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A framework for the political economics analysis of land policy

- an analysis of the “double reduction, double remittance” land policy during the war of resistance against Japan

Suyu Liu

Abstract: this paper uses class analysis and behavioral analysis of political economics, and borrows some of the analysis functions of modern behavioral studies, to investigate the “double reduction, double remittance” land policy. It shows that overreaction due to patriotism and class-struggle played a role which cannot be ignored in the land policy, especially where the economy was not operating normally or was imbalanced. On the basis of this analysis, this paper presents some suggestions concerning the drafting and implementation of real estate policy in modern-day China.

Keywords: class analysis behavioral analysis overreaction in “double reduction, double remittance”

Land and land policy has been seen in political economics as a model object for class analysis, and is a question to which the authorities of every country give particular attention. In the chaos of the war years, in the border areas of Shaanxi, Gansu and Ningxia under the control of the CCP, the correct application of the “double reduction, double remittance” land policy offered the promise of stability to guarantee the success of the war of resistance again Japan and the new democratic revolution.

1. Background and the proposal and implementation of the “double reduction, double remittance” policy

A) Background

1 – Particular circumstances: the bitter experience of the war of resistance against Japan

As Comrade Mao Zedong summarized it, the situation at that time was a period of general defense and stalemate. Japanese forces stormed Nanjing, the National government moved its capital to Chongqing, and at all major engagements such as Songhu and Xuzhou, the Chinese army was defeated. The bases for resistance operations behind Japanese lines were not yet well established and were under serious threat from Japanese forces. The problems faced by the CCP were enormous. Britain and America had not yet declared war on Japan, and China was bearing the full brunt of Japanese aggression. The threat to our nation from Japanese militarism was grave. The conflict between the Chinese and Japanese peoples was the most serious and pressing issue of the day.

2 – The importance of the domestic situation: class tension and struggle

At that time, although the Communist and Nationalist parties renewed their alliance to resist the Japanese at times of crisis, there was often friction between the two parties because of their different class interests. The hard-liners in the Kuomintang continued to instigate anti-Communist movements and carried out encirclement and military harassment of the bases that were under the leadership of the CCP anti-Japanese resistance. This harassment even included that some of the warlords in the anti-Japanese resistance bases cooperating with the hard-liners in the Kuomintang in Chongqing to carry out operations against the masses who were fighting the Japanese. As well as this, the National government was still representing China abroad, and was receiving the vast majority of the aid and support given by foreign nations to help combat the Japanese. They made no attempt to pass it on to help the resistance efforts of the CCP and its leadership. The situation for the CCP, then, was that their forces and the people of the anti-Japanese resistance areas under their leadership were on the one hand fighting the Japanese, and on the other struggling with the hard-liners in the Kuomintang. The resolution to this class conflict was distant.

3 – Economic situation in the Japanese occupied territory

The Chinese economy at the time had been forced onto a war footing, and the situation was extremely grim. The vast majority of industries had been wrecked or looted during the course of the war. A few had moved inland with the National government. Treasury receipts had plummeted and the cost of the war was escalating. Much of the best arable land, such as the three great plains, had been occupied by the enemy. At that time most of the areas in Shaanxi, Gansu and Ningxia held by the CCP and the resistance bases behind enemy lines were strips of land along the borders of the provinces.

B) Implementation of the “double reduction, double remittance” policy

The “double reduction, double remittance” policy was implemented during a struggle of the gravest hardship and danger in an attempt to achieve victory. The “land tax and interest reduction byelaw” of February 1938 states: “confiscation of the land of landowners will be halted, and the income of landowners, whatever the tenancy situation, will all be taxed at a 25% reduced rate (the “25% cut”). However, after payment of this tax, peasant who have taken out loans will also have to remit interest: in general the loan interest rate of 1.5% established before the war of resistance will be the standard. If the amount of interest already paid exceeds the value of the principal, then no more interest is taken and taxation is taken as paying off the principal. If the amount of interest already paid exceeds twice the value of the principal, then repayments of both interest and the principal will cease.”

Later, supplementary regulations allowed the “double reduction” rates to be raised to meet the needs of the masses. The rules on money lending were also changed: “the income of capital owners, whether it is from new or old loans, shall not exceed 1%.” It was also allowed that “if a landowner has had his former land confiscated, on return to his native town he may take a portion of land and a home equal to that of a peasant.” At the same time, the three-three principles were enhanced at the political level, allowing gentry and enlightened upper classes to work in the government for the resistance.

This correct policy was successively enacted in the Shaanxi-Gansu-Ningxia border regions and all the resistance base areas. After this, the revolution of the peasantry was positively and productively boosted, and crop production was increased. The long-standing problem of landowners demanding rent and peasants trying to avoid paying at the year end was alleviated considerably. Landowners’ success rates in collecting rent rose, and some of them began to positively contribute to the resistance effort and to join the resistance government. These factors all helped to much accelerate the later great production movements and the people’s struggle, to unite all the forces that could be united, and to establish a broad united popular front of resistance against the Japanese.

2. A political economics analysis of the “double reduction, double remittance” policy

A) Class analysis

1 – The “double reduction double remittance” policy as part of an integrated class compromise

In China the coexistence of the peasant class and the landed gentry has always been troubled. In the areas controlled by Kuomintang and the bases for resisting the Japanese (the so called “red areas”), the relationship between the landowners and the peasants was always like oil and water. They were in a state of unceasing furious conflict. In a year of bad harvests, the conflict between the landowning classes and the peasants over the allocation of a limited quantity of product was even fiercer.

However, at that time, because of the peculiar circumstances of the war of resistance against Japan, the interests – particularly the land interests – of both the landowning class and the peasant class had a mutual enemy: the Japanese aggressors. For this reason both of these class groups had cause to moderate their class conflict and unite in repelling the aggressor. But the landowners possessed land rights and the peasants possessed tenancy rights, and neither group was willing to ease up and give way. This then was an example of the classic problem in economics: i.e. the strength of class takes a decisive role in a conflict between two opposing rights.

Therefore the government of the border areas under the leadership of the Communist Party needed to formulate a land policy which could reduce conflict and with which both sides would actively engage. On the one hand, the CCP was the representative of the masses of workers and peasants, and as such had to defend the rights of the peasants in order to speed up advances in production and victory in the war; on the other hand, in order to maintain and expand the popular resistance to the Japanese they had to make some concessions to the land owning class and to allow them more benefits. There was an urgent need for a land policy which admitted both the land rights of the landowners and the tenancy rights of the peasants. It had to guarantee both that the peasants would have land to work and basic necessities such as food and clothing, and that the landowners would be able to collect their rent. These opposing requirements had to be brought together into a single policy. In addition to these problems, the situation in Chinese villages was particularly complex, with landowners also sometimes acting as creditors, and debtors being tenants. It was therefore necessary to have suitable economic measures which worked in concert with the land reforms.

The “double reduction, double remittance” policy met these requirements perfectly. It reduced the conflict between the landowning and peasant classes, and was also an embodiment of the CCP’s representation of the interests of the great working and peasant classes. It was also assisted by the three-three political principles and served as an expression of the sincere commitment of the CCP to a broad and stable popular resistance to the Japanese. In this way it attracted more administrators originally of the landowning class to commit themselves to the resistance effort; Li Dingming is a perfect example of these enlightened gentry.

2 – The “double reduction, double remittance” policy was a temporary, local, limited innovation

At base, the “double reduction, double remittance” policy was the correct solution found by the CCP to the situation at hand: they realized that the incursion of a foreign enemy was the most pressing conflict, and moved with the tide of patriotism. However, it is crucial to remember that the CCP represents the proletarian who lack capital. This policy, therefore, could only apply under certain historical conditions, when the non-capital owning classes give a little ground in order to reduce class conflict. It was necessarily temporary and local. As the historical conditions changed and class conflict once again arose as the most important issue in our society, the “double reduction, double remittance” policy would naturally be superseded.

B) Behavioral analysis

Before beginning a full behavioral analysis, I will introduce a utility function used in behavioral economics: u(x) = ru(x) + (1-r) tu(x). In this formula, “u(x)” represents the material utility of an individual; “tu(x)” represents the individual’s judgment of the material utility to other members of society; “r” represents the proportional relationship between the two. Usually “r” is rather large, meaning that an individual’s pursuit of her own utility is much greater than her concern for other members of society (cf. the experiments of Matthew Rabin).

Another concept in behavioral economics is “overreaction,” which is when an individual lacks a full understanding of the situation and her estimation of and negative reaction to unfavorable external circumstances is excessively strong. This is connected to Keynes’ three major psychological rules.

These principles lead us to see that when Japanese imperialist aggression threatened all Chinese people, most individuals would think of this threat as a disaster which would bring destruction on them personally. Furthermore, I wish to show the necessity and correctness of analyzing the “double reduction, double remittance” policy as a resolution of the tension between the landowning class and the peasants.

1 – behavioral analysis of the landowning class

Because of the introduction of the class factor, the utility function cited above will have to be changed to u(x)a = ru(x)a + mu(x)A + (1-n-m)ut(x)A. “u(x)a” represents the utility to an individual landowner; “u(x)A” is the utility to the entire class of landowners, from the perspective of the individual landowner; “ut(x)A” is the utility to the rest of society outside the class of landowners (which can here be taken to mean the peasant class); r, m and n are the proportions of the three, and r+m+n = 1. The landowning class are in conflict with the interest of the peasants (class), so n is rather small, and in fact can be taken to be close to 0. However, the direct source of utility to the landowning class is ut(x)A, and so u(x)a = F[ut(x)A,n,t]. “t” is the probability that peasants who have been affected by the exploitation of landowners and ut(x)A will resist paying rent and taxes. t = q[ut(x)A,n], and so is affected by this aspect. Therefore a landowner cannot afford not to take n and ut(x)A into consideration, even though his initial attitude towards them is ‘the lower the better.’

However, at that time and under those special historical circumstances, landowners overreacted to two external conditions: they were excessively averse to red political power and to Japanese aggression.

On the one side, the heavy blows suffered by the landowning class during past peasant movements under the leadership of the CCP had led them to think that careless management of r, m and n could lead to attacks which might destroy them. For this reason the landowning class tended to raise n somewhat, with the aim of reducing class conflict, for fear of even more disastrous losses. To this end, they allowed r and u(x)a to drop; because if that calamitous blow ever came, these figures would become academic anyway.

On the other side, the imperialist aggression of the Japanese equally raised the fear of destruction in the landowning class. It is clear that the landowning class began to think that if they continued to fail to unite in resistance, and particularly if they failed to use and rely on the peasant masses, then China could be conquered. If that happened, the landowners’ land would be taken by the Japanese, and neither u(x)a nor u(x)A would have meaning any longer. At this point a patriotic desire to save the country and protect the land began to have a great effect on the landowning class, particularly on some of the more enlightened landowners. Because of this, they preferred to let r and m drop sharply, and let n rise correspondingly, in order to arouse the peasant masses to join the struggle and resist the Japanese.

This shows that the CCP introduced the “double reduction, double remittance” policy at just the right moment. Their admission of the land and creditor’s rights of the landowners both took advantage of the landowners’ overreaction to the Japanese threat and encouraged them to join the resistance, and also dispelled the landowners’ class-based overreaction to the CCP. It also matched the political “three-three system” principles. To a great extent it protected u(x)A and u(x)a, it admitted and respected r and m, reduced t, and promoted solidarity with the landowning class, solidifying and broadening the popular resistance against the Japanese.

2 – Behavioral analysis of the peasant class

As above, the function for the peasant class will be u(x)b = su(x)b + pu(x)B + qut(x)B. “u(x)b” represents the utility to an individual peasant; “u(x)B” is the utility to the peasant class; “ut(x)B” is the utility to the rest of society outside the class of peasants (which can here be taken to mean the landowning class); s, p and q are the proportions of the three, and s+p+q = 1. In general, as the interests of Chinese landowners (as a class) and peasants (as a class) are opposed, the peasants will want q to be as low as possible. They push q down by raising their level of resistance to paying rent and taxes, as noted above.

However, in the peculiar environment of the war of resistance against Japan, because the consequence of the Japanese threat was destruction, the peasant class also had an overreaction to the Japanese threat; this was based on their patriotism. They urgently felt the need for the support of the landowning class in the resistance. In this position, the peasants preferred to sacrifice s and p, and to allow q a corresponding rise. They reduced t to guarantee a suitable ut(x)B (which here corresponds with u(x)A above).

From this analysis we can see that the CCP drafted the “double reduction, double remittance” policy correctly, and fully met the requirements of the peasant class. They protected the peasants’ tenancy rights and reduced their burdens, creating a definite rise in q while basically maintaining s and p. The policy was a manifestation of the CCP’s class profile as the representative of the interests of the masses, and rallied the great majority of the peasant population to devote themselves to the resistance.

As history attests, the “double reduction, double remittance” policy received the support of both the peasants and the landowners. It stabilized conditions inside the resistance areas behind Japanese lines and greatly boosted grain production and the military effort. It solidified and expanded the popular united resistance against the Japanese, and showed the developed way in which the CCP represented the interests of all the people of China. It also made an indelible contribution to the great victories of the war of resistance against Japan and the new democratic revolution. It is a shining example of the CCP’s farsightedness, their use of class analysis, their unification of the people’s great patriotism and their correct drafting and implementation of policy.

3) Applications for modern times

China has now already entered the first phase of socialism. The economic system is changing from a planned economy to a market economy, and civil and class conflict are no longer the major struggles in our society. The real estate industry is becoming an important engine of China’s high-speed development, and is receiving ever closer attention. I believe that it is possible to draw some useful conclusions from the foregoing economic analysis of the “double reduction, double remittance policy.”

A) Real estate policy should be part of an integrated economic system, not independent

As the analysis above shows, the success of the “double reduction, double remittance” policy was in large part due to its ability to gather together many areas of conflict into one. It united different strands of the existing situation, for example dealing with land rights and creditors’ rights together. As China goes through this crucial period of economic transformation, the real estate industry still does not function entirely smoothly, with disputes springing up regularly. This situation demands that the government authorities do not deal with the real estate industry in isolation when they are drafting policy. Rather, they should take a joined-up and long term view and coordinate real estate policy with other relevant policy areas, particularly finance and welfare. These policy areas should be complementary and mutually supportive, and should be fixed over the long term, not subject to frequent changes. If policy is not well coordinated, groups which profit from the real estate industry will find their interests damaged, disputes and conflicts will arise more easily and the policy will be difficult to enforce.

B) Real estate policy should take the distribution of benefits to different social groups into consideration

It is clear from the above analysis that the “double reduction, double remittance” policy was successful because it dealt correctly with the distribution of benefits under the particular conditions of that environment. It reduced class conflict and maintained the solidarity and stability of the political situation, and was supported by the two major class groups. Although class conflict and struggle are no longer the most pressing issues in Chinese society, there are still groups and classes among the people with differing interests. Particularly with regards to the real estate industry, the differences and competition between these groups or classes can be fierce. Now, with the reform and opening up of our economy and high speed economic growth, has come a strong surge in the disparity of incomes among the residents of our country. Real estate is one of the most symbolic forms of capital; it directly and very clearly reflects the disparity in incomes across the population. To reduce disparities in income and to maintain social stability, the drafting and implementation of real estate policy must attach more weight to the distribution of benefits among all the different interest groups and classes. It should pay attention to integrating the different aspects of the situation, but should not tread too heavily; the Gordian knot approach is not appropriate in this situation. Policy which fails to take these factors into account runs the risk of exacerbating social differences and introducing unstable elements into the equation.

C) The drafting and implementation of real estate policy should take into account the effects of “overreaction”

As noted above, a large factor in the success of the “double reduction, double remittance” policy was its use of the rising tide of patriotism. It skillfully combined the desire of both the peasants and the landowners to resist the Japanese and defend their homes and country. Currently, China has a high population and our land resources are relatively scarce, so the price of real estate has increased far above its value. This can easily give rise to an economic bubble. Behavioral economic research has shown that “overreactions” tend to become more severe in an economic climate which has more bubbles. Once this sort of tendency begins, if the economy has some inertia in its development then speculation and runs on real estate can easily start, and even repeated government interventions can be useless. If the bubble bursts or the policy goes wrong, then the body of the market can be affected by an “overreaction” in which forecasts become excessively pessimistic. This leads to a great reduction in investment, and bank nervousness begins a vicious circle which causes great harm to the economy. Therefore in the drafting and implementation of real estate policy the government authorities must consider the peculiar nature of the real estate industry and the potential it has for generating “overreactions.” The authorities must aim to limit their possible effects and thus weaken their capacity to harm interfere with the economy.

In conclusion, through research into the “double reduction, double remittance” policy from the war of resistance against Japan, and by synthesizing the success of that policy with the current economic situation in China, it is possible to speed up improvements to our real estate policy, and also to find new approaches to the problems encountered in the development of China’s real estate industry.

Main references

1) Yan Zhongping, A Selection of Statistical Data from China’s Recent Economic History, Scientific Press, 1955

2) Li Gongpo, Behind Enemy Lines in North China: Jin, Cha and Ji, Shanghai Sanlian Bookstore, 1979

3) Collected Papers from the Conference of the Shaanxi, Gansu and Ningxia Border Areas, Scientific Press, 1958

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