Sunday, October 19, 2008

Adam Smith on Land Reform

Pitsburgh Tribune-Review Editorial, 19 October, (HERE):

"A stunning advance":

"What will those agrarian reformers running China think of next?

Unlike urban areas, where free markets have been allowed to flourish, China's agricultural sector is impoverished by the inequities and inefficiencies of socialism.

But now comes word of a breakthrough in modern economic thinking: China's rulers plan to implement a policy that by 2020 will permit peasants to buy and sell land-use contracts.

It's not up to 16th-century British common-law standards yet but the reform could lead to such things as bigger, more efficient farms and the use of land rights as collateral for bank loans.

China's peasants still won't be able to own their own land. But both Mao and Adam Smith are spinning in their graves at the prospect of basic property rights coming to China.”

I can see why Mao, a revolutionary in a hurry, might be ‘spinning in his grave’, but the point about Adam Smith doing likewise baffles me.

The issues is about getting from where we are to where we want to be, a subject that Adam Smith dealt with on several occasions, and on all those occasions he took a pragmatic not an ideological stance: move ‘slowly and gradually’, a careful step at a time to ensure the changes became embedded and that social disruption was minimized, especially where it concerned the lives of labouring families.

Now today's Communists leaders are ultra-cautious – they want to hold onto their power at all costs, and the pace they have chosen – from now to 2020 – fits their mindset. And they have the awful example of Mao Tse Dung if they were inclined to take risks. The billion people in China are not easily regimented. Mao’s madness of his ‘great leap forward’ to Communes killed millions from starvation and only the rigid tyranny of the Communist State prevented its political collapse.

Smith for example is renowned in modern times for being in favour of free trade. Many economists interpret that reputation as a rigid, ideological, no compromises, stance of the ‘father of economics’ (a somewhat dubious distinction, if taken too seriously), but Wealth Of Nations makes clear there were serious exceptions to his recommendations that the British economy be transformed into free trade, above all in that it should be done slowly, taking into consideration the effect of a change in policy on the employees in the currently protected businesses, whose families would suffer deep privations if its was undertaken at a stroke.

I wish some free traders who are too free with quoting Adam Smith would actually read Book IV of Wealth Of Nations and appreciate what he actually wrote and why he was cautious about sudden change.

In China, the state owns all the land; peasants own none of it. Moving from owning nothing to owning something is an exhilarating change for the good. Adam Smith would approve. He opposed the legal forms of primogeniture and entails which together froze the land in great estates which could only be passed intact to the eldest male relative and could never be allowed to sell of smaller sections of a property to others. The proprietor could only sell the estate intact, undivided, and entire.

Smith favoured abolishing entails – this action would free-up parcels of land in vast unproductive estates for productive use by small farmers (sturdy yeomen) and he pointed to those British colonies in North America that had followed this policy which had created rapid economic growth as a result (compared to the experiences of Spanish laws in South America). The transformation would not be instant. Many great estates were productive and their owners invested in wealth creation, but many more were rundown, semi-impoverished and in decay as agricultural businesses, their owns clinging on to a few acres around their palatial buildings, with a few poverty-stricken tenants not much better off.

The Chinese appear, in effect to be holding onto their ‘entail’ policy, but promoting where they can control it, the right of their tenants to buy and sell their ‘land-use rights’. This will have the effect of consolidating small parcelts of land into more viable farms. In time, it will create a new farming class, one step short of private ownership of land. By 2020 and beyond, the expropriated Chinese peasants of the Communist decades, who take advantage of these reforms, will become large-scale private farmers and have political clout to go with that economic status.

Why would Adam Smith ‘spin in his grave’? He always took the long view of history.

Indeed, as I recently passed by his grave in Edinburgh (en route to Panmure House, now owned by Edinburgh Business School Heriot-Watt University) – I have to admit I heard no sounds of him ‘spinning’, but maybe I may have - I can't be sure - caught a faint sound of somebody chuckling…



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