Hiding in plain sight — How did South Korea (and others) develop so fast?

Representational Image of Seoul by Ethan Brooke from Pixabay

The core argument

The core argument of Studwell is as follows.

Land and agriculture policy

In early parts of development, most of the population in a country is engaged in agriculture. Market forces, if left to themselves, lead to stagnation or even fall in agricultural yield. This is because the demand for land is much greater than supply and this imbalance leads to a very high land lease rate. The land lessee (or the share cropper) has very little incentive or spare money to invest in the land. The lessor (or the land lord) also has no incentive for investing in the land preferring instead, to maximize his revenues by increasing the rent. The first critical step of a good agriculture policy is land redistribution.

Manufacturing / Industrial policy

Manufacturing is very important for the development of a country. Most of the workforce in an underdeveloped country is not very skilled and machines used in manufacturing can scale their capabilities. Such scaling is not easy in services and therefore manufacturing is crucial for the development of any large country [1].

Keep banks on a short leash

The author argues that an appropriate land and manufacturing policy can succeed only if financial institutions lend as per development policy. A bank may reasonably prefer to lend to a large plantation rather than to many small farmers. However, that would cause land reforms to fail. So, banks may need to be coerced to lend to small farmers practicing large-scale gardening. Similarly, it takes time for a society to learn manufacturing. And companies need funding support during this time. Again, a bank may reasonably prefer to lend to real estate companies or to make individual or retail loans. Governments in North East Asia forced banks not to make such decisions.

Economist versus Historian

As I mentioned in the beginning, Studwell says that there are at least two economics. One for the developing countries and another for developed countries. He calls the latter efficiency economics — a broad umbrella term for a wide range of thought that generally believes the government interference is wrong in all circumstances. Studwell criticizes the efficiency economist of not understanding history. He believes that everycountry in the world protected its manufacturing in the early stages. Countries have no other choice. When manufacturing skills are low, competition from sophisticated global companies would destroy the ‘infant’ industry. Just like how an experienced professional boxer would destroy a child or a teenager, no matter how talented. Studwell believes that efficiency economists do not understand this because they have very little understanding of economics history.

What about India?

How does India compare on the three-pronged development recommendation of Studwell? A deep dive is beyond the scope of this already long essay but here are my quick observations. Let us start with land reforms.

Summary and general discussion

Redistribute land and support your farmers. Encourage your entrepreneurs to get into manufacturing and support them while making sure that they do not become inefficient. Make sure that your banks support these policies. Is development really this easy?

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Yogesh Upadhyaya

Yogesh Upadhyaya

Entrepreneur. Economist. Investor. Actor. Technophile. Policy wonk. Comedian. I love to explore places where these worlds intersect.