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7 Apr

How to get rich without getting lucky (Countries' Edition): Part 1

A short while ago, I came across a Marathi rendition of Rema and Selena Gomez's 'Calm Down' on YouTube. It was titled 'Kam dya', a satirized version that was anchored around our nation's youth unemployment crisis. Now, I won't lie, the song was entertaining (it was peak dark humor), but it did leave a bad taste in my mouth afterward.

How can youth unemployment be mitigated? How do nations get rich? These were the questions that were running through my mind as I was watching the video. Under normal circumstances, I would have probably picked up Adam Smith's magnum opus The Wealth of Nations to find out why, but I was in turn directed to another, more recent book, titled How Asia Works.

The clickbaity title masks an elegantly written treatise on how rapid economic development works and lays out a three-step process (a playbook if you will) for how predominantly agrarian economies catapult themselves into the developmental fast lane and go on to become economic powerhouses with living standards that are on par with the world's foremost economies.

And the first step in this process starts with agriculture, or as Joe Studwell puts it: gardening.

“If you wish for industrialization, prepare to develop agriculture.”

In the context of agriculture-led development, gardening is merely an exhortation to increase yield per unit of labor instead of yield per unit of land. This can only happen through land reform on a massive scale, where landless farm laborers get a tiny plot of land they can call their own.

This kind of radical land reform, when coupled with a relatively vast working population means that 'jobless' people can get actively involved in managing farms, and direct a good portion of their efforts toward maximizing yield per hectare. You would be amazed by how productive a tiny garden can be if it were tended with the utmost care, love, and attention: something that is possible when you have a lot of time on your hands.

But why agriculture? Isn't it a tad bit lazy to just ask all of our young folk to just tend to their land instead of getting educated and doing high-value work?

“Success comes from getting the most out of human capital when skills are few.”

This is because agriculture is a frictionless way to get people to produce high-value goods. Rice, fruits, and vegetables are a far cry from semiconductors and slick software, but a surplus of agricultural produce can be sold in the International market to procure that much-needed foreign exchange that can then be routed to farmers.

Of course, this alone will not work as the farmers will need the right kind of credit and market infrastructure to go about realizing their gains. The right kind of incentives will also need to be set to encourage farmers to invest in improving their land and maximizing yield.

One thing that all pre-industrial states have in common with each other is a surfeit of labor. Concomitantly, they also have a severe dearth of skills. It's impossible to think of setting up industries at this stage of development, let alone a slipshod industrial base.

If you're wondering why I'm saying all this, it's because this is exactly what our East Asian counterparts did.

Japan during the Meiji restoration instituted a basic land reform program that allowed the company to industrialize at a rapid scale. After their defeat in the Second World War, Douglas MacArthur, an American general foisted massive land reforms on the Japanese (despite stiff resistance from the elites) in a bid to keep the country away from the seductive lure of communism. All of this led to a sudden spike in agricultural produce which not only ensured food security but also an agricultural surplus that slowly but steadily lifted millions of farmers out of the property.

Similar stories panned out in neighboring South Korea, Taiwan, and (eventually) China. Despite having vastly different leadership (dictator, authoritarian nationalists, and communists respectively), all of these countries managed to reap their demographic dividend by directing them toward agriculture.

Some variant of this is needed, even for a relatively mature economy like India.

It is not uncommon for our rural compatriots to sell or mortgage their land to fund their children's education. Education is well and good, but from a developmental perspective, we have too much of the wrong kind of education.

Klaus Deininger, a noted developmental economist spent several years tracking developing countries and discovered that land inequality is inversely proportional to long-term economic growth. He also concluded that low long-term growth stymies income for the poor, but not for the rich.

The next time you see a tweet (or worse a LinkedIn post) lauding India’s entrepreneurial prowess by pointing to the number of billionaires we’ve produced, ask yourself: how do we have so many billionaires while still being stuck in the category of a ‘developing economy’?

We’ll cover the next step in this process tomorrow, but I would like to leave you with this line from the book that hit the message home:

“There is no way that the specialist IT firms of Bangalore, or the financial services elite of Mumbai, will propel India as a nation to the kind of developmental success seen in Japan, Korea, Taiwan, and China.”

As we’ve said before, all the alpha lies in doing the hard things, and the best way to get there is by starting with the bare basics.

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