Ramseyer on Land Reform in Occupied Japan

J. Mark Ramseyer, Harvard Law School, has posted The Fable of Land Reform: Expropriation and Redistribution in Occupied Japan.  Here is the abstract:

Land reform will not just reduce rural poverty, write development officials. It can raise productivity. It can promote civic engagement. Scholars routinely concur. Land reform may not always raise productivity and civic engagement, but it can - and during 1947-50 in occupied Japan it did.

This account of the Japanese land reform program is a fable, a story officials and scholars tell because they wish it were true. It is not. The program did not hasten productivity growth. Instead, it probably retarded it. The areas with the most land transferred under the program did not experience the fastest rates of productivity growth. They experienced the slowest.

Land reform reduced agricultural growth rates by interfering with the allocation of credit. A tenancy contract is a lease, and a lease is a capital market transaction. By precluding the use of leases, land reform effectively increased the cost of capital, reduced the amount of credit, and reduced the accuracy with which investors could target that credit. Banks provide an obvious alternative source of credit -- and post-land-reform, the areas with the fastest growth rates were those areas with the best access to those banks.

The fable of land reform rests on a fictitious account of pre-war Japan. Scholars assume tenancy rates reflected poverty levels. They did not. Instead, they reflected levels of social capital. Leases were not most common in the poorest communities. Given their character as capital market transactions, they were most common in those communities where investors could turn to social networks to induce farmers to keep their word.