Agricultural development and institutional innovation: A view of early Japan

Abstract

Agriculture’s role in economic development has been a much debated topic. Historically, agricultural revolutions have played an important role in explaining the industrial revolution in Europe and, in particular, England. In terms of today’s developing countries, agriculture is thought to be a prime source of savings, food, and foreign exchange necessary for the expansion of manufacturing.l Others have stressed this sector’s role as a market for manufactured goods. * Finally, since the bulk of poor people in developing countries earn their living in agriculture, productivity increases here are thought to be the key to dramatically reducing poverty. Agricultural productivity has, however, lagged in many areas of the world and for much of human history. Given that it is generally assumed that poor farmers would like to have more, higher incomes, one must wonder what is it that holds back agricultural productivity. Of course, the lack of adequate natural resources (fertile soil, etc.) is certainly part of the answer, but it would seem that an institutional environment conducive to rapid productivity growth also seems to be missing. From a historical point of view, in certain parts of Europe agricultural revolutions failed to occur as the institutional environment posed obstacles to the elimination of feudal relationships.3 In today’s developing countries there are many instances of stagnant agricultural sectors. This stagnation is not due to the unavailability of new technologies, since high-yielding varieties and techniques are now commonplace.4 However, many countries have failed to make the investments necessary to operationalize the technology. There would again seem to be a problem with the institutional environment . Economists have increasingly become concerned with analyzing the process of institutional innovation or change .5 However, until recently much of this literature has tended to conclude that inefficient (growth-blocking) institutions cannot persist over long periods of time .6 Thus, the invisible hand appears within a new context. In this article these new theories of institutional innovation are reviewed and critiqued.