prod uctivity and that the major increase in land prod ucti vity had been brought

tion ," ignited a major controv ersy. Some tried to defend the Marxi an orthodoxy.
abou t by yeomen (small indepen dent farmers consti tuting an u pper stratum of
Karl Kautsky ( 1899), among others, reasserted the superiori ty of large farms in
the Briti sh peasantry ) during the seve11teenth centu ry, bef ore th eir lands were e11-
Germany and other European economies, an d argued th at the eventual demise of
closed. Agri cu ltural stagn ation in form er socialist economi es u n der farm coll ec-
peasantry w as delayed beca use of peasan ts' desperate eff orts to continue farm-
ing by workin g h arder and reducing consumpti on against competition from capi- tivizatioi 1 prom oted by3the Marxi st doctrin e migh t h ave been a bad repl i ca of the
true enclosure h istory.
talist farms. 1 In another effort, Vladimir Lenin ( 1899) tried to show that polar-
ization of peasa ntry into large commerci al farmers employing landless laborers
w as, i11 f act, in progres s in Ru ssia. PEASA NTS AND PLANTATION S
In t l1e other cam p , so-called revisionists, su ch as Eduardo Bern stein ( 1899)
While tl1e Agrarian Question has already been resolved for ad v a11ced market
and Edu ardo David ( 1903), argued that the Marxian th eory of proletaria nization
does n ot apply to agricu ltt1re because of the inherent difficulty of labor enforce- economies, it stil l resou n ds in developi ng economies. The i ssu e has often 4
been
discu ssed aroun d the relat ive efficiency of peasan ts v ersu s plant ation s.
ment in agricultural prod ucti on . In urban indu stries , w ork is standardized and
The tern1 ''plantation'' ref ers here to l arge far1ns ba sed on h ired wage labor,
easy to monitor. The biological process of agricultural production, however, is
which were initially establi shed in developed economies by Western colon izers
subject to infi nite ecological v ariations. Diff erent w ay s of h andling crops or ani-
mal s are often necessary becau se of slight differences in temperat ure and soil for the purpose
5
of extractin g tropi cal agricultural prod u cts t·or export to h ome
moi sture. The dispersal of agricultural operations over w ide spaces adds to the coun tries . A traditional paradi gm, developed under colonialism, h ad been to
identify the plan tatio11 sector as a modem enclave geared for th e in tern ati onal
difficu lty of mon ito1ing. Theret·ore, small family f arms will continue to be more
market, and the peasa nt sector as dominated by subsistence orie11tation an d i rre-
pr oductive tha11large f arms depen dent on hired labor, despite development of the
2 ·sponsive to profi t incentives created by changes in market deman ds and techn o-
capi talist sy stem in other sectors of the economy. logical opportunities (Boeke 1953). This stereotyped view has been debu nked si-
The Agrari an Question continued to fu el a major debate from the late nine-
multaneou sly by three great development economists, Theodore W. Schultz
teen th to the early twen tieth century on the choice of socialist poli tical programs
( 1964), Hla My in t (1965), and W. Arthur Lewis ( 1969, 1970).
(Mitran y 1951 ) . Lookin g 'back from a century later there is little doubt about
Schultz convincingly argt1ed that peasa nts in traditional agricu l tu re are ra tio-
which side with stood the historical test. In all the adv anced m arket economies
nal and effi cient in resource allocation an d that they rem ain poor not beca u se
in western Europe , North Am erica, and Japan, family farms have continued to
they are irrespon sive to economic incen ti ves bu t beca u se only limited techn i cal
be the domi11ant form of agricultural prod uctio11 organization. Their size of op-
and market opportunities are availabl e to which they can respon d . My in t, draw-
eration has increased in terms of farming area and capital inpu t applied. How
ing 1na inly on the experi ence of Sou th east A sia, demon strated h ow pea san ts re-
ever, corporate farms based on hired labor organized accordi11g to a management
spon ded vigorou sly to market in centiv es in open ing new land s for ct1ltiv ati on of
hierarchy hav e, until recently, been the exception.
export cash crops while maintain in g su bsi stence food crop prod u ction. This ob-
Several production fu nction studies have found significant scale economies in
servation for tl1e Southea st Asian case w as found by Lew i s to be n o excepti on
agriculture in advanced economies (Griliches 1964; Hayami and Ruttan 1985;
in tropi cal devel opment from the late n ineteenth to th e earl y tw ent i eth centu ry.
Hayami and Kaw agoe 1989). How ever, the continued dominance of t·amily farms
A conven ti onal expl anation t·or the establ ish1nen t of a plan tati on sy ste1n is the
implies that the ran ge of increasin g return s has been limited within the size that
scal e economies in heren t in the produ ction of tropi cal export crops (Bald w in
could be managed mainly by family labor. The increase in farm size has been
1956) . However, th ere are only a few crops capabl e of generating su fficien tl y
m otiv ated by a dri ve to equ ate the av erage income of famil y members engaged
strong scale eco1101ni es to j u stif y pl antation prod uct ion (Pim 1946 ; Wickizer
in farm prod u cti on w ith th at of n onf arm employ ees (Kislev and Peterson 1981).
1951, 1960; Li1n 1968; Hayami , Quist1m bing, and Adriano 1990, cl1aps. 5 an d
Ex pansion has bee11 supported by techn ological innov ation geared tow ard in-
6). In fact , on e can find an example of every so-called pl an tati on crop being
creasin g tl1e optimum f a1111 size. The nuclear f amily farn1has conti nued to be op-
grow n succes sfully by peasa nts somewh ere in the world .
ti mum becau se scale economies arisin g from the u se of indiv isible inputs such
Significant increasi ng retun1s emerge 011ly at the l evels ot·process i ng and 1nar-
as large-scal e machinery are counterv ailed by scale diseco11omies from the use
keting activ ities. The vert ical integrati on of a large t·arm u n it witl1 a large-scal e
of hired labor, accordin g to the logic of the rev isionists.
central processi ng and/or marketing sy ste1n is called for beca use of the n eed to
111 fact, the history of the Agricultural Revolution in Engl and, on the basis of
supply farm-produced raw materials in a timely schedu le. A typical example is
which the Marxian orthodoxy w as formulated, has now been drastically redraw n.
fermented ''black tea." The manufacturin g of bl ack tea at a sta11dard i zed qu ality
The iconoclastic study by Robert Allen (1992) convincin gly shows that the en-
for export requires a modem machine plant in to w h ich fresh leaves mu st be fed
closure in the eighteenth century resulted in no significant gain in agricultural

l
3()4 .Yuj iro Hay ami
wi t11in a few hours after plucking (Wickizer 1951, 1960). The need tor close co-
ordination between farm production and processing underlies the pervasi ve use
of the plantation system for black tea manufacture. Unfermented ''green tea," in
contrast , remains predomin antly the product of peasants in China and Japan.
In the case of bananas grown for export, harvested fruits must be packed, sent
to the wharf , and loaded to a refrigerated boat within a day. A boatf ul of bananas
that can meet the quality standards of foreign buyers must be collected within a
few days (Hayarni, Quisumbing, and Adriano 1990). Therefore, the whole pro-
duction process from plan ting to harvesting mu st be precisely controlled so as to
meet the shipment schedule. Althou gh the plantatio11 system has a decisive ad-
vantage for this export production , bananas for domestic consumption are usu-
al]y produced by peasan ts.
On the other hand , for the crops for which centralized processing and mar-
keting are not necessary, plantation s have no significant advantage over peasants.
Typical examples are cocoa and coconuts. The fe11nentation of cocoa and the
drying and smokin g of coconuts to make copra can be hand led in small lots with
no large capital requiremen t beyon d small indigenous tools and facilities. These
crops are grown predomi nantly by peasan ts.
Sugar is frequently cited as a classic case of scale economies stemming from
the need of coordination between farm production and large-scale central pro-
cessing (Binswanger and Rosenzweig 1986). Efficient operation of a centrifugal
sugar mill requires the steady supply of a large amount of cane over time. Co-
ordination of produ ction, from planting to harvesting , with processi ng is re-
quired. This coordination , however, need not be as stringent as for tea and ba-
nanas. The rate of su gar extraction decreases as the processing of cane is delayed,
but this loss is in no w ay comparable to the devastating da1nage that delayed pro-
cessing h as on the quality of tea and bananas. Sugar cane can be hauled from
relatively 'long distances and stored for sev eral days. Therefore, the need for ver-
tical integration is not so large, and the necessary coordinati on can be achieved
throu gh contracts of a su gar mill with cane growers on the time and quota of
cane delivery. In fact, an efficient sugar industry with smallholders has devel-
oped in Au stralia and Taiwan. In tropical Asia, too, sugar producti on has been
carried out in the peasant system, in India and Thailand.
Another explanation for the use of the plantation system is the advantage of
large estate farms in accessing capital. Because of this, it has been argued that
plantations have an advantage in regard to tree crops characterized by long ges-
tation periods from planting to maturity (Binswanger and Rosenzweig 1986).
However, the opportunity costs of labor and capital applied to formation of the
tree capital are not necessarily high for .peasants. Typically, they plant the trees
in hitherto unused lands. If such lands are located near their residence, they open
new lands for planting by mean s of family labor at low opportunity cost during
the idle season for the prod uction of food crops on farm lands already in use.
When they migrate to frontier areas, a typical process is to slash and bum jun-
gles and plant subsistence crops such as maize, potatoes, and uplan d rice, to-
The Peasant in Ec·onomic· M odernization 305
gether wi th tree seedlings. Such complex intercroppi ng is di ffi cu lt to man age
with hired labor in the plan tation system.
Therefore, even in the export boom of tropical cash crops u nder colonial ism
from the nineteenth cen tury to the early twentieth cen tury, the plantation system
failed to make inroads in regions where in digen ou s populations h ad establ i shed
family farms (Lewis 1970). Western traders found it more profi tabl e to pu rchase
tropical agricultural commod ities from peasan t prod u cers in exchange for im-
ported 1nanu factured commodi ties than to produce these commod ities themselves
in the plantation system. This was particu larly con ven ien t dming the nineteen th
century, when the industrial revol u tions in the Western n ation s mad e it possible
for these countries to produce and supply man ufactured products at much lower
cost than if these prod ucts had been prod uced by the man u factu ring sector in th e
tropical economies (Resnick 1970).
The establishmen t of pla n ta ti on s in less developed econ omies became a n e-
cessity when the demand for tropi cal prod u cts by th e indu strialized nations con -
tinued to rise, although the regions in the less developed e•con omies physically
suited for the prod u ction of these prod u cts had no significant peasan t population
that could prod uce and trade th ese commodities. Opening fron tier lan ds for th e
prod u ction of n ew crops en tailed high capital ou tlays. Virgin lands h ad to be
cleared and developed, and physical infrastructure, su ch as roads, irrigation sy s-
tems, bri dges, and doclci ng facilities, h ad to be constru cted . Capi tal, in the form
of machinery and other equ ipmen t, had to be imported an d redesi gned to sui t lo-
cal situ ations. Laborers were not only imported from the more popu l ou s region s
but also had to be trained in the produ cti on of these crops.
The establi shmen t of plan tations th u s req uires huge i nitial capi tal inv estment.
For the in vestors to in ternalize gain s from in vestm en t in in frastru ctu re, the fann
size inev itably m u st be l arge. Vi ewed from this perspective, it follows th at the
plan tation system evolved not because it was generally a more efficient mode of
prod ucti ve organ izati on th an the peasant mode bu t becau se it w as the most ef-
fective type of agricultural organization for extracting the economic ben efi t ac-
cruing from the exploitation of sparsely populated virgin areas. From this per-
spective, it is easy to understand why the same crop is grown mainly by peasan ts
.
in one place and mainly by plan tations in another. For example, for sugar cane
production in the Philippi nes, the peasant mod e is more common in old settled
areas of Luzon , and the plan tation system pred ominates in th e newly opened Ne-
gros (Hayami, Quisumbin g, and Adriano 1990, chap. 5).
Thus, the efficiency of the plantation relative to the peasan t syste1n is high in
the initial opening-up process of land-abu ndan t an d labor-scarce economies.
However, several negative aspects of plan tations become sign i fican t as tropical
economies shift from the lan d-abu nd an t to the lan d-scarce stage after the com-
pletion of the opening-up process.
First, the plantati on system tends to substi tu te capital for labor. This is because
of the inheren t difficulty in su pervi sing wage laborers in spati ally dispersed and
ecologically diverse farm operations.
306 Yujiro Hayami
Seco11d, agricultt1ral lands tend to be cultivated less intensively in a plantation
system that employs mainly wage labor and produces essentially a monoculture
crop. Complicated crop rotation and crop-livestock combinations are more diffi-
cult to manage in the command system. This implies that both labor input and
income per hectare are lower in the plantations. In contrast, small-sized family
farms tend to cultivate land more intensively.
Third, plantations u sually speci alize in a single crop. This bias for the pro-
duction of a mon ocrop reduces the flexibility of these produ ctive organizations,
their ability to respon d to changing demand by sl1ifting to the production of oth-
er crops. Moreover, continual cultivation of a single crop tends to result in soil
degrad ation and an increase in pest incidence; counterapplication of fertilizer and
chemicals causes serious stress on the environment and hu1nan health .
Fourth , the specialization of plantation worker s in specific tasks inhibits the
:11
development of their managerial and entreprene urial capacity (Baldwin 1956;
Myint 1965; Beckford 1972).
Fifth , the plantation system is the source of class conflict between the laborers
and the m anagers and capitalists. The presence of a plantation enclave in rura l
economies where the peasant mode of prod uction predomin ates has often strained
relationships in rural communities . In terms of the criterion of social stabil ity,
theref ore, th e plantati on system is no match for the system of relatively homo-
geneous small produ cers owning small assets, however small they inight be.
These disadvantages can ·be mitigated if the plantation system is reorganized
in to the ''contract farming'' system. In contract farrrilng, an agribusiness fir1n (or
cooperative) manages processing and marketin g but contracts with peasan t farm-
ers for the supply of far1n products. The firm provides technical guidance, cred-
it, and other services to peasants in return for production pledged to the firm. In
this way the system can take advantage of peasants in far1n-level production
withou t sacrificin g scale economies in processing and marketin g. A major ad-
v antage of this system is to tap not only the muscle labor but also the manage-
ment ability of rural people in developing economies. The high efficiency of this
system has been illustrated by the fact that Thailan d, which relatively recently
bega n producing canned pineapple by this system, has surpassed the Philippines,
formerly the world 's leading exporter of canned pineapple, whose prod uction is
based on the plantation system.
While negative aspects of plantations have loomed larger over time, direct
government controls on their operation s will likely prove damaging to both na-
tional developmen t and the well-being of rural people. The entrepreneurship and
management capability of agribusiness enterprises, includin g multin ational cor-
porations, i11 the area of agricultural marketing and processing are very valu able
inputs, which can be dispen sed with only at a very high cost. The rational ap-
proach , theref ore, should be to design an inducement mechanism toward estab-
lishing an agrarian organization that adequately combines the entrepreneurial and
man agerial abilities of both peasants and agribusiness firms.
The Pea sant in Economic M od ernization 307
A policy designed in this direction migh t include the gradu al phasing out of
special treatments to agribusiness plantati ons such as public land leases at fa-
vorable terms and special allocation of import licenses and foreign exchange, and
the stricter application of labor and environmen t codes to the corporate farms.
At the same time, government must invest in education , research, and extension
for developing the capability of small growers to operate the contract farming
scheme effectively.6
,·1·
, '
PEASANTS AND MIDDLEMEN
The same poli cy prescription can be envisaged for the relation between peas-
ants and middlemen . It is a deeply rooted popular belief th at middlemen exploit
peasan ts by means of monopoly or monopsony pricing and u sury. This suspi cion
against middlemen is common in East Africa and Sou theast Asia, where export -
import business in major port cities was mainly h andled by European firms,
while collection of tropical export prod ucts from inland ·v illages and di stribution
of imported con sumpti on goods there were largely carried ou t by n on-Eu ropea n
ethn ic minori ties (Indians and Chinese). Such an ethnic division of labor origi-
. nall y could h ave been based on the comparativ e advantage of the nati v e popu -
lation in primary produ ction in the natural-resource-rich economies suddenly
opened to inte.mation al trade. However, it was inevitable for the natives to de-
velop strong anti-middleman sentiment and ideology as they continued to be ex-
cluded from the main current of commercial activities. Thus, as Leo11 Mears
(1981, 133) described for Indonesia, even after independence, ''it is not u nusual
to hear j udgmen t . . . that farmers or consumers are exploi ted by the market con-
trol exercised by ethnic Chinese middlemen. At times one even hears that all pri-
vate traders are exploitative and discouraging to producers.' '
This stereotype, however, has not stood tip under empirical tests. Alrnost all
substantive empi rical studies, including th e classic work for export cash crops in
West Africa by Bauer (1954) and two major studies for food crops in India by
Lele (1971) and in Africa by Jones ( 1968a), have produced resul ts inconsisten t
with the hypothesis of m arketing ineffici ency and middl eman expl oi tation . 7
These studies unanimou sly show th at entry to ag1icu ltura1 marketing activities is
open and competition among mid dlemen is intense in developing economi es in
the absence of govern men t control, so that marketing margins are largely con-
sonan t with th e costs associated with 1narketing acti vities; wid e price gaps across
areas and fl u ctuation over seasons are not caused by monopolistic beh avior by
trad ers and speculators but arise mainly from the high costs of tran sport and stor-
age as well as insufficie11t market information services.
The fundamen tal contribution of trading activities to the developmen t of·the
peasant economy has been neglected, relative to the importan ce to such factors
as capital formation , rural education , agricu ltural research , and l and reforn1. It
must be recognized that profi table opportunities created by new tech nology and
 308 Yujiro Hayam i
improved infrastru cture, such as roads, cannot be exploited withou t the activities
of middlemen. While solely motivated for their own profit, middlemen, in effect,
prov ide essential support for peasants: Traders both large and small create new
opportu nities. With their knowledge of the requirements of local, regional, and ex-
port markets, traders provide outlets for farm products. They buy the traditional
products and at the same time acquaint farmers with new products and the meth-
ods of growing them. Further, they make available to them the necessary inputs
such as seeds, fertilizers, and implements. Thus the traders encourage new wants,
convey new opportunities, a11d help farmers to take advantage of them. The activ-
ities of traders set in motion and main tain the process by which participation in the
exchange economy replaces subsistence production (Bauer and Meier 1994, 139).
When governments attempted to constrain or even to replace private trading
with state trading based on the folklore of exploitative middlemen , disastrous
consequen ces were inevitable, as evident from the experience of marketing
boards and parastatals in several African economies (Bauer 1954; Hopkins 1973;
Bates 1983; Jones 1987; Lele and Christiansen 1989).8
This does not mean that govern ment necessarily should leave the existing sys-
tem of marketing as it is. A wide scope exists for reducing transportation costs
through government investment in roads and railw ays. Moreover, improvements
i'n transportation and communi cation by public investmen ts are critically impor-
tant for reducing trade risk and transaction costs and thereby promoti ng new en-
try and competition in marketing. Development of institutions for the service of
market infor rr1ation , such as grading, standardization of measures and weights,
commodity exchan ge, crop forecastin g, and regular quotation s of market prices
throu gh mass medi a, as well as more fundamental institution s for the protection
e1: n d enforce1nen t of prope1ty rights a11d contracts, can contribu te much to reduc-
tion s in trade risks and transacti on costs.
If the activities of middlemen in the country side of developing economies
were supported by these government services, the healtl1y development of peas-
ant economy would be greatly promoted. The problem is that ''·most governments
under-inv est in this infrastructure and over-invest in their own enterprises and
efforts to carry out agricultural marketing directly. If policymakers trusted their
peasan ts more and feared middlemen less, this government bias could be re-
versed. Most policymakers have never met a peasant, much less one with entre-
preneurial skills engaged in risky trading activities (Timmer 1993, xi)."
PEASANT ENTREPRENEURSHIP IN COMMERCE
AND INDUSTRY
Indeed, the popular belief that peasants are exploited throu gh the marketing
process assumes irnplicitly that middleme n belong to a social grotip alienated
from the peasantry. Peasants have been considered al way s to be passive to mar-
ket forces and to have neither the desire nor the ability to partici pate in com-
mercial and industrial activities.
L
The Peasant in Economic M odernization 309
This view found a typical expression in Cliff ord Geertz's anthropological
study in Indonesia (1963). Based on observ ations in East Java and Bali, he con-
cluded that the entrepreneurship for nonf arm busi11ess activities that may induce
social modernization cannot e1nerge froi..1 ''the immediate pu rview of village so-
cial structure'' but is limited to the population with ''extra-vill age status," such
as ethnic Arab traders in the East Javanese town and tradi tional rulers in the Ba-
linese town (Geertz, 148-49).
If the Geertz thesis is val id, the case of Indonesia represe11ts a sharp contrast
to the histo1ical experience of Japan. In the initial stage of m·odem economic
growth in Japan , wealthy peasants, who typi cally cu l tiv ated a pa1i of their land
by themselves and ren ted out the other part, actively participated in trading and
manuf acturing ; thi s process h ad begun already in the feudal Tokugawa peri od,
in response to the gradual developmen t of the market economy, and it acceler-
ated with Japan's opening to foreign trade and national u nification by the Meiji
Restorati on in 1868 (Smith 1956, 1959, 1988). Contribu tions of these small-
scale, rural-based enterprises to the national economy .were no less significa11t
than those of large, modern corporations developed by urban entrepreneu rs who
emerged from the preindu strial merchant class (such as Mitsui and Sumitomo)
.. and the ex-warrior class (such as Yataro Iwasaki, the founder of Mitsubishi). In fact,
until the tum of the century or even later until about World War I rural and na-
tional economic developme11t is considered to have been -supported, to a large ex-
tent, by the commercial and industrial activities of those rural entreprene urs
(Rosovsky and Ohkawa 1961; Tussing 1966). This development of rural-based en-
terprises had made condition s for industrialization in modem Japan less capital in-
tensive than in other latecomers to modern economic growth (Smith 1959, chap. 1).
What I my self observed in a field study of agricu ltural marketing in Indone-
sia during 1986-90, as reported in Hayami and Kawagoe 1993, was contrary to
the image developed by Geertz. Both in long-settled Java and newly ope11ed
Sumatra, indigenous entrepreneu rs belon ging to the u pper peasantry actively en -
gaged in the marketi ng and processi ng businesses. These vill age-based traders in
upland Java have been overtaking town-based ethnic Chinese traders in the in-
terregional transshipmen t of such commodities as com and soybean s by effec-
tively mobilizing a large number of small collectors who belong to the lower
ranks of the peasan try. In the highly complicated and risky operation of com-
mercial vegetable marketing for the metropolis, they have become dominant.
Owner-operators of local tobacco factories have applied to their bu sinesses mod-
em marketing techniques, such as grading and the use of brand names, for re-
ducing product quality uncertainty and transaction costs, withou t ever atte11ding
business school. In the trans.migration area in Sumatra, too, peasa11t entrepreneurs
have been following the developments in Java, in response to improvemen ts in
transportation and communication infrastructure. All these activities by the
agents of peasan t marketing in Indonesia resemble those of ''rural capitalists''
(Smith 1956) in Japan, who emerged from the g ono (wealthy peasant) class and
supported Japan 's emergence as a modern industrial state.
310 Yujiro H ayami
The strength of these village-based traders is their ability to enforce contracts
with far1ners and lower-rank collectors by means of the village community tie.
This advan tage is especially large i11 connection with perishable commodities
like v egetables, for which close coordination between farm-level collection and
bu lk shipmen t to urban markets is required (Hayami and Kawagoe 1993, chap.
4). Thi s coordination is enforced by such means as long-ter1n contracts involv-
ing credit tying, which are difficult for urban-based traders, lacking the commu-
nity mechanism of enforcemen t, to organize.9 Thus, if they are appropriately
linked with international agribusiness or trading firms, while supported by pub-
lic ag1icultural research and extension, they could well become an effective in-
strument for bringin g Indonesian agriculture up to the status of a major suppli-
er to the rapidly expan ding world market for horticultural products.
There is little doubt that Geertz's pessimism about Indonesian peasants ' en-
trepreneu rship does not stand up under empirical tests today.
TOWARD RURAL-BASED DEVELOPMENT
What will be th e role of peasan t entrepreneurs as economies continue to ad-
v ance to 11igher stages? The question arises as to what their fate will be in the
even t of' su ccessful econo1nic modernization. Their marketing organization, as
docu mented in Japan 's history and as observed in Indonesia today, is a decen-
tralized hierarchy of many self-employed inf or111al agents tied by customary
trade practices and informal contracts, where vertical integration is typically ab-
sent. In the low-income stage of economic development, the system is highly ef-
ficient i11 economizin g the use of scarce capital and management input while
making intensive u se of labor having a low opportunity cost. This system's effi-
ciency depends, to a large extent, on the du alistic structure characterized by dif-
ferentials in wage and interest rates across fir111 sizes. Will this system become
inefficient and be replaced by verticall y integrated large corporations when the
economy advances to a stage at which the factor market dualism is eliminated?
The experience of the Japanese economy in the past three decades may shed
some light on this question. Within a decade of high economic growth from the
mid-1950s, the dualistic structure was largely elimin ated (Minami 1973). Yet,
s1nall-scale family enterprises have survived and have even been strengthened
(Kiyonari 1980; Patri ck and Rohlen 1987). Advan tages of small- and medium-
scale enterprises, such as high incentiv es for entrepreneu rs and flexibility in em-
ploymen t and staffing, have increased in correspondence to the increased need
for small-lot produ ction of differen tiated prod ucts, as the Japanese economy has
advanced to a stage characteri zed by h igh per capita income and diversified con-
sumer demands. Large corporations in Japan continu e to prefer subcontracting
to vertical integration. Coordination between parent company and small or medi-
um firms has been developed with su ch precision that the subcon tracting system
is integrated inseparably in Toyota's famous kanban (just-in-time) system. In this
sy stem the st1bcontractors deliver the supply of th eir parts and materials to the
The Peasant in Economic M odernization 31
assemblers precisely at the time when the parts are used , so th at no inventory ac
· cumulates in the assembling plan t even for small-lot produ ction of many differ
entiated produ cts. The improved su bcon tracting system is now considered a ma
jor organiza tional innovation that underlies the strength of Japanese indu stries
especially the automobile industry (Abegglen and Stalk 1985; Asanuma 1985
1988; Wada 1991).
Is there any strong reason to doubt whether entrepreneurial and rnan ageria
skills now being learned in the countryside of Indonesia throu gh the marketint
of peasants ' prod ucts will provide the basi s of a mod em subcon tracting systerr
and thereby support the advancemen t of the Indonesia n economy to a highe1
regime of developmen t? Indeed, the relationsh ip between the transsh ippers of
vegetables to metropoli tan markets and their agents engaged in collection from
farmers, which I observed in rural Indonesia, is very similar to Toyota 's kanban
system (Hayami and Kawagoe 1993, chap. 4). Are there insu rmou ntable cultur-
al and social barriers for peasant entrepreneu rs in Indonesia to follow the devel -
opment of their Japanese counterparts ?
If the emergence of peasa n t entrepreneu rs in Indonesia has followed th e same
pa ttern as in Japan, is there an y reason to suspect that they will be incapabl e of
, becomi ng a major cairier of modem commerce and indu stry when In donesia ad-
vances to a regime of higher economic developmen t? Does not the same ques-
tion apply to other developing economies ?
The iconoclasm by T. W. Schu ltz has establi shed a consensu s in our prof es-
sion that peasan ts in developing economies are n ot tradi tion -bound, iITa tional
creatures but are highly responsive to economic opportu niti es and perf ectly ca-
pable of carrying out mod em agricul ture. We mu st now recognize that they al so
can be a basis of modem commerce and indu stry if appropriate policies will be
taken to support, rather than constrai n , their entrepreneu rsh ip.
NOTES
Usefu l commen ts from Keijiro Otsuka and Vern on Ruttan are gratefully ackn ow ledged.
I. Kau tsky 's argu men t is similar to the theory of A lexan der Chayan ov (1925) on the point of the
strong resilience and v iabi lity of peasan ts because of the appl ication of fam ily l abor to farm pro-
duction beyon d the eq uilibri u m between market wage rates and labor 's 1n argin al prod uctivities. How-
ever, unlike Kau tsky, who reasserted the demise of peasan try along the Marx i an orthod oxy, Chayanov
argued its persistence, a position similar to the revision i sts'.
2. This perspecti ve has been elaborated by a n u mber of modern econ omists, from John Brewster
to Hans Binswan ger and Mark Rosenzweig, so it has been establ ish ed as a current orth odoxy
3. Stalin collectivized family farms i nto kolkhoz panly based on the Marx ian d octrine (Mitran y
195I) but more i mportantly with the intention of uti l i zing the collective farms for compul sory pro-
curement of foodstu ff at low prices for urban industrial workers (Tang 1967). The consequence wa s a
shi ft of status for R ussia from a major exporter of foodgrains to a major i mporter after World War IT.
4. This section draws heavily on Haya.mi 1994.
5. In a broader defi n ition, for example, by Jones ( l 968b), farm estates based on forced l abor, such
as slavery, corvee, and serfdom , instead of free wage labor may also be ca lled plan tation s. Estates
based on forced labor were establi shed typicall y before the onset of the jn dustria1 revol u tion in Eu-
312 Yuji ro Hayami
rope and North A merica. They had a major impact on the southern United States and Latin Ameri-
ca (hacienda), as well as Eastern Europe (such as the Junker estates in Prussia) but had little effect
in Asia. The plan tations dealt with in this paper are those establi shed in tropical Asia in the late nine-
teenth to the early twentieth century. From the begi nn ing their operations were based on wage la-
borers, even thou gh man y laborers were imported from densely populated economies such as China
and Ind ia under long-term contracts, often tied by credit, akin to debt peonage.
6. In th is connection the debate on the role of food crop versu s cash crop, which has been heat-
ed especi ally in Africa, should be reconsidered. The tradi tional emphasis on export cash crops u nder
the colonial regi me was initially inherited by newly independen t gov ernmen ts. However, since Africa
shifted from bein g a net food exporter to being an importer in the early 1970s, the reallocation of
resources to the food sector has been strongly (often emot ionally) advocated (Rodn ey 1994, Lappe
an d Col lin s 1977, Twose 1984). Corres1)ond i n gly, both in ternati onal and nation al supports on cash
crop research, wh ich was rel atively well developed in the colonial regime, have been drastical ly re-
duced (Eicher and B aker 1992; Eicher and Rukuni l996). Wh ile the importance of public research
on food crops cannot be overemph asized, the total neglect of export crop research on the popular
presu mption th at it serves for the profi t of agribu siness alone is coun terproductiv e to the benefit of
small peasa nt prod ucers. It is importan t to recogni ze th at cash crops are an important source of in-
come for peasa nts in Af rica as well as other developi ng region s and that peasan ts ' partic ipation in
cash crop prod uction increases their entitlemen t to foods, thereby enhancin g their food security
(Dreze and Sen 1989). Research on cash crops, especi ally nontradi tional export crops such as flow-
ers, fru its, and vegetables for which world demands have been expandin g very rapidly, would be
h ighly effective in the promotion of food security in low-income economies (lslatn 1990).
7. The same concl u sion has been drawn from nu merou s individual commod ity stu dies, including
Hirsch on su gar in India, Ruttan ( 1969) on rice and corn in the Philippi n es, Mears ( 1974) on rice in
the Philippines, Scott (1985) on potatoes in Peru, Hayami and Kawagoe on upland crops, and Akiy a-
ma and Nishio ( 1996) on cocoa in Indonesia.
8. For example, farm prod ucers' shares of export FOB prices for cocoa for 1980-88 were less than
60 percent in the countries in which rnarketing was handled by state marketi ng boards, such as Ghana,
Cameroon , and Cote d'Ivoi re, whereas those of countries with no marketi ng board , such as Brazil and
Indonesi a, were higher th an 80 percent. Within Indonesia, producers' shares were much hi gher for
commodities with little government i nterven t ion, such as cocoa and coffee, than for st1gar, which was
control led by the state procu remen t agency (BULOG) (Akiy ama and Nishio 1996, 10-11).
9. Imust cau ti on, how ever, th at the community mechan ism can prod uce mu ltiple equil ibria de-
pendin g on different social and cul tu ral conditions, as predicted by Akerlof (1984). Unlike many
parts of Asia, close kinshi p relation ships in African v i llages serve as a mechan ism of tolerati ng cred-
it defaults rather than enforcing repayment (Kennedy 1988; Pl atteau 1996). This traditi on migh t be
one of the m ajor factors underl ying poorer performances in capital accumul ation and economic
growth in Africa than in East Asia for the past several decades.
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