sea hist - economic development & consequences

7/30/2019 SEA Hist - Economic Development & Consequences

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Case Studies: Economic

Development & Consequences


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External climate:

Oil boom in 1970s OPEC raised oil prices in 1973 & 1979

Recession in the 1970s prices of oil & other primary products affected

Context

What circumstances did SEA

states face?Result

Limitations of strategies

Strategies

What were the strategies used & how

did they solve economic challenges?

Evaluation

Did the strategies solve the economic

challenges faced?

Indonesia

CONTEXT

3 phases

Post-independence

Sukarnos Guided Democracy

Suhartos New Order

ECONOMIC: growth in New Order Suhartos emphasis on economy

Aided by oil boom

Stable environment

Prices determined by market forces

Provision of public goods (physical

and social infrastructure)

Comparative advantage oil & gas

POLITICAL: dominant role of state

Due to weakness of other groups

(absence of powerful national

bourgeoisies)

Perpetuated by New Order

High concentration of power at peak

Cronyism; lack of transparency

Constitutional statism: Article 33,

1949 to 1957: Post-independence

Colonial, export-oriented, agrarian

economy dominated by Dutch and

Chinese capital

High mortality

Food shortages

Lack of domestic bourgeoisie ( state

pre-eminence in planning/ownership)

ECONOMIC

Five-Year Plan, Repelita I

Build public sector essential industries,

utlities & services that would stimulate

investment

Susequent plans every five years

1957 to 1965: Economic Nationalism; Guided

Economy

Sukarno more interested in maintaininghis political position

Shortage of capital, technology, foreign

exchange

Chronic inflation

Political upheavals

Social conflicts

1949 to 1957: Post-independence

Five-Year Plan FAILED

Cost of living grew by 100%

Continued to be over-reliant on foreign

exports

1957: Budget deficit 5.5b Rp

Limited wealth in hands of natives(pribumi) compared to Chinese

1957 to 1965: Economic Nationalism; Guided

Economy

Economic nationalism FAILED

Hyperinflation 600% in 1965 (due to

printing of money)

Cut off Western transfer of technology &

investments GNP per capita declined US$90 in

1960 to US$78 in 1970

Foreign exchange reserves almost 0 by

1962

National debt US$2b

Industrial development affected


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state control > private sector control

Central planning was imperative

set direction for economic activites &

allocation of resources

SOCIAL: inequity & nationalism

Decline in poverty Emergence of indigenous business

class

Inequity

Chinese dominance

Discontent with military rule +

channeling of state funds into major

alliances between generals &

Chinese

Oil boom in 1973

Massive increase in government

revenue

Crude oil price increased from

US$30 a

barrel in 1980

1970 1981: Export revenues

increase at rate of 45.5%

GDP growth rate averaged 7-8% per

year

Government used earnings to invest

in industry, agriculture &infrastructure

RESULT

Concentration of politico-economic interests

Corruption; bureaucratic obstacles

ECONOMIC

Confiscation of Dutch property; nationalised

businesses; severed ties with West; withdrew

Indonesia from World Bank & IMF

Economic nationalism; self-sufficiency1959 Government Regulation 10

Prohibited Chinese from doing business

in rural areas

ISI

Earnings from commodities (oil,

minerals, gas, agriculture)

investment (steel mills, shipyards)

Agricultural reforms

For benefit of poor

Post-1965: Economic stabilisation; New

Order

Based on national development/growth

Suharto abandoned self-sufficiency in

favour of foreign aid & investment

ECONOMIC

Appointment of Western-trained economists

Berkeley Mafia; 1967 Foreign Investment Law

Court foreign investment

Bimas (states agricultural guidance

programme)

High-yielding varieties of rice;

subsidized fertilisers & credit

Bulog (governments rice-trading monopoly)

Price controls to promote interests of

Anti-Chinese policies FAILED

Chinese expertise in manufacturing and

money-lending activities severely

affected

Chinese chose to leave the country

ISI FAILED

Inexperience & inefficiency of new

government

State apparatus ill-equipped

State resources misappropriated

8-Year Plan did not indicate how

resources would be allocated

Agricultural reforms FAILED

Nationalised enterprises ended up in

hands of military

1963: top 5% of farmers controlled

33%, bottom 40% controlled 10%

New Order: Economic stabilisation

Courting foreign investment SUCCESSFUL

Promoted economic links & networks

with internaitonal economic institutions

**however in LR: FIL laid basis for rise

of crony capitalism (b/c it required

partnership of local businessmen)

Seeking foreign aid SUCCESSFUL

1985 1986: Total IGGI assistance

estimated at US$2.5b


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1980s: lack of transparency &

regulatory frameworks

**Paradox: Deregulation reinforced

importance of state power

Political & economic interests collide

Suhartos maximum regime set

overarching conditions that limitedthe scope of deregulatory reforms

Cronyism

o 1969: Bulog appointed

Bogasari (a miller jointly owned

by government, Liem Sioe

Leong & Suhartos step-

brother) as sole flour miller

o 1990: Ministry of Trade

awarded monopoly rights of

Indonesias clove crop to

Tommy Suharto, whoseventure was financed by Bank

Indonesia at US$350m

Growth of state-sponsored private business

groups

Capacity of politicians (e.g. Liem

Sioe Leong; Bob Hasan) to

appropriate state resources for

private use

Dependent on state & lacked

political autonomyo Retarded growth & limited rise

of middle class

o Limited diversification &

industrialisation

o Remained primary economy

throughout 1980s

domestic consumers

Pertamina (state-owned oil company) &

Department of Industry

Led investments in petrochemicals,

steel, cement, forestry products

Diversification

Necessary because of fall in oil pricesdue to OPEC overproduction

Expansion of non-oil products that

would be competitive internationally

Methods: deregulation; development of

private sector; infrastructure; foreign

investment; transition to EOI

POLITICAL

Anti-communist credentials; intolerance for

social unrest

E.g. crackdown of 1974 Malari Riots Increase investments

Ended confrontation with Malaysia; closer

connections with West & Japan; 1967 Inter-

Governmental Group (IGGI) formed

Seek foreign economic aid

Balance between private and public sector

Private sector crucial for EOI for profit

element & competition to drive

production towards effiency

SOCIAL

Policies on foreign/Chinese investment to

defuse social tension

Requirement that in ten years,

companies investing under PMDN be

75% owned by indigenous investors

Relatively stable economy by 1969

grew at average annual rate of 6.6%

Bimas SUCCESSFUL

Rice production increased by 50%

between 1960 1980, a growth

unparalleled in Asia

Bulog SUCCESSFUL

Transformation from rice importer in

1970s to self-sufficiency in rice by 1985

Pertamina SUCCESSFUL

1975: state firms produced 75% of

cement, 52% of paper products and

machinery, 40% of food manufacturing

Diversification SUCCESSFUL 1988: state monopolies in steel &

plastic abolished; private entry

permitted into utilities,

telecommmunications, ports, roads

**however: drifting away from state

control challenge for New Order

October 1988 Reform Package

boosted investor confidence & scope

for investment 40 new private banks

granted licenses

FDIs increased six-fold from 1980-1990

Share of non-oil exports increased from

31% to 50% of total exports

1980-90: Manufacturing grew 13% to

18%; Agricultural fell 24% to 19%

**however: as a result of capital/political


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Burden of external debt

High dependence on foreign aid

By 1989, nursed Asias largest debt

at US$58b

Yet failed to materialise into long

term benefits still dependent onprimary products

More credit schemes for indigenous

small traders, e.g. KIK, KMKP

connections, concentration on financial

reforms continued to preserve

monopolies in real sector for large

conglomerates

Privatisation FAILED

State dominance with self-profitmotivation

Mismanagement Pertamina had

US$10b of debt due to reckless

overborrwing by chief, Ibnu Sutowo

Overprotection of cronies production

not competitive enough for export

Economic instability resulting from

financial deregulation private sector

bad debt was 2% of GDP in 1996

Nationalistic policies FAILED Outcome was cooperation between

indigenous & non-indigenous

businessmen instead

E.g. cukong system

Big conglomerates benefited > petty

bourgeoisie

Opened Indonesia to backlash from

foreign investment protectionism + too

little subsidies non-oil investment

declined by 45% from 1974 to 1980


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Philippines

CONTEXT

3 phases

Rapid ISI Crony capitalism under Marcos

Economic reconstruction

ECONOMIC: debt and slow recovery

Inherent lack of energy resources

Early ISI stage

ISI to EOI less successful/obvious

Reliance on foreign funds

Eventual move towards liberalisation

& privatisation Best performing post-independence

economy due to smooth/early

transition to independence (GDP

growth rate 6.5%)

Worst performing economy from

1980-1990 (GDP growth rate 1%)

Resource-rich early exports

centred on export agriculture

Comparative advantage oil & gas

POLITICAL: dominant role of state Dominant state intensified under

Marcos New Society & Martial Law

Mismanaged; inefficient

Cronyism; lack of transparency

o Marcos close friend Roberto

1946 to 1965: Rapid ISI before Marcos era

Indigenous busines class existed

Increasingly dependent on US markets

ECONOMIC

Open market with US

1909 Payne Aldriff Tariff Act: free entry

of US products

1913 Underwood Tariff Act: removed all

restrictions

Move towards ISI

Import control

Foreign exchange control

Tax incentive controlEconomic nationalism: Filipino First

1954 Anti-Chinese Retail Trade

Nationalisation Act: forced Chinese out

of corn and rice trades

1958 Congress Bill: required that

important industries own by wat least

60%

SOCIAL

Land reforms

Tackle poverty & rural unrests (e.g. Hukrebellion)

1946 Rice Share Tenancy Act

1954 Agricultural Act

1965 to 1986: Crony capitalism under

1946 to 1965: Rapid ISI before Marcos era

Market openness FAILED (in long run)

Due to protectionist measures (i.e. hightariffs; quantitative restrictions)

discourage growth of efficient industries

Ilustrado domination of economy

Landlord-cultivator relationship

Income inequality grew

Move towards ISI SUCCESSFUL

Rapid industrialisation

Manufacturing sectpr expanded from

8% of GDP in 1950 to 20% in 1960

Filipinisation SUCCESSFUL

Filipino participation in import trade

increased by almost three-fold (23% of

imports to 70%) in 1948-1965

Land reforms FAILED

Opposition from politically influential

landlord class

RSTA supposed to guarantee rice

farmers 70% of crop but landlordsignored peasants continued to pay

half of crop to them

Caused poverty and income inequality

12.5m households under poverty line in

1965


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Benedicto installed as head of

govt-owned Philippine Sugar

Commission even as world

sugar prices rose again in early

1980s, price increases not

passed on to owners

o

Loans from govt financedcorporations extended to

favoured enterprises

Marinduque Mining Company

(15b pesos debt) & Delta

Motors Corp (2b pesos debt)

Assassination of Benigno Aquino Jr

government had to seek 90-day

moratorium on IMF debt repayments

By substituting political for economic criteria

in many allocative decisions, such businessbehaviour is antithetical to the operation of

market forces.

SOCIAL: inequity & ethnic tension

Inequity

1972 self-sufficient in rice!

1985 slightly more than half of

population living below poverty line

(cronyism reinforced landed elites

dominance of economy at expense

of peasantry) Inter-ethnic tension

o Disproportionate role of

Chinese 1.3% of population

controlled 50-60% of economy

o Resulted from blatant acts of

cronyism (e.g. Lucio Tan-

Marcos

Recession in 1970s

Low annual GDP growth of 6%

Problem (1980s): international loans

Continued emphasis on agriculture

ECONOMIC1967 Investment Incentives Act

Attract foreign investment + encourage

Filipino businesses to accept joint

ventureships with foreign TNCs

Foreign borrowing for economic development

projects & export restructuring

Marcos provided credit for rural

infrastructure project including irrigation

systems, upgrading road systems &

technological innovations

Government credit backed rapid growth

in exports of labour-intensive

manufactures non-traditional

manufactures increased 7% to 60%

Received international advice from Consultative

Group

Discussed capital inflows needed to

foster growth + providence of

infrastructure projects

1980s structural re-adjustment programme to

ease transition from ISI to EOI

Reduce industrial protection tariffs cut

to 50% & protectionism cut to 29%

Liberalise import licensing procedures

for 1000 items

POLITICAL

1965 to 1986: Crony capitalism under

Marcos

Outcome from foreign borrowing FAILED

Money spent on bankrupt government

entities as well as structures that werenot concomitant with income

Loans dispensed entirely for poltical

ends; large proportion went offshore as

capital flight

Loss of investor confidence;

vulnerability of economy; poltical

instability

Despite support from IMF & World Bank

Martial Law FAILED

Total foreign debt increased fromUS$2.2b in 1972 to US$25b in 1983

Crony capitalism benefits of whatever

growth were distributed

disproportiontely to Marcos family + no

incentive to produce efficiently b/c

Marcos bailed cronies out in crisis

>80 firms became insolvent & several

investment houses closed

NOTE: 1980s crisis more of a result of external

circumstances than economic mismanagement;however, Marcos reaction to the crisis was

extravagant spending which led to bankruptcy

1987 to 1997: Economic reconstruction

under Aquino & Ramos


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Marcos case) bank

robberies & kidnappings of

Chinese (176 to 286 per year)

Oil boom in 1973

Economy suffered Philippines is an

oil-importer Oil imports increased from 12% in

1970 to 30% in 1980

RESULT

Considered a failure over 3 decades

GDP growth of only 3.9%

1990s: less growth but more stable than

Indonesia, Thailand, Malaysia b/c of reforms Bank lending in private sector only

57%, compared to 100% in Thailand

Non-performing loans only 5.5% of

assets, compared to 11% in

Indonesia

AFC hit less severely

Privatisation & liberalisation did not unseat

oligarchy

E.g. Ayala Corporation; Eugenio

Lopez clan; John Gokongwei malls &hotels continued to dominate

1972 Martial Law

To create political stability favorable to

foreign investment

Opened sectors previously closed to

foreigners (e.g. commercial banking;

rice; corn; oil exploration)

State dominance in all major sectors oil, power, fertiliser, banks

Central planning for national development

Planning, Programming, Budgeting

System

Development Budget Cooridinating

System

State corporations & participation intensified

National Economic Development

Authority (NEDA) oversaw economic

development

National Development Company

secured land for agriculture & establish

other entities

Philippines Chamber of Commerce &

Industry (PCCI) as official

representative of private businesses

SOCIAL

Rural development

Second Development Plan (1974-1977)

Green Revolution (mid-1960s)

Masagna 96 Programme (1978)

1987 to 1997: Economic reconstruction

under Aquino & Ramos

Slow economic recovery

Aquinos policies SUCCESSFUL

Attracted foreign investment

Doubled value of Filipino exports

BUT crippled by legacy of structural

problems equity and economic

growth remained major issues

Trade liberalisation programme SUCCESSFUL

Investment electronics equipment

as new dominant export in

spearheading merchandise export

growth

GDP growth peaked at 5.8% in 1996

(compared to 1.4% in 1980s)

Privatisation MIXED RESULTS

E.g. in 1992, Conjunagco family owned

Philippine Long Distance Telephone

(PLDT) Company with near monopoly

power while liberalisation led to 13

companies competing to provide

services, PLDT remained far ahead

Earned government $12b which helped

to balance budget

Export diversification / industrilisation

SUCCESSFUL

GDP growth from 1% in 1980s to

3.3% in 1990s

Industrial growth -0.9% in 1980s to

2.2% in 1990s


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Liberalisation & privatisation

ECONOMIC

Aquinos policies

Dismantled import controls &

monopolies that protected crony

enterprises Initiated trade reform

Ramos policies

Initiated trade liberalisation programme,

Accelerated privatisation

Breakup of monopolies

Export diversification & industrialisation

Coconut oil + fruit & nuts + electronics

electronics + data processing

machines + telecomms equipment


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Thailand

CONTEXT

MIRACLE

Before 1950

Zero growth

One of the poorest countries

1950 1990

Rapid & sustained growth

Manufactured exports surged

Domestic and foreign investment

increased dramatically

3 phases

Pribumis state-led development

Sarits economic reforms & ISI

Rise of EOI

ECONOMIC: impact of background; growth

GDP growth rate

o 1961-2000 healthy 6.8%

o 1980s strong performance

with 7.9% Experience of independence

affected structure of Thai economy &

process of development

o Autonomous commerce class

o Autonomous bourgeoisie able

to replace foreign enterprises

1947 to 1957: Phibuns state-leddevelopment

Dominant role of Thai state

Economic nationalism

Resilience of private sector

ECONOMIC

Nationalistic policies

Ministry of Communications developed

airlines

Ministry of Industry built petroluem

refineries & electricity generators

Ministry of Finance opened banks

POLITICAL / SOCIAL

Anti-Chinese & Anti-Western policies

Government issued directive for

Chinese to establish centralised

associations in gold trading, jewellery

trading & banking tap on Chinese

wealth

Western companies like Shell Oil werethreatened with closure & non-

renewable contracts

1957 to mid-1980s: Sarits economic reforms

Promoted private investments

1947 to 1957: Phibuns state-leddevelopment

Nationalistic policies FAILED

Renewed ethnic-economic tensions

haphazard state-led development

Resulted in uncertainty of investment

climate concerned about nationalisation

Anti-foreign policies MIXED RESULTS

Disadvantaged non-Thai businesses

BUT joint ventures with influential

Chinese businessmen Thai

businesses expanded rapidly &

accumulated much wealth anyway

1957 to mid-1980s: Sarits economic reforms

Investment Act FAILED

Manufacturing base remained narrow

and large-scale industries only started

developing in 1980s

US aid & loans SUCCESSFUL

1960-1980: foreigners invested 6m baht

DESPITE rise in foreign investment,

domestic capital maintained its


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o Logical check on role of state

not as dominant

o Successful transition to EOI,

given private commerce

Economic growth & overseas trade

prevailed

Main economic forces: immigrantChinese entrepreneurship & royal

control

Royal concessions granted to both

Western traders & Chinese

entrepreneurs as counterbalance

Benefitted from 1930s boom of rice

trade

Achieved commercialisation,

monetisation & commodification

POLITICAL: government industries & aims Military under Phibun aimed to drive

out Western & Chinese influences by

founding new industries under govt

o Ministry of Defence established

cotton & paper mills

o Ministry of Economic Affairs

established industrial division &

invested in sugar factories

Concentrated on public utilities,

consumer goods industries &

primary product trade

SOCIAL: indigenous vs Chinese competition

New (Chinese) entrepreneur group

emerged due to rise in urban

demand

More limited, infrastructural

development role of state

Focus on agriculture

Industrialisation

Foreign investment & aid

ECONOMICBuilt upon comparative advantage

Expansion of irrgation of land 600,000

hectares in 1947 to 2.2m in 1969

Doubled production of rice to 17m

tonnes by 1980

Promote industrialisation / boost manufacturing

1962 Investment Act gave incentives to

private sector

o Increased protectionism

o Increased tariffs

o Higher business taxes on imports

Received >$900m in aid & loans from US

Invited foreign corporations for joint

ventures

1960 Promotion of Investment Act

Guaranteed private enterprise against

state competition & nationalisation

More investment incentives

Provision of credit in First Development Plan

Industrial Finance Corporation of

Thailand (IFCT) established in 1959 toencourage & provide loans for private

industrial enterprises

State agencies supported ISI

Board of Investment (BoI)

National Economic and Social

Development Board (NESDB)

dominance in Thailand

IFCT FAILED

More inclined to provide credit for

powerful fractions of bourgeoisie than

small capitalists

ISI MIXED RESULTS

Rapid growth of manufacture & industry

Supported by foreign investors

Main beneficiaries were 15-20 Sino-

Thai families

Crony capitalism economic success

was a result of strong autonomous

business class

Chinese developed patron-client

relationship with monarch (e.g. Siam

Commercial Bank; Siam Cement) andalliances with military elite (e.g. Siam

Motors under Pornphopha family;

Sahapathanapibul group in consumer

goods)

Mid-1980s: Rise of EOI

Policies SUCCESSFUL

Manufacture & industry contributions to

GDP increased the most Industrial growth GDP growth rate at

7.9%

Rapid expansion of exports 14%

growth rate

Thai businesses efficient enough to


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Entrepreneurs petitioned for

indigenous business rights against

Western privileges & imports

RESULT

Economic development

Market compensated for government

failures

Economic stability attributed to

dynamic private sector, which stayed

resilient in the face of state

intervention AND foreign investment

Successful transition to EOI

Political instability on the surface

backed by strong stabilising

influence of army, monarchy & USaid

Thai companies spearheaded export

drive & relied less on FDI

Bank of Thailand

Mid-1980s: Rise of EOI

Stable GDP growth rate of 8%

Shift to EOI

Oil price increase US withdrawal (+ aid) worsened BoP

Political chaos (1973-1976) capital

flight out of country

1980s economic downturn pressure

to restructure economy

External foreign debt 38% of GDP by

1986

ECONOMIC

Promoted investment & export

Extension of similar investment

privileges to domestic & foreign

investors

o Guarantees against

nationalisation & govt competition

o Additional benefits for exporters

o Tax holidays

Encourage exports

o Abolition of several taxes

o Special credit facilities for

exporterso 100% foreign ownership if all

output exported

Loosened flow of funds for investment

Domestic investors allowed to borrow

overseas

Foreign banks established

expand business overseas (e.g.

Thaksins Shin Corp Company

diversified to Indochina, Indonesia,

India)

Policies FAILED

Urban-rural inequality (wealthdistribution increasingly skewed)

potential source for social conflict

o Bangkok 16.2% of pop

produced 55.4% of GDP

Concentration of wealth among

Chinese

o Only 3 out of 70 leading business

groups were non-ethnic Chinese


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Small finance companies emerged

Scaled down governments role

1988: NESDB relieved of role as

supervisor for all major investment

projects

Export diversification

Rice + vegetables & roots + rubberoffice machines + semiconductor

devices + telecomms equipment

Malaysia

CONTEXT

4 phases

Laissez-faire ISI

New Economic Policy & EOI

New ISI and privatisation

Industrial deepening & widening

ECONOMIC: British rule & overall strong

performance

One of strongest economies in SEA

Growth did not decline over time but

maintained steady level

GDP growth rate averaged 6.7%

Existence of small Chinese

community even before British

Main activities: farming & cultivation

British capital & technology

facilitated tin & rubber exports

success development of primary

commodity processing & light

manufacture of consumer goods

POLITICAL: dominant & crucial role of

government

1960s: Laissez-faire ISI

ISI not accompanied by nationalisation

b/c of 1) historical reliance on foreign

capital & 2) conservative temperament

of Alliance

ECONOMIC

Foreign investors encouraged to set up plants

Produce import substitutes

1958 pioneer industries programme

Focus on processing primary products

& consumables

Increase in number of firms granted

pioneer status

Governments non-discretionary

intervention firms offered incentives

1970s: NEP & EOI

Twin objectives of poverty eradication &

elimination of ethnic disparity

ECONOMIC

Reduce bumiputra poverty in rural areas

Extensive state investment flow into

1960s: Laissez-faire ISI

Pioneer industries programme SUCCESSFUL

Increase in consumption goods (21.9%

to 31.2%) consumer durables (12.6% to

24.1%) as portion of industrial output

Laissez-faire policies overall FAILED

No developmental strategy reflects

lack of economic expertise

Sluggish growth in 1960s

Domestic market & manufacturing

growth saturated

Widened income inequality

o Only 2% Malay ownership of

corporate wealth

o Industrialisation dominated by

Chinese (e.g. Kuok Brothers;

Hong Leong Group)o 75% of households below poverty

line = Malays

Political ramifications 1969 race riots

1970s: New Economic Policy & EOI


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2 main aims of government

o Rapid economic growth

o Redistribute owndership of

wealth (among ethnic groups)

Role of government high central to

economic development throughout

SOCIAL: Plural society & ethnic division of

labour

Capitalism influx of immigrants +

division of labout along racial lines

Economic specialisation & ranks

(European businessmenChinese

tin miners/middlemen + Indian

rubber tappers/chettiars immigrants

native farmers)

Different administrative frameworks

for different ethnic groups

Recognition of 3 official ethnicities

(Malay, Chinese, Indian) & ignored

subdivisions discouraged inter-

ethnic marriages/socialisation in LR

RESULT

Despite focus on economic nationalism &

equity after 1970, government was able to

maintain high growth rates

Receptiveness to foreign investment

Promotion of EOI

Political & social stability

Economic growth

agriculture & rural development

State agencies provide land, capital &

amenities

o Federal Land Development

Authority (FELDA)

o Rubber Industry Smallholders

Development Authority (RISDA)Increase bumiputra ownership in corporate

sector

1975 Industrial Coordination Act (ICA)

quotas for bumiputra representation

1974 Petroleum Development Act

nationalised oil industry under Petronas

Preferential treatment for bumiputra in

educational opportunities

Boost employment

Financial support to encourage bumiputra

participation in commerce through joint ventureswith foreign companies

National Trading Corporation

(PERNAS)

National Equity Corporation (PNB)

State Economic Development

Corporations (SEDCs)

Attract foreign investment in manufacturing

1968 Investments Incentives Act (IIA)

1971 Free Trade Zone

1980s: New ISI (heavy industry) &

privatisation under Mahathir

ECONOMIC

Mahathirs Look East policy

Aim: to achieve status of NICs

Economic nationalism SUCCESSFUL

Bumiputra companies replaced foreign

capital in planations & media

o PNBs purchase of controlling

interests in Guthrie Corporation

o Lontin Tin Malaysian MiningCorporation

o Petronas nationalising oil industr

Income inequality reduced

Poverty rates fell (40.3% to 15%)

Economic growth NOT compromised by

economic nationalism & equity

Attracting foreign investments SUCCESSFUL

Foreign dominated export processing

grew rapidly, particularly in electronics

& textiles

Surge in foreign investments

1980s: New ISI & privatisation

HICOM FAILED

Heavy losses in initial period

External debt soared

Primary commoditiy prices fell sharply

Bureaucratic inefficiencies

1986 1990s: Industrial deepening &

widening


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NEPs success at addressing rural

poverty & creation of middle class

Substitution of economic for political criteria

E.g. North-South highway project

contracted to United Engineers

(largely owned by UMNO)

Crony capitalism undermined states efforts

at equity

Enlarge income gap between rural &

urban Malays & Chinese

Unequal distribution of income

Between industrialised & less

industrialised states Peninsula

west coast vs Kedah & Kelantan

Between social groups Orang Aslidid not benefit despite being

bumiputra (displaced by

government)

Between beneficiaries of NEP &

Malays living in poverty

Growing debt

Public sector debt grew at average

annual rate of 33%

Endemic cronyism heavy

borrowing private sector debtincreased

Increased dependence on short-term

capital increased vulnerability of

ringgit to financial speculation

Backdoor nationalisation through holding

Establishment of Japanese style trading

companies to promote Malaysian goods

in international market increase trade

Encouraged heavy industry projects to

develop bumiputra business class

State investments spearheaded by Heavy

Industry Corporation of Malaysia (HICOM) Intervened with subsidies & protection

Boost bumiputra ownership

E.g. Kedah Cement; Perjawa Steel;

Proton

Privatisation of inefficient public enterprises

Sale of state-owned companies

Private financing of state projects

Malaysia Incorporated public &

private enterprise as partners

1986 to 1990s: Industrial deepening &

widening

(Instead of NEP) NDP, Nation

Development Policy - focus on high-

tech industry

Emphasis on redistribution declined in

1990s rise in inequalities

ECONOMIC

Woo foreign investment

1985 Industrial Master Plan identifystrategic sectors

1986 Promotion of Investors Act (PIA)

new incentives

1990 Action Plan for Industrial

Technology Development outline

transformation of economy


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companies or statutory boards

As opposed to large scale

nationalism in some other SEA

countries

Economic openness

Explains why crony capitalism wasless detrimental to growth in

Malaysia than elsewhere

Racial structure & political policies had

significant influence on economic policies

NEP shaped by political objectives

Political stability after consolidation of ruling

partys & Malays dominance economic

success

Development of skilled human capital

Double Deduction Training Incentive

Human Resource Development Council

(HRDC) / Penang Skills Development

Centre (PSDC)

Ministry of Science, Technology &

Environment (MOSTE)Widening localisation support for local firms

(e.g. Proton) with state institutions

Malaysian Technology Development

Corporation (MTDC)

Malaysia Industry-Government Group

of High Technology (MIGHT)


Fall in contribution of 3 main export

commodities (54.4% to 44.5%)


17/26

Singapore

CONTEXT

Characteristics of growth

Sustained rapid growth

Strong export orientation

High savings & investment

Low inflation Small government consumption

Fundamental structural

transformation

2 phases

Industrialisation & restructuring

Technology, services &

regionalisation

ECONOMIC: growth & efficiency

Top performing economy GDP

growth rate of 8.3%

Reasons?

o Free enterprise system

o Outward-looking orientation

o Sound, transparent

Late 1950s to 1970s: Industrialisation &

restructuring

1955 1961: paidly growing population

pressing unemployment entered

ISI in common market with Malaysia

1970s: new challenges from regional

environment forced Singapore to shift toEOI separation from Malaysia

Malaysia becomes competitor

ECONOMIIC

Policies to attract investments adjusted taxes

Pioneer Industries Ordinance

Industrial Expansion Ordinance

1978: restrictions on capital flows

abolished & allowed 100% foreign

ownership

1961 1964: Development Plan

Focus on economic development

58% of $871m for development spent

on economy

Economic Development Board (EDB)

Government agency spearheading

Late 1950s to 1970s: Industrialisation &

restructuring

ECONOMIC

Policies to attract investors SUCCESSFUL

Foreign investment in manufacturing

rose 24 times in 1965-1970 1976: accounted for 71% of exports

Result of poltical stability under PAP &

improved climate for industrialisation

EDB SUCCESSFUL

Geared towards stimulating private

capital through collaboration (as

compared to Indonesia & Philippines,

where state corporations facilitated

state domination over private sector)

Support for manpower training SUCCESSFUL

Higher level of literacy and trainability

Transport links with other parts of the

world have been well-established

Manufacturing sector expansion SUCCESSFUL


18/26

governance

Led to efficiency when other

countries were grappling with over-

protection

Sound policies derived & adhered to

Reliance on entrepot trade export

orientation & exposure tomanufactures at an earlier stage

Lack of natural resources need to

shift to EOI & higher value-added

industries

Labour force engaged in services

sector (30.9%) and commerce

(23.2%), instead of agriculture

(8.1%) which was the comparative

advantage for other SEA countries

POLITICAL: accountable government PAP = English educated nationalists

+ Chinese educated working class

insulated from pressures by

established business interests

Efficient & incorruptible bureaucracy

supporting well-disciplined labour

force that was unaffected by

disruptive trade unions (unlike other

SEA countries)

Invested heavily in housing, power,

water, transportation, port facilities &telecommunications

Regulated labour market able to

secure international manufacturing

competitiveness through limiting

wage rises

manufacturing & industrial growth

Facilitated implementation of projects

Led to other economic bodies (DBS,

JTC) and subsidiaries (CPF scheme,

POSB)

Governments export incentives

Concessionary tax rates

Lower i/r by MAS

1976 Export Credit Insurance Scheme

1976 Small Industries Finance Scheme

Support for manpower training

Industrial training centres

Technical & vocational institutions (e.g.

Ngee Ann College; Singapore Poly)

Manufacturing sector expansion

Despite 1964 Konfrontasi & 1970s

worldwide recession

1980s and beyond: Technology, services &

regionalisation

1979: Second Industrial Revolution

1986: Total business centre

1990s: Regionalisation

ECONOMIC

Increase technological sphistication and further

raise contribution of manufacturing to growth For long term competitiveness

1983: Singapore Technologies

Corporation (STC) created to promote

advanced technologies

Government of Singapore Investment

Corporation (GIC) established to invest

Employed population in manufacturing

rose from 16.5% ub 1947 to 27.2% in

1977

Expansion in trade of mineral fuels (e.g.

crude oil) & growing importance of trade

in machinery & equipment

1980s and beyond: Technology, services &

regionalisation

ECONOMIC

Increased techological sophistication

SUCCESSFUL

Value-added per worker nearly doubled

from 1979-1984 enhanced

producitivity of workforce due to capital

investment

Integration of Singapore-based economies

SUCCESSFUL

Total direct investment nearly doubled

from S$8.7b to S$16.9b from 1989-

1990 and reaching S$28.2b in 1993

Concomitant diversification of city

states economic base

>60 major TNCs across various

industries have made Singapore their

headquarters since 1986

Industrialisation SUCCESSFUL

Increase in export concentration of 3

main commodities from 38.9% to 50.2%

1970s: increase in both industry &

manufacture contributions to GDP


19/26

Central planning

Pioneered move into diversification

& capital intensive activities

Late 1980s: governments cooptation

of members of private sector in

economic activities through Regional

Business Forum (RBF) ensuresstates central role with private

sector inputs

Principles of governance

o Highest priority to economic

efficiency & achievement (as

compared to Indonesia and

Philippines which replaced

them with political

considerations)

RESULT

Social divisions

Economic development came at the

price of equity

Rich-poor divide between different

classes (20% of households have

monthly income of


20/26

Singapore = largest receiver of FDIs

between 1980 & 1990

Political stability + low inflation +

rapid growth SUCCESS

PAP ruled since independence and

shaped most of economy

Accountability, predictability,transparency able to deliver

economic goods to population

Pragmatic approach did not adopt

anti-American & anti-MNCs in 1960s

& 1970s

Burma

CONTEXT

3 phases

Beginning of state intervention

Drift towards socialist economy

Contradictions in market oriented

strategy

ECONOMIC: focus on equity; poor

performance

Endowed with abundant natural

resources, high literacy rate,

absence of population pressure

YET Burma had the lowest GDP

growth rate, most closed economywith low exports, astounding lack of

economic restructuring &

diversification

Economic growth only picked up

after shift towards market orientation

in second half of 1980s

1950s: Beginning of state intervention under

Ne Win

ECONOMIC

1948 Land Nationalisation Act

Enabled state to appropriate &

redistribute agricultural land

State Agricultural Marketing Board

State monopolised rice exports

Import controls

Allocated 60% of private import licenses

to Burmese nationals

Nationalisation pursued via state enterprises

E.g. Defence Services Institute (DSI)

given interest-free capital & tax exemptstatus to cater exclusively to soldiers

Infrastructure companies set up by DSI

Five Star Line freight lines; trucking

Burma National Housing / Construction

Company public roads; bridges

Rangoon Electric Works assembly

1950s: Beginning of state intervention

Overall MIXED RESULTS

Some degree of economic development

achieved increase of per capita

income by 4% annually

BUT hampered by falling rice &

commodity prices (global price of rice

fell by 25% in 1955-1956)

Forced to seek loans from US, China,

World Bank to shore up foreign

reserves

Political instability caused by civil war &

disunity within AFPFL had detrimental

effect on growth States inability to follow through with

economic plans

1962 to 1970s: Drift towards socialist

economy


21/26

Socialist track and priorities more

extreme than Vietnam aversion to

foreign trade & contact

Even in 1990s, military placed

severe limitiations on liberalisation,

fearing that openness would compel

political reforms Primary export economy with severe

limitations

o Dominated by foreign firms

o Limited transfer of skills to

locals

o British preferred Indian labour

BoT worsened due to drop in exports

of rice as a result of the war

RESULT

Failure of Burmese Way to Socialism

Below par GDP performance

Dominant reliance on agriculture

Inability to restructure & diversify

Both agricultural & industrial sectors suffered

until 2nd Four Year Plan in 1974

Redirected energies towards

agriculture

Lack of international trade

Trade orientation & export earnings

declined

Crucial for economic development

plants; electrical equipment

Continental Trading House fisheries

Commodities companies foreign owned

East Asiatic Company of Burma rice

millers

John Dickensons & Company paper

Steel Brothers rice; oil; timber;shipping

1962 to 1970s: Drift towards socialist

economy

ECONOMIC

Burmese Way to Socialism

Inward looking policy based on central

planning & state ownership

Anti-Indian policy

Thousands of Indians repatriated totheir homes despite having lived in

Burma for generations loss of

experienced bureaucrats

State control strengthened in agricultural sector

Introduction of technology in agriculture

fertiliser usage went up 6x; high

yielding variety (HYV) seeds introduced

Agricultural policies established

governments control over rural

population

1965 Tenancy Law aim to redistributeland to farmers (equity) but tended to

have lower productivity

State control strengthened in manufacturing /

commercial sectors

Abolition of private enterprises &

Agricultural measures FAILED

Given importance of rice (60% of GDP)

to Burmese economy stagnation of

entire economy in 1970s

Rice exports fell by 86% acute

shortage of foreign exchange

Overall FAILED

Economic decline

Nationalised industries plagued by

shortage in economic expertise & raw

materials (cotton per acre was 60% less

than expected yield)

Private industry died state controlled

private sector through monopoly on raw

materials & power over foreign

exchange (tin ore output fell to zerotons in 1965)

2nd Four Year Plan MIXED RESULTS

Strong growth in agriculture averaging

8.6%

Continued shortage of industrial inputs

flourishing black market

Once was worlds largest exporterof

crude oil 1980s net importerof crude

oil & rice

Influence of private sector in 93.9% of

industrial activity

BUT out of almost 40,000 private

establishments, only 13 employed >500

workers, showing that industrial activity

of any significant size was concentrated


22/26

Political instability; 1988 coup

Led to suspension of foreign aid b/c

investors are most concerned with

reduction of bureaucratic controls &

administrative inefficiency + long

term sense of security & freedom

from uncertainties

Overall extremely poor performance

Inflation was 20-30% due to deficits,

increases in money supply &

depreciation of kyat in black market

BoT worsened to deficit of US$1.2b

Poor infrastructure/institutions &

regimes restrictions on foreign

exchange unattractive place for

investors

Limited privatisation

nationalisation

Reduction in foreign contact end of

international trade

Banned all private importers / exporters

1000 private firms closed down 2m

workers unemployed

State corporations set up to finance riceproduction

Anti-foreign measures led to Burmese insularity

Existing notes above 50 kyat no longer

legal tender

Entry of visitors limited to 24 hours

Revolutionary Council cut off economic &

diplomatic ties

End of foreign trade, aid, investment

Continued negative growth in exports

2nd Four Year Plan

Prioritised agricultural sector over

industrial

Recognised importance of private

sector & foreign investment

Procurement in prices for paddy were

raised to stimulate production

1976 Burma Aid Consultative Group

World Bank channeled official

development assistance aid of up to

US$348.5m between 1976-1986

After 1988: Contradictions in market

oriented strategy

Standard of living declined

Military enriched itself at expense of

people

in state owned enterprises

After 1988: Contradictions in market

oriented strategy

Shift to market oriented approach FAILED

Contradictions in declaration initiative

to shape national economy still kept in

the hands of the state & national people

State monopolies continued

Continued restrictions on goods Burma

produced & traded

By 1997, only 5% of large firms were

privately owned; no large state

enterprise had been privatised

Main industries remained under army

control for their own benefit


23/26

Equity achieved! everyone became

equally poor

Outbreak of 1988 demonstrations

Stagnation of rice production limited

avaibility of irrigation necessities

Massive inflation

ECONOMIC

Central planning discarded & replaced by

market-oriented approach

1988 Foreign Investment Law

Guarantees against nationalisation and

for repatriation of profits

Abolishment of state monopolies;

enouragement of private enterprises

Income & profit taxes lowered

Vietnam

CONTEXT

North vs South Vietnam

North Vietnam socialist

South Vietnam received US aid

when capitalist became socialist

only in 1974

Reunification in 1976

3 phases

Reunification & 2nd Five Year Plan

Towards decentralisation

Increasing openness

ECONOMIC: decline as a result of war

Socialist theory prioritisation of

heavy industry

1976: Reunification & 2

nd

Five Year Plan

ECONOMIC

Post war measures

Expansion of agriculture to create

employment

Private banks abolished; limited amount

of money retained for private use

Foreign enterprises nationalised

Foreign investments wooed

2nd Five Year Plan

Focus on heavy industry + science &tech

Agricultural development through large

scale collectivisation

1. Abolition of private trade & manufacturing

Major enterprises/firms placed under

1976: Reunification & 2

nd

Five Year Plan

2nd Five Year Plan FAILED

Lack of funds

o Soviet economic assistance lower

than promised

o China cancelled projects &

withdrew technicians

o US aid failed to honour 1973

Paris Agreement

o US and several allies declared

trade embargo with Vietnam War & lack of infrastucture

o Small commercial sector

destroyed

o Difficulty in absorbing foreign aid

even when it was given

o Transportation infrastructure (lack


24/26

Failure to stabilise economy

o Wars with China & occupation

of Cambodia

o Natural disasters

o Absence of expected foreign

assistance

Capitalist South Vietnam + point: fertile farmlands

- point: lack of resource & industrial

base

Industrial development through

consumer goods (sugar refineries,

textile/processed foods factories)

Leading rice exporter importer of

grain (b/c of 2nd Indochina War)

1971: US withdraw end of US aid

Socialist North Vietnam

+ point: mineral resources (gold,

zinc, iron, tin)

- point: small industry sector was

badly neglected after 1st Indochina

War

1961: First Five Year Plan

transition to fully socialist

technologically advanced society

dominant role of state + >90% of

industrial and agricultural sector

nationalised Economic aid from socialist allies

1966-1975: 2nd Indochina War & US

bombing industrial output decline

POLITICAL: dominant role of state

Excessive state intervention

state control or abolished

2. Collectivisation of countryside

1978 New Management System large

scale collectivisation

Farmers retained control over lands, but

established contracts with government

for production goals

POLITICAL

Ideological & class dimensions

Those with useful experience were

prevented from holding positions of

power (b/c of class background,

suspected ties to US/Southern

government or of Chinese descent)

1980s: Towards decentralisation Mid-1980s: stoppage of USSR

economic assistance

US imposition of embargo Vietnam

could not receive credits from IMF,

World Bank & Asian Development Bank

ECONOMIC

1981 contract system

Collective lands distributed to families

for private cultivation

Farmers only required to provide statewith certain quota of grains

3rd Five Year Plan

Recognition of private sector in various

economic fields

Local managers of state enterprises

given autonomy to make decisions

of equipment, potholes, lack of

spare parts for trucks)

Lack of economic expertise

o Insufficient technological &

managerial expertise + lack of

appreciation of economic

structure from the South

Abolition of private enterprises/firms FAILED

Urban sector thrown into turmoil

Merchant dissatisfaction mass

exodus of refugees

Overall FAILED

Flight of hundreads of thousands of

refugees

Peasant resistance to collectivisation

Thriving black market 1977-1980: Food shortages

1980: Industrial capacity lower than

50%

No target reached at end of 2 nd Five

Year Plan

1980s: Towards decentralisation

Contract system & 3rd Five Year Plan MIXED

RESULTS

Industrial production increased by 10%

Output of grain increased by 5%

However, exports still fell short of target

Overall SUCCESSFUL


25/26

Division between leaders who stood

for ideological purity and leaders

who were pragmatic & believed in

capitalist incentives to encourage

production

RESULT

Inherent contradictions in socialist strategies

Prioritises heavy industry, yet due to

poor infrastructural development +

lack of skilled/experienced workers

projects dragged longer than

necessary

Inefficient allocation of resources &

underutilisation of industrial capacity

Problem with collectives: inability tomobilise labour & lack of incentives

Leadership divisions

Trouble reconciling economy with

party ideology

Lack of transparency

Investors put up with bribes to meet

with officials/obtain government

contracts

Political and Economic RiskConsultancy reported Vietnam as

riskiest place to invest

Only 1/3 of promised $20b (1988-

1995) had been disbursed

Government planning/participation

State subsidied on consumer items

abolished to encourage market forces

In foreign trade, 4 major cities

perimitted to set up import-export

(IMEX) corporations

1986 Doi Moi (politics of renovation)

Reduction of ministries & size ofbureaucracy

Subsidies abolished

Compulsory grain deliveries from

farmers abolished

Farmers allowed to earn up to 40%

profits

Tax exemptions granted to industries

that produced for exports

Measures to boost foreign investment

Advice from Economic and Social

Commission for Asia and the Pacific(ESCAP)

Foreign owned companies allowed

Guarantees against nationalisation

New investment law allowed investors

to operate through variety of ways

1990s: Increasing openness

ECONOMIC

Increase foreign aid & investment

Improved relations with US foreign

aid from Japan, Australia & France etc

Lifting of US embargo foreign

investors committed nearly $20b for

variety of projects

Economic growth doubled 3% to 6%

Private sector increased 10% to 25%

International trade doubled - $1b to $2b

1990s: Increasing openness

Continued doi moi SUCCESSFUL

GDP growth rate averaged 8.2%

Agricultural & industrial output

increased by 6% and 15% respectively

International trade increased up to

$11b in 1995

6 infrastructure projects completed in

transport sector


26/26

Intrusive

Even after 1986, abolition of central

planning was not synonymous with

decline of state economic sector

supported by Vietnam Peoples Army

(VPA)

Overall

Rice importer major exporter

o ASEAN countries purchased

up to 40% of Vietnams exports

Vietnam joined AFTA free trade

forced businesses to improve on

competiveness by reforming

technology & organisation

Bureaucratic controls still exist

government still not disposed to

leave industrial structure to market,preferring administrative rules

Continued endorsement of doi moi

^ (see above)


Oil seeds + fruits + coal petroleum

products + garments

sea hist - economic development & consequences

Documents