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Minns_(2001) - HISTORY AND CONTEXT Chapter Three World...

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Unformatted text preview: HISTORY AND CONTEXT Chapter Three World Economies: Southeast Asia since the 1950s John Minns In 1994-, the respected economist Song Byung- nak predicted that by the year 2000 all the nations of Southeast Asia would have gradu- ated to the status of “newly industrializing countries” (NICS) and that the center of the world economy would have shifted to East Asia by then (Song p. 218). Another estimate made at around the same time, by Anne Booth, suggested that by 2020 Indonesia would be the fifth largest economy in the world, after China, the United States, Japan, and India, while Thailand would be eighth, with Germany and South Korea in between (Booth p. 28.) A few analysts were suspicious of these forecasts, pointing, for example, to inefficient forms of production and low levels of labor productivity (see Krugman), but most were carried along with the prevailing euphoria and predicted waves of Asian “miracles.” Barely half a decade later, with the experience of the crisis of 1997 intervening, these predictions now appear I grossly and falsely optimistic. Nevertheless, such optimism had some basis in fact. Some of the countries of Southeast Asia have per capita incomes among the highest outside the advanced industrial world, and Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand have all experienced significant economic growth since the mid- 19605 (Oshima p. 203). Indeed, economic expansion in some of these countries has been faster than almost anywhere else, apart from the “miracle” economies of South Korea and Taiwan. Sometimes, then, optimism was based on simple but illegitimate extrapolations from growth that had already been achieved. 24 Sometimes, however, it was based on a lack of knowledge of the region, its great diversity, the stark differences in living standards within it, and the ways in which Southeast Asia as a whole, and its component parts, have been positioned within the world economy To appreciate these questions we must begin with the structure and location of these economies as most of them became politically indepen— dent after World War II. The Colonial Inheritance The colonial powers oversaw economies in which primary production predominated. Although important local variations existed, it is broadly appropriate to view the late colonial economy as a triadic system. Long-distance, especially international trade, and the little manufacturing industry that existed, were largely in the hands of Europeans, along with plantation agriculture and mining. Most food for domestic consumption was produced by the native peoples, who also engaged in as well as small-scale handicrafts. Connecting these two economies was a class of merchants and moneylenders, often Chinese but occasionally Indian in background, who collected and traded produce, and provided small-scale credit to peasants (Wu and Wu p. 4-8). Trade and foreign investment connected colony to colonial power, rather than colony to colony: the tin and rubber of the Malay peninsula largely went to Britain in British ships and was sold there by British companies, and sugar went directly from the Philippines to the ., “dais: World Economies: Southeast Asia since the 19503 25 United States. Intraregional trade was limited, since the first destination for each of the cash crops and minerals produced in the region was the country that had colonized it rather than any more diverse range of advanced, industrialized markets. Foreign investment came largely from the same colonial power. These well-established patterns were disrupted by the advent of political indepen- dence, although to varying degrees. The French colonies in Indochina, in armed revolt against Paris, rapidly broke most of their economic ties with French firms upon declaring independence, or even beforehand. Many Dutch firms returned to Indonesia, although with reduced influence, after its war of independence, but most were then nation- alized in 1957. British companies fared some- what better in Malaya, and then Malaysia, until the early 1970s, when their interests in plantations and tin mining began to be acquired by the government. Burma cut its ties with British capital, and with the outside world as a whole, in a much more decisive way, even refusing to seek membership of the Commonwealth (Guyot et al. p. 190). More US companies survived and continued investment in and trade relations with the Philippines. Overall, however, few of the enterprises that had been dominant in the colonial period were able to make the transition to operating in the new environment after independence (Yoshihara p. 17). Among the reasons for this discontinuity was the new geometry of global economic power after World War II. Britain, France, and the Netherlands, the great colonial powers of the region, had entered into long-term rela— tive decline, and were displaced by the United States, a colossus that by 194-5 accounted for half of the manufacturing output of the world and one third of its trade. First the United States and then, from the 19605, Japan took over the dominant position in Southeast Asia’s economies, occupying the top tier of their triadic systems. Anticolonialism and postwar nationalism were propelled, at least in part, by economic motivations. As nationalism grew and suc- ceeded in its political aim of independence, its economic aspects came to the fore. In Latin America in the 1950s and 19605, theorists such as Raul Prebisch were beginning to develop a radical critique of the exploitative relationship that had long existed between advanced and underdeveloped countries (see Prebisch). These theorists suggested that trading and other connections between rich and poor were the cause of underdevelopment, not a solution to it. Andre Gunder Frank suggested in the 1960s that underdevelopment was not a state of existence but a process, coining the phrase “the development of underdevelopment” (see Frank). Underdevelopment was something that had been done to poor countries by rich ones and it continued despite political inde- pendence. The potentially revolutionary impli- cations of these ideas were made explicit in theories of dependency, its theorists often being known as dependistas in recognition of their ori— gins in Latin America (see Harris for a short outline of the rise and decline of these theories). However, not all those who were influenced by the ideas associated with dependency theory were revolutionary nationalists. Most leaders of newly independent states saw themselves as reforming nationalists, working to bring about a gradual upgrading of their countries’ posi— tions within the world system. Yet even they accepted that doing so required challenging the economic roles of primary producer and raw material supplier that the long colonial experi- ence had assigned to them. To some degree at least, they demanded a break with colonial systems of production. Industrialization and Urbanization The key element in the economic transforma- tion proposed by reformists and revolutionaries alike was to be a shift away from supplying primary products toward industrialization, which was widely seen as the hallmark of the wealthy former colonists. In some ways, espe— cially given the context of the 1950s and 1960s, the adoption of such a goal represented a radical defiance of the colonial and neocolo— nial world order. Since then, industrialization and its likely partner, urbanization, have become and remained the aims of all the capi- talist states of Southeast Asia. 26 A corollary of such ambitions was that, although agriculture occupied the vast mass of the workforce and dominated national produc- tion, it was considered to be secondary at best: its part in the economic strategies of the new governments was chiefly to subsidize manufac— turing industry. Planners hoped that, where possible, agriculture could keep food prices low and in some cases governments intervened to force them lower, thus reducing the costs of urban industrial workforces. In other words, agriculture was to be bled to animate industry (Dixon pp. 149*50). For most of the 19503, agricultural goods and minerals generally fetched good prices on the world market as a result of the commodity boom created by the Korean War, but by the end of the decade prices were falling rapidly relative to those of manufactured goods. Postwar capitalist production tended to use fewer inputs of raw materials (with the important exception of oil) and more inputs of capital-intensive tech— nology in its products. The invention of numerous synthetic materials, given a boost by the necessities of wartime production, also undermined demand for natural ones. Finally, from the 1950s, capitalist production tech— niques were being applied more intensively to agriculture in the advanced countries, which were increasing production and reducing prices. The United States soon became the world’s largest exporter of vegetable oils and by 1967 it was the world’s leading exporter of rice (Fryer p. 14). As a result of all these trends, the terms of trade turned against Southeast Asia and the bias against agriculture was reinforced. With such political considerations reinforcing worldwide economic trends, the proportion of the workforce employed in agriculture fell, while the proportion employed in manufac- turing rose almost everywhere. For the dependency theorists, the major means by which industrialization was to be achieved was state intervention and planning. There were many models to follow. State inter- vention had been crucial to “late development” in Belgium, Germany, and Japan in the 19th century, and had become so once again in the reconstruction of the Japanese economy after US bombs had reduced much of that country to cinders in the latter stages of the Pacific War. .... ,2. in, “MM.me v my», . History and Context W Perhaps the key model of state-led growth for poor countries in the 1950s and 19603, even though it was rarely acknowledged, was the experience of the Soviet Union. It seemed to many that the transformation of this once overwhelmingly agricultural country into an industrial power, capable of outproducing West Germany and then of rivaling the United States, and all within a generation, had blazed a trail, while the weaknesses in that growth were yet to become apparent (see, for example, Myrdal pp. 726—27). However, state planning and a degree of state ownership had not been ruled out by the capitalist West in this period. Many social scientists and policy-makers in the United States, as well as in international insti— tutions such as the World Bank, saw themselves as being engaged in developing a superior, democratic form of planning that was to underpin the mortal combat with Communist planning. In any case, colonialism had left behind little in the way of a domestic bourgeoisie that might have provided the dynamism necessary to industrialize Southeast Asia societies. To the extent that such a class existed, it was often predominantly Chinese and therefore not of those ethnic groups which were central to the new nationalisms. Statist planning, on the other hand, offered a central role in the transforma— tion of their countries to the nationalist intelli— gentsia and, sometimes, the armed forces, through their positions in the state apparatus. Thus it joined the material interests of these middle-class layers with an apparently high moral purpose: they could tell themselves and others that the advancement of their careers and the interests of the nation were inter- twined. While the nationalist movements of the late colonial period had largely middle-class or elite leaderships, they needed to appeal to a mass audience by suggesting that national inde- pendence would create better lives for all. Hence, planning and economic intervention by the state became associated with the apparently radical rhetoric of domestic equity (Owen p. 4-70), and the “forced march” to industrial- ization, involving state control of external economic links and mobilization of domestic resources, could be presented as helping to redistribute wealth, not only between rich and World Economies: Southeast Asia since the 19503 27 nor countries, but also between the few rich 1nd the many poor within each country. Expanding the managerial activities of the ;tate in the first two decades after independence was seen by some as part of a transition to social- .sm, combining greater equality (or at least Jaying lip service to it) with state management. [t was not just those in the Communist parties 3f the region who understood state intervention in this way. At various times, Ne Win of Burma, Norodom Sihanouk of Cambodia, Lee Kuan Yew of Singapore, and Sukarno of Indonesia all claimed to be “socialists” of some kind. Even so, for the most part the expansion of state activity did not involve major conflicts with private capital. There were exceptions, such as the nationalization of Dutch companies in Indonesia in December 1957, and for all prac— tical purposes the state monopolized markets and production in Burma after 1962, as well as in Vietnam, Laos, and Cambodia after the victories of their Communist parties over the course of 1975. Nevertheless, in general the states of Southeast Asia acquired enterprises or set them up to provide infrastructure and begin production primarily in industrial fields where private capital had not established itself. For example, Thailand experimented with state production monopolies under Phibun Songkhram, who was in power from 194-8 to 1957, and although subsequent governments reduced the scale of state enterprise, they retained much of the state’s role in the provi- sion of infrastructure. Similarly, while Singapore invited foreign private capital to develop manu- facturing industry after its separation from Malaysia in August 1965, the state also took a massive role for itself in providing public hous— ing, training, and education, with the result that about one third of all investment in the city state came from the public sector. In Indonesia under Sukarno, the slogans of “Guided Democracy” and “Guided Economy,” made it clear to all that the state was to be the guide in production as well as in politics. State planning remained in vogue throughout the 19705, even where full state ownership had never been widespread, as in the Philippines, or had been significantly reduced, as it was in Indonesia, under the “New Order” introduced after 1965, as well as in Thailand. Indonesia’s first five—year devel— opment plan was implemented from 1969 onwards, notwithstanding the commitment of the Suharto government to private capitalist development. The New Economic Policy was instituted in Malaysia in 1971 under a similarly pro-capitalist government. In Thailand, despite the turn away from public enterprise after Phibun’s fall from power, the National Economic Development Board was established in 1959 to maintain a degree of state planning, and key changes in the direction of the economy were introduced under the Third F ive~year Plan from 1973. The desire to main- tain state planning was also the reason for setting up the National Economic Develop- ment Authority in the Philippines in 1973. Even the tiny absolute monarchy of Brunei, which has long been completely reliant on oil exports, began implementing five—year plans as early as 1954-, building a state apparatus that has since become the largest single employer in the country (Ali pp. 282, 287). The nationalists of postwar Southeast Asia saw their key task as being to break away from the role of raw material supplier assigned to their countries by colonialism, in the belief that failure to do so was likely to lead to deepening poverty in a world dominated by industrial societies. Both nationalism and future pros- perity demanded industrialization. Yet the human and physical resources required to begin the process were in short supply, and the lack of a substantial indigenous bourgeoisie or significant amounts of capital drove every country in the region to make some attempt at state planning and/ or ownership between the 1950s and the 1980s. The location of the key nationalist leaderships within the state apparatus enhanced the argument for state economic tutelage. The attempt was made whether or not the government was committed to private capitalism, and whether or not a country was formally labeled “socialist” or “liberal democratic.” Import-substituting Industrialization The strategy to achieve industrialization adopted, to varying degrees, by the region’s 28 industrialization.” Processing and manufac— turing industries were to be developed to produce goods for the domestic market, and were to be protected from foreign competition by the state; over time, these industries would become strong enough to break out of the domestic market and begin exporting their products. At least in the early stages, domestic production was to center on satisfying mass consumer demand, for textiles and clothing, processed food, light and simple metal products, and other products that required relatively small amounts of capital investment and low levels of technology. Accordingly, states established a complex array of tariffs, controls on imports, and incentives and subsidies for manufacturers. The resulting higher prices of manufactured goods were considered to be a burden worth bearing if the outcome was an industrialized economy. The Philippines, which had the best indus- trial infrastructure in the region at the end of World War II, seemed to offer a model of successful import substitution during the 1950s and early 1960s. Its imports of consumer goods fell from nearly 31% of total imports in 1948 to less than 5% in 1965 (Cho and Williams p. 230), while the growth of GNP per capita averaged 3.6% a year in the 19505, the highest in Southeast Asia at the time (Oshima p. 75). Import substitution also appeared to work well in Malaysia, once it had brought production of all kinds back to the levels achieved before the war. Output from its manufacturing industries grew at a very respectable average annual rate of 17% between 1959 and 1968 (Cho and Williams pp. 236—37), and GNP per capita, which grew at a mere 1% a year in the 1950s, grew at 3.3% a year in the 19605 (Oshima p. 75). In the case of Singapore in the early 1960s, the exploitation of the small manufac- turing sector developed under British rule to supply consumer markets elsewhere in Malaysia led to an apparently unequal division of the gains from import substitution, and contributed to Singapore’s departure from the federation (Dixon pp. 157, 159). Thailand also pursued import substitution, with a heavy emphasis on supporting the private sector from 1961, when its first development plan began to History and Context W planners was known as “import-substituting be implemented (Jansen p. 15). Starting from a very low base as one of the poorest and most stagnant economies in the world in the 1950s, Thailand saw its GNP per capita increase by an annual average of 4.7% in the 1960s (Oshima p. 75). This growth was led by the building of infrastructure, but a significant import-substituting manufacturing sector had also begun to be developed (Warr pp. 29—30). Finally, Indonesia’s Eight—year Plan, published in 1960, was strongly based on the goal of import substitution, in the hope that the country would become capable of producing all its own food, clothing and other basics in just three years (Hill p. 2). lndigenism Making up around 6% of the population of the region, the Chinese of Southeast Asia have played a crucial role in its economy for gener- ations. Collecting local produce from farmers and marketing it, they were often the only group, apart from the colonists, with enough capital to be able to make loans to these same farmers. As a result, they were often accused of “taking their pound of flesh twice,” first in trade and then in interest (Wu and Wu p. 4...
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