2014-2015 LSE-Economic-History-Review.pdf

!The LSE Economic History Review 2014/2015 A collection of social and economic history essays

LSE Economic History Review

About Us

At the LSE Economic History

Review, we take history seriously.

We believe that engaging with the

past is fundamental to

understanding the present and is

best done through good historical

writing that appreciates the nuances

of time and place. Our goal is to

provide a platform to present

outstanding scholarship of Social

and Economic History written by

current LSE Students. The journal

is an annual publication run by the

committee of the LSESU Economic

History Society. The LSE is not

responsible for its contents.

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Top Cover:

18th century Japanese world map Artist: Ishikawa, Ryusen

Source: Cornell University Library

Identification Code:

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Bottom Cover:

Post War New World Map Artist: Gomberg, Maurice

Source: Center for Research on Globalisation

Identification Code:

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2014/2015 Editorial Board

Editors-in-Chief:

Jay Pan

Shem Ng

Designer:

Yash Lad

Publicity Director:

Aemal Asif

Editorial Assistants:

Alexander Hawkins

Gemma Crean

With special thanks to:

Professor Max Schulze

(Head of Department, Economic History)

Dr. Chris Minns

(Associate Professor, Economic History)

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Letter from the Editors

Dear Readers,

Welcome to the first edition of the LSE Economic History Review. As the LSESU

Economic History Society has gone through somewhat of a renaissance in the past

year, we decided that it would be appropriate to remodel the old LSESU Economic

History Society Student Journal. However, the purpose of our new Journal remains

the same: to showcase the outstanding works on social and economic history by LSE

students.

In keeping with LSEs international outlook, this journal seeks to engage in the

discourse regarding the making of the modern world. The works here take us around

the globe.

We start off in Britain. Bethany Bloomers winning submission compares the gender

neutrality of the business cycle in London and Blackburn during the interwar period.

An example of outstanding research, the Head of the LSE Economic History

Department, Max Schulze comments that her work addresses an important question

in economic history, reflects an excellent understanding of the historical context, and

displays critical engagement with source materials. Moreover, it emphasises the

importance of considering regional differences when trying to understand a

significant social issue such as unemployment.

Crossing the Atlantic, Eveline Smeets discusses the implication of Americas lack of

expansionary fiscal policy in the 1930s. In this article, Eveline skillfully argues for the

importance of Keynesian economics in a depressed economy by highlighting the

failure of the New Deal. Her argument is undoubtedly a direct rebuke of todays

debate on austerity, and one worth considering.

Our next three papers shift the focus to Asia.

Rui Dings paper examines the sources of agricultural growth in Japan during the late

nineteenth and early twentieth centuries. Her work should be of interest to anyone

concerned with development and modernisation. She raises pertinent issues regarding

growth accounting and argues that effective dissemination of information and

protectionist policies aided agricultural growth in the country.

Chris Pearce examines the modernisation of Asia later in the twentieth century. His

work highlights the negative ramifications of the growing free-market mandate of

the WTO on developing nations. Chris writes a powerful counterfactual study,

arguing that Koreas adoption of WTO regulations such as TRIMS and TRIPS would

have stifled its economic growth post-1960s.


As our desire to understand China grows alongside its increasing influence on the

international system, Josh Carsons work cannot be better timed as it gives light to a

facet of traditional Chinese societies. Critically, he highlights the pitfalls of imposing

Western concepts of adjudicative legality on the traditional Chinese system. By

studying the Qing legal order of traditions and cultural imperatives, Josh shows that

Chinas legal tradition prioritises the concept of discipline, command and the rule of

man.

The two papers that follow examine the global political economy as a whole.

Anil Menon investigates the impact of the interwar gold standard on economic growth

and recovery. Anil argues convincingly that although the golden straitjacket was

culpable for slow economic growth, it was neither feasible nor desirable for nations to

abandon it in the 1930s. His work shows us the complexity of the international

political economy and will no doubt resonate with keen observers of the Eurozone

crisis.

Isobel Clares work also resonates with another current global crisis; principally the

growing anti-immigration rhetoric spread across the developed world. By

demonstrating how unregulated globalisation, exemplified by mass immigration and

free trade, was the primary cause of early twentieth century deglobalisation, one is

forced to wonder about an impending backlash against the current wave of

globalisation.

Last but not least, Lauren Pipers essay assesses the legacy of colonialism. She

questions whether the continuation of the CFA franc zone in West Africa was a

continuation of French colonialism. Lauren makes a compelling argument that France

and the nations of the CFA franc zone moved away from their colonial relationships

towards a more inclusive and open albeit unequal alliance.

We hope that you will enjoy reading this edition as much as we have enjoyed putting

it together. We look forward to showcasing more works in our next edition.

Congratulations to all the authors whose work is featured here, and many thanks to

everyone who submitted their papers. Additionally, we would like to thank the entire

editorial board for their tireless work and the LSE Economic History Department for

their generous guidance and support.

Shem Ng and Jay Pan

Editors-in-Chief


Contents

5 The Gender Breakdown of Unemployment in London and Blackburn, 1926-1938 Bethany Bloomer

17 Catalyst of Revival; Drop in the Ocean or Utter Nonsense? Remedies for the Depressed Economy: Assessing Fiscal Policy in the

Thirties Eveline Smeets

27 The Sources of Agricultural Growth in the late Nineteenth-Century and Early Twentieth-Century Japan Rui Ding

35 Implications of the growing WTO mandate for Development in Poor Countries: a Counterfactual History of South Korea Chris Pearce

44 Characterising the Nature of the Legal system in Traditional China Josh Carson

51 To Leave or Not to Leave: The Gold Standard in the 1930s Anil Menon

57 Did Globalisation in the Nineteenth-Century plant the seeds of its own Destruction? Isobel Clare

62 CFA Franc Zone: a Transformation of French Colonial Rule in Africa Lauren Piper

68 Submission Guidelines


The Gender Breakdown of Unemployment in London and Blackburn, 1926-1938

By Bethany Bloomer __________________________________________________

The impact of the business cycle on unemployment is a well-understood and researched

subject. While structural and frictional unemployment have their individual causes, cyclical

unemployment is caused by the business cycle; high unemployment implies a recession,

while low unemployment is a result of a boom. However a less well researched but closely

related question is how this effect differs for male and female unemployment; does the

business cycle demonstrate gender neutrality, or does it have a greater impact on one gender?

Although several authors have been considered the general question over the gender

neutrality of the business cycle, it has been limited to the more general question of

demographic biases. For example, by regressing the logarithm of labour participation rates on

aggregate demand, Clark and Summers found that young workers in general are more

affected by the business cycle than older ones, and that of these young workers, female

workers are more likely than male workers to withdraw from the labour force rather than

become unemployed.1 The most common conclusion of the few papers that have focused on

gender in particular seems to be that the effect of cyclical shocks is clearly stronger on male

unemployment than on female unemployment, especially in the UK. 2 This is considered to

be largely due to the concentration of men in industries that are typically worst hit by

economic downturns, such as manufacturing. However, few, if any, papers researched further

back than the 1960s, and most concentrate on the decades after the 1980s. A study of the

gender breakdown of unemployment in interwar Britain and how it relates to the business

cycle is therefore an interesting opportunity. Levels of female labour force participation were

substantial enough by this time to allow for analysis, there are unemployment benefit records

which provide the data to make this analysis possible, and there are many economic

fluctuations within one relatively short time period. The specific dates of 1926-1938 were

chosen due to time limitations. Those 12 years contained both a drastic fall and subsequent 1 K. Clark and L. Summers, The Dynamics of Youth Unemployment, in Richard B. Freeman and David A. Wise (eds.), The Youth Labor Market Problem: Its Nature, Causes, and Consequences, (University of Chicago Press, 1982), p.204. 2 A. Peir, J. Franch, and M. Gonzalo, Unemployment, cycle and gender, Journal of Macroeconomics 34, no. 4. , (2012): p.1170.

5

Bethany Bloomer


rise of the business cycle, making them most relevant for this project. Furthermore, the data

seemed to become less consistent with more gaps prior to 1926.

The main source for unemployment benefits was the claimant count between 1926 and

1938 in London and Blackburn, which is available at the National Archives in the form of

returns of the number of workers registered as unemployed, sent by local offices to the

Ministry of Labour on a weekly or monthly basis. The data is exceedingly useful as it is

disaggregated by gender, age, and region, allowing my analysis to take place on a number of

levels. Data was collected for each month for those classified as Men/Women or Young

Men/Women, therefore adults 18 and over. This essay focused on the wholly unemployed

category as it had the most consistently available data; the methods of classifying and

recording the unemployment, particularly more temporary unemployment, repeatedly

changed over the timespan covered by this project. London is an obvious choice as a case

study due to the sheer size of its population and the variety of occupations and industries

available making it a balanced and large sample. Blackburn, whilst a much smaller sample, is

interesting due to the traditionally high availability of paid work for women in the large

Blackburn cotton weaving industry. During this time period, the national average for female

labour force participation was under a third, but Blackburn had an unusually high rate of

62%.3

There are disadvantages to this dataset. For instance, the claimant count is not

necessarily an accurate indicator of true unemployment, as not all who become unemployed

chose to register for or are entitled to benefits. The claimant count outright disqualifies

certain groups who would otherwise have counted in the unemployment figures, thus

providing an underestimate of total unemployment. For example, agriculture and domestic

servants were excluded. An issue with an even greater potential impact on this study is that

there were greater restrictions in place for women to qualify for claiming unemployment

insurance relative to men; for instance, the Anomalies Regulations of October 1931 greatly

increased the eligibility requirements for married women relative to other categories of

workers. This resulted in a dramatic fall in the recorded unemployment rate of married

women, possibly indicating a return to employment as Benjamin and Kochin argued, but

more likely reflecting married women who were not entitled to benefits simply dropping out 3 T.J. Hatton and R.E. Bailey, Female Labour Force Participation in Interwar Britain, Oxford Economic Papers, New Series 40, No. 4, (1988): p. 708.

6



of the labour force rather than registering as unemployed.4 Thus it is important to be aware of

the potential distortion that regulation changes could have on unemployment as measured by

the claimant count.

Furthermore, women typically had a relatively low labour attachment during this time

period, both in comparison to modern day women and contemporary men. They may thus

have been more likely to respond to a downturn by leaving the labour force and becoming

discouraged workers than by claiming unemployment benefits, as Clark and Summers found

for young female workers in the US in 1968-1976.5 This may distort the results of the

investigation; by reducing the claimant count figures and pushing the unemployment rate of

women below what it would otherwise have been. It also is possible that the added worker

effect, wherein a typically dependent person joins the labour force in response to the

breadwinner becoming unemployed, may have been stronger for women and resulted in an

upswing in female participation during the heights of the depression. For instance, Margo

found that in the US in 1940, a wife was 59% more likely to participate in the labour market

if the husband was unemployed than if he held a full time job.6 This effect may have

therefore increased the female labour force size and consequently resulted in lower

unemployment rates. Thus it is difficult to assess precisely how the response of female labour

differed from the typically more steady labour force participation rates of men.

Choosing Blackburn as a case study could potentially limit some of these effects due to

the high percentage of paid female labour. Economic incentives to work were reinforced by

social norms, to the point where it became almost unthinkable for women not to work.7

This work tended towards relatively skilled work in the cotton weaving industry. Wage

differentials between men and women were also limited in Blackburn, particularly in

comparison to other weaving areas; there was only a 5.3% gap in Blackburn, compared to a

33.3% gap in Bolton. The opportunity cost for women to not work was therefore relatively

high. This has two implications. Firstly, the added and discouraged worker effects likely had

a more limited effect on womens unemployment rates in Blackburn, more comparable to

4 M. Collins, Unemployment in Interwar Britain: Still Searching for an Explanation, Journal of Political Economy 90, no. 2, (1982): p.372. 5 Clark and Summers, The Dynamics of Youth Unemployment, p. 203. 6 R Margo in B Eichengreen and T.Hatton (eds.), Interwar Unemployment in International Perspective, (Cambridge: Springer, 1988), p.348. 7 J. Liddington, Women cotton workers and the suffrage campaign: the suffragists in Lancashire 1893-1914 in S. Burnman (ed.), Fit Work for Women, (London: Croom Helm, 1979), pp. 98-99.

7

Bethany Bloomer


that on mens. Secondly, women in Blackburn were more likely to participate in the

insurance schemes, and therefore show up in the figures. Therefore this reduces some of the

inherently problematic aspects when looking into female unemployment in the interwar

period.

Using the dataset compiled from the monthly claimant count returns, and the yearly

economic activity rates from the census data of 1921, 1931, and 1951 collected by the

University of Portsmouth, the author created an unemployment rate for men and women for

each month of 1924 to 1938.8 A comparison of unemployment rates both to each other and to

GDP in the form of graphs will be made. Moreover, calculations to the moving averages of

each series in order to ascertain the main trends, while simultaneously using this to create a

de-trended version to directly compare seasonal and random variations will also be enacted.

Calculating and comparing the coefficient of variation for the moving averages may also

reveal interesting implications; one would expect to see similar coefficients for male and

female unemployment if their reactions to the business cycle over time are of a similar

magnitude.

One major issue with this methodology is that creating an unemployment rate for men

and women separately is difficult due to the lack of information available regarding the

labour force size. The obvious means of creating an unemployment rate from the claimant

count is to use the total number of insured workers as a denominator, and this total can be

found in the Ministry of Labour Gazette; however this data is rarely provided disaggregated

by gender, and therefore separate rates for men and women cannot be created. Modern

unemployment rates often rely on labour force surveys, yet the only roughly similar

contemporary survey, the New Survey of London Life and Labour, only covers 1929-1931. 8 GB Historical GIS, Blackburn CB/MB through time, GB Historical GIS / University of Portsmouth, Last accessed: 26th April, 2014, http://www.visionofbritain.org.uk/unit/10179622/cube/CENSUS_ACTIVE_GEN GB Historical GIS, Blackburn With Darwen UA through time, GB Historical GIS / University of Portsmouth, Last accessed: 26th April, 2014, http://www.visionofbritain.org.uk/unit/10168533/cube/CENSUS_ACTIVE_GEN GB Historical GIS, Inner London through time, GB Historical GIS / University of Portsmouth, Last accessed: 26th April, 2014, http://www.visionofbritain.org.uk/unit/10076845/cube/CENSUS_ACTIVE_GEN GB Historical GIS, Outer London through time,| GB Historical GIS / University of Portsmouth, Last accessed: 26th April, 2014, http://www.visionofbritain.org.uk/unit/10202620/cube/CENSUS_ACTIVE_GEN

8



An alternative, and the one used in this essay, is to take the figures for economically

active men and women from the census data. This labour force size data is made slightly

complicated by the retrospective adjustments for boundary changes, meaning there is no

consistent data available for 1921, 1931 and 1951. Calculating the difference between the

data for 1931 within the initial administrative boundary and the adjusted 1931 data for the

new boundary and then removing this difference from the 1951 data gives a rough estimate of

the economically active population without the administrative boundary change. This essay

assumed a linear relationship between the labour force size at each point in time, and thus

created estimates for each year in this study. This approach is problematic, as the assumption

of linearity leads to simplified labour force figures which ignore potentially important short

term variations. However this problem is made even more prominent in this case due to the

lack of a census in 1941, meaning the data has to be drawn from the 1931 and 1951 censuses.

Given the devastating impact of the Second World War, particularly on the male labour force

size, it is highly likely that the unemployment rate for men is overstated. Meanwhile, the

female unemployment rate is likely to be understated as rapid labour force growth that

occurred during the war years is being attributed to earlier years. However this effect will be

subdued by the fact that some of the increased female participation during the war was

transitory, and by 1951 a portion of the new female workers had returned to the domestic

sphere.

Furthermore, the claimant count underestimated unemployment due to excluding some

workers entirely, as discussed before, yet the census data for labour force size is based off the

entire population. Therefore it is important to note that the unemployment rates produced

here will be an underestimate compared to those produced by comparing the claimant count

to the number of insured workers, or the census data for unemployment to the census data for

labour force size. Nevertheless, this should not greatly affect a comparison between male and

female unemployment rates when produced using the same method.

9

Bethany Bloomer


0 2 4 6 8 10

12 Jan-26

Jul-26 Jan-27 Jul-27 Jan-28 Jul-28 Jan-29 Jul-29 Jan-30 Jul-30 Jan-31 Jul-31 Jan-32 Jul-32 Jan-33 Jul-33 Jan-34 Jul-34 Jan-35 Jul-35 Jan-36 Jul-36 Jan-37 Jul-37 Jan-38 Jul-38 Unemployme

nt rate (%)

Male and female unemployment rates in London, 1926-1938

Male Female

80 90 100 110 120 130 140

0 50 100 150 200 250 300

Jan-26

Aug-26

Mar-27

Oct-27

May-28

Dec-28 Jul-29 Feb-30

Sep-30

Apr-31

Nov-31

Jun-32

Jan-33

Aug-33

Mar-34

Oct-34

May-35

Dec-35 Jul-36 Feb-37

Sep-37

Apr-38

Nov-38 GDP, mn, in

1938 market p

rices

Unemploymen

t rates

Unemployment rates in London and UK GDP, set to base month of January 1926

Male Female GDP

Figure 1.

This methodology allowed for the production of Figure 1, which compares male and

female unemployment rates in London between 1926 and 1938. The immediate conclusion to

draw from this is that male unemployment was persistently higher across the entirety of the

12 years, with an unemployment rate often twice as high as the rate for women.

Indexing these unemployment rates to a base month enables us to directly compare the

month-on-month percentage change in unemployment over the course of the business cycle.

As shown in Figure 2, by placing this alongside the monthly GDP data produced by Mitchell

et al. (2012), it is possible to see how slight changes in GDP levels produced differing

reactions in the male and female unemployment figures.

Figure 2. GDP data from Mitchell et al. (2012)

10



Thus, the depression had a more similar effect on the unemployment rate of both men

and women than Figure 1 suggests; both rates more than doubled between the end of 1929

and the end of 1931, and never reached their former level again for the rest of the period

considered. However the reaction of the female unemployment rate to the onset of the

depression was faster, reaching double at the beginning of 1931. As GDP slows down in

1938, this pattern begins to repeat, with the female unemployment rate rising faster and the

male rate catching up towards the end of the year.

One interesting point is the extent to which the effects of the Anomalies Regulations of

October 1931 are apparent; having reached over 250% of January 1926 levels by October

1931, this figure falls to 189% over the following 2 months alone. Given that male

unemployment dips by a comparatively minuscule amount of only 1 percentage point, and

that there is no other obvious explanation for a fall in female unemployment, it is likely that a

large proportion of this fall is due to the policy shock. This is therefore highly distortionary.

Figure 3. GDP data from Mitchell et. al (2012).

Creating the moving averages of unemployment and GDP reveals a more accurate

picture of how unemployment responded to the business cycle by smoothing out the

distortions caused by seasonal and random fluctuations, as shown in Figure 3. The clear

relationship between unemployment and the business cycle is obvious. Overall, it would

appear that there was a largely gender neutral response; for example, for the 1926-1933

80 90 100 110 120 130 140

0 50 100 150 200 250 300

Jul-26 Jan-27 Jul-27 Jan-28 Jul-28 Jan-29 Jul-29 Jan-30 Jul-30 Jan-31 Jul-31 Jan-32 Jul-32 Jan-33 Jul-33 Jan-34 Jul-34 Jan-35 Jul-35 Jan-36 Jul-36 Jan-37 Jul-37 Jan-38 GDP (

mn, at 1938 m

arket pries)

Unemploymen

t rate

Moving averages of London unemployment rates and UK GDP, 1926-1938 (base month set at July 1926)

Male Female GDP

11

Bethany Bloomer


cycle, the trough and peak of the female unemployment rate are 186.1 percentage points

apart, compared to 181.1 percentage points for the male unemployment rate. The coefficient

of variation for each unemployment series, by calculating relative dispersion, reveals the

extent to which unemployment varies over the business cycle for men and for women. When

calculated based off the moving average series, the coefficient of variation for men is 0.337

(3 d.p.) compared to 0.349 (3 d.p.) for women. Therefore the response to the business cycle

for male and female unemployment was largely similar, despite the overall higher rates of

male unemployment.

Figure 4.

Figure 4 shows the de-trended variations of male and female unemployment in London.

A pattern of seasonal variation is prominent, with unemployment spiking in January/February

and falling to a low during the third quarter. Surprisingly, the impact seems to be slightly

worse for women, despite the fact that seasonal work is often associated with more male

dominated trades such as building. A potential explanation lies in the traditional London

season, which drew the rich and powerful into London in droves between March and

August and consequently affected several trades in which female workers were

concentrated.9 For instance, by 1931, women constituted almost 50% of retail assistants.10

10 S. Todd, Young women, work and family in inter-war rural England, the Agricultural History Review 52, no.1 (2004): p. 94.

0.6 0.7 0.8 0.9 1 1.1

1.2 1.3 1.4

Jul-26 Jan-27 Jul-27 Jan-28 Jul-28 Jan-29 Jul-29 Jan-30 Jul-30 Jan-31 Jul-31 Jan-32 Jul-32 Jan-33 Jul-33 Jan-34 Jul-34 Jan-35 Jul-35 Jan-36 Jul-36 Jan-37 Jul-37 Jan-38 Variati

ons in Unemp

loyment Rates

(%)

Detrended Male and Female Unemployment Rates in London, 1924-1938

Male Female

12



Given the relatively small female labour force size, the upswings in retail employment over

the London season and in the run up to Christmas would have a proportionally greater impact

on female unemployment.

Figure 5. The gap in July 1931 is caused by missing data in the original source.

The results for Blackburn are visibly different to the London results, both in terms of

general unemployment levels and the gender unemployment gap. Given the dependence of

Blackburn on the British cotton weaving industry, which was persistently suffering during the

interwar period, this is unsurprising. Hence unemployment begins to steadily rise even before

the onset of the depression, and from March 1930 onwards, neither of the unemployment

rates fall below 10%. Yet tbe most dramatic impact is clearly on female unemployment,

which undergoes a meteoric rise to over 40% at the start of 1931, almost double that of male

unemployment.

0 5 10 15 20 25 30 35 40 45

Jan-26 Jul-26 Jan-27 Jul-27 Jan-28 Jul-28 Jan-29 Jul-29 Jan-30 Jul-30 Jan-31 Jul-31 Jan-32 Jul-32 Jan-33 Jul-33 Jan-34 Jul-34 Jan-35 Jul-35 Jan-36 Jul-36 Jan-37 Jul-37 Jan-38 Jul-38

Unemploymen

t Rate (%)

Female and Male Unemployment Rates in Blackburn, 1926-1938

Male Female

13

Bethany Bloomer


300 320 340 360 380 400 420 440 460 480

0 5 10 15 20 25 30 35 40

Jul-26 Jan-27 Jul-27 Jan-28 Jul-28 Jan-29 Jul-29 Jan-30 Jul-30 Jan-31 Jul-31 Jan-32 Jul-32 Jan-33 Jul-33 Jan-34 Jul-34 Jan-35 Jul-35 Jan-36 Jul-36 Jan-37 Jul-37 Jan-38 GDP, mn, at

1938 market p

rices

Unemploymen

t rate (%)

12 month moving average of male and female unemployment rates in Blackburn, compared to 12 month moving average of UK GDP, 1926-1938

Male MA Female MA GDP MA

When moving averages are compared, female unemployment in Blackburn clearly

responds by a much greater amount to the fluctuations of the business cycle; the peaks and

troughs of the female unemployment rate trend line are at least 20 percentage points apart,

compared to a maximum of just over 15 percentage points on the male trend. This is most

likely due to the discrimination and occupational segregation women faced in this period,

even in an area with such high participation rates. In such a highly specialised town,

alternatives to the cotton industry were already limited, and women had far fewer alternatives

than men.11 This supports the conclusions in the modern literature, wherein men tend to

suffer from greater unemployment due to their concentration in the industries that are hit

hardest; albeit in this particular rare case, this effect was impacting women rather than men.

A similarity to the London graphs lies in the speed with which the unemployment rates

respond to changes in the business cycle; again, the female unemployment rate increases

faster than the male rate in response to GDP downturns, both at the end of 1929 and at the

start of 1938. A possible explanation for this pattern is the discriminatory practice of

choosing to fire women first in the eventuality of selective redundancies.12 A common

assumption of the time was that male unemployment was caused by female employment, and 11 J. Walton, A Social History of Lancashire, 1558-1939, (Manchester: Manchester University Press, 1986), p.339. 12 Ibid., p.339.

Figure 6: GDP data is from Mitchell et al. (2012)

14



therefore women were easier targets when companies were required to downsize in response

to the depression. In particular, the Marriage Bar was common practice in several

occupations, including for government employees and teachers, and impacted on married

womens employment by enabling employers to fire them upon marriage.

In conclusion, due to the problematic aspects of researching gender gaps in a period of

low female participation, discriminatory benefit policies and limited data records, it is

difficult to draw many definite answers with regards to the gender neutrality. However three

tentative conclusions can be drawn from this investigation. Firstly, in interwar Britain, the

case of London suggests that the average experience was of a roughly gender neutral

response to the business cycle; despite male unemployment rates being higher in general, the

two rates increased and fell by relatively similar amounts. Secondly, the exceedingly severe

female unemployment in Blackburn supports the notion that the unemployment gender gap

over the course of the business cycle is due to occupational factors. Studies focusing on

recent eras have found that male unemployment demonstrates a greater response to a

depression because men are typically concentrated in industries that are most vulnerable,

such as manufacturing; Blackburn in the interwar period is an interesting example of this

effect working in the opposite direction. Women were more concentrated in the declining

cotton industry due to occupational segregation and thus experienced higher unemployment.

Finally, in both Blackburn and London, the female unemployment rate increased faster in

response to the depression in 1929 and the slowdown in 1938, possibly indicating the impact

of the discriminatory labour policies of the time.

REFERENCES Clark, K. and Summers, L. The Dynamics of Youth Unemployment, in Richard B. Freeman and David A. Wise (eds.), The Youth Labour Market Problem: Its Nature, Causes, and Consequences. Chicago: University of Chicago Press, 1982. Collins, M., Unemployment in Interwar Britain: Still Searching for an Explanation. Journal of Political Economy 90, no.2 (1982): p.369-379. GB Historical GIS. A vision of Britain through time. GB Historical GIS / University of Portsmouth, Last accessed: 26th April 2014. http://www.visionofbritain.org.uk/unit/10168533/cube/CENSUS_ACTIVE_GEN

15

Bethany Bloomer


Hatton, T. and Bailey, R. Female Labour Force Participation in Interwar Britain. Oxford Economic Papers, New Series 40, No. 4 (1988): p.695-718. Liddington, J. Women cotton workers and the suffrage campaign: the suffragists in Lancashire 1893-1914. in S. Burnman (ed.), Fit Work for Women. London: Croom Helm, 1979. Margo, Robert, in Barry J. Eichengreen and T.J. Hatton (eds.), Interwar Unemployment in International Perspective. Cambridge: Springer, 1988. Mitchell, J., Solomou, S. and Weale, M. Monthly GDP estimates for inter-war Britain. Explorations in Economic History, no.49 (2012): p. 1-30. Todd, S. Young women, work and family in inter-war rural England, the Agricultural History Review 52, no.1 (2004): p. 1-286. Walton, J. A Social History of Lancashire, 1558-1939. Manchester: Manchester University Press, 1986.

16


Catalyst of Revival; Drop in the Ocean or Utter Nonsense? Remedies for the Depressed Economy: Assessing Fiscal Policy in the Thirties

By Eveline Smeets __________________________________________________

The dispute between the Keynesian and the Classical schools is one inherent to the

macroeconomic discipline. It has been so in the past, and, as is evidenced by the current

austerity-debates amongst euro-member states, it is still so today. Although the answer to this

pertinent question has often resolved into the practice of offering arguments with an

ideological tradition, what is vital is instead a pragmatic assessment based on empirical

considerations. One method available from the toolbox of the Economic Historian is the

examination of a historical case study. A setting that has frequently been the subject of

investigation is that of the Great Depression, which captured the world economy throughout

the 1930s, and is often considered the most comparable case to that of the recent Great

Recession. Although mostly considered a monetary phenomenon, this essay will instead

study the fiscal aspects of the Depression. Of particular interest is the use of fiscal policy as a

tool for recovery. A commonly embraced assessment of fiscal policy in the thirties has been

that by E. Cary Brown.1

Fiscal policy [] seems to have been an unsuccessful recovery device in the thirties not

because it did not work, but because it was not tried.

This essay will analyse and expand on the supporting evidence for this conclusion and

consequently aims to identify the role of fiscal policy in the recovery process after the Great

Depression in the United States. Firstly, the paper offers a brief theoretical view of fiscal

policy as a tool for reviving the depressed economy. These theoretical concepts are

subsequently compared to the actual impact of fiscal policy in the thirties. The third and

fourth chapters then uncover why this impact has seemed negligible the former from a

structural point of view, and the latter from a historical perspective. Finally, a concluding

note will provide a brief assessment of Post-Depression outlooks on fiscal policy. 1 E. Brown, Fiscal Policy in the 'Thirties: A Reappraisal, The American Economic Review 46, no. 5 (1956),

pp. 863-866.

17

Eveline Smeets


Theoretical Framework The thirties are often referred to as a defining moment for the US economy; a turning

point that saw a redefinition of the policy making process.2 A particularly prominent legacy

would be the emergence of demand-side economics and Keynesian theory as a method to

analyse macro-economic phenomena. In Browns essay, this theory is used to explain the

(fiscal) policy patterns in the thirties.3 This section briefly reiterates the principal facets of the

closed economy model in Figure 1, where the x-axis is defined as output of the economy, and

the y-axis captures the (internal) demand for this output. The starting point is line B, which

includes the private demand from Consumption (C) and Investment (I). This line

subsequently rotates and decreases in slope as a result of taxation, which implies that the

government expropriates a specified tax rate of the total demand. This post-taxation scenario

is displayed as line A. But the government is not just an external factor that curbs demand; in

addition to taxing, it also spends and stimulates demand. It does so by committing to

government expenditures (G), which constitutes demand-line C.

Therefore, when qualifying a policy as

trying fiscal policy, one needs to take two

separate elements into account: (1)

government spending, and (2) taxation. What

ultimately defines the utilization of fiscal

policy is the balance of the budget, often

measured as a share of GDP. In the case that

the government chooses to commit to a budget

deficit (G exceeds T, here assumed to be

financed through debt), we consider this an

expansionary fiscal policy. However, for

fiscal stimulus to be considered truly

expansionary, it is required to be sizeable for it

for it to have an impact.

14 M. Bordo, C. Goldin and E. White, The Defining Moment: the Great Depression and the American Economy in the Twentieth Century (Chicago: University of Chicago Press, 1998), pp.1-20. 15 Brown, Fiscal Policy in the Thirties, p.860.

Figure 1: The Keynesian Cross1

18



A final feature is the multiplier effect, as defined by the slope of the aggregate demand

lines. This effect captures the notion that government expenditures do not simply have a one-

to-one effect on the economy. Instead, the impact should be larger: an exogenous increase in

G will respectively increase demand, output, income and subsequently again augment

demand for consumption (i.e. C is a function of income). This concept, dubbed the fiscal

multiplier, implies that an autonomous increase in government expenditures actually has a

larger than one-to-one effect on demand. The green lines in Figure 1 demonstrate this,

whereby the length of each line equals the rise in G. If the impact were one-to-one, the

economy would end up with output Y0, but in reality, Y1 is reached after the multiplier

effect.

Fiscal Policy in the 1930s The Keynesian model would thus suggest that the appropriate way to combat the

depressed economy, where aggregate demand is insufficient, would be to cushion the shock

to aggregate demand. This can be done through (a combination of) two tools: (1) lenient

monetary policy, and (2) fiscal stimulus. The latter countercyclical policy, which is the focus

of this essay, can be achieved through increasing government disbursements and decreasing

tax rates. Yet, as Romer long a leading authority on the effectiveness of New Deal policies

poses, it was a monetary development that proved to be the crucial source of the recovery.4

Instead, before 1942, the low fiscal multiplier would imply that fiscal policy mattered little in

the recovery process of the depressed US economy. Almunia et al. propose a more optimistic

scenario; using more advanced econometric techniques, the academics conclude that fiscal

multipliers were substantial, suggesting a significantly positive impact of government

expenditure on GDP during the interwar period.5 Nevertheless, fiscal policy, as suggested by

Brown and Peppers, had little impact overall because it was not deployed on the requisite

scale.6

16 C. Romer, "What Ended the Great Depression?," The Journal of Economic History 52, no. 4 (1992), pp.758-759. Romer suggests that the swelling of the money stock was not a result of active, expansionary monetary policy, but rather due to huge gold inflows in the mid- and late 1930s after (1) the 1933 devaluation of the dollar and (2) capital flight from politically unstable Europe. Therefore, she presumes that a self-correcting response of the US economy to low output (as suggested by advocates for supply-side economics) was weak or non-existent in the 1930s. 17 M. Almunia, Agustn Bntrix, Barry Eichengreen, Kevin H. ORourke, and Gisela Rua. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," Economic Policy 25, no. 62 (2010): pp.239-241. 18 L. Peppers, "Full-employment Surplus Analysis and Structural Change: The 1930s," Explorations in Economic History 10, no. 2 (1973): pp.200-209.

19

Eveline Smeets


Although both streams of literature have not argued that fiscal stimuli proved a manna

from heaven that would immediately cure the depressed economy, there is one main

takeaway from both articles: fiscal policy did not behave according to what would be

advocated by Keynesian theory. Then how would this rhyme with the conventional

presumption that the 1930s would go down in US history for its substantial government

expenditures in response to the Depression? It is evidently of great macro-economic

relevance to investigate the structure of fiscal policy and what it actually meant for the US

economy.

Structural Explanations for Fiscal Policy in the 1930s Certainly, after Roosevelt had been elected in 1933, the New Deal was launched; a

massive government expenditure program that the US economy had not witnessed before.7

Nonetheless, several historians have questioned whether the New Deal was actually such a

coherent, integrated plan.8 Rather, it should be interpreted as a pragmatic plan that consisted

of ad hoc responses, not primarily adopted for the purpose of economic recovery. The Deal

came to include not only general measures to increase aggregate demands for output but

also a myriad of specific [relief] measures to support individual sectors, at times responding

to the demands of specific interest groups. Chandler consequently conceives that a better

alternative would have been to rely upon generalized monetary and fiscal policies to achieve

a revitalization of the economy.9 That is, the implementation of specific actions, although

certainly needed, would never become an adequate substitute for a generic policy framework

that could induce demand. However, as will be clarified later in this article, this course would

have been politically unacceptable under the conditions of the time.

This mixture of fiscal stimuli did not prove a sufficient catalyst for an economic

revival, and evidently forms a first structural factor to explain why fiscal policy was not

tried. What other factors are responsible for the lack of expansionary effects after the

instalment of New Deal programs? One can open this black box by studying the structure of

the fiscal budget during the thirties. Figures 2 and 3 allow one to identify two additional

reasons for the governments deficiency in mitigating the backlash in aggregate demand. 19 G. Eggertsson, "Great Expectations and the End of the Depression," American Economic Review 98, no. 4 (2008): p. 1476. 20 P. Fishback and J. Wallis, Chapter 10: What was New about the New Deal? in Nicholas Crafts and Peter Fearon, The Great Depression of the 1930s: Lessons for Today (2013): pp.291-327. 21 L. Chandler, America's Greatest Depression, 1929-1941 (London: Harper & Row, 1970), p.134.

20



Both would imply that, indeed, fiscal policy was not tried and one could not consider New

Deal to be part of a broader Keynesian agenda.

Such an agenda would call for budget deficits. Although federal expenditures did

increase throughout the period under consideration, Figure 2 also attests to the fact that this

policy was first countervailed by a simultaneous increase in federal taxation. This would curb

the expansionary effect of augmented government expenditures that emerges in the

Keynesian framework. The reason for committing to such devices was a consequence of the

budget balance inertia that captured the ideas of policy makers.10 The staunch advocacy for

balanced budgets meant that the gap between expenditures and taxes was minimal at the

federal level, and of insufficient scale to qualify as trying fiscal policy. This limited scale

proved insignificant to recapitalize the economy and a strong causal force in understanding as

to why the fiscal multiplier merely fluctuated between -0.4% and 2.5%.11

Figure 2 and 3: Government Budgets throughout the Thirties - based on data from Chandler 12.

This persistently high level of taxation was a phenomenon that occurred at all levels of

government.13 Budgets of decentralized government entities in Figure 3 do display a different

picture from that in Figure 2. Decentralized spending is not only weak, but it is more than

offset by the co-movements of taxation. This would suggest a lack of coordination amongst

10 This issue will be dealt with at a later stage. It suffices to say that this inertia prevailed both under Hoover and Roosevelt. 11 Brown, Fiscal Policy in the Thirties, p.867. 24 Chandler, America's Greatest Depression, p.121. 13 P. Fishback, "US Monetary and Fiscal Policy in the 1930s," Oxford Review of Economic Policy 26, no. 3 (2010): pp.401-406.

-5

0

5

10

15

20

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

1941

Fisc

al to

ols

(in b

illio

n $,

cur

rent

pric

es)

State & Local Budget

Expenditures Taxes Deficit -5

0

5

10

15

20

1929

19

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1931

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Expenditures Taxes Deficit

21

Eveline Smeets


the federal and decentralized government organs, which forms a vital element of fiscal policy

and particularly so when ensuring that fiscal stimulus trickles down and is able to exert

influence onto the entire economy. This lack of coherence between federal and localized

fiscal policies forms the second factor that counterbalances potential stimulating effects of

federal activity. In effect, throughout the 1930s, its contribution to total demand ranges

between -0.3% and 2%.14 This can be explained by the observation that budget surpluses

prevailed; Figure 3 indicates that taxation and spending were not just similar in terms of

levels, but also in their behaviour and direction overtime.

Historical Explanations for Fiscal Policy in the 1930s Together these structural features define the obstacles to the pursuit of adequate fiscal

stimulus and why it remained weakly expansionary at best. Indeed, Keynes retrospectively

analysed the fiscal structure under FDR and contended that it would not actually qualify as an

adequate example of the Keynesian fiscal tool.15 This still does not explain, however, why

expansionary policy, which would have been the obvious answer to the adverse shock on

aggregate demand, was not actively pursued. The answer to this pivotal problem is placed in

the assessment of the historical context; the playing field of the economic historian. Doing so

delivers three solutions. The first is attributable to the contemporary mind-set. A primary

aspect of this mind-set is that it ranks the fiscal straitjacket high on the list of priorities. At

the onset of the Depression countercyclical policy was unheard of; only the wartime economy

would employ budget deficits as a method of financing war-related investments.16 The

contemporary holy grail of macroeconomics balanced budgets had its origins in both ill-

conceived economic doctrines and a generic fear of consequences. The former entails a

conviction that governments should not interfere with the natural process of liquidation and

adjustment (i.e. overinvestment theory), which prevailed amongst contemporary

economists.17 Few held the conviction that deficits would be successful stabilization policies

and instead presumed that such a device would crowd out any funds available to the private

sector. A second aspect involves both fears of economic (i.e. excessive debt in an otherwise

healthy economy) and political (i.e. the destruction of political credit) consequences.18 A last

factor, which also proved instrumental for the restrictive monetary policies that had been 14 Brown, Fiscal Policy in the Thirties, p.867. 15 Fishback, US Monetary and Fiscal Policy, pp.403-404. 16 Bordo, Goldin and White, The defining moment, pp.67-70. 17 Chandler, Monetary and Fiscal Policies, pp.112-113. 18 Bordo, Goldin and White, The defining moment, pp.70-74.

22



employed throughout the Hoover administration, is indicative of the contemporary

idealization of maintaining the gold standard. Almunia et al. refer to how in the 1930s,

countries remaining on the gold standard were reluctant to apply fiscal stimulus since this

could lead to a drain of reserves by attracting imports. 19 These influences together

characterize the broad mind-set throughout the thirties, a first stumbling block to the active

adoption of expansionary fiscal policy.

A second obstacle exacerbated this utter nonsense -view on expansionary fiscal

policy: the fact that macroeconomic theory was still at an infancy stage. The theoretical

rationale that has been discussed in the early paragraphs of this essay was issued only in

1936, in Keynes General Theory of Employment, Interest and Money.20 And, as with every

theory, there is a considerable time laps between its initiation and the general acceptance of

the model. In the absence of some comprehensive and generally accepted theory of income

behaviour, it was almost inevitable that the advice offered by economists would be

conflicting, of limited usefulness, and often wrong.21 Specific to the relevance of the

Keynesian theory was the multiplier concept described in the early stages of this essay; the

idea that expansionary fiscal policy would not just have a one-to-one effect on aggregate

demand, but rather a snowball-effect that strengthens private demand until the multiplier

fizzles out.

These complementary factors explain why the strive for balanced budgets persisted for

so long. This bias was well reflected in the design of government policy, both under the

Hoover and under the Roosevelt administration. At the onset of the economic malaise the

Hoover administration did opt for limited fiscal expenditures on public works, but only as

long as the budget remained in surplus. Nonetheless, as soon as federal tax receipts proved

disappointing in response to the setback in aggregate demand, the administration adopted

the 1932 Revenue Act in order to prevent the surplus from turning into a deficit.

Simultaneously, federal expenditures were curbed and the accidental expansionary policy

proved to become a temporary feature. Budget deficits remained an annoyance at the

31 Almunia et al., From Great Depression to Great Credit Crisis, p.233. 32 J. Keynes, The General Theory of Employment Interest and Money (London: Macmillan and Co, 1936) 33 Chandler, Monetary and Fiscal Policies, pp.122-124.

23

Eveline Smeets


commencement of the FDR administration; the ambition for conservative budgets persisted.22

In fact, only in 1934, 1936 and 1939 did Roosevelts budget deficits exceed those of Hoover

in 1932 and 1933.23 Although federal expenditures increased significantly, the 1932 Act that

became fully effective in 1933 implied a significant hike in the taxation rates. Throughout

FDRs term, these tax levels remained stable, and were even amplified at times. An example

is the period of 1936-1937 in figure 3; an instance in which fiscal policy shifted into a

contractionary mode, precipitating the 1937 recession that severely stalled the process of

economic recovery.24

But, with greater willingness and knowledge, would Hoover and FDR have been able

to substantiate a strong impulse on aggregate demand? A third contextual factor is the size of

the government, which questions whether the state was in a position to catalyse a recovery

through fiscal policy in the first place. An effective fiscal policy would hinge on its scale,

which was remarkably limited prior to the thirties. In 1929, fiscal budgets at the federal level

would amount to a mere 2.5% of GNP.25 Therefore, both politically and administratively, it

would have been rather difficult to adopt a more extensive fiscal policy. Accordingly,

DeLong attests that fiscal policy can be stabilizing only if government spending is large

enough to act as a plausible sea anchor for aggregate demand. 26

Conclusion Overall, the New Deal and associated policies could not have had the impact as a

catalyst of revival. Although it provided instrumental relief on a microeconomic scale (that

is, it mitigated some of the issues dealt with by the poor), macro-economically, it turned out

to be a drop in the ocean, due to constraints inherent to the economy of the time. The three

structural factors that obstructed the realization of budget deficits, as suggested by the

Keynesian framework, were (1) the lack of a coherent plan, (2) the increased taxation at the

22 This might seem at odds with the predominant thinking about FDR and New Deal stimulus, but at the onset of his 1933 administration Roosevelt actually discloses: Too often in recent history liberal governments have been wrecked on rocks of loose fiscal policy. We must avoid this danger. (Roosevelt, Message to Congress, p.1). Similarly, Chandler argues that the idea that FDR had formulated a definite expansionary policy is a myth (Chandler, The Period of Recovery, p.136). Lastly, John Maynard Keynes himself advocated for even greater stimulus: With [] enlargements of your existing policies, I should expect a successful outcome with great confidence. (Keynes, From Keynes to Roosevelt, p.6). 23 Fishback, US Monetary and Fiscal Policy, p.403. 24 Chandler, The Period of Recovery, p.138. Note that the cuts in federal spending and tax amplifications were accompanied by a contractionary monetary policy (resulting from an increase in reserve requirements). 37 Bordo, Goldin and White, The defining moment, p.81. 38 Ibid., pp.80-81.

24



federal level, and (3) sustained budget surpluses at the state and local levels. These three

policy factors were an outcome of the broader historical context that formed the institutional

backdrop to the policy making process in the thirties. These entail (1) an ideological mind-set

that favoured balanced budgets, (2) the infancy of macroeconomic theory, and (3) the generic

problem of the small size of the government.

Browns statement therefore seems a plausible explanation as to why New Deal

strategies did not prove to be a catalyst for revival. As Krugman notes, what eventually

saved the economy, and the New Deal, was the enormous public works project known as

World War II, which finally provided a fiscal stimulus adequate to the economys needs.27

Furthermore, in cases where fiscal policy was indeed expansionary and sizeable, we indeed

see that it proved greatly important in sustaining the recovery.28 Fitting examples are the

cases of Japan and Italy, where large relief efforts and military expenditures financed

through borrowing induced an economic revival within the two countries.29 Thus, if there is

one thing that the 1930s should teach us, it is that pure laissez-faire and relying on a natural

recovery process knows significant limitations, particularly against the backdrop of a

depressed economy. The period can therefore still be considered a defining moment for the

US economy. The pertinent question is, however, for how long this lesson will prevail or

has prevailed. In fact, as asserted by DeLong, the shadow of fiscal policy cast by the Great

Depression has already faded away; the Keynesian Era is a thing of the past.30 Our

experiences with the recent Great Crisis, however, might just have demonstrated that

demand-side economics and fiscal stimulus should not just be regarded a plausible theory,

but a powerful and crucial notion instead.

39 P. Krugman, Franklin Delano Obama? New York Times, November 10, 2008. Accessed March 31, 2015, http://www.nytimes.com/2008/11/10/opinion/10krugman.html?_r=0. 40 R. Gordon and R. Krenn. The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers. Cambridge, Massachusetts: National Bureau of Economic Research (2010): p.37. 41 Almunia et al., From Great Depression to Great Credit Crisis, pp.250-251. 42 Bordo, Goldin and White, The defining moment, p.84.

25

Eveline Smeets


REFERENCES Almunia, M., Bntrix, A., Eichengreen, B., ORourke, K., and Rua, G. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons." Economic Policy 25, no. 62 (2010): p.219-p.265. Bordo, M., Goldin, C. and White, E. The Defining Moment: the Great Depression and the American Economy in the Twentieth Century. Chicago: University of Chicago Press, 1998. Brown, C. "Fiscal Policy in the 'Thirties: A Reappraisal." The American Economic Review 46, no. 5 (1956): p.799-p.857. Chandler, L. America's Greatest Depression, 1929-1941. London: Harper & Row, 1970. Eggertsson, G. "Great Expectations and the End of the Depression." American Economic Review 98, no. 4 (2008): p.476-p.516. Fishback, P. "US Monetary and Fiscal Policy in the 1930s." Oxford Review of Economic Policy 26, no. 3 (2010): p.385-p.413. Fishback, P. and Wallis, J. Chapter 10: What was New about the New Deal? In Crafts, N. F. R., and Fearon, Peter. The Great Depression of the 1930s: Lessons for Today (2013) Gordon, R. and Krenn, R. The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers. Cambridge, Massachusetts: National Bureau of Economic Research (2010) Keynes, J. From Keynes to Roosevelt: Our Recovery Plan Assayed, New York Times, December31,1933.AccessedMarch31,2015.http://www.naomiklein.org/files/resources/pdfs/keynes-roosevelt-1933.pdf. Keynes, J. The General Theory of Employment Interest and Money. London: Macmillan and Co, 1936. Krugman, P. Franklin Delano Obama? New York Times, November 10, 2008. Accessed March 31, 2015, http://www.nytimes.com/2008/11/10/opinion/10krugman.html?_r=0. Peppers, L. "Full-employment Surplus Analysis and Structural Change: The 1930s." Explorations in Economic History 10, no. 2 (1973): p.197-p.210. Romer, C. "What Ended the Great Depression?" The Journal of Economic History 52, no. 4 (1992): p.757-p.844. Roosevelt, F. Message to Congress on Economies in Government. March 10, 1933. Gerhard Peters and John T. Woolley, The American Presidency Project University of California,Santa Barbara. Accessed March 31, 2015, http://www.presidency.ucsb.edu/ws/?pi

26


The Sources of Agricultural Growth in the Late Nineteenth-Century and Early Twentieth-Century Japan

By Rui Ding __________________________________________________

The impressive and sustained rate of Japanese agricultural growth from the late 19th

century to the early 20th century has often been cited by traditional literature despite this

coming under dispute: nevertheless, it was a remarkable feat signifying Japans ascendancy

into modernity and economic success. The continuing economic significance of the

agricultural sector in this period, but also in the preceding and following periods, makes it

necessary to address both the origins and limits of Japanese agricultural growth. The sources

of agricultural growth can be found in the technological developments and subsequent

improvements in land and labour productivity. This was enabled by the support of the Meiji

government, with the land tax reform in 1876 incentivizing and breaking down barriers to the

technological developments. Agricultural growth in this period was sustained by the

dissemination of information and the mutually dependent relationship between agriculture

and industry in Japan as the latter expanded significantly. However, it would be easy to

overstate the extent of agricultural growth in this period without sufficient context. Not only

does the two-sector approach to the Japanese economy undermine other factors but the events

and policies after World War I would exemplify the limits of agricultural growth, and the

sector itself.

Before addressing the sources of agricultural growth, it is essential to discuss the

growth debate and clarify exactly the extent of such growth in this period. While revisionist

Japanese historians have highlighted the impressive rate of agricultural growth in this period,

the existence of such growth has been questioned and undermined. Early Japanese historians

saw agricultural growth reaching rates of near 3%, based on GRJE estimates that used official

statistics.1 However, Hayami & Yamada pointed out that this overestimated the growth rate

as farmers often underreported the rice yield and area of their land to government officials,

thus underestimating growth rates at the beginning of the Meiji period, which was much

closer to 1.6-1.8%. Much of the earlier literature was based on the narrative that the late

1 Y.Hayami and S. Yamada, Agriculture, in Patterns of Japanese Economic Development, ed. K Ohkawa and M Shinohara (New Haven: Yale University Press, 1979), pp. 99-100.

27

Rui Ding


Tokugawa period was merely an era of statis for rural areas, with little or no

economic growth.2 However, more recent literature has indicated that this was not the case.

While more recent estimates have indicated a lower agricultural growth rate over this period

(due to a higher output level at the end of the Tokugawa period), the extent of slow growth

should not be overstated. Hayami & Yamada estimated that Japanese agricultural output grew

at an annual compound rate of about 1.6% in the years 1800-1965,3 which is notable on

several grounds. The fact that the agricultural sector in Japan managed to sustain such a

respectable rate of output growth despite rapid industrialisation and expansion in the

secondary and tertiary sectors was impressive. This is evident from output data covering the

period 1880-1939 in 5 year averages that show consistent and substantial increases across a

variety of agricultural goods, from rice to fish and silkworm cocoons.4 Furthermore, the

continued importance of the Japanese agricultural sector because of its growth and its

contribution to total output and employment (comparatively large for an industrializing

economy) means that the sources of such growth need to be examined in further detail.

The significance of the Meiji land tax reform in incentivizing productivity and

development of technology in agriculture was a significant factor that enabled agricultural

growth in the late nineteenth century. The land tax reform replaced the old Tokugawa tax

system that was not only overly complex but also inequitable, where certain regions

shouldered a much higher tax burden.5 The new tax system was based on levying tax on the

real value of land as determined by productivity, which was adopted following an extensive

land survey conducted over three years. Not only did it allow the government to meet its

fiscal needs for revenues, it also had several long-term effects that helped to foster

agricultural growth. Yamamura argued that the fixed cash tax rather than payment in rice

gave strong incentives for farmers working on their own land to increase the productivity of

land via capital investment without increasing their tax burden.6 Furthermore, with a free land

market and their positions as direct sellers of rice, farmers became more market-oriented

2 P. Francks, Rural economic development in Japan: from the nineteenth century to the Pacific War (London: Routledge, 2006), p.25. 3 Hayami and Yamada, Agriculture, p.85 4 R. Miwa and A.Hara, Kingendai Nihon Keizai Shi Yoran. (Tokyo: University of Tokyo Press, 2007), p.40. 5 K. Yamamura, The Meiji Land Tax Reform and its Effects, in Japan in Transition: from Tokugawa to Meiji, ed. M Jansen and G Rozman (Princeton: Princeton University Press, 1986), p.382. 6 Ibid., p.391.

28



and gave increased access to economic information to make informed economic decisions.7

This allowed those working in the agricultural sector strong incentives to increase

productivity and efficiency in order to maximize the gains to be made from the land and

behave as active economic agents rather than being restrained under the old system. This

certainly contributed to the commitment of farmers to improve land and labour productivity

and develop appropriate technologies in this period as will be discussed later. However, the

supportive but partially damaging role of the Meiji government to the agricultural sector is

exemplified in its policy of imperial self-sufficiency, in its attempts to ensure sufficient

supply of Japanese-style rice and more importantly, the survival of the household as the basic

unit of agricultural production. 8 The government protected small-scale agricultural

households from foreign competitors that would have lowered the price of rice substantially

and crippled rice-producing farmers but also forced efficiency in the long-term. The

somewhat unintentional damaging effect of government policies is echoed with the land tax

reform also. The rise of high rent landlordism and the decreasing bargaining power of

tenant farmers were particularly consequential in the poorer and less productive eastern

regions.9 The change to real tax burden meant that small eastern landowners were deprived of

the economic margin they had had in the Tokugawa period needed to overcome economic

hardships with lower productivity. However the effect this would have had on agricultural

growth itself in this period is likely to have been limited, although it would have had serious

implications on the disparities in rural standards of living.

The most significant source of actual agricultural growth in this period is accounted by

the developments in agricultural technology, and a commitment and achievement of

increasing land productivity as much as possible. Hayami & Yamada highlighted the way in

which the increase in the output growth rate in the periods 1880-1900 to 1900-1920 was

largely the result of productivity growth rather than input driven growth.10 This is further

supported by the fact that in the Meiji period, arable land increased by just 25% but land

productivity increased by 80% demonstrating the importance of land saving technological

innovations. 11 Such improvements in productivity were largely achieved through four

7 Ibid., p.392. 8 Francks, Rice for the masses, p.127. 9 Yamamura, The Meiji Land Tax Reform and its Effects, pp.396-7. 10 Hayami, and Yamada Agriculture, p.91. 11 K. Ohikawa and H. Rosovsky, The Role of Agriculture in Modern Japanese Development, Economic Development and Cultural Change 9, no. 1, (1960): p.44.

29

Rui Ding


channels: irrigation and agricultural infrastructure, fertilizer, higher-yielding seed varieties

and the dissemination of information. The package that incorporated these elements and

complemented a new set of economic and technical practices, known as Meiji Noho,12 was

necessitated by the relative scarcity of land as a factor of production. Rice production, as the

most important agricultural activity even in the early 20th century, greatly benefited from the

technological progress in drainage and double cropping that allowed for better crop

cultivation.13 The rapid increase in the use of fertilizer thanks to the spread of information but

also the commercialization of it as a chemical product contributed to agricultural growth, as

did the spread of seed varieties that generated a higher yield. The active effort by farmers and

agricultural scientists to invest in working capital and develop new land-intensive

technologies in order to maximize returns to land was certainly impressive. It is important to

note that the spread of such technology and production methods was a result of the successful

dissemination of information. Francks described in detail the factors that facilitated the extent

of such information diffusion, considering that some production methods and technologies

were already developed in the earlier Tokugawa period. The breakdown of the Tokugawa

daimyo system and investment into transport and infrastructure enabled the scope for

communication between agriculturalists.14 While the state was the first to promote the

diffusion of improved agricultural technology, the formation of agricultural discussion groups

by private and local initiatives and relatively high levels of literacy allowed the continuous

increase in agricultural productivity as information diffused across Japan. Therefore, it is

clearly evident that the actual source of agricultural growth in this period was the consistent

improvement in productivity. This was due to a combination of more efficient production

methods, technology and inputs and the ability to spread this technology/information

throughout Japan.

The unique process by which the Japanese agricultural and industrial sectors grew side by

side was not only an important source of agricultural growth, but also one that prevented it

from being stifled by industrialisation and mechanization. The unique way in which the

agricultural sector remained a relatively large part of the Japanese economy in this period

despite industrialisation and modernization as well as the persistence of the small-scale

household unit for agricultural production is the result of several factors. The nature of rice 12 P. Francks, Japanese Economic Development (London: Routledge, 1999), p.132. 13 Francks, Rural economic development in Japan, p.30. 14 Francks, Japanese Economic Development, p.136.

30



cultivation is one, but in examining why this dominance changed so little when the economy

underwent so much change is rooted in the harmonious relationship of agriculture and

industry in Japan. The unusual juxtaposition of progress in the two dominant sectors

fostered largely advantages for both.15 The process of industrialisation particularly in the

early 20th century did not see a devastating transition of labour surplus into industrial

employment, largely thanks to a high consistent rate of population growth. However the

growth of industrialisation, and government support for manufacturing in the form of the

factory system created a domestic market and demand for basic crops and other agricultural

products. Increasing incomes and the simultaneous expansion of the urban population

provided a large domestic product for primary products such as rice, promoting the

consumption and thus cultivation of other crops amongst the rural population such as

wheat.16 Ohkawa & Rosovsky saw a positive feedback loop between the two sectors of the

economy through labour surplus in agriculture, but also through the way the farm labour

force was a source of saving for the economy, and therefore investment and capital

formation.17 And yet, the industrial sector managed to flourish in this period, in part thanks to

the agricultural sector. Not only did it provide sufficient tax revenue for government

subsidies to promote industrialisation and the development of heavy industries, the size of the

Japanese agricultural sector also enabled it to provide enough employment to prevent the

large-scale drift to the towns with which developing countries struggle to cope with in the

present day.18 What is apparent is that the unique structure and size of the Japanese

agricultural sector was not constrained and suppressed by the growth of the industrial sector

in terms of output and employment, but rather the opposite. The mutually supportive

relationship of Japanese agriculture and industry through the mediums of employment,

domestic demand and capital formation was a clear source of agricultural growth and a factor

that allowed its persistence well into the twentieth century.

Finally, while the extent and sources of agricultural growth have been discussed

thoroughly, the limitations of this growth and the unique characteristics of its sources need to

be addressed. The first is the importance in non-agricultural output in this period, i.e. the rural

15 Ohikawa and Rosovsky,The Role of Agriculture in Modern Japanese Development, p.66. 16 Francks, Rural Economic Development, p.27. 17 Ohikawa. and Rosovsky.,The Role of Agriculture in Modern Japanese Development, p.60. 18 Francks, Japanese Economic Development, p.161.

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industry. Francks emphasized the importance of going beyond the dual economy model in the

case of Japan.19 The seasonal nature of labour demand in the case of rice cultivation and the

way agricultural production was largely organised in household units gave incentives for

farm workers to combine agricultural and industrial activity to supplement their income.20

The unique path of proto-industrialisation or production of z goods is well covered by the

literature. In the case of agricultural growth, it exemplifies the importance of the structure

and size of the agricultural sector and positive spillover effects. To focus on the purely

primary products in agriculture would undermine the importance of a wide range of other

goods, ranging from paper products to ceramics that were all produced in the household.

With the expanding domestic market due to rising incomes and urbanization, demand for

such products increased over the period. The shift from urban to rural industries with the

decline in the growth of cities in the late 19th century exemplifies the limits of the dual

economy model. Japan demonstrates the non-exclusivity of agricultural and industrial

growth, and in fact the strong interlink between the two. Another limitation that undermines

the sources and extent of agricultural growth in this period that is worth mentioning is the

extent of efficiency and competitiveness. The persistence of the household as the dominant

unit of production in agriculture stifled the gains to be made from mechanization and

economies of scale. This is reflected in the way that rice exports were only substantial for a

few years before the 1890s, which thereafter fell into insignificance, that could be explained

by exhaustion of the potential of the Meiji Noho package.21 The gains made from land and

labour productivity were constrained by diminishing returns in the small-scale household

unit. The inability to meet domestic demand for rice clearly demonstrates this, and the

eventual policy of imperial self-sufficiency following World War I only protected the

agricultural sector from more efficient foreign competitors in the short run. Agricultural

growth in this period was by all means considerable. However, by the eve of World War I,

the limitations of the Japanese style of agricultural growth and its extent were becoming

increasingly apparent.

19 P.Francks, Peasantry, Proletariat or Private Enterprise? The Japanese farmer in the Industrialisation Process. Japan Forum 2, no. 1 (1990): p.92. 20 Ibid., p.90. 21 Francks, Rice for the masses, p.129.

32



In conclusion, the immediate sources of Japanese agricultural growth in the late

nineteenth to early twentieth century were a combination of technological developments and

improved production methods that encouraged productivity and the mutually supportive

relationship of agriculture and industry, in the background of a supportive Meiji government.

In particular, the impressive improvements in land productivity and the land tax reform

should be noted. The ability to disseminate information and the protection of the agricultural

sector from foreign competitors allowed this agricultural growth to persist well into the early

twentieth century. While the growth debate paints a more optimistic picture of agricultural

growth in the Tokugawa period, this does not undermine the significance of such growth in

this period. Japan provides an insightful example of the limits of the dual-economy model

and the way in which farmers adapted to changing market and general conditions, allowing

the household as the dominant unit of production in agriculture to continue. However at the

same time, the limitations of praising the agricultural growth in pre-war Japan must be

highlighted. The role of non-agricultural growth in rural areas demonstrates that farmers were

not solely reliant on agricultural products and that factors that caused a sustained growth in

agriculture had positive spillover effects. More importantly, it is difficult to say if this period

of agricultural growth was sustainable and efficient by international standards. The pre-war

period was one of unprecedented globalisation, and the consequences of this openness and

integration to the global market were already putting a significant strain on Japanese

agriculture.

REFERENCES Francks, P. Peasantry, Proletariat or Private Enterprise? The Japanese farmer in the Industrialisation Process. Japan Forum 2(1), (1990): pp. 91-104.

Francks, P. Japanese Economic Development. London: Routledge, 1999.

Francks, P. Rice for the masses: food policy and the adoption of imperial self-sufficiency in early twentieth-century Japan Japan Forum 15(1), (2003), pp.125-146.

Francks, P. Rural economic development in Japan: from the nineteenth century to the Pacific War. London: Routledge, 2006.

Hayami, Y. and Yamada, S. Agriculture, in Patterns of Japanese Economic Development, edited by K Ohkawa and M Shinohara, pp. 85-103. New Haven: Yale University Press, 1979.

Miwa, R. and Hara, A. Kingendai Nihon Keizai Shi Yoran. Tokyo: University of Tokyo Press, 2007.

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Ohikawa, K. and Rosovsky, H. The Role of Agriculture in Modern Japanese Development, Economic Development and Cultural Change 9, no. 1 (1960), pp.43-67.

Yamamura K, The Meiji Land Tax Reform and its Effects, in Japan in Transition: from Tokugawa to Meiji, edited by M.Jansen & G.Rozman, pp.382-399. Princeton: Princeton University Press, 1986.

34


Implications of the growing WTO mandate for Development in Poor Countries: a Counterfactual History of South Korea

By Chris Pearce

__________________________________________________ The developmental implications of the WTOs growing mandate, or the proliferation

of international market-opening and technology-rent-producing regulations are contested. 1

For instance, Wade contends that the WTOs increasing mandate constitutes a shrinking of

development space for developing countries, 2 while Shadlen suggests that WTO

membership involves trade-offs, in that developing countries gain increased market access

and opportunities for specialisation in exchange for diminished space for use of industrial

policy instruments.3 A useful method for contributing to this debate is to assess whether

South Korea (Korea), could have used the policies through which it developed, if constrained

by the WTO in the same way as todays developing countries. Given the views of some that

Korea developed in spite of its interventionist policies rather than because of them,4 one

cannot categorically say that the counterfactual of following todays liberal WTO regulations

would have harmed Koreas development. However, this author takes the view of scholars

including Amsden and Kohli that the Korean governments trade and investment policies

were crucial drivers of its rapid development. Therefore it will be argued that using todays

WTO-approved policies, rather than the policies that Korea actually used, would have had a

less positive effect on Koreas development. Prior to introducing the policies explored below,

following Parks coup in 1961, Korea was a poor country as per-capita GDP of South

Korea in 1960 was inferior to that of Senegal.5 The dramatic improvements in Koreas GDP

following Parks economic reforms until policy liberalisation in the 1997 financial crisis

1 R. Wade, What strategies are viable for developing countries today? The World Trade Organization and the shrinking of development space. Review of International Political Economy, no. 10 (2003): p.622. 2 Ibid, p,640. 3 K. Shadlen, Exchanging development for market access? Deep integration and industrial policy under multilateral and regional-bilateral trade agreements. Review of International Political Economy, no. 12 (2005): p.750. 4 J. Ang, Research, technological change and financial liberalization in South Korea, Journal of Macroeconomics, no. 32 (2010):

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