Feudalism and macroeconomic cannibalism
1 June 2015, by Usman W. Chohan
The revered Chinese author Lu Xun (1881-1936)
described feudalism as sort of predatory structure
that caused ordinary people to descend into
cannibalistic rituals. In his seminal work, The Diary
of a Madman (1918), he provided a scathing
critique of feudalism as the cause of gross social
dysfunction. This sentiment is mirrored in
macroeconomics, where there is a growing area of
investigation that examines how feudal structures
create inter-sectoral "cannibalism" through the
distortion of government taxation decisions (see
the literature survey of Erickson and Vollrath
(2004)). This is done by increasing the tax burden
of the manufacturing and service sectors at the
expense of the oftentimes semi-feudal agricultural
sector in numerous developing countries
(Rangazas and Mourmouras 2008: 8).
agriculture in the economy, the sector is virtually
untaxed, at least in terms of direct taxation (Khan
and Khan 1998). This is because the feudal
landowning class applies unbridled political
pressure to extort tax exemptions for the
agricultural sector. Khan and Khan (1998) point out
that, under the Constitution of Pakistan, the federal
government could not levy taxes on agriculture. As
a result, the tax-exempt status of the agrarian
sector incentivizes illegal transfers from other
economic sectors to profit from this unsustainable
tax shelter (Khan and Khan 1998). This carte
blanche is being granted despite the fact that
Pakistan's tax collection ratio is below 10%, one of
the lowest in the world, which creates a frightening
fiscal position with large structural deficits.
The feudal landowning class therefore does not
simply squeeze a disproportionately large bargain
The effect is manifested as follows: the feudal
for itself, but it also puts unbearable pressure on
landowning class politically nudges governments
other sectors of the economy, which then have to
towards a tax realignment away from the
attempt to compensate for the fiscal black hole that
agricultural sector and towards the advanced
is left by not taxing a quarter of the economy. This
economic sectors such as manufacturing and
services, in order to discourage the growth of these is true cost of feudalism: that it diverts progress not
sectors and therefore prevent the outflow of labour just by obtaining favourable treatment for its own
towards them; which lets them keep a large pool of assets, but by burdening other sectors that could
spur development, such as manufacturing and
low-cost labour to toil on their land assets
services.
(Rangazas and Mourmouras 2008: 8). Hayashi
and Prescott (2006) find this to be the reason for
In light of this body of research, leadership in
the Japanese economic boom to have occurred
contemporary feudal economies must take the
only after WWII, because the prewar agrarian
politically difficult step of levying direct taxes on
structure applied measures to keep a surplus of
their feudal landholders, while creating policy
labour in the agricultural sector, including by
forcing the eldest son of each household to stay in measures (such as favourable tax regimes) that
stimulate the flourishing of the advanced productive
agriculture. Modern production sectors in
sectors. In the case of Pakistan, Khan and Khan
developing countries thus face a tremendous
barrier when the feudal agrarian sector diverts the (1998) state that taxing agricultural incomes would
produce significant revenues in the medium term.
government's taxation efforts towards the
In order to maintain fiscal discipline, the leadership
advanced sectors to dissuade their growth.
of such economies must emphasize direct taxation
on the feudal agrarian sector itself, because this will
A poignant case that reflects this phenomenon is
Pakistan, where the agricultural sector accounts for create a clear stream of revenues from a large pillar
of the economy, as well as ease the taxation
25% of GDP (>30% in 1980's, >50% in 1950's),
pressures on more advanced economic sectors.
half of the labour force, and the largest vessel of
foreign exchange earnings (World Bank 2015;
The cannibalistic nature of feudalism, as Lu Xun
Khan and Khan 1998). Yet despite the weight of
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figuratively presaged in his seminal critique, finds
strong resonance in macroeconomics.
Nevertheless, the fiscal inter-sectoral rebalancing
via direct taxation of feudal landowning sector can
help to mitigate its cannibalistic tendencies vis-à-vis
the more modern sectors of the economies of
developing countries.
More information: "Dimensions of Land
Inequality and Economic Development," IMF
Working Paper 158.
www.imf.org/external/pubs/cat/longres.aspx?sk=17
340.0
"The Depressing Effect of Agricultural Institutions
on the Prewar Japanese Economy," NBER Working
Paper 12081 (March).
www.nber.org/papers/w12081
"Taxing Agriculture in Pakistan," IMF Paper on
Policy Analysis and Assessment 983. (May).
www.imf.org/external/pubs/ft/ppaa/ppaa9803.pdf
World Bank Statistical Database.
data.worldbank.org/indicator/NV.AGR.TOTL.ZS
Provided by McGill University
APA citation: Feudalism and macroeconomic cannibalism (2015, June 1) retrieved 16 June 2017 from
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