fairly egalitarian manner so increased output tended to boost the disposable
incomes of the large rural population. Farmers spent a high proportion of
incremental income on (then) new consumer durables, such as TVs, shoes,
watches and bicycles. In the 1950s around 70–80 per cent of total state revenue
came from taxing agriculture and by the mid-1980s it was still around 50 per
cent. Agricultural exports were long the dominant source of foreign exchange
in China, providing more than 80 per cent of the total in the1950s and still
about 40 per cent by the 1980s (Yao, 2000). This provided much of the foreign
exchange to import the capital goods and oil necessary for rapid industrializa-
tion. A similar story can be seen in nineteenth-century Japan (Box 8.1).
Economic Growth and Economic Structure since 1750 171Box 8.1 Agriculture and Japanese economic growth
after 1858The story of Japan during the Meiji era (after 1858) is commonly regarded as a
case study of the positive impact of agriculture. Agricultural output growth (2.0
per cent per annum) consistently outpaced population growth (0.9 per cent).
Between the 1880s and 1920 there was a five-fold increase in silk cocoon produc-
tion and a seven-fold increase in the output of raw silk which supplied an impor-
tant export industry. During these same years labour productivity in agriculture
doubled, which eased the transfer of labour (particularly young women) into the
urban-industrial economy as fewer workers in agriculture were required to
produce a given output. Agricultural growth did not require much investment and
so scarce savings could be channelled to investment in industry. Between the
early seventeenth and mid-nineteenth centuries the number of rice varieties
increased from 177 to 2,363 – an example of appropriate innovation. Another
major innovation was the increasing use of locally produced fertilizers like dried
fish and oil cake to supplement scarce natural organic sources. Through a land tax
the state extracted a large revenue from agriculture to channel into industry,
education and infrastructure. This was done through a land tax. The land tax was
initially set at 3 per cent of the (annual) assessed value of land in 1873 (later
lowered to 2.5 per cent). The tax was payable regardless of how the land was
being used which gav e owners an incentive to bring waste or fallow land into
production (Bird, 1977). Since the tax was fixed according to the value of land,
once paid all surplus output remained with the farmer/landlord which provided a
strong positive incentive to produce. By comparison a 50 per cent income tax
would have siphoned off half of any increased output and would probably have
undermined incentives to expand output or produce more highly valued crops. In
the early 1870s the land tax raised nearly 90 per cent of central government
revenue, and even though by 1911 the economy had diversified the share was still
nearly 30 per cent. The key requirement to implement the tax was a strong and
competent state that was able to accurately measure land value from an elaborate
survey begun in 1875 and completed around 1881. Very few developing countries
have the equivalent capacity even today (see Chapter 10 on the bewildering state
of land registration in contemporary India for a contemporary comparison).