Political Process, Institutional Change And Economic Performance

The land ownership system in Chinese mainland changes frequently since 1949. Although the history isn't too long, the forms of the land ownership system appeared ever are abundant and complicated. The history of land property rights in this period is a good case in the research of institutional change. People can make use of these cases to verify, enrich and develop the current theory in this field. The work is very important and significant, and a lot of scholars have done many researches about it. But the model analysis on the land ownership system of the Chinese mainland in agriculture are still insufficient, especially research including the political process, institutional change and economic performance. A few blanks still exist as follows: in research method, the literatures of using model analysis are inadequate, which discuss these changes of land ownership system from 1949 to 1978 and from the production team system to the household responsibility system in 1978. In angle of view, so many literatures according to land property rights theory which describe the change of land ownership system are not still verified by the model. In theory based, the most current literatures use the viewpoint that the institutional change is efficient, so if the process of the land ownership system change is from the efficient to inefficient, for example the land ownership system change from 1949 to 1978, the viewpoint above mentioned is not persuasive. And they cannot answer these problems as follows: if we introduce the political process into the institutional change, how to explain the land ownership system change from 1949 to 1978? And how to explain the land ownership system change happened in 1978, which is considered an efficient institutional change from the production team system to the household responsibility system?These blanks exactly are the main research subjects in the dissertation. The time series from 1949 to 1978 is divided into different periods in which different land ownership system carried out. Some working papers we have finished before try to compare and evaluate efficiency of different land property rights institution and reveal the rule of land ownership system change and evolution. In order to explain the results of quantitative analysis obtained, the paper compares the former theory of institutional change and find that the new theoretical framework including "political process, institutional change and economic performance" can make a better explanation to the change of Chinese land ownership system. Acemoglu's theory is the representative one of the new theoretical framework. We make a comparative analysis among the institutional change theories of Acemoglu, Marx and North. Based on the new theoretical framework and the former results of quantities analysis, we find that the change of land ownership system from 1949 to 1978 is inefficient and from the production team system to the household responsibility system began in 1978 is efficient. We draw a conclusion that the political process is the main reason leading to the institutional change of inefficient and efficient. We use dynamic game theory to model the influence of the political process to the land ownership system change in the case. In the end, we try to complement some opinion to the frontier of institutional change theory.Research methods used in the dissertation mainly include: theoretical and empirical analysis, case description and model analysis of institution. These research methods are widely adopted in the current institutional change theory. In the paper, the Subgame Perfect Equilibrium, the Markov Perfect Equilibrium, and comparative static analysis are introduced into the paper to model the institutional change and get the critical conditions. We also discuss the political failure in the change of land ownership system in Chinese mainland. Of course, before beginning these works we compare and verifying the different institutional change theories, so the comparative analysis is also widely exercised in the paper. The dissertation consists of two parts: comparative analysis of theory, and the model analysis of the case. In the first part of the paper, we have a compare about basic theoretical premise, methodology, fundamental hypothesis and concrete content among these theories of Marx, North and Acemoglu. The conclusions can be drawn as follows: Acemoglu and North support the opinion that the institution is the dominant factor, but Marx holds up the viewpoint that the economic growth is the dominant. The advantages of Acemoglu's theory are that macro and micro analyses, case research and model analysis, game theory and experimental analysis by the econometrical instrument are widely used. The fundamental standpoints of Acemoglu and Marx are both the social conflict view, and both of them emphasize that the power distribution is important. Both of their theory are dynamic and endogenous systems and can explain the coexistence of the change and persistence of the institution. We think that Acemoglu develops the institutional change theory by integrating the Marxism economics and the new institutional economics. Acemoglu follows Marx to stress the social conflict, political struggle and power distribution. By introducing the micro and macro analysis methods of the modern economics, Acemoglu's theory can be used to analyze elaborately cases of many nations and regions. So we think that the institutional change theory of Acemoglu is valuable and practicable to these abundant cases happened in China.In the second part of the paper, the model analysis of the case consists of two models. The topic of the first one is "the formation and persistence of the inefficient institution" which try to explain the change of land ownership system from 1949 to 1978. The previous literatures don't give the satisfying answer to the question. Those models in former documents don't explain convincingly the inefficient institutional change, because the political process is omitted. The contribution of the model is as follows: the production function of industry in center plan economy is brought into the model, which is not involved in the discussion of Acemoglu's models. In the case, the de jure political power and economic policy alter simultaneously and the inefficient institution come into being and persists. The case analysis complements the sorts of cases concerned in the Acemoglu's research. This indicates that Acemoglu's theory can explain those cases happened in China more convincingly, and the research of Chinese concrete cases can also develop the institutional change theory. In this part of the paper, we conclude as follows: the agricultural land ownership system as one of the social fundamental economic institutions sets up a basic framework, which constraints the economic policy of agriculture in the working out and carrying out. From 1949 to 1978 the evolution of the land property rights institution in agriculture was the results of de jure and de facto political power interacted, which was distributed between two groups of agricultural and industrial producers. The industrial elite held more political powers including de jure and de facto political powers than those farmers. Due to the weakness of de facto political power that was determined by the economic resources and the capacity of collective action, the farmer and labor's economic profits were transferred to the industrial elite. Under the protection of the institutions of property rights and random flow of labor, the industrial elite transferred social resources to themselves from those farmer and labor by revenue extraction and factor price manipulation. The industrial producer tried his best to maximize profits, but those inefficient economic policies such as revenue extraction and factor price manipulation couldn't satisfy his demands. The elite cancelled the institutions of land private ownership system and free migration of labor and carried out the political consolidation and land owned by public. So the inefficient economic institution came into being. All these inefficiencies lead to the decline of profits of the agricultural and industrial producers and the political failure. The industrial producer adopted some economic policies to increase income and offset the loss of the inefficient institutions, but he insisted on these institutions and couldn't avoid the political failure. These inefficient institutions came into being and persisted for a long time. The origin of these facts was that the political power possessed by the industrial elite was greater than by the farmer and labor.The second model "the efficient institutional change under political process" tries to answer these questions as follows: although the process of the production team system replaced by the household responsibility system in 1978 is efficient institutional change, why it succeeded in happening in 1978? The same attempt for example opposing the public property rights ever came forth for five times and all failed before 1978. Although the process happened in 1978 was efficient institutional change, why was the poor area happy to reform and why did the rich one resist? The production team system continues to maintain in part of rich area up to now. Why different regions showed different reactions to the same efficient institutional change? No model analysis in the previous literatures answers this questions. We bring lobbying and the distribution of the political power into the institutional change, and show how the political process influences the institutional change and leads different attitudes to the same institution in different area. It was the political process that caused the successes of reform in 1978 and the failure of attempt before 1978. The paper gets the critical conditions of the extra gain under different institutions and uses the result to depict the critical conditions of occurrence and diversity of the institutional change. We reveal the effect of the political process on the efficient institutional change in 1978. The conclusion is as follows: the peasant can expect that the household responsibility system is more efficient than the production team system, but they must pay for the costs of the transfer from the old system to new one and the bribe to the community elite in country. When only the extra gain under different institutions can exceed the cost and bribe, it is possible that the new system replaces the old one and the elite in community will support the institutional innovation. Under some critical conditions, the reform and the support coming from the elite in community maybe happen or discontinue. These conditions are the function of the legal income of elite, the cost of institutional transfer and the discount rate of the peasant's future profits. When natural disaster and poverty become serious, and nation authority and ideological effect weaken, these factors above mentioned cause income, cost and discount rate to fluctuate. As a result, the function of the critical conditions changes also and leads to the possibility increasing of the reform happening, so the farmer is glad to reform and the elite in country prefers to support the reform. When the situations develop extremely, in the poor and some common areas the elites in country support the reform despite of the center planner's preference. Although the center planner prefers to the old system, he can't control the choice of the elite in community because his incentive policy to the elite is useless. Due to the high cost of controlling the rural community under the extreme situations, the center planner is forced to agree these areas already under the new system to carry out the household responsibility system, but these farmer and elite must pay for the loss of the center planner. The production team system maintains in another regions in which the reform never happens. The new land ownership system becomes legal in the countrywide range. Different local policies transfer gradually to the economic institution allowed by the center planner. Because the strategy can maximize everyone's benefits, so the institutional change is efficient. In the model of the case, we for the first time introduce the political process into the land ownership system change in 1978, and use dynamic game theory to analyze the bargain among the center planner, farmer and elite in community. Acemoglu don't particularly discuss the interaction between the economic policy and institution in his papers. The model reveals a classic case that the economic policy transfers into the economic institution gradually. In the model, we analyze how the local economic policy develops into the countrywide economic institution by bargain, which is a process of the efficient institutional change.