The Great Asian Asset Grab
How do governments control an economy?
If you look at the regional leaders in Asia, almost all have gone through serious social reform. Agriculture and banking were built together to strengthen economic foundations, but land reform created a singular moment, defining both where the region stands today and the places that have the highest growth.
Can you really own anything?
In the West, property rights are taken for granted. It may come as a surprise that only recently the trend was adopted in Asia. It is a major factor driving regional GDP growth.
We may see our home as a place to live, but in Asia, your home can also be your business as well. When people in Asia gained the right to create small businesses, own (or at least rent their land for a long time), they received their first taste of true wealth.
In places like Vietnam, where space comes at a premium, using the home as a shop is a lifeline for many families
It should go without saying that before innovation can occur within a society, it's essential to define who has possession of what. Before land reform, only the elite or the government (often the same thing) owned the land and everything on it.
Today, the places in Asia where private property rights are emphasized have seen their per-capita incomes dramatically increase.
With redistribution of property rights from the elite and/or the state to the general population, not only could individuals start a business, they could offer their land as collateral to the bank for loans. These loans allowed for development to skyrocket.
As you can see in the graph below, countries that implemented widespread land reforms like Japan, South Korea and China all have much higher incomes than the emerging Asian countries in the south and southeast.
Land Reform is the key to development
Over the last century - particularly in the years following large-scale conflict in the mid-20th century - land reform programs in Northeast Asia have redistributed vast swaths of land to poor tenant farmers and agricultural laborers.
Following this process, gross output of agricultural produce booms as farmers suddenly have an incentive to produce more.
Landowners also suddenly had an incentive to invest in their property. They used their titles to borrow money to invest in important facilities like fertilizer, finance the construction of grain storage facilities or even start a business.
Northeast Asia’s path to prosperity
Let's look at Japan after World War II. The US-backed government was struggling to gain popular support. The Japanese government understood that land reform was crucial to establishing a broad base of support from the working class.
At the heart of Japanese land reform efforts was a law that limited landownership to a maximum of three-hectares.
This meant that wealthy landlords had to turn over their excess land, which was then redistributed among poor farmers. As a result, rural output and consumption in the 1950s had grown above pre-war levels and economic inequality was considerably reduced.
Land Reform without land grabbing
Today, Asian countries don’t typically have a class of landlords oppressing the landless.
Instead, they are faced with an awkward overlay of colonial laws and long-standing and often contradictory customary laws and traditions. To complicate matters, governments and military juntas across Asia have grabbed land without redistributing it from time to time.
In this environment, land rights are neither clear nor well administered.
So instead of redistributing privately owned land (as was the case in Northeast Asia), land reform in modern times is about clarifying land ownership and dispersing government-owned land.
Take Myanmar, for example. As a top priority, Myanmar’s new government is implementing a progressive land reform policy and is designing a land tenure reform program.
The country’s new leaders have travelled the region to see first-hand how other land reform programs in Asia work.
They studied Taiwan’s historic land redistribution reforms that encouraged growth, peace, and stability.
They also looked to India’s West Bengal region where policy-makers implemented a program that distributes land owned by the government and purchases land from willing sellers at market rates to distribute to the poorest citizens.
With land titles in tow, Burmese citizens have used land certificates as collateral for loans, mostly for handicraft and other small businesses.
So if you're looking to invest in progressive countries, look to see where land reform has worked. These will be the best places for solid investing. Millions of small landholders across Asia are starting to see their property as capital for the first time, not just a place to live. With time, stability and patience, prosperity shall follow.