The economic cost of inequality

I am reading a economics book. A book on economies with huge inequalities of wealth, where the economy is not growing because the rich do not invest, they just squeeze the poor for increased rents, and where nothing is done to change this as change is not in the interest of the wealthy. As you imagine this is striking a chord with me, it all sounds very familiar.

But the economies are not those of the modern-day UK and USA. They are post-Second-World-War Philipines, Thailand, Malaysia and Indonesia. The book is Joe Studwell’s How Asia WorksIn the bit I am currently reading, his thesis is that these economies had poor agricultural productivity (eg, poor yields of rice per hectare) due to much of the land being owned by rich landlords, who rented it out to poor tenants. The landlords did not invest in better agricultural technology and infrastructure, and the tenants had weak incentives to work hard as most of what they grew went straight to the landlords.

To me this sounds too much like present-day UK for comfort. Interestingly, Studwell contrasts the Filipino, Thai, Malaysian and Indonesian post-war economies, with those of Japan and Taiwan. Japan and Taiwan instigated radical land reform, effectively they forced landlords to sell land to tenants at affordable (i.e., far below market) rates, and then helped the tenants to invest, and also built infrastructure (e.g., irrigation channels).

Now that the tenants were small land owners, who kept what they made, they worked harder and more efficiently, and yields boomed. In Japan this land reform was pushed by the American occupying forces, immediately after the Second World War. I guess this is one difference between then and now, unfortunately I can’t see modern-day American governments pushing for redistribution of wealth from rich to poor, whether or not it would boost the economy.

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