The impact of the FC programs is two fold. In the short run, by improving the basic farming conditions (improved irrigation and drainage, better crop management when the new road system facilitates personnel access to plots, and extra land due to a saving on plot boundaries when smaller plots are combined to form larger ones), FC can directly raise farm output and land productivity. In the long run, however, FC allows a saving on labor by facilitating factor substitution, that is, capital-labor substitution, by making certain agricultural machineries effective, economical and rational to use. Moreover, under the conditions of small land holdings, by enabling mechanization of almost all key stages of crop production and other farming activities, FC has the further effect of enabling farmers to make use only their spare time for farming, or only the labor input of the non-economically active part of a family's labor force for farming. If one calls this pattern of use of a farm family's labor for farming as part-time farming, then, to put it another way, by improving the basic farming conditions and making it possible and economical for farmers to mechanize, FC enables part-time farming.
In Taiwan, thanks to its earlier land reform, small land holdings have become the bedrock of the rural institution. This provides the larger context for our understanding of its successive FC programs, or for us to make sense of them. On the other hand, through these FC
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programs, it also becomes possible for these small land holdings to survive and prosper. In other words, it also becomes possible for the very institution of small land holdings to survive in rural Taiwan.
It is difficult in practice to separate these short-run and long-run effects, in part because the FC programs took place exactly at a time when the economy was undergoing rapid structural changes. At such a time, when industries already began to draw labor away from agriculture, there was no time for the short run effect to make itself felt before long run effect began to bite. Had the structural changes took place much later, and then it would have been possible clearly to discern the two types of effects, separately. Nevertheless, available evidence does appear to indicate both a strong short-run and a strong long-run effect.
For the short-effect, as noted previously, according to Hsieh (1993), the yield of the first rice crop increased by 30% after FC compared with before FC. Liu et al. (1998) provides further micro survey data on this. As for the long-run effect, this is also clearly visible from the aggregate data on falling shares of agricultural employment but coupled with rising agricultural production indices, as given in Figure 4.3.3 and 4.3.4. As can be seen, from 1964 (two years after the start of the first Ten-Year program), the share of agricultural employment fell rapidly over the period for which we have data. With a relatively stable aggregate labor force, a fall in its employment rate must mean a fall in total agricultural employment and labor input.27 At the same time, however, this was accompanied by a sharp, rising trend in
27 In absolute numbers, the size of agricultural workforce reached a maximum of 1.68m in 1964, and thereafter the number fell rapidly.
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1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990
%
Year
Figure 4.3.3 Employment by Sector in Taiwan (1952-91)
Agriculture Industry Services
While agricultural output continued to rise in spite of falls in its employment, the nature of rural employment did undergo a critical change. Part-time farming which until the early 1960s was rare and constituted only a small percentage of farm households, became widespread over the next three decades. In Taiwan the official classification of a part-time farmer or farm household is one that has one or more members working outside the household farm for over 30 days, a rather broad definition of part-time farming. And among such households those whose income from non-agricultural sources equal or exceed 50% are called ―sideline‖ part-time farmers. Otherwise they are known as ―agricultural‖ part-time farmers. Using the narrower definition of ―sideline‖ part-time farmers as part-time farmers, Figure 4.3.5 shows that the percentage of this category of part-time farmers (or farm households) was around 20% of all farm households in 1960, marginally rose to over 25% in
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1970s, but then sharply increased to 55% in 1980, and rose again to around 70%. Thus in only three decades, the same time period in which extensive FC programs took place, part-time farming became dominant in Taiwanese agriculture. There is hardly any doubt that this enormous change must have been due to, at least in part, to the extensive FC programs that were carried out over the period.
Figure 4.3.4 Agricultuarl Production Indices in Taiwan
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Note: In Taiwan part-time households are those with one or more members working outside the household farm for over 30 days. Among these households those whose income from agricultural sources exceeds 50% are classified as agricultural part-time farmers, and the rest sideline part-time farmers.
Source: Liu et al. (1998).
In terms of the three-activity model developed in Section 3, such a link is clear to see. By improving irrigation and drainage, FC raised yield and land productivity; by building road systems and standardizing farm plots, it facilitated mechanization and further increased labor productivity; by saving on labor, it made part-time farming possible and viable. At the same time, FC reduced the chances of time clash that may arise if one or one‘s family simultaneously engages in both farming and non-farming activities, by making it possible for one to rely only on one's spare time to engage in farming, or for the economically non-active part of a family‘s labor force to perform most or all farming tasks. All this made part-time farming a rational thing to do, enabling farming to survive and prosper in the midst of rapid industrialization. At the same time, it widened and increased available employment and income opportunities for farmers, raising their income and improving income distribution in
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the economy.
It is important to caution, however, that this does not mean that FC is the panacea for achieving growth with equity in all cases. First, the larger context of small land holdings should not be forgotten. But even with small land holdings, it makes sense for a government to undertake FC only when the time is ripe, that is, when industrialization and economic structural changes have proceeded to a stage where the relative cost of labor has risen and that of capital fallen sufficiently. Figure 4.3.6 shows this, where the long-run effect of FC on capital-labor substitution is depicted as a technological change, represented by a southeast shift of the whole map of production isoquants for producing a given level of output Q1 (for brevity, only one such isoquant, a and b, is drawn for before-FC and for after-FC). Now before the economic structural transformation and rapid expansion of industries, and the rising income opportunities these provide, the opportunity cost of agricultural labor tends to be relatively low, and that of capital high. The steeper iso-cost line in Fig. 3 depicts this situation. The optimal capital labor combination chosen by a farm family is given by point a.
However, with industrialization and economic structural transformation, the opportunity cost of labor generally rises and that of capital relatively falls, giving rise to the new flatter iso-cost line. The new optimal capital-labor combination chosen by a farm family is given by point b. It is of interest to see what would happen without FC while labor and capital costs change as above. Then only the old technology is available, and the changing factor prices would mean that capital-labor combination a' would be chosen. Now compare this with the case with FC, where b is chosen. The cost of producing output Q1 clearly increases. Thus the
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farm family would prefer using the new technology at new factor prices. On the other hand, if there were no changes in the factor opportunity costs, it would not be rational for a farm family to use the new technology, since in this case using the new technology (and choosing point b') to product output Q1 would entail a higher cost. Needless to say, if the farm family does not prefer using the new technology, there can be no incentives and rationale for FC.
Thus although FC might make certain capital-labor substitution possibilities feasible, nevertheless whether farmers would adopt it (and whether on social welfare grounds there is a case for adopting it) would also depend on changing relative factor prices and stages of economic development.28
To conclude, with their high rural population density, radical land reforms such as those that took place in East Asian economies (Japan, Taiwan, Mainland China, and South Korea), and a further ceiling on future ownership of land, ensured the continuation and stability of a system of small land holdings. Similar sets of policies and programs on agricultural and rural development were also pursued in these economies. In the case of Taiwan, one kind of such programs, the farmland consolidation programs, is shown to have had an enormous positive effect on both agricultural output and on the emergence of part-time farming in rural Taiwan.
The practice of part-farming enabled a widening and an increase of employment and income opportunities for the farmers, while allowing industries to draw labor from agriculture,
28 It should be pointed out that Figure 4.3.6 shows, in fact, only one possible case. If the new isoquant Q1' is not situated where it is drawn in the figure, but a lot closer to the origin such that the new price line that uses pre-FC factor prices and that is tangent to Q1' lies below the price line IC1, then there is a case for FC even without structural changes. On the other hand, if the new isoquant Q1' is situated a lot father away from the origin in the northeast direction than in Figure 4.3.6, such that the new price line using pre-FC factor prices and tangent to Q1' lies above the price line IC2', then there is never to be a case for FC, with or without structural change. So the relationship between the need for FC and economic structural changes is not a clear-cut one.
Nevertheless, the analysis does establish the fact that, under certain conditions, the case for FC may well depend on stages of economic development. Typically, we would expect there to be such dependence.
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thereby ensuring a balanced growth of industry and agriculture, and urban and rural areas.
The thriving agricultural and rural sectors of Taiwan are an important reason for its achievement of both rapid economic growth and relatively equal income distribution.
It remains to note that in Fig. 4.3.6 it has, in fact, been implicitly assumed that all other factors of production except labor and capital are held constant. The assumption of land being held constant is particularly important, for it implies that over the course of structural transformation a farmer's land holding does not change. While this may have been true in Taiwan, in other economies where industrialization and structural changes have been accompanied by a process of "peasant differentiation", some farmers become landless and leave agriculture and others enlarge their land holdings. Overall, in these economies, there may be a significant fall in the man-land ratio and a change from more to less labor intensive cultivation methods. In other words, there may well occur a process of land-labor substitution (producing a given level of output with more land and less labor). Other things
Labor
a a‘
Q1
b‘
Q1‘ IC1 IC1‘
0 Capital 2
Figure 4.3.6 b
IC2 IC2‘
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being equal, land-labor substitution entails a fall in land productivity. However, this may be compensated by technological changes such that yield or land productivity does not fall.
Land-labor substitution may or may not be accompanied by FC. However, by making the kind of changes in road and plot conditions as seen in Taiwan, one may expect FC to allow a farmer to cultivate a larger area of land than otherwise. So, in principle, FC can facilitate land-labor substitution as well. Without FC, it may be difficult or even counterproductive for one farmer to cultivate more than a given area of land.