Wednesday, November 13, 2019

The plight of late industrializers: what if peasants do not want to move to cities?

In a paper that I am writing with Boško Mijatoviċ on the real wage in the 19th century Serbia (see the first draft here), we deal with an interesting and not novel problem. In a society where 90 percent of the population lives in the countryside and all farmers cultivate their own (small) landholding, and there is no landlessness, how do you industrialize?

All the contemporary evidence points to the fact that peasants were not at all keen to move to cities and work for a wage. Since there was no landlessness very few people were pushed by poverty to look for city jobs. Political parties which strongly (and understandably) represented peasantry further limited mobility of labor by guaranteeing homestead (3.5 ha of land, house, cattle and the implements) which could not be alienated, neither in the case of default on the loan nor in the case of overdue taxes.

This situation was very typical for the late industrializers in South-East Europe. Greece, Bulgaria and Serbia were all overwhelmingly agricultural with small peasant landholdings and no landlessness. All displayed slow or arrested capitalist development and half-hearted urbanization. The reason was simple: farmers had no incentive to move from being self-employed to being hired labor. And who would prefer to switch from being one’s own boss and dependent perhaps only on the elements to become a hired hand, working six days a week all year round, in “satanic mills”?

The issue is noted by Francis Fukuyama (among others) in “Political Order and Political Decay”. He explains slow industrial development in Greece (and he could have readily added Serbia and Bulgaria) by political clientelism which in his views stemmed from premature democratization, that is, before programmatic and not clientilistic political parties could be formed. But he fails to see the economic origin of the problem:  lack of incentive to move to cities.

The question is, how do you industrialize under such conditions? Reluctance of peasants, whenever they had their own land, to become industrial workers has been discussed (Gerschenkron, Polanyi). In England they had to be literally chased from land through  enclosures; in France, the process was much more overdrawn and took a century; in Germany, Poland and Hungary, large estates owned by nobility and consequent landlessness did the job. In Russia, it was bloody and occurred through forced collectivization.

Which introduces the following interesting topic. Suppose as a counterfactual that the October Revolution never took place, as it seemed most likely until the very day when it occurred, and that Russia, after the March revolution, became a democracy. Tsarism was overthrown, the elections of the Constituent Assembly were held in December 1917, and the largest party in the new Duma (later disbanded by the Bolsheviks) were Social-Revolutionaries (SR) that, combining their Russian and Ukrainian branches, held about 50% of the seats. (Bolsheviks got 24% of the vote.)

SRs were the party of the peasantry. By 1918 after the forced seizures of large  estates, the land reverted to peasants, and the bulk of them acquired their own plots. Landlessness was relatively small. (I have  seen somewhere the figures from the early 1920 given by, I think, Bukharin or Zinoviev but cannot find them now.)

How do you industrialize then? Peasants are quite happy to stay on land; SRs, who depend for their parliamentary majority on peasantry, might have passed the laws similar to the ones passed in the late 19th century Serbia guaranteeing peasant property from creditors or the state. Why would under these conditions peasants move to Moscow or St Petersburg to become wage workers unless they got a much higher wage –most unlikely—than was their net marginal return from farming? So unlike in the Lewis model of development with an infinite supply of labor here we deal with development, or rather attempted development, with close to zero new supply of labor.

Could high export taxes be imposed on Russian/Ukrainian grain to provide savings which would be invested in industrial development (a policy followed by Peronists in Argentina)? It is hard to imagine that a party (SRs) that did not depend on industrial proletariat but on peasantry would have done that. You thus quickly reach an impasse. To develop industrially, you need landless peasants looking for city jobs. But in a society where peasants own farms and their parties control government, there is no incentive nor desire to move to cities. Stasis, or equilibrium of sorts, ensues.

Now, going back to what really happened in Russia, we see better what was the problem faced by Bolsheviks. The war that Stalin launched on peasantry in 1928 and which resulted in at least an estimated six million deaths from famine and destroyed the Soviet agriculture for the entire period of the existence of the USSR was to some extent in the cards from the very moment that the March revolution happened. Russia could have more easily become industrial and capitalist with the pre-1917 large landed estates and the attendant landless peasantry which gravitated toward cities for jobs. But once small land owners became dominant, the (non-violent) road to industrialization was either blocked or had to be very long.

The process whereby agricultural economies industrialized was wrenching. The displacement and unhappiness of the population dragged into industrial centers through either empty stomachs or outright terror was incomparable in its human costs to today’s similar transfer of labor from manufacturing to services (or to unemployment). The transformation in the underlying economic structure is never easy but it seems to me that the one from the fresh air and freedom of own farm to being a cog in a huge soiled machine of industrialization was the most painful.


PS. Paul Klebnikov in a very detailed Ph D dissertation on Russian agriculture before the World War I, quotes (p. 32) a social democratic politician A. Maslov who argued that only industrialization can raise incomes in Russia: “one of two things must happen: either the development of the manufacturing industry with the proletarianization of a certain portion of the population, or complete backwardness and even a decline in the productive forces of the country."

Saturday, October 26, 2019

Chile: The poster boy of neoliberalism who fell from grace

It is not common for an OECD county to shoot and kill 16 people in two days of socially motivated riots. (Perhaps only Turkey, in its unending wars against the Kurdish guerilla, comes close to that level of  violence.) This is however what Chilean government, the poster child of neoliberalism and transition to democracy, did last week in the beginning of protests that do not show the signs of subsiding despite cosmetic reforms proposed by President Sebastian Piñera.

The fall from grace of Chile is symptomatic of worldwide trends that reveal the damages causes by neoliberal policies over the past thirty years, from privatizations in Eastern Europe and  Russia to the global financial crisis to the Euro-related austerity. Chile was held, not the least thanks to favorable press that it enjoyed, as an exemplar of success. Harsh policies introduced after the overthrow of Salvador Allende in 1973, and the murderous spree that ensued afterwards, have been softened by the transition to democracy but their essential features were preserved. Chile indeed had a remarkably good record of growth, and while in the 1960-70s it was in the middle of the Latin American league by GDP per capita, it is now the richest Latin American country. It was of course helped too by high prices for its main export commodity, copper, but the success in growth is incontestable. Chile was “rewarded” by the membership in the OECD, a club of the rich nations, the first South American country to accede to it.

Where the country failed is in its social policies which somewhat bizarrely were considered by many to have been successful too. In the 1980s-90s, the World Bank hailed Chilean “flexible” labor market policies which consisted of breaking up the unions and imposing a model of branch-level negotiations between employers and workers rather than allowing an overall umbrella union organization to negotiate for all workers. It was even more bizarrely used by the World Bank as a model of transparency and good governance, something that the transition countries in Eastern Europe should have presumably copied from Chile. The brother of the current Chilean president, scions of one of the richest families in Chile, became famous for introducing, as Minister of Labor and Social Security under Pinochet, a funded system of pensions where employees make compulsory contributions from their wages into one of several pension funds, and after retirement receive pensions based on investment performance of such funds. Old-age pensions thus became a part of  roulette capitalism. But In the process, the pension funds, charging often exorbitant fees, and their managers became rich. José Piñera had tried to “sell” this model to Yeltsin’s Russia and to Bill Clinton's United States, but, despite the strong (and quite understandable) support of the financial communities in both countries, he failed. Nowadays, most Chilean pensioners receive $200-$300 per month in a country whose price level (according to International Comparison Project, a worldwide UN- and World Bank-led project to compare price levels around the world) is about 80% of that of the United States.

While Chile leads Latin America in GDP per capita, it also leads it terms of inequality. In 2015, its level of income inequality was higher than in any other Latin American country except for Colombia and Honduras. It exceeded even Brazil’s proverbially high inequality. The bottom 5% of the Chilean population have an income level that is about the same as that of the bottom 5% in Mongolia. The top 2% enjoy the income level equivalent to that of the top 2% in Germany. Dortmund and poor suburbs of Ulan Bataar were thus brought together.

Chilean income distribution is extremely unequal. But even more so is its wealth distribution. There, Chile is an outlier even compared to the rest of Latin America. According to the Forbes’ 2014 data on world billionaires, the combined wealth of Chilean billionaires’ (there were twelve of them) was equal to 25% of Chilean GDP. The next Latin American countries with highest wealth concentrations are  Mexico and Peru where the wealth share of billionaires is about half (13 percent of GDP) of Chile’s. But even better: Chile is the country where billionaires’ share, in terms of GDP, is the highest in the world (if we exclude countries like Lebanon and Cyprus where many foreign billionaires simply “park” their wealth for tax reasons). The wealth of Chile’s billionaires, compared to their country’s GDP, exceeds even that of Russians.

Such extraordinary inequality of wealth and income, combined with full marketization of many social services (water, electricity etc.), and pensions that depend on the vagaries of the stock market have long been “hidden” from foreign observers by Chile’s success in raising its GDP per capita.  But the recent protests show that the latter is not enough. Growth is indispensable for economic success and reduction in poverty. But if there Is no social justice and minimum of social cohesion, the effects of growth will dissolve in grief, demonstrations, and yes, in the shooting of people.