Tag Archives: China

Managing the Greater East Asia Co-Prosperity Sphere

Strategies and Organizations for Managing “Greater East Asia Co-Prosperity Sphere”

Tetsuji Okazaki (The University of Tokyo)

Abstract: During the World War II, Japan occupied a large part of East and South East Asia, called “Greater East Asia Co-Prosperity Sphere” (Daitoa Kyoei Ken). This paper overviews what the Japanese military authorities and the government did to develop the occupied areas in the 1930s and the early 1940s. It is remarkable that different development policies and organizations were applied across occupied areas. In Manchuria, which Japan occupied earlier, after trial and error, a system of planning and control was introduced. By this system, more or less systematic development of industries was undertaken. Meanwhile, in China Proper, the Japanese military authorities and the government prepared the statutory holding companies as channels for investment from Japan, but industrial development was basically entrusted to those holding companies and individual companies affiliated to them. Finally in South East Asia, development was almost totally entrusted to existing Japanese firms.

URL: http://econpapers.repec.org/paper/tkyfseres/2013cf900.htm

Review by Masayoshi Noguchi

This paper by the leading authority on the history of Japanese wartime economy was distributed by NEP-HIS on September 13th, 2013. It provides a very interesting general overview and understanding of the process behind the formation of the Greater East Asia Co-prosperity Sphere. Thanks to a very thorough and detailed literature review, the paper provides a comprehensive overview of “what the Japanese military authorities and the government did to develop the occupied areas [called Greater East Asia Co-Prosperity Sphere] in the 1930s and the early 1940s” (p. 1); while also summarising and contrasting different approaches taken by the Japanese authorities to the development of Japanese interests in Manchuria, mainland China and South East Asia. Comments are also offered as to the consequences of these different approaches.

Between 1915 and 1945, the Manchurian region was one of the major locations of China’s steel industry. The development of steel industry in that region was closely related to the Japanese invasion of China. Following the establishment of the (puppet) State of Manchuria in 1932, the Japanese government encouraged the formation of iron-steel factories with national capital to help transform Manchuria’s steel industry into a typical export-oriented industry. The main features of the development policy for Manchuria were the establishment of “special corporations” and so called “one industry, one corporation policy”. The five-year industrial plan for the State of Manchuria recognised the need for a business entity to administrate the overall development. It thus encourage the Nissan zaibatsu to form the Manchuria Heavy Industry and Development (MHID) Corporation, which was established in December of 1936. Nissan also took over the management of the Showa Steel Factory and invested in the Benxihu Coal and Iron Company, thereby gaining control over the steel industry in Northeast China. However, the initial plan for the MHID was soon subjected to a major revision as the outbreak of the Second Sino-Japanese War in July of 1938 significantly increased the demand to supply the Japanese military. At the same time, control of the MHID transformed and it became subject of direct control by the state. Later, when the export of steel products to Japan turned out to be less than originally expected, the steel industry ceased to be operated as an export-oriented industry.

The promotion of the economic development of mainland China was based on “the Outline of Measures to deal with the Incident” (p. 4). In order to support this development and attract capital investments from Japan to China, in November 1938 the Japanese government established two entities, namely the North China Development Corporation and the Middle China Promotion Corporation. These two corporations made significant investments to their affiliated companies in the fields of transportation, telecommunication, electricity, and coal mining.

Immediately after the outbreak of the Pacific War in December 1941, “the Outline of Economic Policies in the South East Asia” was promulgated, but in South East Asia, unlike the other two cases, “a policy to develop the local economies in a systematic way was not taken” (p. 7) and the “development was almost totally entrusted to existing Japanese firms” (p. 8).

In summary, Okazaki’s study shows how the formation of Greater East Asia Co-prosperity Sphere was not unique or consistently applied across geographies as it was conditioned with several restrictions. These included geographical terms and conditions of each area to which the Japanese army advanced, the success or failure of the military strategies, the interaction of the military, the state and economic interests as well as the economic terms and conditions of Japan itself. Although it is not easy to agree with a part of description presented by Okazaki (for instance that the advance of the Army into Manchuria was primarily motivated by its own economic concerns (p. 7)), the paper is required reading in order to understand this very important phase of the Japanese wartime economy.

A Natural Experiment in Chinese Villages

The Effects of Democratization on Public Goods and Redistribution: Evidence from China

Monica Martinez-Bravo (Johns Hopkins University) (mmb@jhu.edu)

Gerard Padro i Miquel (STICERD LSE) (g.padro@lse.ac.uk)

Nancy Qian (Yale University) (nancy.qian@yale.edu)

Yang Yao (China Center for Economic Research Peking University) (yyao@ccer.pku.edu.cn)

URL http://d.repec.org/n?u=RePEc:nbr:nberwo:18101&r=his

This study investigates the effects of introducing elections on public goods and redistribution in rural China. We collect a large and unique survey to document the history of political reforms and economic policies and exploit the staggered timing of the introduction of elections for causal identification. We find that elections significantly increase public goods expenditure, the increase corresponds to demand and is paralleled by an increase in public goods provision and local taxes. We also find that elections cause significant income redistribution within villages. The results support the basic assumptions of recent theories of democratization (Acemoglu and Robinson, 2000; Lizzeri and Persico, 2004). In addition, we show that the main mechanism underlying the effect of elections is increased leader incentives.

Keywords: China; Democratization and Public Goods

Review by Anna Missiaia

This paper was circulated by NEP-HIS on 2012-05-29. If you have a taste for historical natural experiments, the work of Martinez-Bravo, Padro i Miquel, Qian and Yao is going to be of your interest. This NBER working paper describes the effects of the introduction of elections in Chinese villages on the provision of public goods and on redistribution in rural China starting from the 1980s. Villages are the lowest administrative units in China. They are in charge of the provision of public goods at local level, the allocation of land and also have the power to impose local taxes. The authors exploit the fairly fast and exogenous introduction of elections in villages. This is to study the impact of democratization on decisions over public goods expenditure. The reform started in the early 1980s and was progressively completed over about 15 years. The pace of the reform allows using a difference-in-difference approach, comparing the performance of the democratized villages to the non-democratized ones.

This work represents a significant contribution in terms of data gathering. In particular, the retrospective Village Democracy Survey conducted by the authors on the characteristics of village leaders is new. This was done on the same 217 villages included into the NFS Survey conducted by the Chinese Ministry of Agriculture on villages’ characteristics. The two surveys together allow testing a model that explains a policy outcome using province-year trends, village and year fixed effects and a dummy variable that takes value 1 when the village has experienced an election.

The main result of this paper is that the introduction of elections leads to a substantial increase on public goods expenditure (27%) and to income redistribution. The latter result is not surprising in any transition from a democratic to a non democratic decision system. The former result is more interesting: the authors find that before the reform there was under provision of public goods. The increase in expenditure is essentially financed by an increase in taxes. This result is far from being obvious: a vast literature in political economics shows how elected leaders can fail to provide the policies preferred by the majority. The paper also shows that this increase in public goods expenditure is a response to an actual demand. The increase in a given type of good is different in villages with different characteristic. For example, in villages with more farming, irrigation is increased more; in villages with more school-age children, schooling is increased more.

This study is particularly solid thank to the comprehensive database used and to the various robustness checks and the complementary insights provided to support the results (i.e. the study of the demand for public goods). However, one question that is not fully addressed is what the incentives of the local representatives were before the elections were introduced. The paper proves that they were not concerned with providing the optimal level of public goods to the local population, which turned out to be willing to pay more taxes to receive it. The historical reasons for this mismatch prior the reform are not clear. Also, the results here are very strong in terms of the effect of these particular reform. However, it is not clear how much this result is due to the previous decision mechanism that was in place before. The increase could be very idiosyncratic with respect to the Chinese political experience. Can these results be generalized to other local elections in other parts of the world or to elections at different administrative level? Lastly, the increase in the provision of public goods financed by taxes happened in this case for a given level of per capita income, however the demand for public goods might change at different income levels, leading to different consequences of democratization. To conclude, this paper is an excellent piece of research applying political economics models to a novel dataset for Chinese villages. Hopefully it will stimulate further studies of decision making over public goods provision in China. This might be useful to develop further the historical perspective on this topic.

History matters: the influence of pre-industrial China’s institutions on post-1978 economic boom.

From divergence to convergence: re-evaluating the history behind China’s economic boom

by  Loren Brandt  (brandt@chass.utoronto.ca),  Debin Ma (d.ma1@lse.ac.uk) and  Thomas G. Rawski (tgrawski@pitt.edu)

URL: http://d.repec.org/n?u=RePEc:ehl:wpaper:41660&r=his


“China’s long-term economic dynamics pose a formidable challenge to economic historians. The Qing Empire (1644-1911), the world’s largest national economy prior to the 19th century, experienced a tripling of population during the 17th and 18th centuries with no signs of diminishing per capita income. In some regions, the standard of living may have matched levels recorded in advanced regions of Western Europe. However, with the Industrial Revolution a vast gap emerged between newly rich industrial nations and China’s lagging economy. Only with an unprecedented growth spurt beginning in the late 1970s has the gap separating China from the global leaders been substantially diminished, and China regained its former standing among the world’s largest economies. This essay develops an integrated framework for understanding this entire history, including both the long period of divergence and the more recent convergent trend. The analysis sets out to explain how deeply embedded political and economic institutions that had contributed to a long process of extensive growth subsequently prevented China from capturing the benefits associated with new technologies and information arising from the Industrial Revolution. During the 20th century, the gradual erosion of these historic constraints and of new obstacles created by socialist planning eventually opened the door to China’s current boom. Our analysis links China’s recent economic development to important elements of its past, while using the success of the last three decades to provide fresh perspectives on the critical obstacles undermining earlier modernization efforts, and their removal over the last century and a half.”

Review by: Anna Missiaia

China’s economic performance in the long run is one of the hot topics in economic history today. The growth pattern followed by China since the mid-14th century until today has been characterized by one of prosperity until the end of the 18th century, a period of falling behind in the 19th century and throughout the Revolution, to later observe a reversal in post-1978 years until today. In particular, economic historians face the riddle of China having had comparable economic conditions to Western Europe until the eve of the British Industrial Revolution when China missed the opportunity for the industrial take off. The debate is also focused on how China managed to reverse this trend after the death of Mao Zedong in the 1970s, experiencing very high levels of economic growth that we still see today. The paper by Loren Brandt (University of Toronto), Debin Ma (London School of Economics) and Thomas G. Rawski (University of Pittsburgh) is concerned with the link between the historical picture that underlays China’s long term economic performance. The main questions addressed here are why China was unable to industrialize in the 19th century in spite of similar starting conditions of Britain; why it did not take advantage of the new technology and information made available by the British Industrial Revolution and how China managed to catch up in the post-1978 period. The paper proposes a very detailed and exhaustive review of existing literature on Chinese economic history. In particular, the view proposed by Pomeranz (2000) in his work The Great Divergence is the one that has recently taken root. The claim is that the divergence of the 19th century was due to a better factor endowment (such as coal abundance and access to land-intensive goods) by Britain. In this view there is little room for institutional factors, such as differences in the financial, political and legal system. The main contribution of the paper by Brandt , Ma and Rawski is to propose an alternative view based on institutional factors that seeks to explain both the 19th century divergence and the 20th convergence within the same analytical framework. The authors adopt a political economy perspective and guide us through the historical roots of present China’s economic boom, finding many analogies (and influences) between past and present Chinese institutions. The authors identify several institutional continuities between the Qing period (1644-1911) and the People’s Republic today: both systems were authoritarian and lacked of a checks and balances; both had monitoring problems in their implementation of central policies, suffering from corrupt diversion of tax payments;  in both periods economic policy was quite decentralized; education was in both periods a primary concern of the state;  finally, both today and in the Qing era, the state was able to align the incentives of the leading class and those of common people, achieving prosperity and stability. In the view of the authors, these elements were present in the Qing period until the beginning of the 19th century and were fully re-established after the death of Mao Zedong. According to the authors, the reasons for the period of divergence during the British Industrial Revolution lay in Qing China’s inadequate response to this new phenomenon. In particular, they offer a few institutional departures between People’s Republic in the reform era and the Qing rule that can help understand how post 1978 China managed to reverse its fortune. In particular they underline the increased ability to effectively implement and enforce policies at national level and the opening of the Chinese economy to foreign trade and investment. The analysis proposed in this work points at institutional obstacles that prevented China from joining the West in its 19th century Industrial Revolution. It also describes the slow changes that took place over the 19th century until 1970s that culminated in the boom we see today. According to the authors, today’s success is due to two factors. One is the slow erosion of constraints from the Qing period, such as lack of monitoring and closeness to the foreign trade. The other is the reversal of new obstacles created during the pre-1978 Revolutionary period, such as the creation of conflicts of objectives among different social groups and the loss of focus on education. The parallel between the early Qing period and the post-1978 period has major implications for policy-makers today: according to the authors the Chinese model for economic growth is far from being applicable to any other low income nation. This is because Chinese history and past institutions had a major role in shaping post-1978 Chinese success.  In its conclusions, this paper provides a very detailed historic and literature review of Chinese economic growth and proposes a unified institutional framework to link pre-industrial and present China, challenging the established endowment view on the 19th century divergence.