Inequality and Corruption: The Role of Land Reform in Korea, Taiwan, and the Philippines



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[Figure 4 about here]
Table 2 summarizes the discussion so far. None of the conventionally recognized causes of corruption, except for inequality, is correctly correlated with the level of corruption across the three countries under consideration here. However, correlation does not mean causation. In order to sort out the causal direction and mechanisms, it is necessary to trace how the three countries came to have different degrees of income inequality. Land reform played a major role in this regard.

[Table 2 about here]
5. SUCCESS AND FAILURE OF LAND REFORM

One plausible explanation for different levels of income inequality between Korea and Taiwan on the one hand and the Philippines on the other hand is land reform (Lie 1998; Rodrik 1995; You 1998). It is well known that land reform was successful in Korea, Taiwan, and Japan after World War II, but failed in the Philippines. Hence, it is plausible that success and failure of land reform produced different levels of inequality, which in turn affected corruption. However, it is also possible that different levels of corruption determined the fate of land reform, and hence produced different levels of inequality. My comparative historical investigation shows that success and failure of land reform was little affected by corruption but largely determined by exogenous factors such as external communist threats and US pressures.

When Korea was liberated from Japanese colonial rule in 1945, it was primarily an agricultural economy with few landlords and a vast number of peasants. The richest 2.7 percent of rural households owned two thirds of all the cultivated lands, while 58 percent owned no land at all. By 1956, however, the top 6 percent owned only 18 percent of the cultivated lands. Tenancy dropped from 49 percent to 7 percent of all farming households, and the area of cultivated land under tenancy fell from 65 percent to 18 percent (Ban, Moon, & Perkins 1980; Lie 1998).

Land reform in South Korea was carried out in two stages: by the American Military Government (AMG) in 1948 and by the South Korean government from 1950 to 1952. In March 1948, the AMG began to distribute 240,000 hectares of former Japanese lands to former tenants, which accounted for 11.7 percent of total cultivated land. After two separate governments were formally established in the southern and northern parts of Korea in 1948, the government of South Korea began to implement agrarian land reform in 1950, just before the Korean War broke out. Restricting the upper ceiling of landownership to three hectares, the government redistributed 330,000 hectares of farmland by 1952. In addition, about 500,000 hectares were sold directly by landlords to their tenants. Thus, 52 percent of total cultivated land transferred ownership, and the “principle of land to tillers” was realized (Ban et al. 1980; Chun 2001; Kim 2001).

In Taiwan, land reform was also carried out in three stages. First, in 1949, farms rents were reduced to 37.5 percent from the previous 50 percent or over. Secondly, arable public lands were sold to tenant farmers over a ten-year period from 1948 to 1958. Thirdly, in 1953, land-to-the-tiller program, or the compulsory sale of land by landlords, was launched. Absentee ownership was abolished, and a low ceiling was imposed on land that could be retained by landlords. The proportion of tenant farmers in farm families fell from 38 percent in 1950 to 15 percent in 1960, and the proportion of land cultivated by tenants fell from 44 percent in 1948 to 14 percent in 1959 (Fei, Ranis, & Kuo 1979: 42-3).

Almost all Filipino presidential candidates since the 1950s have run on platforms promising land reform, but reform has seldom been pursued with vigor (Kang 2002: 28). The initial discussion of land reform under the Quirino government (1948-53) collapsed, and President Magsaysay’s moderate proposal of land reform legislation was amended by Congress so that most of the large estates could easily avoid expropriation. The Land Reform Act of 1955 placed only two percent of the nation’s agricultural land subject to redistribution, and the government acquired less than 0.4 percent of the total farm areas in the first six years of the program. Magsaysay’s tenancy-reform proposal that would have transformed share tenants into leasehold (“fixed” rent) tenants was also watered down (Putzel, 1992; Riedinger, 1995).

Marcos’s land reform sounded ambitious at first. Presidential Decree 27 of 1972 allowed tenants of rice and corn land whose landlords held more than seven hectares to purchase the parcels they tilled. However, implementation was slow and minimal. Prior to the Aquino administration, only 4 percent of the country’s cultivated lands were acquired, and the number of beneficiary families was just 6-8 percent of those landless nationwide in 1985 (Riedinger 1995: 97). The Filipinos did not see any meaningful implementation of land reform until the limited, but substantial compared to previous attempts, reform was carried out by the Aquino and Ramos governments.

Table 3 demonstrates how much the success and failure of land reform made a difference in the distribution of land ownership in the three countries. The land gini fell sharply in Korea and Taiwan, but not in the Philippines. In Korea and Taiwan, large landlords disappeared and tenancy fell dramatically. In the Philippines, however, landless families represented 50-64 percent of the agricultural population as of 1980 (Riedinger 1995: 76).

In Korea and Taiwan, land reform helped to reduce income inequality remarkably. Table 4 shows that a dramatic improvement in income distribution took place in Taiwan from an income gini of 0.57 in 1953, when it began implementing the land-to-the-tiller program, to 0.33 in 1964. Although income distribution data is unavailable for Korea’s pre-reform period, inequality must have been very high. According to an analysis by Ban, Moon, and Perkins (1980: 290-291) the top 4 percent of the rural population (previous landlords) lost 80 percent of their income, while the bottom 80 percent (tenants and owner-tenants) increased their income by 20-30 percent because of land reform. After the reform Korea showed an unusually equal distribution of income with a gini of 0.34 in 1953. Note, however, income inequality remained high in the Philippines with gini of 0.51 in 1961 and 0.50 in 1965.
[Tables 3 & 4 about here]
Why, then, did Korea and Taiwan carry out extensive land reform early after independence, whereas the Philippines did not? Was it corruption or other exogenous factors that determined the fate of land reform? I offer three explanations. The threats from North Korea and Communist China played a major role in promoting land reform in South Korea and Taiwan, respectively. The role of the United States in land reform was important and progressive in South Korea and Taiwan, but largely conservative in the Philippines (Putzel 1992). In addition, the political influence of the landed class was stronger in the Philippines, while the landlords in Korea and Taiwan lost their influence after independence because of their collaboration with the Japanese.

An overview of the decision-making and implementation processes within the US State Department and the American Military Government (AMG) in Korea and within Rhee’s government reveals that the communist threat and political competition with North Korea to win the support of peasants played a decisive role in pushing for a progressive reform program. There was a debate between the liberals and conservatives within the US State Department about land reform in Japan and Korea, and the liberal approach won the debate (Putzel 1992).

When the first election was held for the Republic of Korea in the South in 1948, all parties pledged to implement land reform and the Constitution included a commitment to land reform. Because of communist threats from North Korea, which carried out radical land reform in 1946, even the rightist leaders tried to appeal to peasants with the promise of land redistribution. The Korea Democratic Party that represented the interests of landlords did not openly object to land reform, but only tried to delay the implementation of the reform and to increase the compensation for the landlords. President Syngman Rhee, strong anti-communist politician, appointed Cho Bong-Am, a former communist, as Minister of Agriculture, and he drafted a progressive land reform bill with compensation of 150 percent of annual produce. Although the KDP members attempted to increase the compensation to 300 percent, the Assembly passed the Land Reform Act with 150 percent of compensation and payment on February 2, 1950, and President Rhee signed it into law on March 10, 1950 (Kim 2001).

An interesting phenomenon in Korea’s land reform was that many landlords sold their land directly to their tenants before the land reform legislation was implemented. The total area sold by landlords (500,000 hectares) exceeded the area of land redistributed by the government (330,000 hectares), and the bulk of the sell-out occurred in 1948 and 1949 when the prospect of land reform was clear (Hong 2001).

Taiwan’s case also demonstrates the important role of Communist China and the liberal reformers of the US State Department. When Chiang Kai-Shek was defeated by Mao Tse-Tung’s agrarian revolution on the Chinese mainland, some 2 million predominantly military and bureaucratic refugees fled to Taiwan. Chiang’s corrupt and conservative KMT in mainland China transformed itself into a more coherent and autonomous party-state in Taiwan and embraced land reform, apparently having been taught a bitter lesson from its failure (Evans 1995: 54). The US also advocated progressive agrarian reform to counter communism, and the U.S. advisors worked closely with KMT officials in Taiwan (Putzel 1992).

In the Philippines, the politics of land reform were more complex. During the US colonial period (1898-1941), the Americans established close governing relationships with the Philippine landed elite. After the Philippines gained independence in 1946, the US still exerted considerable political influence. In the absence of external communist threat, however, the U.S. did not feel urgency to press for land reform in the Philippines. It was not until 1951 that the US Mutual Security Agency commissioned Robert Hardie to study the tenancy problem in the Philippines, because of growing concern over the rise of an armed peasant movement led by the Huks. Hardie’s report released in December 1952 contained far-reaching, comprehensive land reform proposals such as distributing land to 70 percent of the tenants in the country (Putzel 1992: 84-85).

The landlords and their representatives in Congress strongly resisted, however, and President Quirino called the Hardie Report a “national insult.” In 1953, Hardie was replaced by John Cooper. Cooper suggested that only minor reforms were necessary in his report in 1954. As the Huks’ rebellion was suppressed, the U.S. approach to land reform changed to a conservative direction. The rise of McCarthyism further conservatized the U.S. position on land reform (Putzel 1992: 91 & 96-99). Once the US pressure for progressive land reform subsided, the landed oligarchy was easily able to preserve their economic base through their representatives in Congress (Doronila 1992: 102-104).

The failure of land reform in the Philippines partly reflects the endogenous nature of U.S. relations with the Philippine landed elite. However, the more crucial distinction between Korea and Taiwan on the one hand and the Philippines on the other hand was in the existence or absence of external communist threats. Also, there was rampant corruption in all three countries in the early years of independence. Thus it was not corruption but external communist threats that appear to have determined the success and failure of land reform.


6. CONSEQUENCES OF FAILED LAND REFORM ON CORRUPTION IN THE PHILIPPINES

Consistent with the proposition that high inequality encourages capture and clientelism, high inequality in the Philippines led to state capture by the landed elite and endemic practices of clientelism. The failure of land reform in the Philippines helped the landed oligarchy to maintain and further expand their economic power by diversifying to commerce, manufacturing, and finance (Wurfel 1988: 57). The landed oligarchy not only accumulated economic wealth but also political power since patron-client relationship between landlords and tenants could easily be utilized for mobilization of votes. Studies found that the Philippine legislator was typically a member of a wealthy landlord family and that the proportion of Congressmen and Senators with very wealthy family backgrounds increased between 1946 and 1962 (Abueva 1965; Stauffer 1966).2 Public office-holding branches of a family frequently helped protect or channel favors to the family business.

High inequality in income and wealth produced redistributive demands, but it also increased the incentives of the wealthy to capture the state on issues that went far beyond blocking of land reform. There is ample evidence on how the economic policy machinery was routinely hijacked by the powerful landed and business elites (MacIntyre 1994: 9). This made it difficult to implement any economic policies coherently.

An example is the political economy of taxation. High income inequality created demand for progressive taxation and marginal income tax rates were high. But collection rates were very low. The corporate tax code was riddled with special exemptions (Haggard 1990b). A study of tax burden by income class revealed the regressiveness of the Philippine taxation. In 1960, families with an annual income of less than 500 pesos paid 23 percent of that income in taxes, mostly indirect, whereas families with income between 5,000 pesos and 10,000 pesos paid less than 15 percent. Potential taxpayers in the upper brackets found it easy to buy their way out of a heavy assessment, either by bribing the tax collector or by making a campaign contribution to his patron, usually in Congress (Wurfel 1988: 56).

In addition to these examples of capture, postwar Philippine politics has been characterized by the persistence and prevalence of clientelism. Although elections were dominated by two political parties until 1972, the parties were merely shifting coalitions held together by patron-client relationships extending from prominent families in each province through lesser gentry in towns, petty leaders in villages, and down to the common people. Indeed, clientelism was an attractive strategy for the elite in the highly unequal Philippines. The power elite in both parties showed their common interest in suppressing programmatic politics and maintaining clientelistic competition when they unseated six congressional seats won by the progressive Democratic Alliance in 1946. The Democratic Alliance had advocated for progressive land reform, but disbanded in 1947 facing military repression (Montinola 2012; Thompson 1995: 18). In addition, the large proportion of poor people was prone to clientelism. Traditional patron-client relationships based on deferential exchange of favors weakened over time, and they were replaced by a system of exchange of electoral support for particularistic material benefits. Exchange of public sector jobs for votes as well as direct vote-buying became increasingly widespread (Lande 1965).

The landed elite also exerted influence, through congressmen, on bureaucratic recruitment. The Philippine constitution stipulated that appointment to the civil service be made on merit alone, “to be determined as far as practicable by competitive examination.” According to a Filipino political scientist, however, the pattern had been set by the early years of independence; “bureau directors and division chiefs received appropriations from the legislature in exchange for appointing friends, relatives, and needy constituents of congressmen” (Wurfel 1988: 78-79). Personal contacts and clientelistic exchanges of jobs for votes, became increasingly important for entrance into the central bureaucracy, and the role of competitive exams became relatively marginal. The spoils system developed to the extent that a scandalous “50-50 Agreement” between the Congress and Presidential Palace was reached surrounding the bureaucratic appointments in 1958. Under the agreement, newly available positions would be divided equally between the president and the congress (Francisco & De Guzman 1963). Although the “50-50 Agreement” collapsed because of wide criticism and resistance from the Senate, it was tried again in 1967.3

A survey of higher civil servants indicated the upward trend of patronage appointments in the early postwar period (Francisco 1960). The percentage of those who had entered the civil service through competitive civil service examination was 37.7 percent among the older cohort (over 45 years of age) and 26.0 percent among the younger cohort (45 years of age or less). The percentage entering through oral interviews, without examination, was much higher among the younger (48.1%) than among the older bureaucrats (34.7%). Thus, the Philippine state failed to develop an autonomous and meritocratic bureaucracy and came to be characterized as a “patrimonial oligarchic state” (Hutchcroft 1998).

The prevalence of patronage appointments in the bureaucracy increased bureaucratic corruption. Many patronage jobs were temporary positions, and hence their continued employment was tied to the continued support of their patrons. Corruption was often employed as one way of rewarding their patrons and intermediaries directly or as a means of securing money and gifts for them. The bureaucrats employed by patronage were also vulnerable to their patrons’ request for favors in policy implementation and in raising illicit campaign contributions to their political patrons (Hodder 2009). In a 1971 survey of bureaucrats, two thirds of respondents admitted widespread corruption in the bureaucracy (Montinola 1999).

In addition to exchanges of jobs for votes, direct vote-buying practices became increasingly common. The price of a vote varied a lot, but it rose steadily everywhere, often reaching as much as the daily wage. By one estimate, vote buying involved perhaps one-fourth of the electorate in the 1960s. As a result, Filipino elections were among the world’s most costly. In 1961, by one calculation, candidate spent per voter 1.6 percent of per capita national income. The total campaign expenditures for all candidates were equivalent to 13 percent of the national budget of that year. In the eight-year interval between the election of President Magsasay in 1953 and the victory of President Macapagal in 1961, presidential campaign expenditure rose more than tenfold. Election costs for all candidates in 1969 were estimated to be nearly 1 billion pesos, almost one-fourth of the national budget for that year and nearly twice the percentage in 1961 (Wurfel 1988: 98-100). Not surprisingly, rapidly rising campaign spending led to increasing political corruption.

Once the vicious cycle of high inequality-high corruption was in place, it continued through the Martial Law regime of Marcos (1972-86) and through democratically elected governments (1986-present). In 1972, Marcos declared Martial Law with promises of land reform and anti-corruption reform. Promised reforms did not materialize, however, and the Philippines became an archetype of the “predatory state.” Apparently, he found it easier to maintain his authoritarian regime by making a coalition with the powerful landed-industrial elite and dispensing favors to his cronies than by implementing genuine reforms.

The dramatic democratic transition through “People Power” in 1986 created high hopes for anti-corruption reform. Initially high expectations, however, were quickly followed by disappointments. With democratization, traditional elite families returned to dominate Philippine politics with the old style of capture and clientelism. Of the 200 representatives elected in 1987, 169 (nearly 85 percent) were classified as belonging to “traditional clans” (Mojares 1993). The dominance of politically powerful clans, or political dynasties, continued in later elections. Most post-Marcos representatives have multiple business interests, and only a small percentage of representatives (17 percent in the 9th House, 15 percent in the 11th House, and 17 percent in the 12th House) had no business interests (Coronel et al. 2004).

With continuing clientelism, patronage appointments are not declining, either. Evidence indicates that the share of CES eligibles occupying CES positions has been declining, which implies that political appointments have been increasing (Monsod 2008/2009). The powerful oligarchic business elite still extract privilege from a largely incoherent bureaucracy (Hutchcroft, 1998).

Under conditions of high inequality and widespread poverty in the Philippines, clientelistic practices are continuing and democratic mechanisms of accountability are not working. Around 90 percent of the Filipinos still consider themselves poor, and they are much more likely to sell their votes than the rich and the middle class according to a survey (Schaffer 2007).4 Programmatic party competition has not developed, and vote-buying practices are still common. Table 5 shows increasing perceptions of vote buying and cheating in elections in the Philippines. The proportion of people who expected vote-buying in elections slightly decreased from 57 percent in 1992 to 48 percent in 2001, but it increased again to 71 percent in 2010. Expectations of other election irregularities have been increasing as well.
[Table 5 about here]
Clientelistic politics prohibit the Philippine voters from punishing corrupt politicians at polls. Although people power II forced a corrupt president, “Erap” Estrada (1998-2001), to resign in 2001, the Filipinos found his successor Gloria Arroyo (2001-2010) even more corrupt. She was reelected in 2004 despite her notorious reputation for corruption amongst accusations of large-scale electoral fraud. She was able to survive the impeachment attempts only by relying on her clientelistic networks and “people power fatigue.” While the 2010 elections produced election of reform-coalition-backed Benigno Aquino III as president, his electoral victory was accompanied by disturbing elections of Imelda Marcos, Gloria Arroyo, a rapist, a cult group leader, and a warlord as members of the House, Ferdinand Marcos Jr. as a member of the Senate, and Imee Marcos, the late dictator’s daughter, as governor of Ilocos Norte. These politicians had no problem employing clientelism in order to obtain sufficient votes.

Throughout the post-war history, Philippine presidents made various anti-corruption pledges and established various anti-corruption agencies. Today, the Philippines has a large stockpile of anti-corruption laws and jurisprudence and one of the biggest number of anti-corruption bodies and audit institutions: 17 agencies led by the Office of Ombudsman and the special anti-corruption court, Sandiganbayan. The problem is not the lack of anti-corruption laws and agencies but the lack of political incentives to fight against corruption and ineffective enforcement. A study shows that out of nearly 80,000 cases of corruption, bribery, and other cases brought to the Ombudsman and Sandiganbayan from 1979-2006, there were only 27 meaningful convictions handed down, a dismal record of 27 convictions in 27 years (CenPeg 2007). Since the Philippine presidents relied on clientelistic networks, which were maintained by huge resources financed largely through corrupt means, their political will to combat corruption was weak and anti-corruption reforms were mere rhetoric without rigorous enforcement.


7. CONSEQUENCES OF LAND REFORM ON CORRUPTION CONTROL IN KOREA AND TAIWAN

In Korea and Taiwan, land reform opened space for state autonomy from the dominant class because powerful landed elites disappeared. Both Korea and Taiwan were able to establish meritocratic and autonomous bureaucracies, which were largely free from capture and penetration by special interests. Political clientelism and vote buying practices existed in Korea and Taiwan, but programmatic politics developed over time and clientelism gradually receded in significance.


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