How to Grow Burma’s Economy

By Sandy Barron 17 August 2016

UK-based author Joe Studwell made a list of recommended reads by Bill Gates with his influential book “How Asia Works,” an analysis of success and failure in Asian economies.

In his book, Studwell argues that high-performing countries such as Japan, South Korea, Taiwan and China set the foundations for economic success by strengthening smallholder agriculture, subjecting industry to export discipline and pursuing a tightly controlled financial policy.

Studwell spoke to The Irrawaddy ahead of his keynote speech at a conference in Naypyidaw on Tuesday on the role of government in supporting smallholder agriculture, to accelerate economic development.

You argue that the route to national economic success is for government to get behind agriculture, especially smallholder farming. Why is agriculture so key?

Agriculture is the most fundamental question that confronts any poor country. By definition, in any poor country, 70 to 75 percent of the population lives by agriculture. It’s a simple numbers consideration. If you can begin to extract some value from 70-75 percent of the population then you are on the way to increasing capital accumulation.

What happens in agriculture sets the agenda for everything else. If you get agriculture right, then you can do what four countries—Japan, Taiwan, South Korea and China—have achieved. You can transform from real poverty to developed country status in two generations. But you have to get it right.

By ‘getting it right’ you have described the need for government to provide major support to smallholders, through the supply of credit, ambitious farmer extension schemes to improve yields, and improved rural infrastructure to get produce to markets, among other measures. Please elaborate.

What you want is maximized output. You want agriculture that is more like gardening. When you have large amounts of very low cost labor, which you do in Myanmar, then small-scale agriculture is very responsive to labor input. If you’ve ever had a vegetable garden, and if you individually water plants, individually fertilize plants, and you use trellises and grow things vertically […] you can produce massively more per square meter than you could produce with scale farming.

The fundamental point is that when you have a lot of people who are underemployed or unemployed, then this kind of gardening approach to agriculture will maximize your output. But if you don’t put all the pieces together right, it won’t work.

When heavily-supported small agriculture starts to produce higher yields, what are the wider economic effects?

What happens is that everybody gets a little surplus. Then you get demand for consumer goods, industrial goods. If you go to rural China, you see that when farmers start to get money, the first thing they invest in is their assets, like their houses. They want cement, bits of construction materials like steel, glass. Then you have a demand for basic goods consumer goods, things around the house like a television, radio, bicycle: simple goods that you can be competitive producing domestically.

So, you get this very nice demand profile for the beginning of industrialization. If you have successful household agriculture you get more industrialization, and more entrepreneurship.

You have said that Southeast Asian economies, with the exception of Vietnam, have been less successful because they undervalued agriculture. What does that mean for this country, where small-scale agriculture has also traditionally received low priority?

I’d say two things. One, if people undervalue agriculture in Myanmar it’s because you exist here in a region of the world where agriculture has been undervalued by governments. It’s one of the big reasons why Southeast Asia is a relative developmental failure, compared to Northeast Asia. Myanmar needs to look around the world and take lessons from the most successful countries, not its neighbors.

The new government has to choose between different policy options. Boosting smallholder farming is one option. Some might say that promoting large-scale commercial agriculture is another?

Contract farming is not a good idea [for now] […] Development is about stages. It’s about taking small steps and going through a learning process. At this stage of Myanmar’s development, all of the evidence that I can see [suggests] that a strategy of high-yield household farming is the best thing for economic development, the best thing to accelerate growth, the best thing for poverty alleviation, and best thing to create a national consensus.

On a plantation, you’ve got the people who work and provide the labor. All they can buy is food. The guy who controls the plantation, he wants an imported car and a wide screen TV set, and he sends his children to schools abroad. None of this is feeding the domestic economy. So there are considerations beyond agriculture. This is why I say that what you do on agriculture sets the agenda for everything that follows.

Yet large-scale farming has advocates, and to some extent it has already begun.

In Myanmar, my understanding is that at the back end of the previous government, and at the front end of this government, people thought it was a good policy. One problem for a government like Myanmar is that it needs foreign exchange. The country is desperate for currency to pay for imports. When these agribusinesses come along, and promise to invest hard currency, it’s very tempting for the government to think, ‘great, a hundred million US dollars.’ But actually, you’re going to create a type of agriculture that is not high-yield. It’s high profit for the company. But it’s a sub-optimal model. What you want is maximized output.

At the outset, in any of the successful countries in Asia, there was no scale farming, no plantation farming. Later on, you get to the stage where you may consolidate farms, but you do it yourself.

Where else might there be skepticism or pushback against a policy to prioritize smallholders?

Well, obviously, people who wield power live in cities. You get what is sometimes referred to as urban bias. Urban bias makes for bad policy in poor countries, because most people live by farming, and you need to mobilize people to progress.

Then there’s a pushback from anyone trying to control large tracts of land—anyone […] engaged in a more feudal type of agriculture, where thousands toil so one or two can live in big houses with lots of servants. There are a lot of those in any underdeveloped country. It’s a normal state of affairs.

So, inevitably, there are some tough decisions that have to be made, and some vested interests that have to be confronted. But, at the same time, if you can develop a strategy that is clearly in the national interest, then some people who stand to lose will go along with that strategy, because they are able to recognize the national interest.

At the end of the day, it depends on how this government is going to set its priorities. All I would say is that anything is possible for Myanmar. I mean, economic progress is about human organization, and the organization of people is led by governments, particularly at an early stage of development. So, Myanmar will succeed or fail based on how this government engages with the challenges of rural development.

This interview has been edited for clarity and brevity. The conference, titled “Smallholder Agriculture: The Foundation of Economic Development,” brought Burmese and international experts together, and was hosted by the Renaissance Institute, Landesa and USAID.

The full title of Joe Studwell’s book is, “How Asia Works, Success and Failure in the World’s Most Dynamic Region.”