed by the Food Management
Law (1942) for rice, wheat, and barley, the Farm Product Price Stabilization Law (1953) for
soybeans, potatoes, and starch, the Silk Price Stabilization Law (1951) for raw silk and cocoons,
the Animal Product Price Stabilization Law (1961) for dairy products and pork, the Tobacco
Monopoly Law (1944) for tobacco, and the Beet Production Promotion Provisional Measure
Law (1953) for beets.6 In the case of rice, the government directly purchased all the domestic
production and imports. During the 1950s, the price of rice paid to farmers was consistently
5
For example, Latin American agriculture grew at 2.9% in the same period, North American 1.6%, and
African 2.9% (Hayami 1975).
6
For an analysis of price policies in Japan during the fifteen years after the Second World War, see Ashikaga
(1963).
7
under the market price, but small producers received a higher price to ensure them an income
comparable with that of an urban worker (Ashikaga 1963). In wheat and barley, the government
was in charge of imports, which were used to stabilize the domestic prices. For the rest of the
products, government agencies purchased them at a price higher than a floor price and stored the
surpluses to stabilize prices. As a result of these policies, the prices of agricultural products in
Japan were very stable.

In Taiwan, the state also intervened actively in the markets of rice, sugarcane, and other
agricultural products (Kuo 1983). Like in Japan, maintaining a stable price of rice--the most
important staple--was an explicit policy, so the government strictly intervened and controlled the
rice market, making compulsory for farmers to sell part of the rice to the government. During
the period 1950-59, the share of rice under government control reached 62% of the total, falling
in 1960-70 to 53%.

Because the price paid to farmers was lower than the market price, an average of two
thirds the wholesale market price during the 1950s, the area under rice declined. However, the
government offered at the same time incentives for the production of other crops, such as
sugarcane, corn, mushrooms, asparagus, citrus, pineapples, onions, and sorghum, guaranteeing
prices to farmers and distributing the product to processing factories (Kuo 1983). Thus, these
government policies ensured a low and stable price of rice to consumers and gave at the same
time incentives to farmers for switching to higher value crops whose demand was increasing
with the higher income of the population. As a result of these policies, the share of rice in
agricultural gross product fell from 50.2% to 29.1% and the share of fruits, vegetables, and
livestock products increased from 21.5% to 51.9% between 1952 and 1971. For example,
asparagus were first brought into production in 1963, and they comprised 25.6% of total
agricultural production in 1971. In addition, many of these products soon started to be exported
in canned form. For example, mushrooms were 27.4% of the total agricultural production in
1971, 87% of the production being canned and 93% exported.

V. Land reform, agricultural growth, and income distribution

One of the features common to all three countries is the implementation of a land reform
preceding the stage of rapid industrialization. In all three cases, land reform took place
immediately after the Second World War. The American occupation authorities planned and
implemented the land reform programs in Japan and Korea, aiming to break the power of the
landowners, who had been associated to the regime existing during the war. In Taiwan, the
government had the strong incentive of keeping the Communists--who had taken over mainland
China--from exploiting discontent in the countryside. The U.S. provided technical assistance
and substantial funding for carrying out the land reform. 7 Land reform had a positive effect on
agricultural output and on income distribution, redistributing wealth and leading to a pattern of
more broadly distributed economic growth.

7
See Shen (1970) for an analysis of American cooperation in Taiwan through the Sino-American Joint
Commission on Rural Reconstruction, a bilateral organization created in 1946.
8
 In Korea, land reform after 1947 eliminated tenancy altogether, turning most of the
cultivated land over to the families cultivating it. The number of tenants fell from 49% to 5%
and the amount of rented land dropped from 60% to 15% of the total between 1945 and 1960
(see table 7).
In Japan, land reform consisted of the transfer of property from non-resident and resident
landowners to tenant farmers with almost no compensation for landowners (Kawano 1970, Dore
1984). In addition, it regulated terms and conditions of tenancy, stipulating a minimum tenancy
period of three years and a maximum rental rate depending on the type of fields. Furthermore, it
brought the rent levels under strict control, restricted the transfer of ownership of land between
farmers, and forbade the ownership by non-residents. As a result of land reform, the area of
tenanted land fell from 46% to 10% and the proportion of tenant farmers from 28% to 5%
between 1945 and 1950 (see table 5).

In Taiwan, land reform took place in three phases: rent reduction, sale of public land, and
compulsory purchase of excess land from landlords and resale to tenants.8 Rent reduction
consisted of a program of farm rent limitation in which no rent could exceed 37.5 percent of the
total annual yield of the main crop. Sale of public land was made possible by the government
takeover of about 180,000 hectares of farmland after the war that had belonged to Japanese
government agencies and private citizens. This area was 20 percent of Taiwan's arable land, and
58.9 percent had been leased to tenant farmers by 1946. The "Land-to-the-Tiller Program" was
implemented between 1953 and 1954, making 170,000 hectares of land--almost 20 percent of
Taiwan's farmland--available for compulsory purchase. The rent limitation program affected
300,000 farm families (44.5 percent of all farmers excluding landowners); more than 120,000
families bought a total of 61,000 hectares of public land, and more than 154,000 hectares (23.4
percent of all private farmland) were transferred from landlords to tenants. A total of 224,000
tenant families, or 39.5 % of all farm families ---excluding landlords-- benefitted from the
programs. The area transferred to tenants through the public land sale program and through the
land-to-the-tiller program amounted to 71% of the total area of public and private lands (Mao
1982).

Table 5. Percentage distribution of farm households by ownership status in Japan.

Year Owner- Part- Part- Tenant Others
operators owner tenants- s
operators part owner
-part operators
tenants
1941 31.2 20.7 20.0 27.7 0.4
1947 36.5 20.0 16.9 26.6 0.0
1950 61.8 25.8 6.7 5.0 0.7
Source: Dore (1984), p. 176.
8
For evaluations of Taiwan's land reform, see Koo (1968), Kuo (1983), Yang (1970), Mao (1982), and Yager
(1988).
9
Table 6. Percentage distribution of farm households by ownership status in Taiwan.
Year Owner- Part-owner Tenant
operators operators farmers
1945 29.8 29.5 40.7
1953 54.9 24.1 21.0
1960 64.5 21.2 14.3
1965 66.8 20.6 12.6
Source: Mao (1982), pp. 735.

Table 7. Percentage distribution of farm households by ownership status in South

Korea.
Year Owner- Part- Part- Tenant Others
operators owner tenants- s
operators part owner
-part operators
tenants
1945 13.8 16.4 18.2 48.9 2.7
1947 16.5 38.3 * -- 42.1 3.1
1964 71.6 14.8 8.4 5.2 0.0
Source: Bal et al. (1980), p. 286, originally in Pak (1966).

Land reform had the following effects:

1) It redistributed wealth and incomes from landlords to tenants and led to a better income
distribution when rapid growth and industrialization started. Ranis (1978) stresses that the land
reform in all three countries had a substantial impact in the reduction of the Gini coefficient in
the 1950s. However, he does not relate land reform with the favorable performance of the Gini
coefficient over time. In contrast, other authors argue that the elimination of disparities through
the redistribution of asset ownership in the period before rapid industrialization and economic
growth explains the good performance of these countries in broadly distributing the benefits of
growth in the last three decades.9 In part, this effect occurred because land reform ensured that
the growth in productivity of agriculture that took place afterwards was broadly distributed (Kuo
1983, Mao 1982).

2) It contributed to increases in output and productivity in agriculture. Binswanger & Deininger

(1993) stress that because land reforms in Japan, Korea, and Taiwan transferred ownership from
landlords to tenants who already were managing operational units, they led to a stable system of

9
Among other supporters of this argument, see Adelman (1975 & 1979), Adelman & Robinson (1978), and
Rao (1978).
10
production relations. Land reform did not require changes in the organization of production and
the beneficiaries already had the skills and implements necessary to cultivate their fields. The
increase in output and productivity relates to improved investment incentives for former tenants,
and with increased security of tenure (Binswanger & Deininger 1993, Callison 1983, Dorner &
Thiesenhusen 1990).

3) It indirectly promoted industrialization. The better distribution of income generated by land

reform strengthened the degree of local linkages of agriculture with non-agricultural activities
(Kawano 1970, Ranis & Stewart 1987). For example, the purchase of consumer goods from
farmers in Taiwan rose 56 percent between 1950 and 1955 (Koo 1968).
4) Land reform may have contributed to out-migration and the supply of educated labor to the
industry because it increased the ability of farmers to pay for the education of their children
(Koo 1968).

5) Along with food price policies discussed earlier, land reform contributed to a shift toward
more labor-intensive crops (mainly fruits and vegetables), providing the basis for the
development of food industries. This happened as a result of three mechanisms. First, the
change in tenant conditions. Ownership created an incentive to produce more because the tenant
benefitted from the increased production (Mao 1982, Kuo 1983). Second, the change in size of
landholdings. Land reform led to a more equal land distribution and to a spread of small
farming. The smaller size of farms contributed to the adoption of more labor-using crops and
technologies. Third, the change in production patterns. Land reform led to crop diversification
because new owner-cultivators were not under the obligation of cultivating rice anymore in
order to make rental payments--the usual arrangement of tenants with their landlords.

VI. Summary and conclusions

The role of agriculture has been neglected by most interpretations of the East Asian
success, and notably by the recent World Bank report The East Asian Miracle: Economic
Growth and Public Policy. Based on a review of studies focused on the agricultural sector of a
group of East Asian countries--Japan, Korea, and Taiwan--this paper addressed the role of
agriculture in their successful transformation from rural and backward to industrialized and
advanced economies. The information presented showed that in all three countries agriculture
provided an elastic supply of labor to the industry during the early stages of industrialization.
While in Korea foreign savings were the most important source of capital for industrialization,
taxes to the agricultural sector comprised the largest proportion of resources that governments
used to finance early industrialization in Japan and Taiwan. Also, agricultural exports generated
a large part of the foreign exchange needed to import industrial machinery and technology.

While agriculture was taxed heavily, it received important attention from governments in
the early stages of development. Because Taiwan and Korea were under Japanese colonial rule
before the Second World War, the development of agriculture followed similar patterns than in
Japan itself. Heavy investments were made in infrastructure, especially irrigation, and in the
development and diffusion of seed-fertilizer technologies. Institutions for agricultural research
11
and higher agricultural education were created, and rural elementary education was expanded
dramatically. These policies led output and productivities in agriculture to grow at high rates for
a long time. The growth in output and productivity was crucial to maintain food prices and the
wage rate in the industrial sector low. In addition, the growth of agriculture and rural incomes
promoted a whole range of industries that made or repaired tools used in agricultural production,
provided inputs to production and consumer products to rural families.

Apart from investing in infrastructure and creating institutions of agricultural research

and education, the state in Japan, Korea, and Taiwan implemented policies to stabilize the prices
of agricultural products. Price stabilization not only benefitted consumers in urban areas, but
also decreased the risks faced by agricultural producers. While in some cases the government
monopolized the purchase of important crops, such as rice in Japan and Taiwan, and often paid
farmers prices lower than the market price, it supported the price of other high value crops--
mainly fruits and vegetables--favoring a shift in the crop structure towards products of high
elasticity of demand with respect to income. Such a policy led to the rapid growth of an
exporting processing industry.

Finally, all three countries implemented a land reform. Because it transferred land
ownership from landlords to tenants who already managed operational units, land reform
required neither organizational changes nor large investments to relocate beneficiaries. Former
tenants had higher incentives to invest, which contributed to an increase in agricultural output
and productivity. In addition, land reform had an enormous impact in the distribution of land
ownership, and it led to a model of more equally distributed growth when the stage of rapid
industrialization began. It generated a distribution characterized by small plots that favored the
use of small-scale mechanization and the shift towards labor-intensive crops, which provided
more possibilities of employment for the rural population. Such a pattern of equally distributed
land ownership and of higher access to rural employment also facilitated the development of
consumption and demand linkages with the local economy.

12
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