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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)
Export diversification
Fall in contribution of 3 main export
commodities (54.4% to 44.5%)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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)
Export diversification
Oil seeds + fruits + coal petroleum
products + garments