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How the KMT achieved land reform on Taiwan
This is an article about one of the most successful land reform policies in recent history. And how it eventually made Taiwan rich.
In 1949, the Nationalist government led by the Kuomintang party fled from the Chinese mainland to the island of Taiwan. They brought with them over a million refugees - people from all walks of life associated with the fallen government. The island’s population swelled.
Taiwan had been a Japanese colony for over 50 years, and considerable work had been done in building up the island’s overall infrastructure but much work remained to be done. The Japanese overlords may have done lots of good for the island as a whole, but many farmers suffered. Landlords became huge and wealthy through predatory practices that anyone today can recognize. They go to smaller farmers and lend them some money with the land as collateral. For whatever reason a farmer gets down on their luck and cannot pay. The landlord calls on the debt and adds the land to their property. Over time, their properties get larger as smaller farmers get increasingly squeezed. The end result is a desperately unequal society.
In Taiwan, landlords pulled off this business model like clockwork. Japanese landowners increasingly squeezed farmer-tenants for rents, reaching as high as 70% of farming output for certain high-quality areas. Chiang Kai-shek and the nationalists took too long to address this economic wealth inequality on the mainland and it would eventually lose them the Civil War. Coming to Taiwan, they recognized that having this situation continue along without amelioration would lead to the KMT's eventual ejection from the island as well.
Urged along by the American Joint Commission Rural Reconstruction program and presented with a unique opportunity to do so, the Nationalists thus sought to reform and rebalance their new society.
How the KMT achieved land reform
The first step happened immediately after the Nationalist retreat in 1949. Legislation was introduced to limit land rents to 37.5% of crops. This would be an olive branch to the native Taiwanese population, who had not been exactly thrilled at the handover of power from Japan to China.
This national rent control policy however did not go far enough in addressing the inequality. The JRCC however wanted more. The Nationalists, looking to shore up their popular support, went along.
In 1951, the government began to sell off its land bank directly to the people. Any ordinary Taiwanese can buy a piece of this land and many did. Over the span of ten years, 140,000 families would be able to buy the plot of land they were working on - the average purchase being about half a hectacre.
Where did this land come from? It came from the once-ruling Japanese. After the island colony’s handover to the Nationalists, many Japanese were invited to return home in Japan (more like kicked out). The Nationalists felt okay in selling this land, because who cared about what the Japanese thought at the time.
The success of the selloff of former Japanese lands was encouraging, but in American eyes it did not go far enough in creating a more equal society. So they pushed further and two years later, the Nationalist government took their furthest step forward.
In 1953, the Nationalist government expropriated land in excess of approximately three hectares. Landlords were compensated for their sacrifice with bonds yielding 4% and stocks in four recently privatized state-owned enterprises. The amount of the compensation would be equivalent to 2.5x the land’s annual crop yield. Stuff sitting on the land that could not be moved - trees, ponds, farmhouses, bamboo - would be compensated for in full. Tenants would be able to purchase this expropriated land in installments over 10 years. The end result is that farmers essentially got the land for free, because their payments to the government were offset by the fact that they did not have to pay rent.
This might seem kind of excessive, and you may be moved to grab your pitchforks, but the reality is that relatively few were majorly affected even amongst landlords. Half of landlords sold less than a hectare and less than a fifth sold over three.
One key factor contributing to the success of the Taiwanese land reform experiment was the fact that the acquisition and resale of land from owner to tenant happened with the government acting as the middle party. If direct contact had been allowed between the two then owners would have tried to circumvent the process and manipulate the process in a way that would leave the tenants eventually transferring the land back to the former owner with nothing the better. This direct contact would crucially play a critical factor in causing the failure of land reform in the Philippines.
The Effects of Land Reform
Taiwan’s land reform rebalanced the entirety of its economy - with one estimate finding 13% of GDP moving from one group of people’s hands into another. Approximately 143k hectares moved from 106K landowners to 195K buyers. In the early 1950s, Taiwan‘s Gini coefficient was more similar to that of Brazil at the time (0.56). By the mid 1960s, Taiwan measured at 0.33. This is unprecedented for any developing country.
Taiwanese land reform cannibalized its rich for the benefit of the poor. Property income for the upper middle class and rich class vanished, so they had to go to work - which naturally yields less income than that of capital. They were not happy about that. At the same time, farmers saw their own incomes soar. They were tilling their own land now and making money for themselves rather than for the Man.
Thus, they worked harder - and what is true for agriculture especially is the fact that if you work harder at your crops, they tend to grow better. And the crops they grew were more valuable. Before land reform, Taiwan mostly exported sugar and rice. But after reform, farmers started growing high-value crops like asparagus, mushrooms and bananas. I love eating asparagus. But asparagus is a crop that by some estimates requires as much as 2,900 times labor per hectare as rice. You don't do that unless you know you're going to own the results of your labor.
A second surprising economic effect was that with their new incomes, farmers were able to quickly diversify their revenue streams away from simple agriculture. Non-farming economic activities soared, and the wealth it generated would pave the way for the industrial revolution that was to come. Whether or not it had been planned to from the beginning, the KMT had put Taiwan on the same path that Japan had followed in its successful industrialization many years earlier.
Why land reform happened in Taiwan rather than on the mainland
Land reform is a sensitive subject. You are literally taking people's property from - powerful people, with a lot of entrenched power - and giving it to someone else. It's a complicated thing and you want to do it right. Many Asian countries (Indonesia and the Philippines come to mind) have failed in doing it right. The Nationalists were able to pull off this kind of land reform in Taiwan rather than on the mainland because they themselves owned little agricultural land in Taiwan and had few personal connections to the Taiwanese landlords owning them.
Back on the mainland, Chiang Kai-shek had to balance his power with that of various regional warlords. Back on the mainland, large landowners consistently blocked any KMT attempt to carry out comprehensive land reform - as would be expected in a democratic society. On Taiwan island, Chiang suspended all pretense at democracy - what he said goes. His dictatorial powers allowed land reform to continue.
And lastly, the Nationalists went ahead with land reform because they saw it as essential to holding onto power. The retreat gave the KMT a second chance like few other parties in political parties could have. Ray Dalio always said that you learn from pain and reflection. Thus the KMT gravely reflected on their failure to win the Civil War against the Communists and came up with a number of core issues. Amongst them was their failure to arrest inflation and undertake a thorough land reform.
If the KMT failed to reform the Taiwanese economy, then they would quickly lose their grip on the island too. The Taiwanese struggled against Japanese colonialism for decades and the KMT barely held onto power. Less than 10 years earlier, the 228 Incident saw Nationalist soldiers shoot and kill an unknown number of native Taiwanese on the street. The White Terror was underway and people were vanishing left and right.
The way they saw it, the KMT’s popularity was already way in the dumps and they had nothing to lose and no one more to piss off. They had nowhere to go if they lost the Taiwanese.