Living Standards and Productivity in Korea

Economic Policy and Productivity Trend in Korea from the Seventeenth to Nineteenth Century:

A Comment on Jun, Lewis, and Kang[*]

Myung Soo Cha

School of Economics and Finance

YeungnamUniversity

214-1 Dae-dong, Kyungsan

South Korea

Having claimed that productivity expanded, stabilized, and then declined in the seventeenth, eighteenth, and nineteenth century, respectively, Jun, Lewis, and Kang attributed the trend primarily to policy shifts affecting irrigation, famine relief, and security of property rights. Factor and asset price evidence however indicates that the Korean productivityfellconsistently for more than two centuries from the late seventeenth century. Also the alleged policy shocks are figments based on factually incorrect observations. The productivity declineoccurring in the absence of major policy shifts implies that the “Smithian physiocratic model” is irrelevant in explaining economic trends in late dynasticKorea.

In a recent article published in this JOURNAL, Jun Seong Ho, James Lewis, and Kang Han-Rog describedthe seventeenth, eighteenth, and nineteenth centuriesin the Korean economic history as periods of expansion, stability, and decline, respectively. Without clarifyingwhether it is the aggregate or per capita output that they claim to have expanded, stabilized, and then declined, the authors further argued that the trend is explicable in terms of productivity, whichwas in turn attributed primarily to policy measures affecting irrigation, security of property rights, and famine relief.[1] While productivity remains a term imprecisely definedin the article,existing evidence on factor and asset prices --overlooked in the article but readily available --indicate that marginal productivity of land and labor, hence total factor productivitydeclined consistently, rather than expanded, stabilized, and then declined in the pre-colonial centuries. Jun, Lewis, and Kangalso made factually incorrect observationsand thereby greatlyexaggeratedthe significance of policy shocks in the areas of water control, protection of property right, and famine relief in late dynastic Korea. As a matter of fact, the secular decline in productivity took place in the absence of fundamental change in policy regime, whichindicates that the “Smithian physiocratic model”is irrelevant in explaining economic trends in pre-colonial Korea.

Jun, Lewis, and Kang inferred productivity trend from the movement in commodity prices. Having claimedthat the relative price of cotton cloth declined from the mid-eighteenth to mid-nineteenth century, theyinterpretedthe alleged shift as an indication of falling productivity in rice farming. Of the eleven observations on the relative price in the two centuries (shown in the figure on p. 254), the last threeappear to have been made after 1876, the year when cotton textile imports from Britainbegan to depress cotton textile prices in Korea. The remaining eight -- five for the eighteenth and three for the nineteenth century -- data pointshardly justify the claim of rice having risen vis-à-vis cotton cloth after 1800. Moreover, even if one chooses to believe so, the perceptioncould equallybe interpreted as showing faster productivity growth in cotton farming. The other evidence presented to support the claim of falling productivity is the rise in rice price in terms of copper coin in the second half of the nineteenth century (figure on p.255). However, in all likelihood, the latter half of the inflation(occurring in the last quarter of the nineteenth century)was a consequence of port opening in 1876: in the following decades agricultural exports expanded rapidly, causing not only rice price, but also prices of dry field products to surge. The figure also shows that rice price in terms of silver did not start to rise until 1876, which suggests that the rice price inflation in the third quarter of the nineteenth century was driven by expanding supply of copper coins. While money supply remainsa variable overlooked by Jun, Lewis, and Kang,a rough estimate of copper cash stock derived by adding uprecorded amounts of coinage indicatesthat significant acceleration in money supply did occur in the third quarter of the nineteenth century.[2]

Since price of a commodity is affected by factors other than productivity in the sector producing the commodity, one does not normally attempt to infer productivity trend from price movement alone. Instead, there are two standard ways to measure total factor productivity. The primal approach requires reliable figures on input and output, which are unavailable for pre-colonial Korea. The dual approach derives total factor productivity growth as a weighted average of growth rates of factor prices, a procedure which can be adopted for late dynastic Korea, giventhe availability of recorded observations on the land rent and wage.[3]

There exist dataon rents from paddy field in fifteen different places for different parts of the two and half centuries from 1660. Visual inspection suggests that the rice rents followed a downward trend, which was confirmed by Kijoo Park’s regression of the rent data on location and 5-year period dummies.[4] On the other hand, efforts made so far to collect wage information proved less productive, generatingonly fourdifferent wage datasets. Yongchul Yun first published a collection of wage figures found in government regulations (ŭikwe) from 1630-1903. Although it remains unkown whether the stipulated wages refer to amounts actually paid to laborers employed by the public sector, Myung Soo Cha converted the wage data into rice wages to claim that the real wage fell as a matter of trend in the eighteenth and nineteenth centuries.[5] Digging further ŭikwe documents, Yitaek Pak made a far larger number of wage data available, which were used by Chŏngsu Lee and Hŭiho Kim to confirm the declining wage trendfrom 1689-1893.[6] Market wage series was first made available by Woo Youn Lee,who showed that rice wages of agricultural workers in Yechŏnfell consistently during the second half of the nineteenth century. Finally, the other market wage series subsequently published by Kuen-Tae Kimindicatedthatrice wages earned by outdoor workers in Yŏng’am fell in the early and mid-nineteenth century.[7]

Compared to commodity and factor prices, farmland and slave prices are available in greater abundance from surviving records of transaction in the two assets. Paper having been an expensive item in pre-colonial Korea, the relative wealth of existing records of asset prices does not necessarily imply that asset markets were better developed than goods or factor marketsin pre-colonial Korea: a large number of transaction records in farmland and slavessurvived, probably because they served as documents proving ownership. Myung Soo Cha and Hunchang Leeanalyzed more than ten thousandrecords tofind thatthe value of paddy field in terms of rice in southern Korea remained stable in the eighteenth century, which was followed by a decline in the nineteenth century.[8] The stabilityof real paddy field price and contraction in rent from paddy land in the eighteenth century are not mutually contradictory, because the rate of interest was on the decline during the century.[9]

Slaves are estimated to have accounted for about one third of the population of Chosŏn Korea, which led James Palais to make a controversial characterization ofthe countryas a “slave society.”[10] Most became slavesby birth, but free peasants could choose to sell themselves and their families permanently into slavery. Records of slave sales have attracted scholarly attention since Sŏkchong Chŏng published in 1983 his collection of about 150 slave transactions records. Adding more than 80 records to the collection, Chŏngsu Lee and Hŭiho Kim calculatedannual averages of the slave prices found in the sales documents to identify a downward trend in slave price expressed in terms ofrice price from 1689-1893. Price figuresfound on slave sales documents refer not infrequently to the sum paid to buy a whole slave family including parents and children, withage information not alwaysbeing provided. To estimatethe price of an adult slave using such data, Lee and Kim chose to assume thata group of slaves sold as a lot consisted of an equal number of working age adults and their dependents, andthat working age slaveswere one third more expensive than either younger or older slaves. Considering these assumptions as unwarranted and the number of price observation used as insufficiently large, Myung Soo Cha and Woo Youn Leecollected further sales documents to increase the number of available slave price observations to more than seven hundredsand analyzed them by runninghedonic price regressions. Confirming the downward trendas identified by Lee and Kim, the real slave price estimated also indicated that the decline started from as early as the 1660s. Assuming maintenance costs of slaves to have remained stable over the pre-colonial centuries, the falling trend in slave price in terms of rice would imply that real wages were also being diminished: given that the rate of interest was on the decline in the eighteenth century, wages would have been falling faster than slave prices.[11]

In sum, both land rents and wages drifted downwards for more than two centuries after the conclusion of wars with Japan and China, indicating secular decline in productivity. The deterioration in late dynastic Korea took place fundamentally in the institutional settingestablished with the founding of the Chosŏn dynasty. Having claimed that productivity improved, stabilized, and then declined in late dynastic Korea, Jun, Lewis, and Kang attributed the supposed productivity trend topolicy shocks, which appear as equally imaginary. First, the Office of Embankment Works, which Jun, Lewis, and Kang asserted to have been established in 1662, had been in existence since the fifteenth century except for the period from 1592-1662, when Korea was busy fighting wars with Japan and China. Furthermore, unlike the Qing government there is no evidence to show that the Chosŏn’s public administration made any resource availablefor “investment in irrigation,” which has always remained a concern for local peasants. Second, land property rights have been legally acknowledged and protected since early Chosŏn period, not from the eighteenth century. Kyŏng’kuktaejŏn, representing the system of basiclawscodified in 1460, not only recognized land sale as a legal activity but also allowed land purchasers to obtain official endorsement through notarization. Although Jun, Lewis, and Kang interpreted the 1746 law recognizing cultivators as a measure taken to protect property rights, it should be seen on the contrary as infringing on the property right as defined by the 1485 principle, for under the 1746 law, an expedient introduced to speed up agricultural recovery from the wars with Japan and China, legal landowners could lose farmland by fallowing it.[12] Finally, contrary to the authors’ claim and unlike Qing China’s“ever-normal” granary system, state granaries in Chosŏn Korea was never intended as a grain price stabilization scheme, but only as grain loan systemin times of famine. Overall, as James Palais observed, “marginal readjustments” made “on an ad hoc basis,’ rather than “whole sale reform,” characterized the process of institutional change occurring in Chosŏn Korea.[13]

It does appear that irrigation remained in better shape, that grain loan system functioned more normally, and that private property rights were more secure in the eighteenth than in the following century. Far from being a consequence of higher quality statecraft, this probably reflected higher level of living standards in the eighteenth century. Impoverished peasants of the nineteenth century could ill afford to take care of dams and waterways, who may also have faced higher risk of flood damage than in the preceding century. Contracted tax base in the nineteenth century resulted in public deficits, which induced the government to turn state granaries, an instrument of famine relief, into a device for rent-seeking activities and raising revenue. Worsening public deficits may also have increased the incidences of confiscation and extralegal taxation, which attracted the attention of foreign visitors in the late nineteenth century.[14] Hence, it is arguable that Koreans enjoyed greater security inownership in the eighteenth century, not because kings and bureaucrats were more positive in protecting private property rights, but because they felt less need for infringing on them. In sum, while the eighteenth century is known in the Korean history as a belle époque relatively to the following century as in the Chinese history, this probably has more to do withthe higher level, rather than growth rate of living standards before 1800.

Dynastic Korea having been a part of the Chinese empire sharingnot only border but also institutions and culturewith Qing China, it is unsurprising to find similar signs of long run deterioration in Qing China.[15] Different scholars observed falling real wages in different parts of Chinain the eighteenth and nineteenth centuries.[16] Having risen from the 1640s to the 1710s, paddy land prices in China as standardized by rice price stagnated for a century, and then declined until 1900. As the interest rate was on the decline in the eighteenth and nineteenth centuries in China, it follows that rent from an acre of paddy land fell over the two centuries.[17] It thus does not appear unlikely that the whole Chinese empire, including dynastic Korea, suffered decliningliving standards and productivity from at the latest 1700, which stands in contrast to a rising TFP trend in England from around 1600.[18] If future research confirms the secular decline in total factor productivity in Qing China, it would appear as at odds with the description of the region as benefitting fromSmithian growth: efficiency gains through increasing degree of specialization may have occurred, but if they did, they appeared to have been outweighed by negative productivity shocks, including environmental decline occurring in the context of population growth as emphasized byrecent studies on water control and deforestation in China and Korea.[19]

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[*]This comment draws on findings made by participants in the Historical Statistics of Korea Project at the Naksungdae Institute of Economic Research, which has been supported by the Korea Research Foundation since 2002 (KRF-2002-073-AS1004 and KRF-2007-322-B00010). I have benefitted particularly from discussions with Woo Youn Leein writing this comment.

[1]Jun Seong Ho, James Lewis, and Kang Han-Rog, “Korean Expansion.”

[2]Lee and Kim. Chosŏnsitae, p. 108-9. From 1798-1840, the cash stock estimate increased 0.96% per year, which was followed by a growth of 3.81% per year from 1840-74. The growth rate fell back to 0.40% per year from 1874-88. As James Palais pointed out, one proximate cause of the rapid rise in money supply in the mid-nineteenth century was the issue of debased coins, known as tangpaekchŏn, in 1866. Palais, Politics, p.172. While this represented a response to worsening public deficits, the Chosŏn government was following Qing China’s example of resorting to debasement as a source of revenue in the wake of Taiping rebellion. Won, Chosŏn hugi, p.131.