AGRICULTURE IN RECENT DEVELOPMENT THEORY

J. Mohan Rao*

Boston University

March 1985

ABSTRACT: This paper is a critical review of recent contributions to the literature on agriculture in development theory. It considers and compares the main lines of advance made within neoclassical, neo-Marxian and structuralist approaches. Recent neo-Marxian and structuralist studies of agrarian development reveal that traditional agriculture is neither stationary nor efficient; that resource allocation cannot be separated from wealth distribution or production organization; that forms of surplus appropriation do not necessarily follow the dictates of efficiency; that the social relations of production may inhibit accumulation and determine the forms of technological change; that the state's role in primitive accumulation is more economic than explicitly coercive/political; and that political and macroeconomic constraints preclude a simple 'get the prices right' view of the intersectoral terms of trade. The thrust of these developments is to challenge both neoclassical and some orthodox Marxian formulations of agrarian development issues and add to the insights to be gleaned from a political economy of development.

J Mohan Rao, Department of Economics, Boston University, 270 Bay State Road, Boston MA 02215

1. Introduction

The past two decades have witnessed a voluminous growth in the literature about third

world agriculture. Mainstream development economists have become increasingly interested in

the problems of resource-use efficiency and the role of markets in agriculture. Marxian and

structuralist economists have addressed the twin issues of the modes of production with which to

characterize underdeveloped agrarian economies and the mechanisms of a projected transition to

capitalism. Neither of these two streams of new thinking is internally homogeneous and much

insight into the development process may be gained from looking closely at the points of discord

both within and between them.

The sources of inspiration for these developments are hardly coterminous. Nevertheless,

a common and important one is perhaps the widely felt disappointment with the performance of

both income distribution and employment expansion accompanying LDC growth. This has

become implicitly associated with the real or imagined intellectual shortcomings of the earlier,

dualist orthodoxy of development economics and the policies/actions espoused by it. One focus

of the critique of orthodoxy has been what may be arguably its weakest link: the structure and

internal dynamic of the 'traditional' sector of which surely the major portion is agriculture. In

addition, mainstream economists have been attracted to this subject by the apparently large

potential for internal agricultural development highlighted by the new biochemical technologies.

Some Marxians and structuralists, on the other hand, may have been pushed into this field by

their belief that internal agricultural development is necessary as part of a selective program of

external delinking to reduce the costs of external dependence. They have also been spurred by

the realization that the political economy and the politics of development cannot be meaningfully

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separated from 'the agrarian question'. This called for a partial shift of focus from capitalist

industrialization to the transition in agriculture.

This paper is an attempt to understand what difference these new thrusts have made to the

theory and practice of development economics. It considers and compares the main lines of

advance made within neoclassical, neo-Marxian and structuralist approaches. Recent neo-

Marxian and structuralist studies reveal that traditional agriculture is neither stationary nor

efficient; that resource allocation cannot be separated from wealth distribution or production

organization; that forms of surplus appropriation do not necessarily follow the dictates of

efficiency; that the social relations of production may inhibit accumulation and determine the

forms of technological change; that the state's role in primitive accumulation is more economic

than explicitly coercive/political; and that political and macroeconomic constraints preculde a

simple 'get the prices right' view of the intersectoral terms of trade. The thrust of these

developments is to challenge both neoclassical and some orthodox Marxian conceptions of

agrarian development issues and greatly add to the insights to be gleaned from a political

economy of development.

Needless to say, the subject is vast and the themes taken up in the literature are wide-

ranging. The emphasis on certain themes and the exclusion of others is due in part to my own

biases and also to limitations of space. The considerable amount of work done in recent years on

issues such as rural demography, consumption behavior, the rural non-agricultural sector, the

determinants of nutrition levels and the like are not taken up here. Even questions concerning

the rationale of state action or the efficacy of collective action - questions that are closely

connected to some of the issues addressed in this paper - have been ignored primarily due to lack

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of space.

The paper also reflects my own preoccupation with the literature on South Asia.

Arguably, this does not bias my general representation of orthodox Marxian and especially

neoclassical positions. These approaches are not notable for qualifying their general

propositions according to the context considered - at any rate, on the agrarian question. But

certain strands of neo-Marxian and especially structuralist analyses hinge heavily on the

historical-regional context within which agrarian issues are posed. Therefore, the themes

reviewed in this paper fail to do justice to the full range of agrarian questions analysed within the

structuralist or neo-Marxian approaches. I can only hope that others will follow suit to make up

this deficiency and still find the general framework and conclusions of this paper fruitful.

The plan of the paper is as follows. In Section 2, some aspects of the mode of production

debate of the past fifteen years are highlighted starting with a cursory excursion into the

classical/Marxian positions on the agrarian question. Neoclassical and Marxian/structuralist

approaches to the analysis of rural labor markets and of the links among wealth inequality,

enterprise forms and resource allocation are outlined and compared. The persistence and market

involvement of the peasantry are examined and related to the nature of village-level constraints

on economic outcomes. The Section concludes with a brief exposition of emerging views about

the logic and implications of agrarian structures in contemporary LDCs. Section 3 is a survey of

some recent analyses of the modes in which surplus is appropriated from the producers. Starting

with an exegesis of the theoretical obstacles to competitive analyses of sharecropping, this

Section goes on to look at neoclassical models of sharecropping that dissect the phenomenon

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within a framework of economy-wide full employment. A brief discussion and evaluation of

models that relate sharecropping to labor market unemployment follows. The final part of this

Section takes a critical look at alternative models of the widely noted phenomenon of inter-

linked transactions, particularly in land and credit. Section 4 is in many ways a continuation of

some key issues raised in Section 2 but with a focus on the process of capital accumulation as it

relates to the agrarian (class) structure. This Section surveys some interesting new ideas about

the interaction between class structure, enterprise forms and state action in the context of capital

accumulation and technological change and, where relevant, compares them. Section 5 concerns

itself with new analyses of the old debate over the terms of trade or the relation between 'town

and country'. Besides summing up relevant evidence on issues such as intersectoral resource

transfers and the long-run impact of prices on production, Section 5 compares conflicting views

about what the terms of trade do to agriculture and to the rest of the economy. Structuralist

modelling of the macroeconomic process and political-economy analyses of the productive and

distributive roles of the state are identified as being key innovative contributions in this area.

The final Section attempts, imperfectly and incompletely, to weave together some of the broad

implications emerging from the review of literature of the preceding Sections. A case is made

for the viability and relevance of a non-neoclassical position on the agrarian question.

2. Modes of Production

In much of third world agriculture, considerable numbers of direct producers work with

their own means of production even where ownership concentration of land is high. A varying

fraction, however, must be classed simply as dependent peasants as they are partly dependent on

borrowed capital, leased-in land or wage employment. The relatively underdeveloped extent of

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full-time wage labor is symptomatic of the continuing numerical strength if not economic

independence of these peasants and semi-peasants. Though less obviously than is the case with

landless laborers, these groups are also afflicted by the problems of inadequate work

opportunities and widespread poverty. It is their ubiquitous presence in the countryside that

makes class-based analysis of the 'agrarian question' so complex and challenging.

The debate about agrarian modes of production has been or ought to be about the ways in

which technology, control over the means of production, access to the resources of the state and

the enterprise forms in which production is organized influence productivity, employment and

income distribution within and outside agriculture. Although the debate has engendered valid

reasons for scepticism about its usefulness, it is best seen as a search -- yet unfinished -- for a

suitable macroeconomics of agrarian development. It is not easy, though, to construct

abstractions relevant enough for a class analysis which will at the same time be robust with

respect to the bewildering complexity of agrarian production and market relations. In part due to

the limited historical/empirical bases on which classical Marxian positions have been extended

or modified by the recent debate, but also in part due to a penchant for simple classificatory

schemes, the debates over the mode of production have been less fruitful than they might have

been. The labelling disputes that have resulted, wherein complex situations are fitted into

polarities such as capitalist/feudal, autonomous/dependent, stagnant/dynamic and the like, have

not helped in developing concrete analyses of the manner in which agricultural production and

exchange are organized or accumulation and structural change actually proceeds. Nevertheless,

a number of Marxian/structuralist positions have emerged which do reflect serious attempts to

understand the emerging situation in backward agriculture. Aspects of these new positions will

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be briefly reviewed in this Section, focusing on their static analytic content and relating them to

positions that disavow class analysis.

2.1. Marx, Lenin and Chayanov

It is useful to recount the classic Marxian propositions. Historical tendencies in

continental Europe, but especially in England, suggested to Marx that the decline of the

peasantry was inevitable, and along with that the advance of capitalist agriculture (Marx and

Engels, 1968). The advantages of scale and superior rates of capital accumulation assured the

eclipse of petty proprietors in agriculture as much as in industry, although rising indebtedness,

loss of land and pauperization would precede complete proletarianization. Capitalist agriculture

was also expected to benefit 1/ differentially from the growth of capitalist industry as agricultural

inputs came to be increasingly produced by industry, further exposing the peasantry to market

competition.

Lenin's contribution was to point out that the social differentiation of the peasantry would

develop proletarians and rich peasant-capitalists quite apart from the growth of capitalism on

large estates (Lenin, 1964). The dissolution of the peasant economy in the face of commodity

market development further contributed to the growth of that (home) market thus establishing a

symbiotic relation between capitalist agriculture and capitalist industry. Kautsky qualified the

Marx-Lenin position by pointing out why, in some regions/countries, the peasantry and small

holdings may persist over protracted periods of time: technological scale economies may be

weak and there may be an effective land constraint on the expansion of large-scale farms

(Banaji, 1976).

While Marx and Lenin were mainly concerned with the fate of the peasantry under

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capitalist development, Chayanov (1966) sought a theory of the peasant economy as a distinct

mode of production. The peasant enterprise sustains itself with its own (family) labor and other

means of production. Isolated from a developed wage-labor market, the peasant's economic

calculus is independent of wage and profit categories. The peasant's production 'capacity' and

his consumption 'requirements' are liable, though, to vary over the family life-cycle. The

resulting resource imbalances could be ironed out by a suitable social mechanism of, say, land

redistribution among families so that peasant economic differentiation will be demographic and

impermanent. Furthermore, Chayanov thought that the peasantry were capable of appropriating

scale economies without losing their peasant status: peasant cooperatives could serve the

purpose even as the peasant community kept differentiation within bounds 2/.

All of these propositions on the nature of the peasant enterprise, peasant differentiation,

and the development of capitalism, have been influential in the recent debates in Asia and Latin

America. The debates have two additional dimensions of complexity because (a) 'peripheral'

economies have long been integrated into the capitalist mode at the 'center' through colonialism,

trade and investments; and (b) surplus extraction within agriculture has until recently been based

on a variety of production relations including slavery, debt bondage, tenancy, extra-economic

compulsions on petty producers, and wage-labor. The first point has led many writers to argue

that capitalist development in the periphery tends to be weak and externally

dependent/subordinated. The second has raised the issue of the persistence if not dominance of

pre-capitalist modes of surplus appropriation involving, in particular, a weak and dependent

peasantry.

2.2. Neo-classical and 'Neo-Smithian Marxian' Positions

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It is perhaps instructive to first consider 'Marxian' and mainstream views which concur in

rejecting the relevance of an analysis of 'modes of production', as commonly understood, in

backward agriculture. Frank (1967) equates capitalist transformation in the periphery with

production for long-distance trade with the center. Capitalism is the dominant mode of

production and has long since established its hegemony throughout the world, so much so that

'non-capitalist' relations of production within the periphery are instrumental or functional to

capitalist expansion in the center. Similarly, for Wallerstein (1974), "wage-labor is only one of

the modes in which labor is recruited and recompensed in the [capitalist] market. Slavery,

coerced cash-crop production (my name for the so-called "second feudalism"), sharecropping

and tenancy are all alternative modes". The much-labored debate about agrarian modes of

production, in short, is a non-issue for these writers.

The earliest of the numerous attacks on this position was that of Laclau (1971)

responding to Frank's revisionist interpretation of Latin American development (or

underdevelopment). His criticism was aimed at Frank's trade-centered definition and analysis of

the capitalist mode of production. One 'branch' of the mode of production discussions, viz. the

structuralist-dependency viewpoint, grew out of this polemic, particularly in Latin America,

though it had other progenitors as well. Much of neo-Marxian writing on the third world

concedes the dominance, at a world level, of the capitalist mode of production but there is little

agreement as to precisely how that affects the underdeveloped countries. Few would go along

with Frank, though, in asserting that a class analysis of peripheral economies relatively isolated

from external relations is impossible and irrelevant 3/.

For present purposes, it is interesting to note that the Frank-Wallerstein position is, at

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least in some respects, not unlike the neoclassical approach. If peripheral economies and

agriculture are uniformly and universally exploited by a hegemonistic center for the former, for

the latter 'traditional agriculture' (Schultz, 1964) is everywhere subject to the dictates of perfect

competition and Paretian efficiency. The neoclassical approach is distinguished above all by the

assumption that wages are determined by full employment. An overriding but perhaps

unconscious concern of neoclassical economists is to demonstrate that the allocation of resources

in production is essentially independent of the distribution of control over the means of

production. As a corollary, they would also argue that the form of the enterprise (peasant or

capitalist, for example) has no independent influence on either production or on income

distribution. Economic institutions are viewed primarily as rational responses to technology. In

brief, the mode of production is irrelevant; the analysis of exchange relations and description of

technology guarantee knowledge of all that needs to be known about the economy.

The ultra-neoclassical position was, of course, first championed by Schultz in relation to

backward agriculture. Schultz's (1964) world of traditional agriculture is one where technology

is stationary and (if the Malthusian ghost is not to be invoked) population also is somehow

stationary. But Schultz demands more out of traditional agriculture: it is also efficient though

poor. Explicit and implicit markets exist to ensure full employment of all resources and their

efficient utilization. Within the traditional technology, given these assumptions, there cannot be

any surplus labor. Inequality in the control over the means of production is of no consequence

for resource allocation. Neither is there any economically relevant distinction between peasant

and capitalist enterprises. The conception of 'poor but efficient' was designed, at least in part, to

combat the growing influence of the classical/Marxian model of economic development with

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'unlimited' labor supplies originated by Arthur Lewis (1954). As will be seen below, Schultz's

position continues to exercise a major though somewhat modified influence among neoclassical

students of backward agriculture.

This position may be criticized from a number of viewpoints and only a few are noted

here. The absence of a developed labor market in a peasant economy, as pointed out earlier,

makes resource allocation subject to entirely different mechanisms than the ones entertained by

Schultz (Chayanov, 1966). In particular, resource ratios need not be equalized across peasant

communities. Population growth in traditional agriculture is often accompanied by the search

for new technology or the faster diffusion of known technology so that neither population nor

technology need be stationary (Boserup, 1965 and Perkins, 1969). A feudal elite may be content

to extract limited surplus from cultivators rather than maximize it, and then it is plausible to

maintain that resource ratios will not be equalized everywhere. Schultz never explains why his

limited view of individualist economic rationality should prevail in traditional agriculture.

Traditional agriculture may be poor but neither stationary nor efficient.

2.3. The Village Economy: Rational, Moral or Political Imperatives?

At least two different avenues have been taken in the efforts to attack Schultz's reduction

of economy-wide outcomes to individual rationality and action: one which emphasizes village-

level constraints on individual action; and another which argues that individuals internalize

communal values with their actions displaying commitment to those values. According to Scott

(1976) who studied the sources of peasant rebellion in south-east Asia earlier in this century, the

double threat of unpredictable nature and arbitrary and inflexible claims by outside political

authority, compels peasants to be concerned almost exclusively with assuring themselves a

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socially acceptable subsistence level. Hence, they develop norms of reciprocity and the right to

subsistence. The 'moral economy' of the peasant that these norms define cannot be understood in

Schultzian terms.

Ishikawa's (1975) formulation of 'Peasant Families and the Agrarian Community' is

similarly rooted in the historical experience of Japan, China and other Asian countries, and again

challenges Schultz's ahistorical formulations. The distinctive feature here is that he

simultaneously emphasises self-interest and political (power) imperatives in the development

and transformation of village institutions. Socially accepted subsistence for all is met neither

because everyone shares a common moral framework nor as an outcome that is individually

'rational' for all. Conflicts exist particularly between the landed and the landless; their (partial)

resolution reflects compromise through village institutions. The 'community' places restrictions

on its constituent individuals and groups in respect of (a) employment and the assurance of

subsistence, (b) gainful cooperation in production, (c) material help in emergencies and (d) unity

against outsiders -- particularly, monopolistic merchants. Conflict is most apparent over the

community principle of employment: "the institutions related to employment are in general not

determined on the basis of agreement among the parties. Compromise and coercion tend easily

to enter the process of their determination" (p. 483). Hayami (1982) has maintained that the

relative ease with which land-augmenting and labor-using technologies are promoted in south-

east Asia compared to India is due to the strength of the village community in the former --

characterized by patron-client relationships, a traditional moral principle of mutual help and

income-sharing -- whereas caste and class divisions in India act as major hindrances.

These non-neoclassical analyses have been challenged by neoclassical economists and

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others. For Popkin (1979), peasant economic maneuverability is less restricted than Scott

assumes. In opposing his 'rational peasant' against Scott's 'moral peasant', Popkin carries

Schultz's project forward: peasant individual economic calculations govern private actions as

well as social outcomes. He views cooperative or collective action as exclusively determined by

the aggregation of individual economic interests: where profitable opportunities for trade or

cooperation exist, markets or market-like institutions come into being to exploit such

opportunities. Such arrangements may fail, however, without contradicting the hypothesis of

peasant rationality. Thus, the lack of development of insurance and welfare schemes in

Vietnamese villages is traced to the problems of free riders, moral hazard and adverse selection.

Simply put, it could not be determined whether the poor were merely unfortunate or lazy and

dishonest. Similarly, he argues that the rural rich acted as a cohesive group who exploited the

others by virtue of their privileged access to political authority -- a phenomenon consistent with

rational action but not with moral economy. In endorsing Popkin's propositions against Scott's,

Feeney (1983) believes that the growth of inequality, poverty and risks was due not to the

growth of commercialization and markets but to the functioning of an imperfect political system

in colonial regimes.

Neither Feeney nor Popkin see any causal connection between production inefficiencies -

- whether due to market failures or public policy -- and the unequal distribution of the means of

production. Such inefficiencies -- owing to costly risk-reduction strategies of the poor or to

foregone land-expansion opportunities -- arise in a situation where unequal access to the means

of production exposes a large number of producers to the costs of market failures while also

denying them equal access to political power. Perhaps Scott's claim for the moral economy is an

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extravagant one. But neither is Popkin's belief, that peasants are individually rational, sufficient

for a complete understanding of how resources are allocated and income determined in private or

public spheres 4/.

2.4. The Labor Market: Unemployment and Dualism

A key empirical relationship around which some of the mode of production debate and

most of the debates about farm efficiency, dualism and 'surplus labor' have been structured is the

widely-documented observation that farm size and labor intensity (and, to a lesser extent, land

yield) are negatively related. Amartya Sen (1966) contributed a Chayanov-type model of the

peasant (family) farm in order to explain both the inverse relation and the existence of surplus

labor. The family farm's equilibrium is characterized by equality between labor's marginal

product and its subjective real cost to the family. Withdrawal of labor from such farms may

leave output unaltered provided peasants are poor enough to have an invariant real labor cost in

the relevant range. Further, provided such real cost is below the market wage and family farms

predominate among small farms while large farms employ wage-labor, the inverse relationship is

to be expected.

Sen's formulation, it should be noted, assumes that family farms are restricted to self-

employment and also that land is not leased out to them by labor-employing farms. Given the

not inconsiderable extent of land-leasing by family farms and of their labor market participaton

in many parts of Asia and Latin America, Sen's model is empirically deficient. Indeed, it is

precisely the empirical insignificance (or at least declining significance) of a peasantry

completely isolated from the wage-labor market that has prompted many contemporary writers

to talk about a dominant capitalist mode of production.

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An alternative to Sen's model starts with labor market unemployment and derives

dualism and the inverse relation from it (Mazumdar, 1965). Family farms may supply part-time

labor to others but not be able to find employment for all of their labor. Under these

circumstances, maximizing behavior of such farms will lead to a wage gap between labor-

importing and labor-exporting farms as measured by the probability of not finding wage

employment. Positive wages even in the presence of unemployment in some seasons or year-

round is explained in terms of institutional factors -- such as the ones noted in Section 2.3. The

classical/Marxian roots of this alternative should be self-evident 5/. Backward agriculture not

only has a developed wage labor market but also, as under capitalism, a reserve army of

unemployed constituted by landless laborers as well as peasant family workers.

Purely neoclassical explanations for the existence of surplus labor and for the inverse

relation have also been attempted. Beginning with Leibenstein (1957), a number of authors have

argued that, at low levels of worker consumption, a positive link exists between nutrition and

work effort. If wages and nutrition (consumption) are also positively related, then there exists an

efficiency wage which profit-maximizing employers will offer and which can exceed the supply

price of unemployed workers. The economy moves out of the efficiency wage regime only when

the land-labor ratio rises above a certain minimum. Quite apart from the thorny problems

created (for the advocates of such theories) in explaining how the economy deals with the

unemployed, the efficiency-wage hypothesis is of dubious relevance to much of the third world's

rural labor markets. As Bliss and Stern (1978) have observed, since the human body stores

nutrients, the consumption-effort relationship may be virtually non-existent over short periods

and, hence, irrelevant to the normal operation of rural labor markets with short-term labor

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contracts predominating.

The neoclassical route to explaining the inverse relation is to posit various sorts of search

costs and other similar frictions in the functioning of rural labor markets. Rosenzweig (1978),

for instance, while maintaining that Indian rural labor markets are characterized by zero

involuntary unemployment, introduces search and transportation costs associated with working

for others. This gives rise to the expectation of an inverse relation between farm-size and yield.

It is a different matter, however, to reconcile such models with the infrequently denied fact of

significant levels of unemployment - even though standard definitions fail to measure the

incidence of discouraged, particularly female, workers.

In their recent survey of some of the literature on labor markets in backward agriculture,

Binswanger and Ronsenzweig (1984), have made rather enthusiastic claims in support of the

neoclassical approach. They find in the seasonal variations of money (real?) wage rates and in

the scattered evidence on long-run movements in real wages sufficient cause to argue that reality

is "inconsistent with institutional views" (p. 31) and that it is "largely consistent with supply and

demand interpretations" (p. 30). Such a conclusion reflects a serious misunderstanding of the

institutionalist position as well as an elastic empirical interpreation of the 'supply and demand'

argument. The institutionalist argument is not that real wages are constant but that they are a

given; neither is real wage responsiveness to changing economic conditions necessarily

inconsistent with that argument. In a long run dynamic context, the conventional wage that

Marxians posit may be bargained over not as a rate but as a share (Marglin, 1984). Besides, such

wage responsiveness to 'supply and demand' conditions is by no means sufficient to favor the

neoclassical position. The latter is defined rather by the absence of involuntary unemployment --

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an issue over which the cited 'evidence' sheds no light.

These authors then go on to claim that up-to-date empirical studies (published in the

volume edited by them) "call into question the basic assumptions of the surplus labor models,

suggesting that reductions in labor supplied will significantly increase agricultural wages and

that the variability in wage rates over time and across space is explained to a considerable degree

by variations in demand for and supply of labor" (p. 38). One of these studies, it turns out, is an

econometric study of farm labor demand and merely speculates that labor supply changes will

have large wage impacts owing to a low measured elasticity of labor demand (Evenson and

Binswanger, 1984). Another (Bardhan, 1984a) explicitly contradicts the editors' conclusion: "A

competitive wage theory, for example, is not necessarily confirmed by the evidence presented

here in favor of a demand-supply framework ... the wage rate, even though it is sensitive to

demand pressures, does not adjust sufficiently to fully clear the labor market" (p. 258). The rates

of unemployment were found to be on average 11 per cent (20 per cent) in the busy seasons and

23 per cent (43 per cent) in the slack seasons for male (female) laborers.

That rural land and credit markets are also characterized by significant

inflexibilities was first pointed out by K.N. Raj in two remarkable studies carried out in the late

sixties with Indian data (Raj, 1970 and 1979). Although there was a significant amount of land-

leasing, he found little difference between the size distributions of ownership and operating

units; similarly, access to credit was closely linked to ownership/control of land. Following Raj,

Abhijit Sen (1981) has argued more generally that because land and credit markets remain

constrained by a variety of factors, there is a connectedness between the ownership distribution

of assets (land, total wealth) and their distribution in operational use.

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Together with the inverse relation and unemployment, this makes a strong case for the

notion that the unequal distribution of ownership/control over the means of production is a major

determinant of resource use in agriculture. Unemployment and dualism (or its generalization

which Sen calls connectedness) appear to be the most important stylized facts about backward

agriculture. It is the basic assumptions of the neoclassical approach that are thus called into

question. As will be argued in Section 3, recent neoclassical analyses of market relations,

although displaying greater awareness of market imperfections than Schultz or his followers had,

fail to come to grips with these observations.

2.5. Emergent Positions

While dualism and unemployment are widely accepted premises among

Marxians/structuralists, there is not much agreement among them about what factors perpetuate

these phenomena or about their consequences. In the rest of this Section, some emerging

viewpoints are briefly reviewed primarily to give a flavor of the sorts of theoretical differences

that remain unresolved and that are likely to remain influential in empirical investigations.

Functional Dualism

A recent attempt to grasp agrarian structure and the modes of production it comprises

within an overall model of development is that of de Janvry (1981). For present purposes, the

significant element in his approach is that he sees a 'functional dualism' between capitalist

agriculture and the peasantry in the context of a labor surplus. Left to their own devices, the

peasantry would differentiate; capitalist development would rapidly proletarianize them, and this

indeed is the long-run tendency. However, the transitional survival of a semi-proletarian

peasantry is functional to capitalism because part of the socially acceptable subsistence of wage

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workers is secured from family farms so that wage costs for capitalist employers are lowered. A

related mechanism is a 'cheap food' policy including cheap imports and government-controlled

prices for peasant-produced commodities which also has the effect of cheapening wage-labor.

Functional dualism makes possible a high rate of surplus extraction because (i) it weakens labor's

economic position by producing large-scale unemployment and misery and (ii) the semi-

proletarian peasantry with their petty peasant ideology act as a buffer for the capitalist class. de

Janvry therefore opposes the view of Brenner (1977) that agricultural backwardness and poverty

are a conseqeunce of low productivity and low investable surpluses. He also rejects the position

of Vergopoulos (1978) that it is the peasants' lack of a profit or accumulation motive that makes

them functional to capitalism.

Peasant Rationality and Links to the Capitalist Mode

Lehmann (1982) seeks to explain peasant survival primarily in terms of the internal logic

of the peasant enterprise which is externally involved in the capitalist market-place. He finds

social differentiation in Lenin's sense to be a pervasive aspect of Latin American and South

Asian peasantries and therefore rejects the classic Chayanov position regarding peasant

differentiation. Yet the persistence of family-labor enterprises even when they are involved in

market-exchanges contradicts the classic Leninist stance that "class polarization and enterprise

homogenization" are the normal form of agricultural development. This can only be understood

as the outcome of adaptive peasant responses to capitalist expansion: "... the peasant holding,

with its family labor and diversified, risk spreading output, will survive as a fallback position or

'base', and will rarely be sold to outsiders" (p 156).

For de Janvry, the peasantry exist because they can be exploited. But for Lehmann, they

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can be exploited because they exist -- their particular economic rationality makes them

vulnerable to (market-) exploitation. Peasants, for example, will produce over price ranges that

would entail negative profits for capitalists.

Semi-Feudal Relations of Production

Yet another position, frequently identifying the mode of production as 'semi-feudal', is

that the exploitative relationships in which the bulk of the producers are involved may block the

advance of the productive forces even though surplus generated is (potentially) large. Typically,

the argument posits multiple channels of surplus appropriation from the direct producers

particularly in the forms of (share) rents, usurious interest on consumption credit and

unfavorable conditions of sale for the commodity (Bhaduri, 1983). Direct producers deal not

with an impersonal market but with a monopolistic landlord who is also lender and trader.

Under certain conditions, it is in the interest of this exploiting class to maintain these 'semi-

feudal' relationships rather than enhance productivity.

This view has been advanced most frequently for eastern India and for parts of Latin

America. Prasad (1974) found it to be relevant in Bihar where he found such semi-feudal

landlords making little effort to exploit available opportunities for irrigation or electrification.

Chandra (1974), while accepting the descriptive validity of semi-feudal relations of

exploitation, does not find that productive investments have been impeded by such relations.

Widespread unemployment permits landlords to enhance rents and/or interest charges, and to

keep the producers poor and dependent even with productivity increases. Instead, he views the

restriction on aggregate demand due to unemployment and poverty as the major reason for low

rates of accumulation which in turn reproduces unemployment and semi-feudal relations.

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A Simple Dichotomy of Classes

Rudra, an early protagonist in the mode of production debate, recently rejected the

concept of mode of production on grounds that it is inadequately formulated and leads to useless

proliferation of alternatives such as feudal, capitalist, semi-feudal, transitional, colonial, dual,

etc. (Rudra, 1978). Similarly, he finds 'dominance' among modes or contradictions between

them ill-defined. He prefers to characterize agrarian classes on the basis of their contradictory

relations to the means of production. For India, he finds that there are only two classes in this

sense: the exploiting class including landlords, rich peasants, large tenant farmers, traders and

moneylenders, and the exploited class including landless laborers, petty producers and tenants.

Although the exploiting class may reveal different degrees of capitalist or non-capitalist

behavior, there need be no contradiction within that class.

Using Indian data pertaining to various regions he denies that (a) sharecropping and

indebtedness are sure signs of non-capitalist economic relations, (b) the increase in wage-labor

and decline in tenancy indicate capitalist development, (c) technological scale economies are

generally prevalent, and (d) the growth in farm size and in mechanization are symptomatic of a

radical change in class relations.

Bardhan (1979), while agreeing with the bulk of Rudra's thesis, finds empirical cause to

disagree with Rudra that a middle peasant 'class' does not exist. He finds that a middle peasant

group -- who neither hire in labor nor hire-out -- are in fact important in many parts of the

country. Following Rudra's definition, he argues that they are a 'class' that relates to Rudra's

classes in predictable ways: they ally with landlords on land reforms but not on the issue of

public subsides (which are likely to be monopolised by the landlords). He also rejects the notion

-21-

that capitalist and feudal elements can coexist without contradictions: 'feudal' control of labor,

extensive use of land and 'unproductively' employed capital are bound to fetter capitalist growth.

Empirically, Bardhan notes that productive investments are growing, that land is increasingly

concentrated among larger and progressive farmers and that wage-labor has grown particularly at

the expense of the middle peasantry. Therefore, he finds it "hard to agree with Rudra that the

emerging capitalist or semi-capitalist relations are not replacing feudal relations." (p. 860).

Market Power and Control of the Labor Process

Finally, there exists a class of explanations for 'connectedness' in the labor market that

focuses on problems in labor exchange and/or in the labor process. Recently, a closer analysis

of the size-productivity link has revealed that a simple interpretation in terms of unemployment

and labor cost dualism between 'capitalist' and 'peasant' farms is by itself insufficient. The

earlier studies of Rudra and others (see Chattopadhyay and Rudra, 1976) had cast doubt on this

interpretation through the findings that (a) there was no significant relationship between labor

intensity and the share of family labor in total labor input and (b) there was a significant inverse

relationship between size and labor intensity even on hired-labor farms.

Ghose (1980) has produced some evidence suggesting that the latter findings may be a

reflection of oligopolistic power in the labor market: he found that the concentration ratio in

terms of hired labor across his sample farms was high. The observed inverse relation for labor-

hiring farms may then reflect leader-follower behavior in the wage-labor market. On the other

hand, Sen (1981) argues that the major constraint on labor-hiring may be the availability of

family labor on the assumption that hired labor requires to be supervised by family labor. He

uses statistical correlations to support his claim that the two types of labor are, in fact,

-22-

complementary.

It should be noted that the oligopsony explanation can be squared with the assumption

of unemployment only by supposing further that labor markets are segmented. While the family

supervision explanation requires no such elaboration of assumptions about the labor market, the

complementarity between family and hired labor that it requires is not particularly plausible.

Both explanations imply that increased employment potential created by technological

developments will not be fully realized: labor absorption on labor-hiring farms will be restricted

for reasons of market power or of family labor constraints. It may therefore be foreseen that

small farms will be compelled by poverty and unemployment to intensify labor-use and remain

semi-proletarians.

By way of conclusion, the main points of this Section are highlighted:

First, it is fair to say that recent analyses of contemporary experience has largely eclipsed

both the simple Chayanov and the simple Leninist positions regarding the peasantry. The

peasant mode of production is neither isolated/stable nor entirely subordinated/disintegrating in

relation to the rest of the economy. The persistence of the peasantry has to be understood as a

consequence of a complex set of forces including peasant rationality, the pace of economic

growth, state policy and the mechanisms by which peasants and proletarians are exploited. The

ways in which these forces act and interact are not, however, fully understood.

Second, rural labor markets are characterized by chronic or, at least, seasonal

unemployment. Rural wages are therefore determined, in large part, by institutional forces.

These forces should be understood to include both micro- or village-level elements

(contradictions in the labor process, local power and 'moral' imperatives), and macro-level

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interactions such as the pace of accumulation, technological changes, state policies, etc.

Third, resource allocation and use are significantly dependent on production organization

and wealth distribution. Though markets in labor, land and credit may work to weaken these

links, the influences of asset inequality and the nature of the enterprise persist strongly. These

are not reducible to market imperfections, although market power may be a significant influence

in its own right. Together with the preceding point, it is evident that the neoclassical approach to

allocation and distribution is called into question.

Finally, outside of the neoclassical approach, several interesting though not necessarily

mutually consistent formulations of agrarian modes of production have emerged. Much work

remains to be done within each framework -- by way of refining theoretical propositions and

providing enough empirical substance -- before they can be compared and evaluated. But few

can doubt that these formulations represent serious attempts to understand the emerging situation

in third-world agriculture.

3. Patterns of Surplus Appropriation

The preceding Section has highlighted conflicting approaches to the analysis of agrarian

dualism and of rural labor markets. The link between wealth distribution and resource

allocation, according to the Marxian/ structuralist approach, arises not merely because wealth

concentration gives rise to unemployment and contradictions in the labor process, but also

because it is the fundamental source of problems associated with resource allocation through

markets. Whether or not the capitalist mode of production is regarded as dominant in peripheral

agriculture, it cannot be denied that analysis of market processes alone is insufficient to

understand economic outcomes. Needless to say, these conclusions are routinely denied or

-24-

ignored in favor of a neoclassical model of rural markets, factor rewards and enterprise

homogeneity. It should be no surprise, then, to find those conflicting positions reproduced,

though in subdued form, when analysis shifts from the labor market to the land and credit

markets.

The importance of rural markets in land and credit derives both from the numerical

significance of 'peasant' enterprises and from the widespread practice of renting or loaning of the

means of production. Surplus is therefore extracted from direct producers (including the

economically dependent peasantry) not only in the form of profits from employing wage-labor

but also in the form of land rents, interest on loans, and trading profits. The determinants and

consequences of these forms has been a subject of intense research in the past decade and a half.

First, as regards the land market, the key questions have been (a) what circumstances

contribute to owner-cultivation rather than renting-out? and (b) why if renting-out occurs, may it

be in the form of output-sharing arrangements rather than fixed-rent payments? Analysts have,

by and large, sought economic explanations for the differential and simultaneous incidence of

wage-labor, share-cropping and fixed rents and rejected the view that arrangements such as

sharecropping reflect the hold of tradition.

Second, in the credit market, competing explanations have emerged for the frequently

observed fact of very high interest rates on borrowings.

Finally, a number of papers have appeared to account for the phenomenon of linked

transactions -- particularly, in land, labor and credit -- between the same parties. This is also

related to the existance of 'personalised' arrangements reflecting monopoly power or fragmented

markets.

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Predictably, the bulk of neoclassical research seeks to establish that such markets do what

markets are supposed to do -- increase the welfare of the transacting parties, enlarge the social

pie and achieve economic efficiency if only of the second-best variety. This view is opposed by

other approaches that emphasise monopolistic and power relations in such markets and/or the

limits to the efficacy of markets imposed by the class structure.

3.1. Competitive Models of Sharecropping

Byres' (1983a) exploratory essay about the incidence of sharecropping in various parts of

the world reveals a long and checkered history of this form of surplus extraction. It also

provides some clues why the search for a generally applicable and testable theory of

sharecropping may prove futile: sharecropping has existed under a variety of objective (or easily

observed) circumstances so that distinguishing its incidence on their basis is virtually impossible.

It is interesting that recent theories of sharecropping have tended to rely on subjective or

difficult to observe circumstances such as supervision problems in the labor process, varying

husbandry skills of producers, information costs and associated moral hazards, and wealth-

dependent attitudes to risk. The reason for this is probably less that recent analysts were fully

aware of the historical circumstances in which sharecropping has existed than that competitive

models of sharecropping posed theoretical conundrums.

At the center of theoretical debates about sharecropping has been its alleged inefficiency

relative to wage-labor and fixed rents. Following the so-called "Marshallian" view, some

authors maintain that since the sharecropper secures only a fraction of output, his marginal

returns to variable inputs including labor will be only a fraction of their respective marginal

products. He would therefore employ less of these inputs than if he were a fixed-rent tenant or

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and owner-cultivator. At the same time, the tenant will seek to increase leased-in area as long as

its marginal product is positive for such extension always yields him positive returns.

Johnson's (1950) early article on the subject found this last implication of the Marshallian

view implausible. He hypothesized that landlords would seek to redress this situation by a

variety of means including direct enforcement of the optimal input intensities and the threat of

eviction implicit in short-term leases.

Cheung's (1969) work challenged the "traditional" view that sharecropping suffered from

allocational inefficiency. His main point was that, apart from the rental share, sharecropping

contracts in practice do specify input intensities. He offered a model in which, subject only to

the constraint that the tenant gets at least his alternative earnings as a wage-laborer (with the

wage exogenously given), the landlord decides on the plot-size, the rental share, and the labour-

intensity of tenant cultivation. The resulting "competitive" equilibrium is easily shown to be

indistinguishable from the fixed-rent or wage-labour modes in its allocative and distributive

outcomes.

Cheung's rationale for the existence of sharecropping relied on its alleged superior

capacity to permit risk-sharing between tenant and landlord. The wage system imposes all risk

on the landlord, while under fixed rent the tenant bears the risk. However, it has been shown

that this risk-sharing advantage of sharecropping is spurious since the same result could be

attained by a suitable combination of the fixed rent and wage labor systems, provided risk-

sharing can be so replicated without imposing technological (scale) diseconomies (Newbery,

1977). Cheung's "equivalence" theorem thus generalized leaves his approach with no rationale

for sharecropping.

-27-

Equivalence of outcomes, moreover, hinges on the feasibility of enforcing optimal

intensities. But this is an empirical issue and no convincing evidence has been adduced in favor

of the equivalence argument. Indirect efforts to test the relative efficiency of sharecropping have

yielded mixed results. A few studies indicate that sharecroppers are not any less productive than

owner-cultivators or fixed-rent tenants. It has been argued that such results are based on weak

tests of the disincentive hypothesis and may suffer from specification or simultaneity basis in the

presence of the inverse relation between farm-size and productivity. When these are properly

accounted for sharecropped land is significantly less intensively cultivated than owned land thus

supporting the Marshallian argument (Sen, 1981 and Caballero, 1983).

Bardhan and Srinivasan (1971) sought to restore the Marshallian view with the help of a

general equilibrium competitive model. This was distinguished from Cheung's work chiefly in

permitting tenants marginal choices in terms of labor supplied between the tenancy and working

for wages: the Cheung model does not allow the tenant such marginal choices. Although this

model preserves the incentive inefficiency of sharecropping, equilibrium requires that the

marginal product of land be zero -- a condition that poses a problem for the existence of

equilibrium (Bagchi, 1973).

There is a measure of agreement now that sharecropping can only be understood

(within a neoclassical setting) by elaborating models with enforcement costs, imperfect or non-

existent markets, information costs and uncertainty -- without these, as noted above, the

Marshallian ('competitive') approach runs into an existence problem while the Cheungian

('competitive') approach is bereft of any explanation for sharecropping. As Newbery (1975a)

had argued, share tenancy equilibrium will not be competitive in the conventional sense because

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the price system is incomplete with such constracts. Restrictions on choices have to be added,

although the forms such restrictions assume may differ. The disincentive hypothesis, though,

remains a bone of contention among alternative theoretical elaborations of the Marshallian and

Cheungian approaches.

3.2. Contractual Forms in a Full Employment Setting

A number of recent models of sharecropping still seek to rationalize it within a full

employment setting. Pant (1983) has constructed a model along the lines of Bardhan and

Srinivasan (1971) but with added features that eliminate the existence problem: (a) entry into

tenancy is restricted by the possession of nontraded inputs such as management skills and

bullock labor so that there can be no excess supply of tenants, and (b) each tenant has a finite

demand for land because land preparation requires a fixed amount of labor per acre. A

Marshallian equilibrium is then shown to exist for Cobb-Douglas production functions. The

tenancy arrangement emerges, despite its inefficiency, as an implicit trade of land for labor and

non-traded inputs. Note, however, that fixed rents tenancy is a superior alternative in these

circumstances but is arbitrarily ruled out.

Within the Cheungian tradition i.e. where there are no costs involved in enforcing

optimal labor intensity, Newbery and Stiglitz (1979) have shown that, although production

uncertainty per se is insufficient to give sharecropping an advantage, where there is an additional

independent source of risk - the example emphasized is wage-rate uncertainty in the labor market

-- sharecropping does provide additional risk-sharing benefits which cannot be replicated by a

mixture of fixed-rent and wage contracts.

Contractual forms may also be linked with uncertainty where landlords are unable to

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determine their tenants' abilities. Rao (1971) argued that sharecropping would be the preferred

arrangement under conditions of relative certainty while fixed rents would be preferred where

the tenant's ('entrepreneurial') response to uncertainty is an important but unobservable

determinant of production performance. Fixed rents permit the tenant to capture the returns to

his entrepreneurial skill under such conditions. More generally, where workers differ in their

farming skills, a mix of contract types may emerge to serve as screening devices. As they

acquire experience, workers move up from wage-work to sharecropping, then to fixed-rent

tenancy and finally to landownership (Reid, 1979).

The 'competitive' models thus far considered all assume that the wage is exogenously

given. It is not true, as some claim (Binswanger and Rosensweig, 1984, p. 54), that they have

nothing to say about the determination of wages and employment. Equivalence of outcomes for

wage workers and sharecroppers with the wage exogenously given implies that potential tenants

can always find employment at that wage i.e., full employment in the labor market is a basic

assumption underlying all of them. They differ only in regard to the assumption made regarding

enforceability of labor input under sharecropping, and in regard to the particular rationale for

sharecropping that is favored (nontraded inputs, information costs, etc.). Where enforceability is

not simply assumed, competitive arbitrage (or equivalence) of factor rewards is ensured through

contractual or monopolistic restrictions by landlords. These restrictions are not compatible with

a purely competitive view of contractual determination 6/.

3.3. Sharecropping with Unemployment

From a Marxian perspective, the most widespread view about sharecropping is that it is a

transitional mode of surplus appropriation "between forms of agrestic servitude and the full

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commoditization of rural labor itself" (Pearce, 1983, p. 45). In other words, share-cropping is

thought to be typical of pre-capitalist but transitional modes of production. It may persist in the

early stages of capitalist development when accumulaiton and technical change are slow in

creating a developed wage labor market, but "there will be a tendency for such contracts to be

superceded by others more appropriate to high rates of accumulation in agriculture" (Pearce, p.

54). Pearce argues that the mode in which surplus is appropriated cannot, as neoclassical models

assume, always be understood as the outcome of a market process of bargaining. Specifically,

he suggests that where the means of production are highly concentrated and supervision is not

too costly, wage-labor will be the dominant form. With relatively high supervision costs

associated with wage-labor, share-cropping will be dominant. Supervision costs, however, are

not independent of class relations and the extent of class dominance. Where landowners enjoy

monopoly power or where employment opportunities are very scarce, then "such costs are

minimized as tenants or laborers endeavor to maintain the landowner's favor" (p. 60). Finally,

where new technologies which substitute capital for labor arise to reduce supervision cost,

sharecropping may yield to wage-labor (Byres, 1981).

More or less in this perspective, several explanations have appeared for sharecropping

which combine unemployment in the labor market and the Marshallian disincentive hypothesis

together with supervision problems or risk-aversion or capital constraints. The core of the

argument is that, where chronic or seasonal unemployment exists, this may serve as an

inducement for profitable sharecropping arrangements between landlords and small peasants

who have surplus labor. Small family farms with a low opportunity cost for their labor -- due

both to unemployment and non-marketability of some of their labor -- may rent in land and work

-31-

it intensively (Bagchi, 1973, Mazumdar, 1975, Ghose, 1980). Marshallian disincentives will

show up as a gap in labor intensity between the owned and sharecropped parts of such farms

(Sen, 1981). But given the low opportunity cost of labor, yields and surplus appropriated may be

larger than under landlord cultivation with hired labor.

The key questions around this argument are: (a) why should such leasing out be on

sharecropping terms? and (b) what limits such tenancies given unemployment? One view is that

the maximum rent under fixed-rent tenancy, given producton fluctuations, may be very low for

poor farmers (Mazumdar, 1975). Mazumdar also implicitly assumes that only land-owning

peasants can become tenants. Martinez-Alier (1983) maintains that if the supervision problem is

viewed as a relative reduction in effort under wage-labor, then, together with the wage-gap this

favors sharecropping despite the disincentive. Tenancy is limited chiefly by landlord fears of

land reforms heightened by their exposure as pure rentiers when they do not self-cultivate. Sen's

(1981) argument is similar in that sharecropping exists to ease the connectedness arising from

unemployment and supervision problems of wage-labor. The extent of share-cropping is

restrained, however, by capital constraints on tenants as they must share part of the working

capital costs, an argument that applies a fortiori in the case of fixed rents.

Thus, these non-neoclassical models of sharecropping, like their neoclassical

counterparts, also imply that it serves to improve the efficiency of resource allocation. When

combined with political or economic constraints on the expansion of tenancy, these models

further concur with neoclassical models in viewing equilibrium with sharecropping as a second

best optimum. What distinguishes them, though, is that they accomodate both unemployment

and the Marshallian disincentive in reaching these conclusions. On balance, I think, the

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evidence -- pertaining to unemployment and the inefficiency of sharecropping, cited earlier in

this paper -- from contemporary backward agriculture makes these models more relevant than

the neoclassical ones.

However, these models remain incomplete in the absence of adequate explanation for the

inclusion of certain groups and the exclusion of others. Hart (1984) has argued that rules of

exclusion and selectivity are persistent and key mechanisms for social control exercised by rural

elites. Such control is needed to assure social stability, protecting property rights and securing

the elite's social position. "The key mechanisms through which the patron/employer seeks to

influence the client/worker is the latter's perception of being in a relatively privileged position.

Fear of jeopardizing this position is the motivating force which elicits compliance and which

creates and reinforces relations of dominance and dependency" (Hart, 1984, p. 24). Hart cites

several micro studies in support of this proposition.

3.4. Connectedness, Resource Allocation and Inter-linked Transactions

Few studies have focused directly on the link between wealth inequality and the failure of

markets to achieve anything like 'efficiency'. The empirical basis for the existence of this link or

'connectedness' was briefly touched upon in the previous Section. Raj (1970) has emphasized

the role of default risks and, to a lesser extent, monopoly in explaining it. Landlords prefer to

lease out to larger and better off farmers because leasing-out to petty producers exposes them to

a higher risk of (wilful or involuntary) rent default in the presence of production fluctuations.

But, curiously, when he considers the similar link in the credit market (Raj, 1979) where petty

borrowers pay very high interest rates, he rejects the explanation for high interest rates based on

allegedly high loan default risks. He views usurious interest rates as a consequence of very high

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risk free rates caused by the unequal distribtution of incomes and monopolistic rural markets in

credit and (seasonal) stocks for consumption. Michael Lipton's (1979) essay on rural credit

markets makes a strong case similarly that inequality is a major source of inefficiency.

Sen's (1981) comprehensive approach to connectedness is based on supervision costs and

moral hazards in the presence of uncertainty in both land and credit markets. But it is

distinguished particularly by the heavy emphasis on credit market constraints faced by middle

and poor peasants: these may be self-imposed due to 'safety' considerations (middle peasants) or

by creditors to restrain over-eager borrowers (poor peasants). These credit constraints limit the

peasants' ability to lease-in land which requires tenant participation in the supply of working

capital. The result is to reproduce the connectedness (that arises in the labor market) in the land

market as well. On the other hand, those who face no problem in access to land and credit are

constrained by their limited ability to employ hired labor due to supervision problems.

The isolation and fragmentation of rural credit markets is the basis of an analysis of

'usurious' interest rates in backward agriculture by Bhaduri [(1983), Ch 5]. Personalised credit

transactions not only eliminate lender's risk but also, when combined with the undervaluation of

non-marketable collataral that the borrower has to offer, actually impose a cost on the borrower

in the event of default which may be high if the borrower places a high value on the collateral

asset. Where borrowers are unable to pay the high interest charges, such transactions become a

vehicle for the transfer of the borrowers' assets to the lender. Bhaduri views such compulsive

indebtedness as a transitional phase in which the peasantry are gradually dispossesed of the

means of production.

Bhaduri's earlier model of 'semi-feudal' relations in which such credit transactions are

-34-

linked with sharecropping arrangements has stimulated much interest both in his specific

propositions and in the general phenomenon of inter-linked or personalized transactions [(1983),

Ch 4]. Bhaduri's central propositions are that (a) such linked arrangements are used not only to

extract surplus but also to perpetuate the sharecropper's credit dependence on the landlord and

(b) the landlord may resist productivity raising improvements if the tenant succeeds in reducing

his dependence on him as he shares the increase in output, particularly if the loss of interest

income exceeds the landlord's share of the increase in output 7/.

The model has been criticized chiefly on the ground that if the landlord (or landlords) can

unilaterally withhold the innovation in their own interest, they ought also to have sufficient

power to extract all the gains from the innovation and still leave the tenants dependent on them

(Newbury, 1975b). But this is a non sequitar. Bhaduri's model does make landlord power

central to such relations but landlords do not have unrestrained power or hegemony. Thus they

may already be extracting a monopolistic 'limit price' in terms of interest rates and be legally or

socially prevented from raising rental shares. On the other hand, if the innovation requires a

minimum amount of public inputs (example, irrigation or extension services), they may well find

it easier to collude to withhold the innovation by blocking the flow of these public inputs.

In a series of models designed to explain the incidence of sharecropping and of

interlinked transactions, Bardhan [(1984b), Ch 10] has incorporated both the landlord's

monopoly (land concentration) power and seasonal unemployment or rigid wages. The lean

season is one when the potential tenant faces unemployment and is also compelled to borrow to

meet his consumption requirements. As with Bhaduri, the landlord is the source of consumption

loans and of (sharecropping) tenancies, but he also cultivates some of his land with hired labor.

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Bardhan finds that, both theoretically and empirically, the incidence of sharecropping rises with

seasonal unemployment and the labor intensity (in the peak season) of technology, but declines

with production uncertainty. His models assume that the share-rent and the interest rate are both

exogenously given. Though the similarities with Bhaduri's model are thus quite strong, the

differences are sufficient to preclude a negative landlord response to innovations. In a related

model [(1984b), Ch 5] he has shown the existence of a negative association between the

incidence of 'attached laborers' (to be distinguished from casual laborers) and the extent of wage-

labor unemployment: durable labor contracts are a means of reducing wage and/or labor

demand/suppply uncertainty for both parties rather than a reflecton of 'feudal' restrictions on

economic choice.

Where the supply of tenants is perfectly elastic at an exogenously given utility level and

tenant effort cannot be directly enforced, Braverman and Srinivasan (1981) have shown that

plot-size variations alone by the landlord serve to hold the tenant down to his alternative utility

level. The additional instrument of a tied tenancy-cum-credit contract is rationalized in

situations where the landlord has access to cheaper credit than the tenant so that the tying

arrangement is a way of retaining this advantage for the tenancy. Neither technological

improvements nor partial reforms of tenancy or credit alone suffice to improve the tenant's well-

being.

It would seem, therefore, that in more 'flexible' market settings than the one analysed by

Bhaduri, his arguments about a link between the pattern of surplus appropriation and stagnation

ceases to be valid. However, both the empirical and theoretical basis of such a conclusion

remains an issue of active debate. Sen (1981), in particular, notes that personalized and

-36-

interlinked transactions may improve static efficiency by relieving connectedness in the short

run, but such relief remains partial in view of credit and supervision constraints on the have-nots

and haves, respectively. However, the long-run effect is to reduce the ability of the middle

group to accumulate and hence to restrict the spread of land-augmenting innovations and the

growth of employment. Although by no means identical to Bhaduri's analysis, this line of

thinking is very much in the spirit of his argument.

Other recent contributions rationalize interlinked tenancy and credit contracts as ways of

minimizing the costs of monitoring tenant performance in the presence of uncertainty and moral

hazard. The most general theoretical discussion along these lines not restricted to credit- and

tenancy-tying alone is that of Braverman and Stiglitz (1982). The basic point underlying their

model is that subsidized consumption credit (and other types of subsidy) serve as an instrument

to elicit tenant effort.

But as Hart (1984) has aptly noted, this only constitutes "the 'carrot' component of a

strategy of labor control" (p. 16). As with the micro-theoretic sharecropping models, contract

enforcement in these models of interlinked transactions requires monopolistic or 'noneconomic'

restrictions. Braverman and Srinivasan (1981) assume that the landlord can prevent the tenant

from working for other landlords or for wages after the contract has been agreed upon. Hart

points out that the 'stick' component in landlords' strategy underlying the model of Braverman

and Stiglitz (1982) is more subtle. She identifies it in the "ways in which landlords attempt to

deal with the problem of default. [Braverman and Stiglitz] show that a bankruptcy clause

(whereby the tenant is "allowed to default on his loan whenever his income is sufficiently low")

tends to decrease tenants' effort and, conversely, that subsidized credit will only have the desired

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effect if backed by a bonded labor clause which is unfavorable to the tenant. Implicitly, of

course, this assumes that the tenant is unable to abscond" (Hart, 1984, p. 17).

To sum up this Section, a basic point emerging from the survey of analyses of land and

credit markets (and their interlinkages) is that assumptions about the labor market and the labor

process are critical. Theoretical analyses of sharecropping in a purely competitive full

employment setting run up against problems of internal consistency or end up with no rationale

for share tenancy. This has led several neoclassical theorists to focus their attention on problems

in the labor process -- information and enforcement costs -- and on market failures -- nontraded

inputs, for example. However, these models rely on the full employment assumption and on

monopolistic or noneconomic restrictions by landlords. The non-neoclassical alternative

assumes neither costless enforcement nor full employment but relies on market or non-market

mechanisms of excluding potential tenants. These mechanisms of exclusion need to be analysed

further to complete the argument satisfactorily. In a similar vein, interlinked transactions --

particularly in land and credit -- are best seen as reflecting constraints on the functioning of these

markets imposed by class structure, market power and the labor process. But the notion that

such transactions serve to restrict the advance of technology, productivity and employment is a

matter of continuing research and debate. This is not simply a question of the nature of markets

(rigid or flexible) and agrarian structure but also of the exercise of state power and of class

conflict.

4. Accumulation and Agrarian Structure

Recall that the classical Marxian formulations of capitalist accumulation relied on the

technological and accumulation advanteges of the capitalist enterprise over pre-capitalist modes

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of production. Within this framework, Marx and Lenin charted alternative paths along which the

capitalist mode develops within agriculture. (1) As in the English case, a capitalist class may

emerge consequent to the expropriation of peasant holdings on feudal estates. Capitalist farmers

gain access to the land in return for a cash rent to the landlords and are free to appropriate a

profit and accumulate by employing the labor of the dispossesed peasantry. (2) Along the so-

called "Junker road", the feudal estate is gradually transformed into a capitalist enterprise:

feudal bonds give way to a free class of wage laborers and the feudal landlord becomes a

landowning capitalist. (3) Finally, capitalism may develop from a petty mode of production

along the so-called 'farmer road'. A large class of land-owning peasants may exist initially as a

result of colonization or radical land reforms. Social differentiation of such a peasantry

gradually transforms a minority of them into capitalist entrepreneurs while the rest are reduced to

proletarian status. So long as the accumulation process is not constrained, all three roads

converge on a capitalist transformation of agriculture (Marx and Engels, 1968 and Lenin 1964).

This view of the agrarian transition is beginning to yield to a more complex formulation

emphasizing one or more of the following elements:

a) the variable strength of the peasantry, especially a class of middle-to-rich peasants

capable of producing a surplus, in the accumulation process.

b) the potentially key role of the state in determining the possibilities for profitable

investment within agriculture and the unequal access of rural classes to the resources of the state.

c) the weight of merchant and usury capital in holding back productive accumulation and

transformation in agriculture.

and d) the nature of conflicts within the labor process as well as over the shape of new

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technologies that govern the growth of employment and the distribution of the gains from

growth.

Current research points to two rather significant general propositions which seriously

qualify orthodox Marxian conceptions. First, social structure may be a major constraint on

technological development and accumulation or, at any rate, a crucial determinant of the forms

of technological change. The primacy of the forces of production over the social relations of

production is thus questioned. Second, the state's role in the evolution of class relations and of

technology, though very important, is centered primarily on 'economic' mechanisms rather than

being openly political or coercive. This modifies the ususal Marxian notion that the political-

coercive element in primitive accumulation (i.e., class polarization and the creation of a

developed wage-labor market) is crucial.

While the majority of recent models of agrarian growth focus on class conflict in one

form or another, a few emphasize sociological and technological barriers to accumulation.

Economic models along essentially Weberian lines have been put forward to explain agrarian

stagnation (Fei and Ranis, 1966) and the consequences of enclosures in pre-capitalist Europe

(Cohen and Weitzman, 1975). Productive forces in agriculture may stagnate for want of an

'entrepreneurial spirit' or accumulation drive. Transition out of such a state hinges on exogenous

changes in the psychology and needs of the elite who appropriate the surplus.

Similar arguments had been advanced by some Latin American structuralists to explain

the long stagnation of agriculture in that continent, and are still used to explain the continuing

problems of agriculture there (Barraclough, 1977). Although the landed elite appropriates large

rents, it is not inclined to maximize profits or accumulate capital. Estates are cultivated

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extensively reflecting such behavior. It should be noted, however, that the consequences of such

behavior are not easily distinguished from those of substantial monopoly power in the control of

land or the hiring of labor: a profit-maximizing landlord with monopoly power may also be

expected to use land extensively and to refrain from investing in land-capital.

Agrarian growth may also be held back by a combination of external (political) and

internal (technological) forces. In explaining why capitalist development was long delayed in

France as compared to England, Brenner (1976) argues that the role of the state was crucial.

Being interested in protecting and expanding its tax base, the state put its weight on the side of

the peasantry in their struggle to secure freehold rights over the land. Subsequently, onerous

state taxes kept peasant surpluses down while the parcellization of production organization

precluded land consolidation which was necessary for the growth of production investment.

In analysing the forms of capitalist development in contemporary agriculture, Lehmann

(1982) notes that the coexistence of a socially differentiated peasantry and large-scale holdings is

reason enough to warrant serious qualification of (a) the Leninist view that social differentiation

leads to class polarization and peasant disintegration; and (b) the Chayanov concept of an

essentially stable peasant mode of production. As an alternative to both, he suggests 'new paths

of agrarian capitalism' that are likely to be taken in these contexts:

(1) A 'bourgeoisie of small entrepreneurs' or 'capitalized family farms' using both hired and

family labor may come to dominate the countryside based on relatively easy access to land and

modern technology but using considerable amounts of capital.

(2) An 'involutionary' pattern in which large estates grow by accumulating capital which

adds little to the growth of employment while small peasant farms proliferate without the

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advantage of access to credit or modern technology and heavily dependent on wage employment

of a temporary sort.

The 'capitalized family farm' route has little in common with populist ideals of an independent

peasantry and arises 'most certainly after the mass of the peasantry have been forced to migrate,

by fair means or foul' (p. 159). Neither is the 'involutionary' pattern a realization of Lenin's

prediction of capitalist development via peasant differentiation, for 'try as they might, the rich

peasants can hardly be held up to be a capitalist class, or the dynamic factor in capitalist

development, when they still live in the shadow of the great estates" (p. 159). Lehmann argues

further that the 'involutionary' pattern will be far less favorable to growth than the 'capitalized

family farms' route, though it may be more susceptible to politically and economically viable

land reform programs.

Lehmann's 'new paths' have the considerable merit of describing and allowing for certain

observable tendencies in agrarian structure and peasant behavior. But, as he is well aware, the

argument lacks a rationale for which of the two paths will be actually taken. The means, 'fair or

foul', by which the peasant mass emigrates and the large farms disappear leaving the field open

to the capitalized family farms are not specified. Neither is it evident whether the involutionary

pattern is cause or consequence of slow growth. Lehmann's position in this regard is that the

path of evolution will be determined by the particular history of agrarian structure rather than by

conditions pertaining to world trade or government policy; but this thesis remains to be worked

out.

In contrast, de Janvry's (1981) modified Leninist stance does emphasize the importance

of (a) the manner in which agriculture relates to the industrial sector and is integrated into

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international trade, and (b) state investment and price policies towards agriculture in shaping the

evolution of agrarian structure. Functional dualism (cheap labor) and cheap food policies

together sustain rapid industrial growth. At the same time, the large-scale capitalist agrarian

sector is articulated into the growth process as it produces 'luxury foods', industrial inputs and

exports. Cheap 'wage food' imports keep down the growth of the peasant agricultural sector.

In the Latin American case, according to de Janvry, selective suppression of agricultural

prices, coupled with state handouts of 'institutional rents' to the estate sector, are a way of

accomodating urban and rural capitalist interests largely at the expense of the peasantry and the

proletariat.

The central contribution of de Janvry's analysis is his demonstration that, in much of

Latin America, such across-the-board policy bias in favor of the estate-capitalist sector was a

general phenomenon. But it is by no means clear that agrarian transformation along such a

heavily sheltered Junker road was the least-cost alternative for the urban capitaliist interests. His

case for an economic basis underlying the political alliance between rural and urban elites rests

on the plausible conjecture that the gamut of state policies towards agriculture was necessary for

the continued reproduction of a reserve army of labor. This is a complex point to establish

empirically and has been questioned by Lehmann (1982) and Caballero (1984a). Caballero notes

that, in addition to the fact that labor demand has not grown apace with capitalist development,

capitalism is not absolutely dependent on the peasantry as a source of the reserve army. A semi-

proletarian peasantry may yet survive because capitalism cannot easily replace them with

capitalist production.

But de Janvry's conjecture is not without precedent in the development literature. Lewis

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(1954) made a similar point concerning the logic of state policy towards agriculture and the

nature of capitalist interests in it: "The fact that the wage level in the capitalist sector depends

upon earnings in the subsistence sector is sometimes of immense political importance; since its

effect is that capitalists have a direct interst in holding down the productivity of the subsistence

workers. Now, the owners of plantations have no interest in seeing knowledge of new

techniques or new seeds conveyed to the peasants, and if they are influential in the government,

they will not be found using their influence to expand the facilities for agricultural extension" (p.

411).

Bardhan (1973) applied the standard Lewis model to explain the likely distributive

impact of capital accumulation within an agrarian economy. Analogously with Lewis, the

economy is divided into capitalist and peasant sectors with the supply price of (peasant) labor to

capitalist farms determined by the average labor product of peasant farms -- a condition that

generates the inverse relation between farm size and land yield. Although this 'wage gap'

handicaps the capitalist farm, it possesses a dynamic advantage in that (a) it invests its surplus in

expanding land-capital and (b) it secures land-augmenting inputs such as fertilizer at lower (and

declining) cost than the peasant farm. As land-capital accumulates within the capitalist sector, it

is shown that even though peasant incomes rise in absolute terms, the income share of the

capitalist sector rises.

Note that if this process continues long enough, the measured inverse relation between

yield and land area will tend to disappear and even reverse itself. This appears to be consistent

with recent evidence on the size-productivity relationship in the 'green revolution' regions of

India (Roy, 1981). It is widely believed that though the new technology is scale-neutral, large

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farms have enjoyed superior access to credit, information and input-output price subsidies.

A persistent feature of agricultural development in India has been its extremely uneven

incidence across regions. The pace of agricultural growth is broadly correlated with certain

aspects of agrarian structure: notably, the regions of rapid growth are in the erstwhile

'raiyatwari' (roughly, peasant-dominated) areas, especially north western India, while backward

agricultural regions predominate among the erstwhile 'zamindari' (roughly, landlord-dominated)

areas, especially eastern India. Using cross-section information at the all-India level, Bardhan

(1981) concluded that in regions with relatively high investment in agricultural fixed capital, the

extent of proletarianization was smaller (e.g. northwestern India). A similar analysis with

district-level information for contemporary West Bengal revealed, however, that there was an

inverse association between the level of agricultural development and the relative significance of

the independent family farmer class. Bardhan surmises that these conflicting correlations could

be explained by certain demographic and ecological characteristics. Proletarianization is high in

regions with fertile soils and high population density (e.g. eastern India) and low in regions with

low population density.

Subbarao (1984) interprets broadly similar evidence as reflecting a kind of 'internal

colonialism' perpetrated through state policies. The advanced/capitalist regions enjoy

disproportionately large shares of public investments, input subsidies and the marketed surplus

of those crops for which government support price policies have been highly favorable. The

backward regions are characterized as being given to subsistence production and peasant

farming, and politically powerless. Government policies divert both private and public

investible funds to the surplus-growing regions. This argument is basically indistinguishable

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from those of de Janvry and Lewis cited earlier. Its applicability to eastern India, however, is

surely disputable because that region is characterized by high land concentration and surplus

appropriation in the form of rents, interest and trading profits.

It is possible, though, that such policies, while harmful to the laboring classes in the

backward regions, nevertheless benefit the rentiers in those regions. This is a plausible inference

to be drawn from some of Bhaduri's [(1983), Ch 7] analytical work which he intended to apply to

explaining agricultural backwardness in eastern India. In one formalization of his argument,

Bhaduri considers two classes which appropriate the surplus from producers: a class of wealthy

agriculturalists which engages in production-augmenting accumulation and another class of

merchants and moneylenders engaged in 'forced commerce'. This latter consists of

'unproductive' investments which merely change the distribution of output in favor of the

investing class at a constant (or even declining) level of output. Investments by each class may

have positive or negative spillover effects on the returns to the other class. Using this

framework, Bhaduri classifies possible dynamic outcomes which depend on whether these two

types of investment are complementary, competitive or both. In equilibrium, the two classes

may coexist or one of them may be eliminated. His substantive point is that, in eastern India, the

considerable strength of 'unproductive' channels of investment may have held back productive

accumulation. In northwestern India, the rich peasant class had been strengthened by a series of

reforms which provided the basis for rapid agricultural growth. It is the emergence of conflict

that is key to agricultural growth: a conflict that can be turned against the 'nonproductive'

classes by suitable structural reforms in rural credit and marketing structures, and through public

investments in infrastructure.

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The economic distinctions underlying this appealing model of the pattern of

accumulation and class relations, however, are ambiguous. In particular, this applies to

Bhaduri's notion that investments in moneylending and trade are 'unproductive' activities that do

not add to productive capacity -- a notion shared by others (Rudra, 1978). A generous

interpretation of this otherwise obscure proposition is that incomes derived from these activities

are typically consumed away, or that such incomes are typically derived on the basis of

monopoly positions which are used to profitably restrict the productive use of resources.

Yet another model, emphasizing problems in getting labor out of labor power on

capitalist farms, has been proposed (Sen, 1981) to explain the potentially dynamic role that the

middle-to-rich peasantry can play in agricultural development. Sen also finds that interstate

variations in agricultural growth rates are positively related to measures of the strength of

'middle' groups vis-a-vis large landowners and capitalist farms. Unlike the latter, middle

peasants can expand production easily as they do not face a supervision constraint on the use of

hired labor. Land-augmenting investments and improvements by large farms will entail

substantial investments in mechanization to overcome the costs of labor management. The pace

of growth and its employment or distributional effects will thus be significantly influenced by

agrarian structure.

Byres (1981) has drawn attention, in a similar vein, to the likelihood that "the distinction

between biochemical innovations and mechanical innovations, to the extent that those who make

it argue that technological inovations can be limited to the former, is a false one." The very

process by which the biochemical innovations are introduced favors the large farms by virtue of

their differential access to inputs and credit. This then sets up strong pressures towards

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mechanization. This complementarity arises from problems in satisfying the increased demand

for labor input particularly at certain critical points in the production cycle and of managing the

labor process in these circumstances. Nevertheless, technological solutions may exacerbate

conflict between workers and their employers. Such conflict is not easily resolved and will be a

critical determinant of further developments.

Capitalist development, it has been argued, may also be limited by a 'rent barrier' (Patnaik

(1983). This barrier is likely to be high where petty peasants and semi-proletarians predominate,

as in eastern India. With large-scale unemployment, landowners can extract very high rents

from such producers. Capitalists who seek a minimum return on their investments can compete

for land with the pauperized peasantry only if they have access to a technology capable of

producing a significant increase in surplus-per-acre: otherwise, capitalist accumulation will

remain arrested.

Dutt's (1985) model of landlord-capitalist conflict is closely related to Patnaik's

argument. Peasants and capitalists lease land from landlords at the same (fixed) rent. Peasants

are assured a subsistence level of consumption and have a surplus of labor. Capitalists are

therefore free to hire in their labor at a wage rate equal to subsistence. Capitalists employ capital

which peasants do not; capitalists respond to higher profit rates by investing in capital, while

landlords respond to higher rents by expanding the effective supply of land. Dutt shows that,

provided peasants have a higher labor-land ratio than capitalists (basically, the inverse relation),

then, a fall in the subsistence rate raises land rents and reduces capitalists' incomes. This will

also slow down capitalist development in the long run -- exactly as in Patnaik.

Several other interesting conclusions relating to the distributional and growth impacts of

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various types of technological shifts emerge from the model. The basic one is that, in general,

there is a conflict between the economic interests of capitalists and landlords. The long run is

characterized either by rising rents and land expansion, or by rising profits and capital

accumulation. These results hinge on the assumption built into the model that landlords always

meet the subsistence bill in excess of that portion which the capitalists will meet. Even if

landlords can be distinguished from capitalists by their lack of interest in production and capital

investment, what rationalizes their status as residual claimants? Perhaps, an appeal to different

psychologies -- capitalists as economic men, landlords as 'feudal' patrons.

Political-economic forces -- rooted in agrarian structure and class interests -- that may be

responsible for poor agricultural performance, increasing rural unemployment and misery,

remain a neglected area in the largely technocratic approach that informs much of the discussion

about agricultural development in third-world nations. The few innovative pieces of research

addressed to this issue and surveyed above raise questions which should be amenable to further

research. The main thrust of these studies is a) to shift the focus away from general allocative

efficiency and technological imperatives to the role of power and what Amit Bhaduri has termed

'class efficiency'; and b) to recognize more complex development sequences than commonly

entertained by theories - neoclassical or orthodox Marxian - of technological determinism.

The relative importance of differences in access to the resources of the state vis-a-vis

differences in rates of private accumulation in the evolution of agrarian structure needs to be

analysed empirically and theoretically. Of equal interest, perhaps, is the study of mechanisms by

which some groups are excluded from public resources. Such mechanisms are hardly limited to

national-level policy-making; village- or local-level institutions through which political power

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and economic power are fused also need to be examined. There is also ample room for

sharpening the empirical analysis of the connections between output and employment growth

and agrarian structure. Perhaps, cross-country comparisons will be useful in this respect. The

allegedly reactionary role of merchants and moneylenders -- particularly the issues of peasant

indebtedness and other forms of exploitation -- needs further conceptual and analytical work.

Finally, disentangling the technical from the social-conflictual bases of agricultural

mechanization and other forms of technological development can be fruitfully pursued through

micro-level studies.

5. The Terms of Trade

The terms of trade between agriculture and industry have historically occupied center

stage in the political economy of industrialization and development (Mitra, 1977). Movements

in the terms of trade are believed to be an important determinant of the pace and pattern of long-

run growth. This influence is exerted, often in contradictory ways, through changes in various

'surpluses' that agriculture is supposed to contribute to the development process: surpluses of

labor, food, savings, foreign exchange and the government budget. But the magnitude and

direction of these impacts depend critically on the specification of the macro structure and micro

behavior of the economy. Conflicting assumptions regarding technology, agrarian structure,

savings behavior of various classes, the process of price formation and foreign trade options give

rise to competing views about the role of the terms of trade. Furthermore, their indisputable

importance in effecting large shifts in the distribution of incomes makes the intersectoral terms

of trade politically the most sensitive aspect perhaps of development policy.

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5.1. Price Incentives and Production

A much debated issue is the response of aggregate agricultural production to changes in

the terms of trade. This is not merely a question of private incentives and behavior but also of

the nature of technology and agrarian structure as these shape the long-run response of

agricultural investments and technological changes. Two broad positions may be discerned in

the literature:

1. Some economists argue that agriculture faces 'unfavorable' prices in most LDCs

(Schultz, 1978 and Peterson, 1979). The benchmark is usually 'the world price' following the

static comparative advantage doctrine. In the belief that both private and public resources

deployed in agriculture are highly responsive to price signals, unfavorable terms of trade are held

responsible for slow agricultural growth. Problems of rural poverty, malnutrition, balance of

payments disequilibrium and slow overall growth are supposed to follow this conjuncture.

2. Others are far less willing to accord relative prices such a pivotal role in agricultural

growth. While acknowledging the importance of price incentives, they maintain that agricultural

transformation is brought about by a complex combination of price incentives, changes in the

social and institutional structure and public investments in research, technological diffusion and

rural infrastructure (Ishikawa, 1967 and Krishna, 1982).

Studies of long-term trends in some East Asian countries support the second position.

Hayami's (1972) study of Japan revealed that the real price of rice remained basically stable

between 1880 and 1960. He attributes this to deliberate government policy designed to keep the

wage costs of labor-intensive industrialization low. Non-price policy efforts to raise yields --

through improving technology and infrastructure -- served, together with declining fertilizer

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costs, to maintain agricultural output growth.

Econometric estimates of long-run aggregate elasticities in agriculture, when based on

the Nerlovian specification, are typically small (between 0.1 and 0.5). Other specifications of

the formation of price expectations - rational expectations, for example - do not alter this picture

much.

An exception is Peterson's (1979) analysis of yield responsiveness from cross-country

(developed countries and LDCs) data for 1962-64 and 1968-70. His elasticity estimate was 1.66

or about five to ten times larger than the typical time-series number. Real agricultural prices in

LDCs were found to be substantially lower than those in developed countries.

There are numerous problems with Peterson's exercise but only one of these is singled

out here for comment. Peterson himself acknowledges that the elasticity drops from 1.66 to 1.27

when research expenditure levels are controlled for. According to Chhibber's (1982) calculation,

this is further reduced to 0.97 when a variable representing (public) irrigation is introduced. The

point is that cross-country estimation is highly inappropriate given the large number of country-

specific variables determining agricultural supply.

Schultz (1978) sees the allocative influence of price signals to be so pervasive as to

determine even government priorities in public investment plans for growth. Specifically, it is

maintained that if prices are low, government efforts in expanding infrastructure and research

output will remain feeble. Note however that it is necessary, for this hypothesis to hold, that

public resources are optimally allocated at existing prices. But such evidence as there is proves

otherwise. Be it underinvestment in Philippines irrigation systems (Hayami and Kikuchi, 1978)

or in Indian agricultural research (Evenson and Jha, 1973), the political economy of public

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investment is scarcely governed by the invisible hand.

If what Schultz had in mind is the belief that LDC governments "undervalue agriculture",

then it seems plausible that they will undervalue agricultural research, public investment, etc.

along with underpricing agricultural output. Such conjunctures often reflect powerful political

forces shaping agricultural and related policies. Mitra (1977) and Subbarao (1984) have argued

that the highly favorable price policy for wheat vis-a-vis rice in India was part of a policy of

regional discrimination. The low levels of investment in infrastructure in the rice regions and of

output in rice research reflect political/structural conditions in those regions and their political

weight in the country rather than the influence of low prices. In a similar vein, it has been

argued (de Janvry, 1978) that cheap food policies to promote import-substituting

industrialization cannot by themselves account for the pattern of agricultural development in

Latin America, particularly Argentina: rapid labor-saving technological advance, a bias against

yield-raising improvements and low output growth. Such a socially counter-productive pattern

is secured by the class interest of the traditional elites who seek to control the entire insitutional

process by which technologies are generated and implemented so as to maintain land values and

rents.

Reasons for the weak efficacy of prices in influencing agricultural supplies are not far to

seek. A major one has to do with the nature of technology and the associated necessity for state

action while another is intimately related to constraints upon state action deriving from agrarian

class structure.

First, if there is significant complementarity between private and public inputs, price

incentives alone cannot accomplish much. This seems to be the case at least in Asian agriculture

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(Ishikawa, 1967).

Second, if surpluses need to be mobilized from agriculture to finance basic investments,

the method of doing so will have an obvious influence on the yield from such investments. In

much of developing agriculture, land or income taxes are notoriously difficult, largely for

political reasons, to collect. Indirect taxation may then be resorted to. Therefore, viewing prices

merely as private incentives is apt to be highly misleading.

Finally, where the government's capacity to provide for efficient planning and

implementation of the prerequisites of development is weak, public choices about the right mix

of price, investment and tax policies may be less potent than efforts to bring about deeper

institutional changes. Once again, such failures need be neither generic nor accidental: they

may be engineered by unholy alliances between private and public 'rent-seekers'.

The preceding arguments all assume that a favorable shift in the terms of trade will

increase the private investable surplus. Recent two-sector models in the Sraffa/Ricardo tradition

suggest that this may not happen under certain conditions. Gibson and McLeod (1982) employ a

Sraffa-type model to show that (a) with only produced inputs and labor in both sectors, an

increase in agriculture's terms of trade will raise the agricultural profit rate whereas (b) when

agricultural production requires scarce land inputs as well, an exogenous rise (fall) in the price of

the agricultural output (input) may actually decrease agriculture's profit rate. The authors

conclude that "to the extent that investment is related to changes in the rate of profit among

sectors, the conventional prescription of higher prices as an antidote to agricultural stagnation

must be qualified accordingly" (p. 32).

This model supposes that the terms of trade are exogenously manipulated (presumably

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through trade or other restrictions by the policy-maker). Dutt's (1985) model produces a similar

result with endogenous prices (see also Section 4). Promoting industrial growth in the hope that

the agricultural sector will follow may not always work. This proposition (as well as the one due

to Gibson and McLeod) is based on (a) conflict between agricultural profits and rents and (b) the

idea that landlords are uninterested in accumulation. Favorable movements in the terms of trade,

as in Ricardo, are good for rentiers but not necessarily for growth.

Conversely, as Caballero (1984b) has shown, trade between a capitalist industrial sector

and peasant-dominated agriculture will involve 'unequal exchange' in favor of capitalists. The

conclusion rests on comparing two economies with identical industrial sectors but with

agricultural output produced by peasant enterprises in one and capitalist farms in the other.

Peasants face lower implicit labor costs than capitalists and also have no access to investment

opportunities. Exchange is characterized by lower terms of trade and the economy-wide profit

rate is higher under peasant production than under capitalist production.

5.2 Distribution

Partial equilibrium analyses - both theoretical and empirical - show that, for any given

food price increase, incomes are transferred primarily from high-income consumers to high-

income producers and, the relative deprivation is greatest for low-income consumers and for

low-income producers who are net buyers of food (in that order). Whether price increases result

from supply shocks or from changes in government policy, the poor suffer unless something is

done to restore their purchasing power. Clearly, the rural/urban dichotomy of interests fails to

do justice to the cross-currents produced by differentiation within both rural and urban 'classes'.

The short-term and long-term distributive (general equilibrium) effects of the terms of

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trade have been examined in Chichilnisky and Taylor (1981) and Taylor (1983). The

agricultural sector in these models provides food to the industrial sector and (partially) finances

the investment in that sector through savings flows. The industrial sector is constrained by

aggregate demand for its output (with mark-up pricing) while agricultural output is fixed, in the

short-run, by land-capital constraints. As the terms of trade move in favor of agriculture, the

demand for manufactured goods falls off from the urban sector while it rises due to increased

expenditures out of the increased income of the rural sector. If the agricultural sector is

relatively small, a policy aimed at reduced food prices through increased food imports will also

increase industrial output. Hence, the urban sector is doubly benefited - food prices fall and

output expands. When such policies are sustained over a long period, they depress agricultural

production and investments (note that rents and profits are not distinguished - both are sources of

capital accumulation) and, therefore, tend to justify themselves - a conjuncture descriptive of

Latin American countries where cheap food policies have been pursued. Such policies will be

opposed by both rural and urban groups if higher rural incomes due to higher domestic food

prices sustain high levels of industrial output - a configuration that is probably descriptive of

India in the late sixties and throughout the seventies.

In the long-run "Cambridge" version of this model (Taylor, 1983), agricultural growth

depends on non-shiftable capital goods produced by industry. If agriculture's growth rate is

limited by technological or absorptive constraints, and if workers seek to defend their real wages

by pressing for money wage increases, steady state growth will occcur with positive inflation.

Faster growth will not only push up the rate of profit but also the rate of inflation reflecting

conflicting claims on output by workers and capitalists.

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Some of these propositions have been empirically studied using computable general

equilibrium models. McCarthy and Taylor (1980) carried out food policy experiments using

such a model for Pakistan. Removal of wheat subsidies (which chiefly benefit urban consumers)

were found to reduce the real incomes of all consumers with the heaviest burden being on the

poorer, especially urban, groups. The reduced budget deficit also leads to a contraction in real

GNP. If the removal of the subsidy is compensated by an increase in governmnet expenditure on

non-agricultural products so as to leave aggregate income unchanged, then, although the nominal

income distribution is affected very little, the rural and urban poor are adversely affected as

reflected by reduced wheat consumption and caloric intake. In another experiment, it was found

that a fertilizer subsidy to wheat produces little benefit for the rural poor if the government does

not also support the price of wheat.

In a similar exercise for Bangladesh, Hossein (1984) has shown that changes in food

supply and food prices have a large impact on real income distribution and the absolute living

standards of the poor. As usual, income effects are far more important than substitution effects

due to relative price changes in determining the extent of consumption loss of the poor when

food prices rise. He also found that the adjustment of money wages to food prices is insufficient

to mitigate the real income loss. Another study designed to measure the general equilibrium

distributive impact of price policies on different regions and classes in India found that rich

surplus-growing farmers in the technologically advanced states benefited most from price

support operations by the government while landless laborers and poor consumers suffered real

income losses (de Janvry and Subbarao, 1983).

5.3 The Marketed Surplus

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The standard form which the terms of trade issue takes in the development literature is

that of the marketed surplus of agricultrual products. Rising food prices do not necessarily

increase the amount of food sold by the country to the towns: low supply elasticities can

conspire with strong income effects on food demand within agriculture to produce 'perverse'

effects. As economic development proceeds, technology may be expected to develop along lines

which increase the use of industrial inputs in agriculture, while rising farm incomes may be

expected to alter farm consumption demand in favor of industrial goods, hence raising the flow

of marketed surplus. But when income levels are low and, particularly, where food production is

largely in the hands of small peasants, perverse responses are to be expected.

Discussions of this 'wage goods bottleneck' which assume a static context may misdirect

attention to the role of food prices. This certainly was the case in the early Soviet

industrialization debates. The impact of (biased) technical progress in agriculture on the speed

of industrialization is the subject of a recent two-sector model in the Lewis tradition (Lele and

Mellor, 1982). Industrial employment is limited by the marketed surplus of food and, as in

Lewis, the industrial wage is tied to average labor earnings in agriculture. Since the class

distribution of incomes within agriculture is the crucial determinant of demand behavior, the

authors conclude that industrialization depends on the distributive bias of new technologies.

With limited substitution options (between land and labor) within agriculture, land-augmenting

improvements reduce food prices and increase nonagricultural employment. This is brought

about by a decline in the share of income accruing to agricultural labor.

A different approach to the issue assumes full employment but strong technological

dualism between the sectors (Bell, 1979 and Taylor, 1979). Specifically, factor substitution

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possibilities are assumed limited in industry but large in agriculture. In an open-economy

setting, capital accumulation in industry proceeds reasonably smoothly as labor supply responds

elastically in the early stages of development a la Lewis and Eckaus. However, given suitable

restrictions on internal demand behavior, an increase in the demand for agricultural exports may

well result in a drop in export earnings. If the economy is closed to trade, similarly 'perverse'

behavior shows up in the domestic market. Industrial expansion shifts the terms of trade against

industry and profits get squeezed.

Evidently, intersectoral interactions depend on the assumptions made about technology

and agrarian class structure and on the 'closing rule' chosen for the macro model. As important

as they are in theoretical models, these assumptions need to be tested against experience. Sadly,

good evidence rarely drives out bad theory (especially when the theory supports comforting

political/policy conclusions).

Apart from supplying food to urban areas, agriculture is also supposed to contribute

resources to capital formation elsewhere in the economy, particularly at low levels of income.

Keeping agricultural prices low is expected to contribute to this process. This was, for example,

Preobrazhenski's position in the Soviet debate. This proposition is not supported by evidence

about early Soviet industrialization (Ellman, 1975) or by more recent LDC experience - although

agricultural exporters and East Asian countries are exceptions. According to Lee (1971),

agriculture in Taiwan was a major source of net saving for the rest of the economy during the

first half of this century. The terms of trade were turned against agriculture throughout this

period. A comparative study of Japan and India (Mody, Mundle and Raj, 1982) concluded that

while resource flows from agriculture contributed significantly to industrialization in Japan

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during 1888-1937, during the corresponding phase of Indian development (1950-70), agriculture

made no such contribution and may even have been a net recipient of resources. Recently,

Taylor (1984) analysed patterns of intersectoral resource flows using data from social accounting

matrices for about 20 LDCs. He concluded that resource flows out of agriculture were positive

in most of them but accounted, as a rule, for only a small fraction of nonagricultural capital

formation. The exceptions were agricultural exporters.

The linked problems of the marketed surplus and resource flows have been analysed in

an optimizing framework under conditions of steady growth (Hornby, 1968). Hornby's model is

not without policy significance even though the underlying political assumptions are perhaps

naive (Taylor, 1979, p. 173). Governments are thought powerful enough to set the internal terms

of trade but not enough to collectivize agriculture or tax its incomes. The government, it is also

supposed, effectively controls the industrial surplus and allocates investible resources among

agriculture, capital goods and industrial consumption goods (or equivalently chooses the terms

of trade) so as to maximize growth (18). Optimal policy involves (a) relatively low food prices

but significant capital allocations to agriculture when the marketed surplus elasticity is small, but

(b) if the elasticity is large, the government invests little in agriculture but also exercises little of

its monopsony power. Another interesting policy implication of this model is that free (external)

trade is far from optimal in the former case. This is but one important example of numerous

arguments that should be counted against the Schultzian free trade position.

I should add that if it is naive to assume that governments freely choose the terms of

trade, it is not any less so to assume, as the earlier benefit-cost literature does, that they are free

to choose modern sector production techniques. In political economy terms, neither choice is

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free from the fundamental and contradictory influences of classes. Optimizing models cannot be

expected to capture these influences and may therefore be largely beside the point.

6. The Agrarian Question: Towards a Non-neoclassical Approach

To those who would maintain that the past two decades have witnessed a stagnation of

development economics this paper offers little support. No doubt a picture of disarray is

presented by the sheer diversity of positions taken by development practitioners and theorists.

But critical evaluation and selection from this menu does reveal that new and significant

advances are being made. Broadly speaking, this is evident in vigorous attempts to understand

the structural determinants of the pace and pattern of growth, the role of class interests and

conflicts and the political economy of state action. New directions in the analysis of the agrarian

transition have been largely constructive in this sense.

It is possible to recast some of these developments around certain questions that

exercised the minds of economists since at least Ricardo and Malthus: questions that had

spawned directly contradictory positions. These include a) the fate of the peasantry (Lenin,

Chayanov), b) the economic role of the 'unproductive classes' (Malthus, Ricardo), c) the terms of

trade as an instrument in 'primitive accumulation' (Bukharin, Preobrazhenski) and d) the

rationale of 'precapitalist' arrangements such as sharecropping (classical versus neoclassical

economists). New insights on each of these issues typically transcend or subsume the

contradictory positions taken by earlier economists. To these should be added new research that

has grappled with issues that are closely related to agrarian structure and its consequences: moral

(or political) versus rational imperatives governing the village economy, structural as opposed to

market determinants of contractual forms and their interlinkages, technology versus the social

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relations of production as determinants of the labor process, etc.

1. Recent contributions to the mode of production debate, while still divided on

alternative ways of characterizing agrarian classes and production relations, seem to have largely

superceded the classical Leninist and 'populist' positions on the stability of the peasantry in the

face of capitalist development. The persistence of the peasantry has to be understood as the

outcome of a complex set of forces including peasant rationality, the pace of growth, state

policies and the mechanisms by which surpluses are extracted out of peasants and landless

proletarians.

2. The neoclassical approach to resource allocation and income distribution - stressing

full employment, the absence of any link between inequality and resource use efficiency, and the

irrelevance of enterprise forms - persistently ignores some basic features of contemporary

agrarian economies. Backward agriculture does function with a developed wage-labor market

but, as under capitalism, also produces a reserve army of unemployed comprised of the landless

and peasant family workers. Rural wages are therefore determined, in large part, by

institutional/structural factors. Resource use moreover depends significantly on production

organization and wealth distribution. Though markets in land and credit may work to weaken

these links, the influences of asset inequality and enterprise forms persist strongly.

3. Neoclassical attempts to resolve the sharecropping conundrum (within a 'competitive'

setting) have not been successful. Where the labor-enforcement problem is not simply assumed

away, available models are compelled to rely on monopolistic or 'noneconomic'restrictions by

landlords. Non-neoclassical arguments stress the role of unemployment and the labor

incentive/enforcement problem in determining the incidence of sharecropping but rely on market

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rigidities (capital constraints on peasants, for example) or non-market factors by which potential

tenants are excluded/selected. Theories of personalised and interlinked transactions divide along

the same lines as with sharecropping and reproduce the same assumptions and problems. But the

idea, due to Bhaduri, that such transactions serve to restrict the advance of productivity is a

matter of continuing research and debate.

4. Ricardo's notion that landlords or rentiers slow down the process of capital

accumulation seems to be alive and well in a variety of forms. A powerful rentier class -

including landlords, merchants and moneylenders - is viewed as having economic interests that

are often in conflict with the accumulating class directly interested in production within

agriculture (be they capitalists or surplus-producing middle peasants). But the models producing

such results draw, perhaps, too sharp a line of distinction between the 'progressive' and the

'unproductive' classes. A different line of thinking stresses the superior access of rentiers-cum-

capitalists or 'Junkers' to the resources of the state in the accumulation process and produces the

Ricardian conclusion in modified form: such access weakens the peasantry, distorts the pattern

of development and slows down the growth of employment (if not of output as well).

5. The link between rentiers and capitalists has also been recast in the form of a

structuralist macroeconomic model involving agriculture and industry. The answer to the debate

between Malthus and Ricardo on whether landlords' rents stimulated or retarded aggregate

demand is seen to turn on how wage-earners divide their incomes between the two sectors,

following Engel's Law.

6. Historical and empirical analyses of the role of price incentives in agricultural

production fail to support the position of 'price mechanists' such as Schultz. The prescription of

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higher prices as a way out of agricultural stagnation is of dubious relevance in most LDC

contexts. For one thing, a rentier-dominated agriculture may respond 'perversely' to improved

terms of trade. For another, such a prescription fails to take account of the leading role that

public investments often play in agricultural development. A favorable movement in the terms

of trade, given political obstacles to taxation, may therefore slow down growth or lead to a

distorted pattern of growth by accentuating structural dualism within agriculture. It has also

been shown that the macroeconomic and distributive impacts of price adjustment may be

unpleasant and politically unpalatable.

7. The protagonists in the Soviet industrialization debate as well as earlier development

economists viewed agriculture's contribution to development in a static framework. They failed

to perceive the essential function of investments and new technologies within agriculture in

long-run growth. This framework tended to misdirect attention to the problem of fixing food

prices alone, while putting aside the far more difficult tasks involved in the dynamic

transformation of agriculture, particularly the role of class structure, private accumulation and

public investment. Allowing for the technological and structural transformation of the agrarian

economy points to more complex policy 'solutions' to the problem. But the issue cannot fit

within any kind of optimizing policy framework whatsoever. What it calls for, instead, is the

sort of thinking that underlies recent contributions summed up in this Section. If these

contributions together point to one thing, it is that there can be no political economy of

development without a political economy of the agrarian question.

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Footnotes * Amit Bhaduri and Alain de Janvry, as discussants, offered incisive comments and helpful

suggestions. I have also benefited from comments by Pranab Bardhan, Jere Behrman, Nancy Folbre, Neva Goodwin, Gillian Hart, David Lehmann, Alan Richards, Ajit Singh and Lance Taylor. I would like to thank all of them.

1. Ricardo, though, had maintained earlier that the political power of agricultural rentiers held

back capital accumulation in industry. 2. How a market alternative to the communal mechanism could function without giving rise to

market valuations of labor and what this implies for the autonomous peasant calculus has never been worked out. Similarly, if peasant communities or villages are the building blocks of the larger peasant economy, it is not evident whether or how resource inequalities among these communities are eliminated. Neither of these questions is pertinent where land is free, which is not to say that Chayanov's conception is invalid outside that context.

3. Since much of this literature has been reviewed elsewhere the issues raised by it will not be

considered here (see, for example, Goodman and Redclift, 1983) 4. The above criticism applies more generally to a large number of papers that analyse the static

efficiency of various kinds of 'competitive' market relations in underdeveloped agriculture. A broad class of explanations relies on information costs, moral hazard, supervision problems and wealth-dependent attitudes to risk to establish the Pareto optimality of exchanges particularly in factor markets. But the link between inefficiency and inequality does not disappear merely because the constrained outcome is Pareto-optimal.

5. It has been eloquently defended in the Indian case by Bagchi (1973). 6. Some of the specific arguments for sharecropping can also be criticized. Models based on

non-traded inputs do not provide any convincing economic reasons for their basic assumption: for example, do owners of plough teams become tenants because the animals are not traded? or do workers who are ('politically') favored with tenancy contracts come to own the animals? Models based on skill differentials of workers seem implausible in many parts of the world where differentiation is based on privileged access to land and credit, mobility is typically 'downward', not 'upward' (Sivakumar, 1980), and where farming skills are not difficult to acquire in the first place.

7. It should be noted that this model is different from the analysis of usury noted above because

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the 'semi-feudal' relation is reproduced over time whereas the 'usury relation' is purely transitional (Rao, 1980).