Singapore Economic Model and Authoritarian Democracy
THE PHENOMENON OF THE 21
CENTURY IN SOUTH EAST ASIA
MA Global Political Economy
CITY UNIVERSITY LONDON
SCHOOL OF ARTS AND SOCIAL SCIENCE DEPARTMENT OF INTERNATIONAL POLITICS December 2012
Keywords: Political Economy, Economy, Politics, Singapore, Thailand, Malaysia, Indonesia, South East Asia, ASEAN, AEC, Parallel Strategy, The Asian Developmental Model, Statism, The Political Trilemma, Authoritarian Democracy, State Developmental Capitalism, State Capitalism, Asian Value, Crony Capitalism
Singapore has experienced rapid and sustainable economic development in the past 50 years, its GDP having grown by a factor of 26 and income per capita having increased by a factor of 63.7 (Lim, 2008). Both BBC (2012d) and Freedom House (2012) consider Singapore to be an “authoritarian democracy” because, despite it having had elections, it is de facto a single-party state with a high degree of control over social and economic activities. Bornschier and Lengyel (1994: 324) define an authoritarian democracy as a regime with a “lack of legitimacy and weak economic performance. Proponents of authoritarian democracy advocate a less flexible system of political representation”. List-Jensen (2008: 22) argues that this evolutionary will be inevitably ended in fully democracy. Nonetheless, Singapore does not suffer a lack of legitimacy and, obviously, is no longer a poor country. Although elites still control the political system, they are powerfully supported by the majority who are content to remain within an illiberal system (BBC, 2012d). Singapore‟s political economic model is very attractive to surrounding countries because of its high economic growth, low incidence of social conflict and, in particular, the status of its elite group. Its neighbors, Malaysia, Indonesia and Thailand, are looking to adopt Singapore‟s model: “Malaysia is interested in tapping Singapore‟s successes” (Benjamin, 2011); “Thailand should not aim to become a fully fledged democracy but rather an „authoritarian democracy‟ like Singapore” (The Nation, 2008); and from Indonesia: “Singapore is small, the government system is smaller, but there are things to learn” (Pasandaran and Antara, 2010). Furthermore, it is not only its economic model that Singapore is exporting to the South East Asian region; South East Asian emerging countries are also tending towards the political model of authoritarian democracy (Springer, 2009). Malaysia is an authoritarian democracy under single-party rule. Indonesia, during Bambang‟s regime, is populist authoritarian. And, although Thailand is still in the throes of civil political war between the royalist bureaucrats and the right-wing capitalists, both sides seem to advocate authoritarianism.
4 Hence, the goals of this work are; first, how Singapore achieve the economic success? Second, what is authoritarian democracy, and is it support economic growth? Third, why these countries interest in this political economic mechanism? And, what are the problems that may obstruct them to pass through the middle income trap?
This paper will start by stating a conceptual and theoretical framework, taking the Asian developmental model as a big picture of economic development in the region. The relation between democracy and liberalism will be analyzed and the concept of statism will also be raised as a root of authoritarian democracy. “The Political Trilemma” theory will be explored as a core concept that bridges the economic model and the political regime. Secondly, it will research authoritarian democracy to demonstrate the model‟s underlying political mechanism, and analyze the structure of Singapore‟s economic model: why it succeeds, what the components of “Two parallel strategy” are, and how to implement the model. Later, the paper will describe the political economic background of Malaysia, Indoneaia and Thailand and analyze why they are interested in adopting Singapore‟s economic model and tend towards authoritarian democracy. Finally, I will summarize the strategy of these countries and evaluate via three categories – human capital, corruption and cronyism, and economic transformation plans – to the degree to which they have managed to pass through the middle-income trap.
The Asian Developmental Model
Asian capitalism is characterized by high investment and high savings. This is in contrast to Western nations, which are characterized by high investment and high spending (Sim, 2001: 62). This model is a feature of the Asian miracle countries: Japan, Korea, Taiwan, Hong Kong and Singapore. However, careful examination shows that all of these countries do not have a same pattern of economic drive.
Japan employed a developmental state strategy, combining a semi-bureaucratic democracy with planned capitalism in the early stages. Economic development guidance was led by the Japanese Ministry of International Trade and Industry (MITI). Nevertheless, market autonomy was offered to some private firms that were selected by the government to be champions (Keiretsu) in various sectors: Toyota, Mitsubishi, Sumitomo, and so on (Miyashita and Russell, 1994; Davis, 2001). Internationally, Japan has been identified as export-oriented, in that its economy has benefited much from exporting; however, the internal market has been subject to a high level of protectionism.
This pattern is the same in South Korea. Under its dictatorial regime, the policy was one of export-orientation and high protection, with government selecting conglomerates (Chaebol): Samsung, Hyundai, LG, and SK. Following the transformation to electoral democracy, economic liberalization has increased but many state interventions that support national champion firms are still obvious (Ferris, Kim and Kitsabunnarat, 2003).
Taiwanl; since the Chinese civil tensions of 1988, had been ruled in a single-party system (Stark, 2010: 199). Kuomintang governments are keenly aware of political corruption, and have thus concerned themselves with the relationship between politicians and business. Taiwan‟s government supports the economy through financial incentives and technological knowledge rather the selection of champions or strong state intervention. SMEs have been promoted and are the main engine of Taiwanese economy. Taiwan uses export-orientation strategy only in its reexporting and services hubs. Domestic consumption is still the primary market on which the economy relies (Ning 2007: 572).
6 Hong Kong‟s economic strategy is largely different from its neighbors. As a former British colony, it has employed a market-led approach with a high degree of market liberalization. Market competition encourages the emergence and growth of huge firms in Hong Kong. The state also benefits from its geographic location as the gateway to China. Thus, Hong Kong is a case of a neo-liberalist economy driving under a traditional Asian society.
Politically, these Asian miracle countries, during rapid economic boom, had various kinds of authoritarian regime: Japan, a bureaucratic democracy; Korea, a dictatorship; Hong Kong, a British colony; and Taiwan, an authoritarian democracy. Economically, this is broadly referred to as the Asian developmental model, though there is much variation therein. Hence, the term “Asian developmental model” is not an appropriate way of defining an economic strategy – rather, it tends to describe business procedure styles, while demonstrating that patronage, family, and informal connections are essential. Additionally, consumption, investment and savings differ from the Western approach. There is no agreed definition of what constitutes the East Asian model of development (Haggard, 2004). “Different writers select different characteristics, often depending on what country they are studying, and, at times, in function of their ideological preferences” (Boltho and Weber, 2009: 268).
Democracy and Liberalism
Democracy – probably originating in the Greek era – is a contested concept. Plattner (2010: 83) contends that it means the rule or power of the people, while Inglehart and Welzel (2009: 44) concentrate on the involvement and empowerment of ordinary people. Winichakul (2008: 28) points out that democracy tries to blend a complex society with conflicting interests whereby individuals with equal rights are able to move along and muddle through together, while Zakaria (2003: 14) defines it as a shift or downward force of power that breaks down hierarchy.
The rise of democracy in the modern period soared alongside liberalism, which, originally, was a sociological idea rather a political ideology, and, at first, was neither conservative nor radically democratic (McClelland, 1996: 439). Nor is it about the procedures for selecting government; rather, it is a government or society goal that focuses on individual autonomy.
Generally, liberalism addresses a distrust of political power, suspicion of the state, and a conception of the state as being an extra-societal regulating mechanism. Thus, people keep their government under constant scrutiny to ensure it does not overstep individual rights (McClelland, 1996: 245). Liberalism as political ideology holds as central the values of liberty, rationality and individualism. It is concerned about the protection of the rights of minorities and individuals, guarantees of citizens‟ liberty, and the subjection of the government to the constraints imposed by the rule of law (Plattner, 2010: 84). By achieving its purpose, liberalism emphasizes the free choice of individuals, free thought, free speech and the defense of liberty (McClelland, 1996: 478). Hence, in the liberal view, the basis for government should be opinion and participation, not force.
The dominance of Western hegemony and the rise of neo-liberalism in 1980s have driven the combination of liberalism and democracy. Modern “democracy“, however, has moved far from the realm of political thought into a practical way of life (Zakaria, 2003: 14). That is why it is frequently used as a huge social science framework – encompassing economics, sociology and politics – rather than only a political framework. Additionally, in liberalism, freedom and individual rights have transcended merely personal behavior, but have broadened into institution
8 culture, traditional procedures and unwritten law. Hence, the classical liberal characteristics of democracy require a multiplicity of parties representing competing policy agendas and clear political alternatives, limitations on governmental authority and guaranteed rights of free expression and association (Inoguchi and Newman, 1997).
Pichit Likitkijsomboon (2012) argues that liberalism and democracy are undivided concepts. Any “non-liberal democracy” is not democracy; it is just disguised authoritarianism. Arblaster (2002) claims that authoritarian democracy is just a mask of Fascism, where the power belongs to elite groups and the majority‟s purpose is denied. Khong (1997) contends that “it is populism, rather than democratic theory, which explains the nature of Asian politics ”. Friedman claims that Singapore has the form of democracy but the reality is dictatorship (Sim, 2001: 47). This idea of undivided liberal democracy was formed during the Cold War by a Western society that highly respected individual rights and reflected this by enabling mass power – via election – that balances governance with the protection of individual liberty. Since the 19th century, liberal democracy has spread widely around the world. The collapse of monarchies and communism seems to be “the end of history”. Also neo-liberalism in the second half of 20th century has sought deep economic integration and less government intervention. Nevertheless, in reality, the role of government has not decreased. Centralized and bureaucratic administration still controls a huge proportion of resources, and has failed to transfer tangible benefits to a public that has little involvement in decision making (Midgley, 1987).
The ideology of undivided liberalism and democracy does not account for the fact that sometimes the majority do not want to protect individual – this is now happening in US: “We are actually in a situation where people are more concerned about having a bit more money than about ensuring that all people are treated fairly and equally” (Epstein, 2012). Anderson and Guillory (1997: 66) state that democracy is about winning and losing elections, but democratic governance is how the political system deals with the winners and losers afterwards. Even if governments are legitimized by a fully free democratic system, economic failure could affect the stability of not only the government, but also the whole political system. Conversely, some people prefer to give their freedom by believing that an authoritarian state would create a better society – while in Western countries public curious in government‟s actions is normal thing,
9 Eastern countries are asking for more action from government. Hence, liberal democratic universalism was an arrogant and naive attempt to impose the ways of “the West” on “the East” (Thompson, 2001: 55). Thus, we have democracy and liberalism from another perspective; however, this will be analyzed separately.
Statism is a very broad concept embodying the idea that the state should administrate as the centre of politics, economy and society. Measuring statism can be achieved by comparing the position of the state vis-à-vis the individual (Jessop, 2007). Thus, it could be argued that Keynesianism and Marxism can be seen as statism (Rapley, 2002). Keynesians believe that overwhelming market self-regulation can bring economic and social turmoil. The state has a duty to regulate in crucial areas and sometimes the state‟s interventions are necessary for securing economic stability (Stiglitz, 2003; Harvey, 2005). Marx‟s theory argues that statism always exists to some degree in capitalism and this has a strategic meaning in socialist practice by strengthening the role of the state in order to promote a “revolution from above” for the transition to socialism (Jessop, 2007). Hence, the core of statism, which opposes liberalism, is “the concept of freedom and the role of government … statists hold that freedom entails the government‟s having the power to seize money from people in order to take care of others and to manage and control economic activity” (Hornberger, 2011).
The Political Trilemma
The political trilemma of the global economy is the idea of political economy that was raised by Dani Rodrik. Rodrik (2002) stated that only two out of three of the following elements – “nationstate system, democratic politics, and full economic integration” – can exist together. A global market without global governance is unsustainable, as exemplified by the disaster in Argentina in the second half of the 20th century when it tried to have all three. In Rodrik‟s analysis, “deep integration” – the reduction in trade barriers and capital flows, including the technology to diffuse information across political boundaries – has been an aggressive global agenda, but most people do not realize that states cannot achieve it without cost (Wolf, 2012: 3). However, Rodrik showed that “deep economic integration is unattainable in a context where nation states and democratic politics still exert considerable force”, and that is why America‟s capitalism differs from Japan‟s (Rodrik, 2002: 2). “These institutions perform several functions critical to markets‟ performance: they create, regulate, stabilize, and legitimate markets” (Rodrik, 2002: 3). It can be seen that national institutions are not only about government. He gives the example of “home bias”, where households place their wealth within their borders. Jurisdictional discontinuities in developing countries and high sets of regulations or standards impose a wide array of transaction costs in much the same way that transport costs or import taxes do. The terms of democracy that Rodrik refers to are clearly those of Western-style democracy – a liberal political regime.
The reason why a nation-state system, democratic politics, and full economic integration cannot present together is that they are against each other in some cases. Beginning with “Global
11 Federalism”, the combination of market integration and democracy cannot bring about a nation state, as can be seen in the US mechanism whereby regulators cannot overstep into the market or politics. While the “Bretton Woods compromise” is unsustainable if market integration goes too far, Japan‟s domestic market and the EU internal system would be in chaos if cheap labor and goods could access them. In contrast, the institutions will create what is called “missing trade” – trans-border trade that, even though it has no tax barriers, is still “fall far short of what standard theories of comparative advantage predict ” (Rodrik, 2002: 10). And the Golden Straitjacket can no longer stand if there is political disagreement because democratic politics will raise suspicions in economic policy, which is not same as national borders that “stand in the way of deep economic integration because they demarcate institutional boundaries ” (Rodrik, 2002: 13).
As Rodrik described, one solution that could possibly work is to combine deep economic integration with the nation state by wearing the “Golden Straitjacket ”. Yi Feng agrees that we have to think beyond election legitimacy because of the paradox between policy certainty and political freedom/political stability (Wijayanto, 2011). Johnson (1987: 143) states that authoritarianism can solve the main political problem of economic development within capitalist markets because it is able to mobilize population to work and make sacrifices for developmental projects. He suggests that, historically, whether democracy is or is not the only factor in economic development, the state still needs to achieve a specific kind of legitimacy in order to create internal stability, and acceptability in international economic and political markets; an “authoritarian developmental state” has much more chance of behaving in an experimental and undoctrinaire manner than other kinds of state (Johnson 1999: 52).
List-Jensen (2008) summarized why an authoritarian regime can achieve greater economic development. Firstly, the authoritarian regime is able to direct the mass population to make the necessary individual sacrifices in the public interest, and suppress mass consumption in order to produce or consume without argument. Secondly, mass democracy does not always produce rational decision making from technocrats. The electoral system also can bring political and economic uncertainty. Authoritarian regimes can be more efficient in achieving the goals when they need a specific kind of knowledge. Authoritarian governments can create political certainty and economic credibility, and their power can create public order. Both hard and soft
12 uncheckable power can sustain national discipline, national unity and public peacefulness (ListJensen, 2008: 5).
In reality, Singapore was not the first example of a successful authoritarian democracy. Imperial Germany might be another example; it could be argued that, in the late 19th century, the strong bureaucratic state of German Empire achieved politically and economically. From a political point of view, German mass politics had been restricted and Parliament was only for show. Economically, Bismark ‟s welfare policies were also mainly for controlling the working class. And lastly, “cultural difference” had been raised to support the view that Germany needed to develop within its own context – this has the ring of “Asian values” to it, does it not? (Thompson, 2001: 158). Nevertheless, authoritarian power can be seen as a source of economic growth but, adversely, economic turmoil could bring down political rulers because nondemocratic regime that is heavily influenced by its economy achievements (Norton, 2012: 47).
Authoritarian democracy (Kampfner, 2010; Xizhen, 2008; Satha-anand, 2004; Mert, 2010) – which can be named soft authoritarianism (Mutalib, 2000), illiberal democracy (Zakaria, 1997), semi-democracy, or limited democracy (Case, 1993), authoritarian-style capitalism (Karaganov, 2012), and civilian authoritarian politics (Mert, 2010) – is a political system in which the state highly influences a society. Bornschier and Lengyel (1994: 324) believe that due to this “regime‟s lack of legitimacy and weak economic performance, proponents of authoritarian democracy advocate a less flexible system of political representation”. Nevertheless, this regime is a kind of democracy that is difficult in Western perception to understand because of the dominance of liberal democracy – a political system which contains elections, rule of law, separation of powers, protection of basic individual rights, and freedom of speech. Democracy has also seemingly flourished, especially when elections have been used mainly to determine the characteristics of a political system, but where liberalism is a contrasting ideology (Davenport, 2000; Zakaria, 1997). Freedom House (1997) reports that despite the increase in the number of democratic states around the world, many are still illiberal. It can be summarized that “Western democracy” – liberal democracy – contains both political rights (election and rule of law) and political liberties (freedom of expression and political activity). In that case, it is argued that authoritarian democracy –particularly Asian-style – even if it includes election, a parliament and leader from the majority – cannot be claimed a liberal democracy (Josept Tamney, 1996).
Throughout history, autocracy has claimed its legitimacy in many ways: royal blood, leader charisma, or religious belief. In authoritarian democracy, majority support is the root of political legitimacy. And to achieve that, economic growth and the standard of living have to be sustained. Many historical cases exemplify economic performance as the key basis of government legitimacy, and, conversely, economic crisis as a hegemonic crisis, too. The downfall of dominant governments in Indonesia and Thailand due to economic crises is cited as evidence that popular legitimacy relies on economic growth. Also, in Eurasia, citizens are not willing to move to full democracy because they fear that the transition to market democracy would mean a loss of social security (Dobbs, 1992: 11). Even in the USA, the statistics show that the economic situation is a very good indicator of the presidential election results (Sim, 2001:
14 63). However, despite the legitimacy of the system mainly coming from economic policy, the public is not empowered in policy-making under an authoritarian democracy regime. Alexis Tocqueville discussed how democracy can be the tyranny of majority (Horwitz, 1966). The crowding-out of democratic politics possibly impacts on economic policy-making bodies; the disappearance of social insurance and the deregulation of national institutions‟ roles – central banks, fiscal authorities, etc., – that finally in the process of market self-regulation could end in the disaster (Rodrik, 2002: 15). Nonetheless, that does not definitely happen in authoritarian democracy. The majority can only select their representative but cannot control them, while a small group has sovereign power.
Democracy and economic growth are not naturally uniform. Thus, to create a condition for national development, cultural values need to be addressed (Inoguchi and Newman, 1997). The “Asian values” and Asia‟s role as a unique culture in economic, social and political development have been raised in a bid to claim that South East Asia has a unique culture and therefore that national development should be implemented differently from in the West. As Bremmer (2010) suggests, since we are all capitalist, the ideology of “Asian values” characterizes the capitalism under Asian societies; it is an ideology that “combines statism with market economies” (Milner, 1999). Hence, we may consider that “Asian values” are the root of authoritarian democracy in Far East Asia. On the one hand, Asia is influenced by the Western world in respect of individual rights, human equality and free-market capitalism. On the other hand, family values, seniority, and public harmony are still preserved in Far East Asian societies.
Generally, in an authoritarian democracy regime, to prevent opposition parties from winning elections, liberal participation is parttly restricted. Opposition parties, however, remain autonomous enough to mobilize reasonable levels of social support and play at least a minority role in politics (Case, 1996). The authoritarian democratic state usually focuses on implementation rather than ideology. As Thaksin Shinawatra – former Thai prime minister – said, “democracy is just a tool, not our goal” (Pasuk and Baker, 2005: 58). He claims its policies are based on pragmatism (Mutalib, 2000). And Lee Kuan Yew states: “I do not believe that democracy necessarily leads to development. I believe that what a country needs to develop is discipline more than democracy” (Inoguchi and Newman, 1997). Because they believe that a full
15 scale of free politics would generate less efficiency than authoritarian an one (Strait Times, 1990), elites in this system serve in strategic positions in state sovereignty for maximized social harmony and economic outcome (Case, 1996). Hence, authoritarian democracy is a combination of both democracy and authoritarianism – strong government with electoral legitimacy (Xizhen, 2008). The main achievement of this kind of system is to emphasize consensus and harmony, and to pursue economic growth (Inoguchi and Newman, 1997). This system borrows some of democracy‟s features in order to lay the foundation for competition, freedom (except that of politics), right of property, and individual self-interest (Case, 1996). Even though authoritarian democracy produces free and fair elections, respects individual freedom and ensures private property, it tends to constrain political actors – politicians, social organizations, social activists, and scholars – forcing them to behave within government‟s considered space (Case, 1993). Authoritarian democracy, on the one hand, gets legitimacy: politically, by democratic election, and, economically, by rapid economic growth and standard of living. On the other hand, government tends to use its power as authoritarian government. So, it is also a kind of democracy that loses check –balance mechanisms, and where government priorities are based on political sustainability and economic growth rather than democratization and development of freedom (Mert, 2010). And, as long as governments can reasonably deliver rapid growth and social stability, many voters tend to give them absolute power (Caryl, 2012).
Singapore Economic Model
In terms of “The political trilemma of the global economy”, Singapore is the example that pushes against Western ideas of authoritarian democracy‟s limitations – even after being an authoritarian society and becoming a developed country, the society voluntarily holds onto social transformation as an ideal for preserving its economic growth and social stability. Robinson (2004) states the idea of “Two parralell strategy” that divide Singapore‟s strategies into two pillars. Firstly, they argue that tax incentives ensure foreign investors to not relocate their capital; and secondly, Singapore has continually transformed its economic structure, beginning with labor intensive, high-value-added industries, financial services and, later, nanoindustries. Singapore‟s government has also provided a welfare system with its own style that creates a high level of Singapore‟s human resources (Ng, 2004). The Economic Development Board of Singapore (EDB) plays vital role in the planning of economic strategy. Schein (1996) insists that the EDB is a benchmark of how a statutory government committee can organize itself to have a major positive impact on economic development. Hence, Singapore‟s economic model can be analyzed as Marlket-led by foreign investment and state developmental capitalism.
Market-led by Foreign Investment
Singapore‟s economy integrates with the global market in terms of both financial transactions and global trade; only Hong Kong and Singapore have exports that exceed annual production (Peebles and Wilson, 1996). Singapore integrates with the global economy because, firstly, it has no natural resources except human ones, and secondly, the only business it has are entrepots. Lastly, its neighbors were unfriendly and adopted high levels of protectionism.
17 To drive the market, Singapore‟s policy makers have always maintained “competitiveness” as the top priority. As Singapore‟s growth relies heavily on international trade, and services, the government has been addressing this through long-run productivity improvements and short-run market competitiveness (Abeysinghe, 2007). It has been trying various ways sustain foreign investment and persuade foreign firms to operate in the country. And tax incentives in general have always been successful.
To motivate pioneer firms to invest in selected sectors, huge tax incentives were launched. In 1991 these pioneer firms were a significant reason for economic growth; they achieved 63% of value added with 48% of employment and 74% of manufacturing export were achieved (Bercuson, 1995). Afterwards, when Singapore started to relocate manufacturing to other areas, due to better service systems and higher skilled labor, tax incentives were used to convince MNCs to remain and establish their headquarters on the island. Additionally, “friendly labor” is another tool. The National Wage Council (NWC), a central organization for managing labor relations by gathering labor unions together under centralized management, is very important agency that prevents serious workforce tension (Cahyadi, et al., 2004: 6). While entrepreneurs are promised that government will handle labor activities, thus eliminating workforce strikes, Singapore workers know that wage guidelines and employment conditions will be set to national standards. That makes Singapore the top worker-friendly and labor-trustworthy standard; no company can operate without appropriate labor contracts. Singapore‟s government has used the NWC to support the market several times. In 1985, and in response to the global recession, the government decided to decrease the employers‟ contribution rate from 25% to 10% and retain the employees ‟ contribution rate at 25%. This policy ensured that employers did not have to increase the labor wage in tough times (Abeysinghe, 2007). Then, it sustains a long-term competitiveness that is persuasive to international investors.
Singapore‟s free market is supported and regulated effectively by institutions – the paradox of markets is that they thrive not under laissez-faire but under the watchful eye of the state (Rodrik, 2002; Tung and Wong, 2012). Although it seems to be filled by MNCs, Singaporeans have not preferred to be entrepreneurs; the economy relies heavily on MNCs and this has led to concerns on the grounds that the country is too reliant on foreign economic powers – it has merely “ascended to a semi-periphery” state of development in which long-term development is not sustainable. Nonetheless, Singapore proves the “dependency theory” by showing that the periphery state can rise up by trading with developed countries (Syed, 2012). Lee Kuan Yew states, “Anyway, Singapore had no natural resources for MNCs to exploit ” (Rastin, 2003: 8). Singapore is ranked as the world ‟s second freest economy and the second in global competiveness (Schwab, 2012: 11).
State Developmental Capitalism
Economic Plan and Economic Transformation Even though Singapore can be identified as market-led economy – driven mainly by huge corporate firms – the involvement of the government in the economy is relatively high. (Rastin, 2003; Peebles and Wilson, 1996; Cahyadi, et al., 2004) Singapore‟s economic plans have been established to continually direct the economy by the EDB.
Entrepot trade and port services were not enough to sustain the economy. Thus, Singapore started improving its manufacturing for export-orientation beyond regional markets due to the unfriendly situation in the Malaya peninsula and high trade barriers arising from the importsubstitute policy in South East Asian countries (Abeysinghe, 2007). By driving economic development, Singapore needed foreign investment that was persuaded by tax incentive policies and cheap labor.
In the mid-1990s, Singapore achieved middle-income level and, like other middle-income states, it was losing its cheap labor advantage (Cahyadi, et al., 2004). Government had a vision to abandon labor-intensive industries. It decided to shift to service industries by upgrading workforce skills and establishing the National Computer Board (NCB) in 1981 to support Information Technologies (IT) and motivate business firms to get more involved in IT systems. In 1991, the knowledge-based economy became an issue for economic development. “Research and Development ” had been prioritized by releasing more than 2 billion Singapore dollars for infrastructure development. Pioneer firms in selected sectors were offered additional tax intensives to secure market advantage. Nonetheless, these firms had to share their innovation with the Singapore government and allow further development (Abeysinghe, 2007).
Tax incentives had been hugely revised because the Singapore government shifted its strategy from supporting firms widely to more selectively providing benefit schemes and other tax incentives for MNCs who agreed to set up their headquarters in Singapore (Cahyadi, et al., 2004). As a result, low-level industries had to relocate to cheaper labor areas. The Singapore– Johor–Riau (SIJORI) project was created for developing and re-organizing economic collaboration in the Malaya Peninsular triangle. Low-value-added manufacturing and laborintensive businesses were motivated to relocate to Johor in Malaysia and Riau in Indonesia. So, the country achieved to lift into next position in the global market chain – a hub of services and managerial parts of multinational firms. While the Johor and Riau were providing labor, the services sector and managerial parts of firms were operating in Singapore.
Despite it looking to the long term – generally 10 years – Singapore‟s government always responds quickly to economic change and capitalized very well on the “first-mover advantages” (Abeysinghe, 2007). The global recession from resulting from the sub-prime and euro crises have jeopardized the Chinese territory economy. Hong Kong has not transformed its economy continuously enough. Its economy depends too much on global financial and global trade. Being
20 a financial hub was Singapore‟s plan in 1985 and 1991, but, nowadays, it looks forward to being a hub for medical hub and nano-technology businesses.
State capitalism is another issue that distinguishes Singapore from other Asian tigers. While Singapore has persuaded foreign investors to operate their businesses on the island, originally, Government Linked Corporations (GLCs) were mainly used for providing infrastructure in areas that lacked a voluntary private sector (Ramirez and Tan, 2003). Rajaratnam (1997) contends that the GLCs had to exist because the private sector had no ambition or financial backing to operate in sectors that are vital to make international trade possible. However, government was careful to not extend its GLCs to “crowd out” where the private sector could be more efficient (Rastin, 2003). That is, it concurred with by pro-liberalists who believed that state enterprises could operate to support economic infrastructure and aim to help small local companies by providing research facilities and technology rather than nationalist supports during “kick start” periods (Peebles and Wilson, 1996). Nevertheless, in the 21st century, Singapore‟s government has a vision beyond that. The rise of state capitalism is a new phenomenon, while developed countries are still intoxicated by free market. At the start of 1980, GLCs held around 40% of GDP. Nowadays, 60% of Singapore‟s GDP belongs to GLCs (Peebles and Wilson, 1996; Robinson, 2004). Singapore‟s government uses sovereign wealth funds (SWFs) as a hub to control state enterprises. Nevertheless, these funds have a positive combination of state power and private organization – replacing a bureaucratic system with modern management. Originally, SWF objectives focused on exchange rate management because a huge amount of foreign reserves is potentially harmful for the global trade that is at the core of Singapore‟s business (Drezner, 2008: 8). By using this mechanism, SWFs are able to keep currency fixed or move it somewhere else by transferring to capital flow for investment rather than converting to local currency (PWC, 2011). Singapore‟s SWFs,
21 however, have another duty: domestic and global investment. In Singapore‟s low-corruption culture, SWFs are able to operate effectively and sustain profitability – perhaps better than global hedge funds (Bremmer, 2010: 30; Pekkanen and Tsai, 2011). However, though sometimes these funds are used as a political tool to sustain public order by providing welfare packages, they are also used to help out in tough times (Economist, 2009; Ramesh, 2010). In the liberal Western world, governments and international institutions have always restricted their interventions in market problems, and private firms always look after their own self-interests. SWFs can bridge a gap in an uncertain capitalist world. Bremmer (2010) suggests that SWFs are not for maximizing economic utilities but for maximizing state stability.
Background in Politics and Economy in Indonesia, Thailand and Malaysia
After a long period under dictatorship, Suharto, former army general Susilo Bambang Yudhoyono won Indonesia‟s first elected presidential election in September 2004; he also took a landslide victory in July 2009, a clear statement of his popularity (BBC, 2012a). His selling point is his image as a corruption fighter. According to Indonesia‟s geographic – it is the world‟s largest archipelagic state – centralized governance has been proved to not work effectively. The government moved towards a decentralized state administration (OECD, 2010: 25).
Nonetheless, Indonesia still has a lot of work to do. Firstly, the present government is a six-party coalition in Yudhoyono‟s second term; the parties are not working well together and are divided on many issues. The internal crisis seems to be harder when conservative politicians and ethnic Indonesian tycoons, who are in Yudhoyono‟s purse, have problems with populist right -wing technocrats who oppose stock-market manipulation and monopolistic companies (Gelling, 2009). The anti-corruption campaign becomes a “boomerang” for the government. I n 2012, a former Democratic Party treasurer on corruption charges caused embarrassment for the president‟s ruling party (BBC, 2012a). The public started to question government transparency. The cabinet is also seen to be a problem. The second-term cabinet contains a lot of doubtful ministers. In particular, the new economic team has no economic experience at all. The cronyism is beginning to smell (Gelling, 2009). The decentralized policy has not been as effective as many people believed. Provincial governments are relatively weak and mismanage public managements. In the new structure, regional governments receive a much larger proportion of taxes and revenue sharing from natural extraction activities in their regions, with it being typical for budgets to
23 triple after decentralization. Yet the issues of regional income per capita disparity and the excessive rate of natural resource extraction remain (Resosudarmo et al., 2009: 6).
Indonesia had been a strong, directed economy with a high number of import-substituted policies; most of its neighbors shifted to export-orientation because the transforming process had been obstructed by political turmoil (OECD, 2010: 24). In the 21st century, the president announced an economic master plan: “Acceleration and Expansion of Indonesia‟s Economic Development 2011–2025” to develop the country. In the plan, growth rates have been targeted in the range of 7% to 9% annually (World Bank, 2011b: 32). Foreign direct investment is seen as a new engine to drive the economy. The government tries to pursue investors by changing rules to make it easier to acquire land for infrastructure investment. Healthcare, construction and electricity generation are the priorities for government development (Belford, 2010). One of the great achievements is that of the rupiah – Indonesia‟s currency – appreciation which arose as a result of sustainable investor confidence. Marinescu (2010) claims that, in the 21st century, the rupiah is the third- best performing currency in Asia. Indonesia, aware of speculative financial investment, passed rules on government bonds that required foreign investors to keep their money in the country for longer (Belford, 2010).
Indonesia is becoming a relatively open economy. Despite import tariffs, which have been planned to reduce steadily since the 1980s, it has seen real progress in the ASEAN Free Trade Agreement. The free trade commitment increases Indonesia‟s trade – since 2005, it has risen by about 20%. In the mean time, non-oil exports to non-ASEAN countries expand, too, especially to China and India (OECD, 2010: 26). It has effectively diluted fossil-fuel dependency. However, the share of manufacturing in export is not sustainably strong. Other kinds of natural resources become more important, for example, ores and metals. Even if investment in manufacturing still
24 does not advance as it should, low labor costs could be a great advantage, especially compared with regional alternatives. “We‟re seeing an increasing relocation of factories by the Taiwanese, the Koreans and Japanese from Vietnam and China, given their rising labor costs and given the increased stability that people are seeing in Indonesia from an economic and political standpoint” (Belford, 2010). Domestic markets play a vital role in the economy – accounting for more than two-thirds of GDP. The population of 240 million, more market liberalizing, and a government stimulus program that directly transfers cash to the poor, have kept consumption humming
(Belford, 2010). State-owned enterprises are another vehicle that drives the Indonesian economy with 9.6 billion USD profit in 2009 (OECD, 2010: 25).
Nevertheless, the long-term economic boom has clearly proved less efficient in terms of improving the standard of living for the majority. Fifteen percent of the population lives below the poverty line – 1$ a day – while politicians and business tycoons seem richer every day (Belford, 2010). Trade integration has been increasing recently; however, the degree of trade openness in Indonesia is around 53%, somewhat lower than the 133% average from other ASEAN countries (Kaid and Swindi, 2009). Infrastructure bottlenecks, domestic trade barriers, restrictive product market regulation and stringent employment protection legislation are factors that obstruct trade liberalization (OECD, 2010: 26). Despite many sectors are declared as state security restrictions, the agricultural-based business sector, which in the main is run by ordinary people, is that which has diminished most barriers. On the other hand, the share of high-
25 technology exports is low compared to other sectors, and, from 2004, the country stopped being an oil exporter.
The informal sector is much larger than the normal economy, and contains 70% of employment. Gender inequality is still obvious. Most women are working in the informal sector, while men are employed in the official economy (OECD, 2010: 26). While this mechanism contributes to patriarchy – companies tend to hire men rather than women – Indonesian females prefer entrepreneurship rather than salaried positions.
Politics The Asian financial crisis and the IMF-supported program broke down Thailand‟s old “social contract” between politicians – including civil servants and local magnates – and business tycoons such that, on the one hand, capitalists were no longer supporting politicians because the crisis weakened domestic business tycoons. On the other hand, the IMF‟s conditions restricted the state from involving the market. This worried Thai business tycoons because many of them had benefited from an imperfect competitive market. However, the agreement between IMF and Thai government meant politicians could not promise subsidies to business groups any longer. The idea of strong government showed in the 1997 constitution and Thaksin offered to change the country under the new social contract. The “Thai Rak Thai party” – led and owned by Thaksin Shinawatra – changed Thai political behavior. Most Thai political parties are supported by several business groups, while the parties were driven by local magnates and professional politicians. However, Thai Rak Thai funds come from the leader – approximately a billion baht per year (Phongpaichit, 2004: 8). Politics for Thai people before the Thaksin era was just war among elite groups, so it did not matter to the Thai people. Thaksin showed up with reversal of participation of Thai people in politics by promising nationalism, prioritized local business, and a welfare system. To achieve this, he requested majority seats in parliament in order to avoid “check and balance”. He would enable the economy to flourish by taking absolute political and public administrative power. However, no one reckons that is the root of current crisis.
Authoritarianism has been in place for a long time in Thai politics. After political revolution from absolute monarchy to constitutional state in 1932, Thai politics has mostly been authoritarian in nature. Even Thaksin, 2001–2006, was an authoritarian governor. With nationalist and populist economic policies, his popularity has been highly ranked especially among the poor, whom he calls “grassroots people”. He has expressly supported the idea of strong government – for the most effective, state administration under a parliamentary system,
27 one-party rule is important for achieving economic growth and civil society. He also exemplified Singapore and Malaysia “where an opposition exists to give the state democratic credentials, but where the opposition is too small to have any effect” (Phongpaichit, 2004: 2). Thaksin‟s leadership style is a combination of authoritarianism and populism (Hall, 2006). Then, many scholars and political oppositions always blame him that he wants to change Thailand to presidential system (Tejapira, 2006: 5). Following his victory in 2001, he had continual problems with juridical power (Hall, 2006). In his view, the “rule of law” and the juridical system are based on abstract principles and should not be obstacles to the government, which is elected from majority people. It‟s strange that the leader who was voted by 11 million people had to bow to the ruling of the National Counter Corruption Commission and the verdict of the Constitutional Court, two organizations composed of only appointed commissioners and judges, whom people do not have a chance to choose. This is a crucial point we have missed (Bangkok Post, 5 August 2001) Thus, Thaksin was clearly unwilling to accept the checks and balances that a democratic system imposes on elected leaders (Rowley, 2006). As a successful businessman, he tried to use business administration to replace classic bureaucracy. He called himself a CEO Premier and aimed to convert other officials into CEO provincial governors and CEO diplomats. Furthermore, in Cabinet and other conferences presented himself as a dictatorial teacher giving a lecture (Phongpaichit, 2004: 7). Furthermore, he has said that he wanted to run Thailand like a company (Hall, 2006). The current political conflict in Thailand is not a general class conflict. Conservatives – royalist bureaucrats, privy councilors, the military, bankers, the urban middle classes, and publicenterprise workers – are fighting against Pluto-populists – Thaksin and his business-politician network – and the rural poor. The landslide win of the election in 2008 could be evidence that non-Bankokian, low, middle and worker classes would not tolerate a non-democratic system. While the conservatives hit the opponent by using juridical power to dissolve the people‟s power party and convincing some members of parliament to shift sides, which was supported by urban middle class, it provoked Thaksin‟s supporters to protest in the center of Bangkok; this ended in
28 the death of more than hundred people and the burning-down of many huge department stores. Society was breaking apart faster than the government could hold the power. The election was arranged and Yingluck Shinawatra – Thaksin‟s sister – became the new prime minister. Nevertheless, the period of the modern Thai political crisis is not over. “Thai society goes beyond the turning point, and no one knows where it is going” (Tejapeera, 2011).
Economy Thailand‟s economy has developed from an import-substitution strategy in 1960s to exportorientation in 1980s. The progression of neo-liberalization in the Thai economy, however, has been questioned by the Asian Financial Crisis, and the IMF‟s support policy cannot bail out the nation. The rise of Thaksin Shinawatra came with “Thaksinomics” that used economic intervention on both macro and micro economic scales. Initially, economic nationalism was raised in his political campaign. Thaksinomics is a “dual track policy”: on the one side, domestic consumption had been stimulated through re-adjusting financial debt, welfare policy and government spending; on the other, it uses elements of neo-liberalism – privatization and market liberalization were implemented, but not deregulation.
In the 2001 election, the Thai Rak Thai party had to fight with the Democrat party. While the opponent still used neo-liberalism and IMF‟s program as an economic campaign, Thaksin raised nationalism and welfare-populist policies. However, after taking power, some parts of national economy – mostly outside of his business network – have been liberalized. Ammarn Siamwala (2011) suggests that most of Thaksinomics policies are populist because of their timeliness with regards to the political mood of the day. Thaksin‟s governments seem to have more populist policies, while long-term sustainable welfare policy has been abandoned. Under his sister‟s government especially, there has been no serious welfare policy, but a lot of populist ones are flourishing. Thaksinomics also tends to increase consumption to create more capital velocity, rather than sustainable growth from internal demand, poorer consumption and government spending in welfare and populist policy, and external capital flow, privatization of state
29 enterprise and exportation. This is while national productivity and economic distribution have seen no significant progress, and development in infrastructure and education has been ignored.
The structure of Thai economy leads to uneven economic development, high levels of income inequality, and unequal access to power and resources (Norton, 2012: 46). Tejapeera (2012) warns that Thailand has to prioritize equality in economic and political power, otherwise the third wave of the capitalism boom – the first was in the 1960s which finally brought the “6 October” civil massacre, and the second was in the 1990s which created “Black May” political turmoil – will create another political tragedy because the rise of economy under globalization without democracy does not make people wealthier equally.
Malaysia is a former British colony that gained independence in 1957. It has huge problems in social equality, with the ethnic Malay treated better than others. The UMNO, and its Barisan Nasional coalition, always wins the elections and rules the country along authoritarian lines – freedom of speech has been partly restricted and, using the tools of electoral authoritarianism, through court rulings, corruption investigations, and induced defections and scandals, the opposition‟s voice has been dampened (Case, 2009: 261). Politics in Malaysia is becoming dirtier and more aggressive. In the press UMNO has been relentless in its assaults on the opposition. It is not clear whether such slander is still useful but all the canards about these sorts of groups being in the pay of Zionists, America or George Soros, a foreign financier, have been trotted out for political purposes (Economist, 2012a). In the 21st century, the first important change in Malaysia is the stepping-down of Dr. Mahathir Mohamad, who ruled the country for around 20 years; Abdullah Badawi was chosen as his successor (Foreign and Commonwealth, 2012). Nevertheless, conservatism – the standpoint of nationalist movements and ethnic Malay – seems to be stronger. The leadership of these “conservative nationalists” mostly comes from the upper-class Malay aristocrats (Hamid and Ismail, 2012: 383).
Nevertheless, political changes have occurred from the top because, unlike the aggressive Mahathir, Abdullah showed a willingness to listen and work as a team. Even though Abdullah‟s reforms were not a radical shift ; the law that is a root of unequal ethnic society “Bumiputera” – the privilege policy that preferably support Malay ethnic - is still untouchable, many liberally progressive ideas were forming. He brought in young advisors, declared war on corruption, and attempted to change public administration. Now the conflict began. His reforms created some protests that were believed to be coming from within his party. His political stability was uncertain when “bottlenecks” from the old regime started acting aggressively against him. He confessed that “Reforms are not easy. I have tried so, so very hard and it is not easy” (Hamid and Ismail, 2012: 395). The strongest hit came when Mahathir rebutted the cancellation of some of his favored projects that were ignored during Abdullah‟s regime. It was obvious that Mahathir is
31 the one that took down his own successor by convincing voices within Abdullah ‟s cabinet to demand a step-down (Hamid and Ismail, 2012: 396). The internal party coup not only jeopardized Abdulla but also destroyed the National Front coalition, too. The 2008 election is the worst election result in decades for the government parties – losing its two-thirds parliamentary majority and control of five state assemblies (BBC, 2012c). Hence, Abdullah had no choice except to resign from power. However, it is still not clear what the main reason for the loss is – whether the opposition is stronger together with Malaysian society structural change and people need more freedom, or whether the government is weakened by internal conflict (BBC, 2012b).
Mr Najib Razak took power in April 2009 (Economist, 2012a). Political power has been centralized around old conservative politicians; the revision of economic distributions into state contracts and re-commissioned megaprojects is evident. However, the political shift as a topdown hierarchy seems not to be easy. On the one hand, any plans to dismantle the extensive system of privileges for Malays potentially trigger popular discontent. But the liberal idea amid youth and non-ethnic Malay people to get some radical change is growing stronger and more powerful. Additionally, economic downturn is undermining political stability while cutting public spending is deemed unacceptable (Ahmad and Cheah, 2010).
Malaysia, unlike typical Muslim countries, has no religious economic model. It is market-led developmental state with a partly free market dominated by a Chinese minority (Goodhart, 2007). It has a population of about 27 million, which is insufficient to develop a deep domestic market (Nambier, 2010). The economy relies on a workforce of which four-fifths are educated to no more than high-school level. Twenty-five percent of local public university graduates remain unemployed six months after graduation, and the human capital brain-drain seems to be getting tougher (Quah, 2010).
32 Malaysia‟s 20th century economic boom was highly dependent on foreign investment. But in the 1997 financial crisis, the strategy changed. Many have blamed Western greed for the economic crisis, and, thus, government decided to play a stronger role. Such strong medicine, however, frightened foreign investors. Financial transactions have been frozen since the crisis and even when the regulations have been removed, foreign investors will do not believe in the free market in this country any longer.
The result of this has been what is called the lost decade. However, Mahathir, former prime minister and the most powerful person in the country, still believes that he did the right thing: “We should not be too dependent on FDI anymore. We‟ve come to the stage when locals can invest. Locals have now the capital, technology, and know the market” (Tarrant, 2011: 2). So, this is a signal that the Malaysian ruler believes that the private sector should drive the economy.
When Abdulla stepped into power, he declared he would make a huge change in the direction of economic policy. The stateled industrialization in Mahathir‟s era would shift to more neo-liberalism. Mahani Zaldal Abidin
33 (2006) summarized the economic differences between Mahathir and Abdulla as follows: in Mahathir ‟s era, he dictatorially controlled all main projects. Government played a crucial role in economic investment through the private sector and GLCs. Monetary policy was used to manage inflation and strictly control export competitiveness. Economic integration mainly focused on the East Asian community. However, Abdullah Badawi impresses in the free-market – both domestically and internationally, in that he looked beyond the East Asian boundary – without government intervention and a low budget deficit. He appointed some experts to form an informal economic strategy committee and started de-pegging Ringgit and gradually removing energy subsidies.
In 2006, Abdulla announced five pillars in his economic strategy: human capital, agriculture, income distribution, biotechnology and Bumiputera (Abidin, 2006). Government contracts and huge public spending projects were decreased in favor of new entrepreneurship motivation (Economist, 2006; Economist, 2009). Furthermore, GLCs would be less important for economic drive and would be replaced by a more liberalized market. A free-trade area and minimal tariffs on trade seemed to be an important issue in his cabinet. However, he also mentioned that foreign investment and privatization are not the core of his strategy; innovation and creative economy are the targets for Malaysia. The change is not addressed only in economic ideology; Abdullah said that advanced agriculture and biotechnology fields would be focused upon in order to replace essential economic sectors – labor intensive-manufacturing and re-exportation (Economy Watch, 2010).
34 After the worst election, the leader of the National Front coalition changed from Abdullah Armad Badawi to Najib Razak. In 2010, new Prime Minister Najib Razak introduced the “New Economic Model” (NEM), which will be analyzed in next chapter.
Why Authoritarian Democracy and Singapore Economic Model are chosen to embed into These Countries.
First of all, it is believed that an authoritarian regime can create rapid economic growth. Furthermore, countries in this region have weak political institutions that are necessary in order to sustain democracy. It is this, in combination with “Asian values”, that explains nature of these societies. Finally, these factors create an authoritarian paternalism that can be seen as having evolved from feudalism to a spoil-system society.
The Weak Political Institutions
In Western democratic countries, political institutions such as federal agencies, the juridical system, political parties and think tanks have been established correctly and respectably. However, in Far East Asia, political agencies are generally weak. When political legitimacy and political power are sought under a democratic system via mass election, the wins and losses can bring about political disaster. Thus, political institutions under a democratic system work to narrow the gap between political satisfaction and dissatisfaction, post election, in two ways: firstly, they support both the majority and the minority equally; and secondly, they mediate any political problems in an acceptable way (Anderson and Guillory, 1997: 66). There is a high probability that a party system with better institutionalization correlates positively with a more robust democracy
36 (Ufen, 2008: 345). Additionally, intra-party democracy tends to enhance the quality of democracies (Teorrell, 1999). Therefore, to create stable democracy, democratic ideology at a macro level is not enough; at the micro level, too, the role of political actors needs to be embedded in democratic thought.
Although Thailand and Indonesia both have multi-party systems, political parties tend to serve the masses rather than having grass-roots support based on a specific political or economic ideology. And the public have to choose their leader based on personal charisma rather than campaign. Furthermore, both have limitations with regard to internal party democracy. This weakness makes politics more vulnerable to crises and breakdowns, and renders the nation‟s democracy more fragile.
Populist electoral regimes make the contestation of meaningful elections weak. Military political involvement and partisan court rulings are considered acceptable, especially within the middle class. The public has never pressurized the elites to the extent that they have needed to respond with even low-grade democratic concessions (Case, 2009: 260). The lower class in Southeast Asia tends to see democracy as government ruling rather than government serving. Thus, they choose an elite that seems to rule the country in the way that benefits them rather than electing those politicians who have demonstrated a reputation for responsibility and trustworthiness. Hence, the fight between the middle and lower classes obstructs democratization. Political institutions – think tanks, courts, political parties, and so on – are wielded as political tools against opponents at any cost rather than instruments of accountability and credibility. Malaysia‟s and Singapore‟s elites seem to have reached a consensus. They believe that economic prosperity can calm political tension. However, for the ruling class, single-party dominance, limits on civil liberties and narrowing the competitiveness of elections are still important goals. To achieve these objectives, the balancing of public administration has to be twisted. Political power has to be centralized among government ministers and civil servants, while judicial and legislative powers have are oppressed.
Asian values have been published primarily by Lee Kuan Yew, Singapore‟s prime minister, and Mahathir, Malaysia‟s prime minister. They have been used to support the idea that Asian culture is different from that of the West. Thus, by combining economic, political and sociological science, the concept argues for sustaining economic growth and social harmony in Asian political systems within an authoritarian framework. Nevertheless, from many aspects – geography, religion, ethnicity, history – it is clear that there “is no single Pacific Asian culture” (Thompson, 2004: 1082). As Rajaratnam confessed, “I have very serious doubts as to whether such a thing as „Asian values‟ really exists. It may exist as an image but no reality” (Rajaratnam, 1977: 95).
Generally, Asian values seem to represent Confucianism as a core of the culture (Sim, 2001: 50). Confucianism is a combination of religious and philosophical thought that is mostly associated with Chinese societies (Inoguchi and Newman, 1997). This regional heritage is the foundation of appropriate behavior for Asian people (Khong, 1997). Furthermore, it is viewed as at the root of the principles of benevolence, family, community spirit, hard work, and frugality (in contrast to the Western values of individualism, rationalism, human rights, and legalism) (Lee, 2003: 31).
Asian values stress the community rather than the individual, who is not an isolated being, but a member of a nuclear and extended family, clan, neighborhood, community, nation and state. Any action must be taken with the interests of others in mind, and the individual has to balance their interests with those of family and society. Self-effacement, self-discipline and personal sacrifice are requested from each individual and should not draw attention to themselves by showing off their talents (Inoguchi and Newman, 1997). Conflict is to be avoided. Society is viewed as an extended family whose relationships and obligations are to be preserved. Official position, not personal stardom, is honored (Hu, 2012). Equality is about duty and responsibility rather than personal interest (Inoguchi and Newman, 1997). This leads to people being more group conscious than is the case under liberalism. The cohesion and stability of society, maintaining harmony and well-being of the larger group, are most important in society.
Despite the fact that “good governance” discourse was originally aimed at non-democratic regimes, there has been a boomerang effect with regards to the meritocracies of Far East Asia (Thompson, 2004: 1088). Singapore not only achieved rapid economic growth but also the defense of a paternalistic state following the high living standards that were attained (Thompson, 2001: 155). Generally, the boom of the middle classes seems to undermine autocratic stability by demanding more liberal society. However, Singapore denies the point. Although the Asian spirit of Confucianism is still important to ensure the public obey their ruler, the success of sustainable governance is not merely based on spirituality (Khong, 1997). The Imperial German critique of Western civilization helps us better understand “Asian values” by showing that the real issue involved is not “Asia” versus the “West”, but rather authoritarian versus democratic modernity (Thompson, 2001: 159). Democracy always claims that good governance and the rule of law can be attained only within a democratic context. But authoritarian regimes are using Asian values to provide a meritocracy that challenges this view.
Hence, Asian values are based on an idea that contradicts liberal democracy. While the liberal ideology is based on individual rights and limited government, Asian values hold that a prosperous society needs to prioritize public benefit rather than protection of the individual. The elite class supports authoritarianism because it protects political power by not allowing it to be checked and balanced by the mass population. Historically, feudalism was a social contract whereby commoners were protected by the nobility in return for handing over their rights. Nowadays, government promises to create economic prosperity and protect the people in return for their silence.
Provision Rapid Economic Growth
The question about which regime can provide more economic growth is an eternal one. Most researches cannot provide a definitive answer. Przeworski and Limongi (1993) suggest that “there was never solid evidence to show which one is better due to the regime influence ”. Davis (2001) also suggests that “at an early stage, proper economic policy in some circumstances may be more important than whether a regime is authoritarian or democratic ”. Despite the fact that, in systematic historical evidence, authoritarianism buys little in terms of economic growth (Rodrik, 2010), many rulers still believe that an authoritarian regime can bring better economic stability: “When you do transformation, you cannot achieve big results by democracy” (Tarrant, 2011: 4).
The first reason that supports authoritarianism is that it is not obstructed by majority rule. “Individuals behave in a collectively suboptimal way as citizens when they organize into interest groups that pressure governments to transfer incomes in their favor” (Przeworski and Limongi, 1993: 56). So, democracy as the majority decision is itself harmful – governments cannot put forward the best policy because they always trying to be populist (Wintrobe, 1998: 338). Authoritarian rulers are less dependent on popular support and do not have to concern themselves with electoral cycles (Maravall, 1994: 18). The other reason is the better economies of scale under government ‟s guided economy. While the market-led economy has various directions in which firms can move, authoritarian states can concentrate their capital where it is most needed. Wealthier dictatorships can invest a larger share of income, derive more growth from capital input and less from labor input. Or they employ a lot of labor but pay it little (Przeworski et al, 2000: 412). In contrast, public goods with higher potential can be invested in (Haggard, 1990: 262). With regard to competitiveness, labor costs can be reduced and faster transfers of new techniques in actual production can be elicited (Davis, 2001).
Authoritarian Paternalism: From Feudalism to the Spoil-system Society
The welfare state has focused fundamentally on the relations between state and citizens – as individuals and social groups (Leibfried and Mau, 2008). Generally, the concepts of welfare polict – not potical populist - and authoritarianism sound incompatible. However, the welfare system was originally implemented under an illiberal regime. The first serious organized welfare policies as political economic strategy were coined by Bismark in Imperial Germany in 1883. Fundamentally, the goals of authoritarianism through provision of public goods are: firstly, to increase loyalty amongst the population; and secondly, to promote economic growth and increase the revenue of the private sector (Forrat, 2012: 12). Hence, a welfare system that tends to absorb individual uncertainties is not the inverse of authoritarian democracy. Indeed, it seems they work well together.
In Far East Asia, the beginning of welfare system was initially targeted at civil servants through non-contributory pension schemes and other privileges and social benefits. Furthermore, free, accessible education is provided by most states in the region. However, this is more than about developing the literacy rate and human capital; public education for all citizens is used as a tool by the ruler to enable control over ideology, religion, and any thinking that will suit the system‟s drive towards national unity (Croissant, 2004: 509; Haggard and Kaufman, 2008: 141; Karshenas and Moghadam, 2006: 4).
Many social safety nets in this region have been provided, more so than in some developed countries. Public education costs are relatively low and education is available for all. Public healthcare with lower costs operates widely. Critical, though expensive, medicines have been produced domestically and are thus available to the poor. Singapore provides the economic model to be emulated with regard to welfare provision.
Furthermore, the absence of unemployment safety nets is not surprising because Singapore since independence has not met with a serious unemployment problem – the highest rate is 6.5% in 1985 (Phang, 2007: 16). While Western society discusses the borders between public and private
42 in terms of public good provision, in Far East Asian society another important actor is family. Confucian values emphasize hard work and earning one‟s keep to provide for one‟s family. And for those who are not able to earn their own living, it is the duty of the family to step up to the mark (Ng, 2004: 12; Phang, 2007: 18). Singapore has a model that Aspalter (2002) called “a welfare state in a class by itself“. It is a welfare system with its own style: job security, house provision and high educational standards all serve to generate a society with high-quality human resources. The three achievements of Singapore‟s welfare system are education, housing and central funds.
The education cost in Singapore public school is nearly free but of high international standard (Ng, 2004: 6). However, a lot of private schools are allowed to operate with strict regulations concerning teaching standards. The only barrier to accessing the educational system in Singapore is a student‟s own performance. Singapore‟s schools do not accept students with poor results. They have to re-study and parents are forced to get more involved. In higher education, Singapore‟s government does not certify private universities; however, international universities are allowed to operate on campus and offer their own homeland degrees. Nevertheless, three public universities in Singapore have achieved a high international ranking; none are surpassed by foreign institutions operating within Singapore.
The extensive housing system has played a useful role in raising savings and home-ownership rates as well as contributing to sustained economic growth in general and development of the housing sector in particular. Singapore‟s housing policies are “phenomenally successful” (Ramesh, 2003). Most Singaporeans are guaranteed accommodation.
The management of supply and the criteria-based selection policies underpin the success of the system. Singapore is a tiny island so to provide affordable residence is a vital task. The government has built public housing condominium-style to save space. Until 1971, a public flat was unable to be re-sold on the open market; it had to be returned to the HDB at the original purchase price plus the depreciated cost of improvements. Later, government accommodation could be sold if the occupant had been in residence for more than three years. The regulation
43 bases on the resident not the accommodation. The new resident from re-sale had to stay two and a half years at least; which was increased to five years (Phang, 2007: 23). In 1990 when Singapore achieved the status of a developed country, the government introduced the Executive Condominium scheme for the upper-middle class. The government leased a 99-year land contract by auction to private developers; the developers must take responsibility for design, construction, pricing, arrangements for financing and estate management. However, buyers have to satisfy eligibility conditions and abide by re-sale and other regulations governing these units. In the 1997 financial crisis, the slowing-down of the real-estate market was a catastrophe. The amount of unsold accommodation was extremely high. The government reacted by changing the rules that do not allow single people to own public property. Built-to-order regulation was enacted by the private sector. This didn‟t apply just to new condominiums; the government tried to re-build and redecorate, on a huge scale, current accommodation by buying from, and relocating, occupants (Phang, 2007: 27).
In most countries, welfare funding is addressed through social insurance that citizens can access in tough times, or pension funds for retirement. However, Singapore ‟s Central Provident Fund (CPF) mainly pays for those of working age – its focus is the economic goal of maximizing work effort. Unlike the pay-as-you-go social security schemes in most countries, CPF is almost fully funded and provides a comprehensive range of benefits: mortgages for the homeownership scheme, children‟s education, healthcare and investments (Ng, 2004: 5). Nevertheless, the government frequently regulates how and where to use the funds in a way that it deems best for the economy. Actually, the capital in this fund comes from compulsory savings that employees and their employers contribute from their wages. Government has spent a very low proportion of this fund, which is very different from other government public funds.
Unlike democratic states in which welfare policies are raised by civil society or social movements, in authoritarian regimes they emerge from an elite‟s concern or their vision about the potential social issues: the agenda setting is “top-down policy” not “bottom-up” (Forrat, 2012: 16). The social contract in this regime means “a tacit agreement to trade social security for political compliance” (Cook, 1993: 1). Thus, while authoritarian governments lack the procedural legitimacy of their democratic counterparts, they have to maintain their own
44 legitimacy in other ways, and for this the welfare system is useful (Forrat, 2012: 19). Even though fiscal spending on welfare is low relative to Western welfare countries, regulation has been heavy and the integration of community and corporate agencies with government policies has been more intertwined (Ng, 2004: 12). If one characterizes a welfare state by comparing the ratio of public spending to the private share in basic goods, Singapore falls far outside that criterion. However, if it is defined by analyzing how significant government involvement is to the delivery of public goods, then Singapore is one of the most effective and productive welfare operators.
Why It Might Not Work?
To analyze the threats that could prevent Indonesia, Thailand and Malaysia from achieving Singapore‟s results, this paper will address three factors: human development, corruption and crony capitalism, and economic transformation plans.
Indonesia Indonesia‟s human capital is relatively weak. Although the literacy rate in Indonesia is nearly 90%, statistically, only 20% of the labor force have a secondary education, 7% have a tertiary education. Labor productivity is weak as result of the educational standard.
This problem comes from a poor educational infrastructure. Domestic transport, electricity, communication and information networks can strengthen the education and skills of the labor force, but it has been neglected by the government (World Bank, 2011b: 28–30). Indonesia‟s performance in terms of educational investment is weak after a strong expansion in the 1970s. The rate of Indonesia‟s infrastructural development has continually declined since the Asian crisis. The nearly 8% of GDP that had been spent to create new facilities has dropped since the financial crackdown. Nevertheless, policy implementation is another problem for economic development. The government has tried to funnel the budget through individual ministries in the hope that that each minister would manage the budget more effectively than would have been the case with centralized spending (under militarist regime, Indonesia had been implementing central development policies unequally). The allocation of responsibility for infrastructural development among political officers has turned out to be less efficient than was hoped. A lack of clear hierarchical authority is the basic issue. “This arrangement is inefficient, as no agency provides the necessary degree of coordination, leadership and expertise to plan, execute and roll out infrastructure projects in a timely manner ” (Pisu, 2010: 10). Even though the government created the National Committee for the Acceleration of Infrastructure Provision to be an intermediate coordinator, insufficient independence of the organization and informal political power among ministers (which is stronger than bureaucratic authority) have meant the problems still exist (OECD, 2010: 97).
47 A large majority of Indonesians have low levels of education. The state‟s educational policy, instead of motivating citizens to take advantage of higher education, instead fails to push students from primary school to junior high (World Bank, 2011a: 37). Thirty-six percent of the population in Indonesia are currently 20 years old or younger. This group will decide the country‟s potential in the future. However, while attainment in primary school has been improved, low admission rates to secondary and higher-education institutions will jeopardize the future (OECD, 2010: 25). Not only has the Indonesian government failed to motivate people to enter higher education; it has also failed to narrow the uneven education gaps in rural areas (Goujon and Samir, 2008: 34).
This problem is evident in urban areas, too. Many countries have fixed the problem of unequal educational accessibility by creating public educational institutions or financial supported programs. However, without more support grants for use in the private education sector, only the rich can access a tertiary education. In this way, the rich have educated their children with highquality education while the poorer families have been left behind.
Education has always been a top priority in Thai developmental policy. Since 1921, institutions delivering primary education and other human resource skills have been established, primarily via government policy. The result is that by 1970, 94% of the population were literate, the highest rate in Far East Asia (Goujon and Samir, 2008: 33). Education accounts for the largest share of government expenditure, approximately 20%; in 2008 the rate was 21.9%. This compares well with Singapore, which spends 3% on education; Thailand has never spent below 4% of GDP (Ahuja, 2011).
However, Thailand‟s main problem is around the quality of its education. According to the Swiss Institute of Management Development, Singapore ranks 13th in educational performance whereas Thailand ranks 47th (Ahuja, 2011). In the 1980s, Thailand seemed to have progressed and its education performance was declared “good”; later, the rating dropped to “fair”, and, since 2000, it has been considered “poor” (Khaopa, 2012). According to the Programme for International Student Assessment (PISA) report Thailand ranked 50 out of 65 countries. This means that, nowadays, Thailand stands in the bottom 25% (Saiyasombut, 2012a). Ahuja (2011) states that national identity and culture may in part explain the Thai education problem. Good schools, great universities and a lot of experts cannot drive the educational system while “Thai-ness” is still so embedded in the society. Questioning things is not something
49 Thai students are used to doing; they routinely learn by watching and listening rather than through more interactive learning. The Thai student is a passive learner who shows respect to teachers by being quiet, sitting, listening and note-taking. These traditional “rules” of learning make students hesitant about asking questions or challenging the teacher if they disagree with what is being taught. In Thai society, it is still considered taboo to openly critique a teacher or make them lose face by pointing out a mistake (Saiyasombut, 2012b).
Poor standards in education have left Thailand unable to move up further in global supply chain. The shortage of skilled labor increases costs by 15% for Thai business. Knowledge of “Information and communication technologies” is one of the skill sets that Thai labor is lacking. The service sector, which can potentially produce 6–7% GDP growth, cannot expand in Thailand because of this obstruction (Jetin, 2012). English-language competency is another key issue that jeopardizes competitive advantage. According to an ETS report (2011) in Test of English as a Foreign Language (TOEFL), Thailand ranked 116 out of 163 countries. The IMD World Competitiveness Report ranks Thailand 54 out of 56 countries globally for English proficiency, the second-lowest in Asia, while Singapore is third, and Malaysia 28th (Saiyasombut, 2012b).
Malaysia has achieved well with regard to educational attainment levels. Rates of return to education are high at the secondary, upper secondary and university levels (Chung, 2003). Compulsory primary education was enacted in 2003, together with policies that specifically support the ethnic Malay, the poorest group in the country. The government has identified education as important economic driver. When Malaysia was stuck in Asian financial crisis, the government saw human capital as the main tool with which to get through the middle-income trap by pouring a large share of public expenditure into this sector. Nonetheless, statistics indicate that the Malaysian gross enrollment rates for secondary and tertiary education are still at 68% and 32%, respectively, which is lower than in the developed nations. Moreover, most of the Malaysian workforce is unskilled – 77% of have 11 or fewer years of basic education (MOF, 2010).
51 Despite Malaysia‟s high standards of education, its problem is how to retain its human capital. Brain-drain is a global phenomenon due to globalization – more than 215 million people live outside their motherland (World Bank, 2011c: 84). However, the net workforce inflow/outflow rates in Malaysia seem to be unusual (Lopez, 2011). Malaysia‟s population is 27 million but more than 1.5 million live abroad (Wong, 2010). This trend is flourishing; in past two decades, the rate has tripled (World Bank, 2011c: 91). The problem with braindrain is not just the numbers; it is also about the type of workforce a country is left with. Most outflow human capital has a tertiary education, while inflow labor is low skilled – 60% of all immigrants in Malaysia have primary-level education or lower. Now, one-fifth of Malaysians with a tertiary education leave for either OECD countries or Singapore, while Malaysia‟s skilled expatriate level fell by 25% between 2004 and 2010, largely due to Japanese companies that relocated to other countries (Lopez, 2011).
Education has been one of ethnic Malay preference policies since 1971; the government imposed quota systems in favor of ethnic Malay public education (Goujon and Samir, 2008: 33). Nonethnic Malays have been treated unfairly in working
52 place, too. According to a World Bank report, worries over future career opportunities as well as social injustice, rather than remuneration scales, appear to be key to the decision to emigrate. There is a deep sense of being wronged and not feeling welcome in Malaysia (Wong, 2010). Malaysian government acknowledges this issue and has tried to retain and attract the emigrant to return. However, the government fails to understand that unequal social opportunity is the root cause – even TalentCorp, the government agency that is supposed to encourage overseas Malaysians to return home, is headed by a Malay manager, with an all-Malay Board of Trustees (Malott, 2011).
Corruption and Crony Capitalism
Indonesia Indonesia had a serious problem with cronyism during Suharto‟s regime. During that era, the dictator and his network took advantage of their political power to seek wealth. Corruption only described the inappropriate behavior of low-level officers, while politicians and the elite got richer without any legal action being taken. However, the fall of the regime led to huge change in this country. Susilo Bambang Tudhoyono won the election in his first term in 2004. He came to office by declaring a zero-tolerance policy on corruption. His primary tool is the Corruption Eradication Commission (KPK). This was formed in 2002 before the Bambang regime; however, it began to be useful under his authority with full independence from politicians and bureaucracy. Since the KPK has been able to work independently, it has received more than 48,000 complaints including many cases that involve high-level government and corporate corruption. The KPK has successfully investigated and prosecuted 68 members of parliament, more than 10 government ministers, four diplomats and a number of high-ranking chief executive officers and judges (Sagalyn, 2011; Tedjasukmana, 2011). Its worthy reputation has been praised by the public and the international community. Moreover, democracy could be identified as another factor that has helped Indonesia with this issue. Corruption exists in many developing countries but some of them cannot bring it into the public arena in the way that Indonesia does (Schonhardt, 2010).
Although the anti-corruption campaign offers much hope to the Indonesian people, illegal behavior on the part of politicians and civil servants is still deeply rooted in this country. “Corruption in Indonesia is just like Coca-Cola. Everyone, every time, everywhere can become part of the corruption or could be the target of corruption” (Sihite, 2012). KPK officials also accept that corruption has become worse in recent years. Mochamad Jassin, a KPK deputy commissioner, said that corruption is “bigger than the Suharto period” and tha t it usually takes the form of “mark-ups and abuse of regional budgets” (Tedjasukmana, 2011). These days, that top governor intends to, and partly succeeds in, diluting cronyism – corruption is more
54 widespread. Decentralization has indeed made state authorities more accountable to local residents. However, the flip side is that it has enabled the spread of corruption from the capital to the hinterlands – “having autonomy in all regions in Indonesia has meant that the mayors and regents have their authority to govern and to allocate the budget, and the result has been that corruption does occur” (Sagalyn, 2011).
Not only in general day-to-day activities has corruption occurred. Cronyism may have been broken down by electoral democracy, but business moguls still have a lot of power in both the national economy and politics. The World Bank and Globe Asia magazine report that a handful of business tycoons with links to the former dictator are still dominant. Even in an electoral democracy, wealth remains highly concentrated among a small number of families involved in business conglomerates. This is the result of no progress with regard to political economy reform. Politically, people have the power to choose their own government but, economically, national wealth is still firmly in the hands of conglomerates. As long as the underlying structure perseveres, patronage and monopoly – regardless of cabinets, politicians and laws – will remain (World Ban, 2011a: 41; Wijaya, 2012).
The anti-corruption project, which it is hoped will change the country, also faces obstacles. Following its many successes in capturing corrupt high-ranking politician and state officers, the elite has begun to worry that the KPK is coming too close. One such breaking point occurred when Nazaruddin, treasurer of the President‟s Party, was accused of corruption. The situation clearly hurt the Democratic Party‟s image and also the president‟s (Economist, 2011). Recently, the KPK has faced opposition from many from the ruling class. The organization needs to expand if it is to take on the increasing number of anti-corruption investigations, and has asked for an increased budget. However, parliament has ignored the request. While some believe that the legislators‟ rebuff is political payback, this is merely latest punch in a continuing battle between the agency and law makers, many of whom are implicated in cases of wrong-doing (Schonhardt, 2012). Although the KPK is becoming increasingly isolated from other public authorities and political actors, Indonesian people recently have come up to support the anticorruption department. Social networks have been used to seek donations from the people
55 (Bayuni, 2012). Nonetheless, this situation is not good for the long term. It may be a sign that class conflict is coming.
According to the CPI, Thailand ranks 80 out of 183 countries worldwide with a score of 3.4. The problem of corruption in Thailand has been identified as one rooted deeply in the nation‟s culture (Warstra, 2004: 3). Thaksin Shinawatra states that “Corruption will not go away in Thailand – .it‟s in the system” (Beech, 2006). Phongpaichit and Piriyarangsan (2005) explain that the root of this problem seemingly comes from the country‟s tradition. “The Thai value system of merit is derived from power and in this way forms a basis for patron client relationship”. In modern society, presenting gifts to a state officer can is seen as bribery; however, under the traditional patronage system, regardless of the law, it is problematic to clearly identify whether such gifts are appropriate or not. Many studies show that Thai people‟s attitudes towards corruption are inconsistent. Many people still consider payments to officials as “gifts of good will” and do not see that as a form of corruption (Warstra, 2004: 5). The 1997 Constitution brought in some major improvements by establishing very strong institutional arrangements: the independent National Counter Corruption Commission and the Public Information Disclosure Act. Nevertheless, the main problem is they are too narrowly focused and do not target broader structural relationships. Corruption in the present is not unorganized activity; on the contrary, it tends to be cooperative activity between a broader set of actors – interactions between state organs and private firms, and relationships between the state and civil society (Huther and Shah, 2000; Larmour and Wolanin, 2001).
Corruption in Thailand is evident in every part of the society, right to the top. Conflict of interest is a new kind of corruption in this era and emerged with the more liberal electoral democracy, replacing the old rent-seeking that took place under the old militarist patronage system. Thaksin
57 first served briefly as the information minister, in a role directly responsible for his own line of business, telecommunications (Mutabi, 2008: 155). In the past, instability in Thai politics was a primary avenue for the corruption whereby politicians and civil servants shared rent-seeking. However, the rise of Thaksin and his new social contract brought about change. The authoritarian regime dilutes political contestability and centralizes administrative power without checks and balances. Furthermore, the backgrounds of the cabinet members and new members of parliament are telling – originally they were businessman and still have strong connections with various business groups. These politicians reduce the transparency of the decision-making process by using their personal assets in order to gain more power (Warstra, 2004: 4). Also “black box” policy making enables them to create policy that unethically supports their business.
The roots of corruption are not only at the top; they can also be found among ordinary people. Many illegal activities can be seen everywhere in Thailand. Bad driving, opening kiosks on footpaths, and littering in public spaces often take place even in front of concerned officers. Even though bribery is acknowledged as illegal, many Thais accept the convenience of it over the immorality. Thus, conflicts of interest among business politicians together with the embeddedness of patronage in Thai culture result in a system of crony capitalism.
Levels of Malaysian corruption in the 21st century are fair by global standards. According to the Corruption Perception Index (CPI), it scores between 5 and 10. However, things seem to have got worse recently, coinciding with the rise in political tensions. Malaysia‟s anti-corruption agency was set up in 1967, somewhat before those of its neighbors. And in 2003, Prime Minister Abdullah Ahmad Badawi declared fighting corruption his first priority (Siddiquee, 2008: 154).
The Malaysian anti-corruption agency relies on political administrators – key personnel are appointed by the prime minister and have no independent authority to proceed with prosecutions (US DoS, 2011). The idea of creating an independent agency that is not beholden to politicians is never raised (Siddiquee, 2008: 165). The result is that anti-corruption activities are only effective when no political intervention is necessary; naturally, tackling powerful politicians is impossible. Even Abdulah, the former prime minister, and Najib Razak, current prime minister, have been involved in many scandals (Siddiquee, 2008: 164; Case, 2008: 48). Johnson and Mitton‟s (2001) socio economic analysis leads them to label Malaysia as a state of crony capitalism. Currently, cronyism in Malaysia is institutionalized. Many government practices support business through unfair competition (Siddiquee, 2008: 168). Severe restrictions on investment in Malaysia are imposed through the issuance of licenses, approved permits, contracts and the manipulation of regulations. The effect of crony capitalism is rapid economic boom on the one hand; on the other, it jeopardizes economic sustainability. Kunio Yoshihara reports that 50 years of Malaysian cronyism have
59 produced an “entrepreneurially weak capitalism” (Roberts, 2010). In Thailand, people always say money can buy everything, even the legal system, but in Malaysia, political power is the key.
To transform the Indonesian economy, the government released the Master Plan for Acceleration and Expansion of Indonesian Economic Development (MP3EI) in December 2010; which is a market-led approach that takes two basic tenets from neo-liberalism – deregulation and marketliberalization. The Master Plan described how it aims to implement the 2005 –2025 Long-term National Development Plan with the vision of the accelerating and expanding Indonesia‟s economic development such as to create a self-sufficient, advanced, and prosperous Indonesia (Nurmandi, 2012: 66). In summary, the Master Plan has two main functions: firstly, to accelerate the development process by providing the regulatory and connectivity de-bottlenecking efforts that improve friendly investment conditions (Hidayatullah, 2011); and secondly, to expand the degree of development that would enable national competitiveness and attract further business operations. The basic strategy that would drive the plan integrates three main elements:
(1) Developing the regional economic potential in six Indonesian economic corridors. (2) Strengthening national connectivity locally and internationally. (3) Strengthening human resource capacity and national science and technology.
61 To support the acceleration and expansion of economic development in Indonesia, implementation of MP3EI will initially focus on eight main programs which consist of 22 core economic activities (Ministry for Economic Affairs, 2011: 22).
Meanwhile, in regard to the economic corridors through which government will boost infrastructural development the emphasis is on the cooperation between the government and the private sector – amounting to around USD 150 billion - due to limitations in public funding. The government will play the facilitator, giving fiscal and financial incentives and providing a regulatory framework to encourage confidence and participation from investors to build core industries and vital infrastructure. The public–private partnership (PPP) scheme will be used to bring together the private sector, state-owned enterprises and foreign capital to invest and run projects with government support (Ministry for Economic Affairs, 2011: 21). It is expected that 468 billion USD will be needed to finish this Master Plan; 55% for the production sector and 45% for infrastructure. In terms of sourcing the funds, the private sector is expected to pay 51%, while 18% will come from state enterprises, 10% from government, and 21% will come from PPP (World Bank, 2011b: 33).
A key feature of success will be the ability to overcome the geographic difficulties and connect each part of the country (World Bank, 2011b: 32; ADB, 2012). Even though the Master Plan is governed by the president, it is still doubtful whether projects in the plan can move along together (World Bank, 2011b: 22). Decentralization makes local governments have some independent authorities to run policy, and tend to invest the budget and design the projects based
62 on local needs, rather than taking an overall view. It is anticipated that state enterprises will be involved in the plan. However, many of them are not fully supportive of Bambang‟s government. Also the enterprises have to prioritize their core business first. So, the projects may end up supporting their own interests rather satisfying public demand. It is a welcome idea that government look to replacing the public budget with private investment. Nonetheless, the target of 50% private participation is seems high. Historically, infrastructural investment from the private sector of between 20% and 25%, even during economic boom, is considered peak (World Bank, 2011b: 38). The source of capital is not the only problem for the budget; the plan itself is still in question. For example, the Bali economic corridor, targeted as a tourism gateway, will receive just 5 trillion Rp (7.24%), 6 trillion Rp (8.6%), and Rp 1 trillion (2.2%) for the construction of roads, ports and water resources, respectively (Hidayatullah, 2011). The rest of the budget will be ploughed into irrelevant infrastructure.
Generally, Thailand has been a pro-market country which has driven its economy via foreign investment and exports. In the past, public policy in Thailand was mainly managed by permanent state officers – technocrats, the military and civil servants – rather than politicians or cabinets (Riggs, 1966). The market-led approach had been used in Thai economic agenda; however, Shino-Thai capitalists seemed to play a vital role in the country (Whitfield, 2011: 35). Many sectors in Thailand, such as banking, chemical, retailing, and construction, had been protected from foreign investors. The event that changed Thailand‟s political economic structure is the Asian financial crisis. Due to the crisis, the Thai government had inevitably to take the IMF-supported program guided by the Washington consensus. The main principles of neo-liberalism were pushed rapidly into the Thai economy. And, as was mentioned previously, Thaksin‟s new social contract came up to rebalance the Thai political economy mechanism. Beginning with the agenda-setting process, formerly the Thai economic plan had been set by technocrats in the national economic council. They avoided touching some sectors that had powerful conglomerates, and their work was based mainly on academic perception rather political persuasion – political popularity was of no concern. However, Thaksin decided to use his own economic advisors; who create electoral campaign. Thus, even though these policies are possibly claimed as public decisions, many of them are not economically good for the country.
Previously, government economic interventions had been used in soft way. However, in Thaksinomics, while on the one side, the market-led approach is still the main engine used to drive the country, on the other, populist policies are needed to sustain political popularity. Thaksin managed to rescue Thailand from the financial crisis by using “Quasi fiscal policy”. A lot of government capital was injected via the banking system to enable consumers and investors to access credit; however, this was shut down on the IMF‟s suggestion (Conroy, 2004: 5). The 2004 Social Security Fund, the universal health coverage, and some other welfare policies offered Thais a more universal social safety net (Stiftung, 2012: 21). However, most of government expenditure seems to have been based on political targets rather than economic
64 development. The mega project – Bangkok Fashion City, knowledge society, and national rail system – that was supposed to lift Thai competitiveness did not succeed.
In terms of the economic sector, Thailand has relied heavily on exports and manufacturing. In the late 20th century, Thailand‟s main industries were manufacturing and wholesale and retail trade.
As in most developing countries, crony capitalism and the relations between business tycoons and politicians do not support economic freedom. Even though Thailand is quite acceptable when measured in terms of market openness for foreign investors, there are some sectors where protectionism has occurred. The Trade Competition Act (TCC) had been enacted since 1999, under pressure from the IMF. However, practically, the numerous exemptions accorded to state-
66 owned companies, public agencies and even influential individuals made it ineffective. Pressure from big business, apparent government indifference, and a lack of adequate enforcement ultimately hindered TCC efforts (Stiftung, 2012: 17).
According to the UNDP (2010), approximately 60% of the total workforce is employed in the informal sector, which is responsible for producing over 50% of the gross domestic product (Stiftung, 2012: 16). This situation initially arose when the late 20th century economic bubble burst. Many firms closed down and the employees had to turn back to the agricultural sector or to being small entrepreneurs. But under uneven opportunity in this political economy mechanism, while the larger firms benefited from immoral support, thus giving them a monopolistic position within the market, it also obstructed them from expanding their business to create another national economic engine.
67 Malaysia Malaysia‟s economy rapidly expanded in the late 20th century due to foreign investment. However, the Asian crisis had changed the economic paradigm. Government investment had stepped up to replace capital inflow because it believed that global financial speculators were the cause of the economic turmoil. However, the lost decade of the 21st century together with the lowest populist rate in UMNO – government collation parties – pressured the government to create a new strategy to bring the country back on track. Najib Razak established the project to transform the Malaysian economy – the Economic Transformation Program (ETP). Additionally, the National Economic Model (NEM) has been developed as a spearheading policy to drive Malaysia through the middle-income trap and achieve the status of a developed country by 2020.
Basically, the NEM intends to drive the economy through the private sector while government needs to reduce its role – 92% of investment is expected to come from the private sector. In detail, foreign direct investment is expected to account for 27% while the other 73% will come from internal private capital (PEMANDU, 2010: 85).
Danny Quah, economics professor at LSE, and Council Member in Malaysia‟s National Economic Advisory Council, has presented eight strategic reform initiatives that should underpin the economic transformation:
Re-energize the private sector so it could lead the process of economic growth. Develop a high-quality workforce. Create a competitive domestic economy
68 Streamline and make efficient the public sector as facilitator for private enterprise, when in the past large GLCs had been viewed as competitors instead. Move to affirmative action that is transparent, market-friendly, merit-based, and conditioned on need. Build infrastructure for a knowledge base. Enhance the sources of growth. Ensure the sustainability of growth.
He claims that the strategy is just a general idea for achieving economic goals. Nonetheless, government has to focus on how to implement this. First, it would focus on growth through enhancements in productivity. Second, the government needs to let economic growth be private sector-led and market-driven, not public investment via state capitalism. Third, local autonomy in decision-making has to be empowered, and the boundary between the local and central has to be defined clearly. Fourth, the focus must be on high productivity in the long term. Fifth, government supports for developing innovation, high-value-added goods and services, and infrastructure are still acceptable. Sixth, talent and skills should have no discrimination with regards to ethnicity, nationality and any non-economic factors. Finally, the emphasis must be on global economic change (Quah, 2010).
The Malaysian government has shown willing to transform manufacturing industry, which contributes around 70% of the Johor – the region in the southern Malay Peninsula, and next to Singapore, would be transformed into a services sector. Many incentives, such as tax exemptions and, especially, Bumiputra rules - at least half of company‟s share has to be held by Malays -
69 would be unrestricted. Cyberjaya is a project that aims to establish an area as the new Silicon Valley. The government has invested in the building of a town and many facilities – school, university, hospital and shopping mall. This project also offers foreign investors a waiver on the Bumiputra rules, too, and Internet censorship is assured to be removed in this area (Tarrant, 2011: 5).
The NEM gets a lot of support from right-wing scholars and the global community because it tends to call on neo-liberalism. “The NEM is to grow the economy by making the private sector the engine of growth” while it admits that Malaysia has too much government intervention and domination of GLCs (Wan Jan, 2011: 2). Despite it being somewhat vague at to what, practically, the government will do, based on the plan, the government needs to cut the budget deficit, which was 7.4% of gross domestic product in 2009 (Ahmad and Cheah, 2010). It does accept that “a large number of people are dependent on the Government ” (Holik, 2011: 8).
Najib, however, was skeptical that Malay elites will allow him to undertake any reform that would risk their privileges. The conservatives, including UMNO members, saw in Najib‟s plan a lack of nationalism that would harm Malay society. Mahathir had put forward his own ideas during his era as to why ethnic tension was expanding. He claimed that his administrative policies, although strongly in favor of ethnic Malays, gave some government budget to local non-ethnic Malays. “The moment I stepped down, all the projects were stopped. When you stop big government projects, a lot of people – well, their businesses will go down” and it create the tension (Tarrant, 2011: 4). However, it can be inferred that his policies were toxic like Alan Greenspan‟s US monetary policy. Nowadays, non-Malay people barely tolerate injustice in society.
In the end, the influence of the Malay nationalists won through. They can exert pressure on policy makers at the highest level. The concluding part of the NEM – the second part – was launched in December 2010. It seems to be a tragedy of a right-wing dream – the government had succumbed to pressure from Malay nationalists by watering down the NEM. “To ensure fairness and vanish discrimination” in part 1 changed to “targeted special program for certain groups outside of the bottom 40% should continue ” in the part 2; “To espouse a more free
70 market economy and the private sector is the driver of economic growth with the government limiting itself to being a facilitator” turned into “to sustain economic stability, government is needed to operate in national economy as well as state‟s interventions are necessary” (Wan Jan, 2011: 21). The Equal Opportunities mission and economic liberalization were dying before they were even born.
Singapore achieved sustainable economic growth because it has used the two parallel strategies of market liberalization and state developmental capitalism. On the one side, it attracts MNCs to drive economic growth by giving tax incentives and friendly business conditions. Tax incentives have been used simply but effectively in the ways firms want. However, after being a middleincome country, the incentives have been used more specifically and clearly send the message as to what kinds of businesses are preferred. Friendly market conditions in particular have provided infrastructure, and the human resource factor has always been prioritized. Despite labor unions being prohibited, state central labor institutions handle workforce tensions effectively for both employees and employers. With regard to state developmental capitalism, the government has had the vision to plan economic strategy for long term. It has continually transformed its economy: it was labor intensive in 1960; service-based and with a financial hub in 1985; by 2000 high technological industries dominated; and now it is looking to be an investment center, with medical and nanotechnological hubs. In achieving that, it was brave to abandon its old economic advantages, such as former British enterpots, low-value-added industries and financial service centers, in order to reach a higher position in the global chain. As Prime Minister Lee Hsien Loong insists, productivity ensures a steady rate of growth (Saad, 2012). Authoritarian democracy in Singapore means an electoral system does not allow full competition; PAP – the government party – clearly gets majority support. Singapore people expressly support strong government and willingly give up their rights in return for economic growth and social harmony. Singapore government rules the country with meritocracy rather than tyranny. The differences between the two are the rule of law and minority rights. The corruption rate in Singapore is proudly low and the government listens to any argument that aims to develop the country without undermining society. This system supports economic development and enables its smooth implementation.
72 Amartya Sen suggested that good governance, not less governance, is the key to addressing the challenges (Abeysinghe, 2007). The model is not about competition between state and private sector, but about the state showing the private sector how business can be conducted, how limited resources can be harnessed and applied, and how a strategic location can be of benefit (Fontgalland, 2011). Singapore‟s economic model is a mixture of different kinds of capitalism, liberalism and state capitalism, and continually transforming economic strategies. It uses both neo-liberalism – privatization, liberalization and deregulation – and national monopolies, extensive regulation and government subsidiaries at different times, in different contexts and for varying purposes. Finally, even when the government insists that a welfare system creates laziness, it realizes how capitalism can generate inequalities in wealth distribution (Economist, 2010). It provides a social safety net as a last resort to enable people who have lost current advantage to gain future opportunity. That Malaysia, Indonesia and Thailand are trying to adapt Singapore‟s model for themselves is no accident but rather by deliberate selection, and mainly based on political rather than economic factors. They see Singapore as a good model because the elite want to protect their privileges – all rulers are from elite society and care little for social equality. To sustain their position they realize that handling a boom of the middle classes who will demand a better quality of life and increased “equality” is important because it will happen from a result of economic expansion. The Singapore model of authoritarian democracy runs smoothly, and in a way that sustains elite power, economic prosperity and social harmony. However, it seems that there is much work to do in these countries. Malaysia seems to have achieved many successes. Its education system creates high-quality human capital. Its economy is very stable and advanced. Nonetheless, Malaysia has ethnic conflicts and society is not harmonious. The tensions are far from what they were but there are still inequalities. The transformation plan is generally good but has not hit the point. Ethnic tensions could destroy the transformation goals if the ruler does not choose either to build a more open, fair society, or to wipe out non-ethnic Malay people. Any alternative solution will have to be planned wisely.
73 Indonesia is far below the standards of Singapore. Its economy is low-development, and relies heavily on energy and the labor-intensive industrial sector. The Indonesian workforce lacks knowledge, and education facilities are relatively weak. The economic transformation plan is highly ambitious but unrealistic. Indonesia‟s anti-corruption strategy has been moving in a positive way recently; however, any attempt to undermine it could push back the society into the Dark Ages. Government should focus on the basics – education, transportation facilities, and corruption – in order to move forward. Thailand‟s political problems are extremely damaging to the country. As long as they continue, nothing can move on: short-term populist policies used to gain mass support, rather than longterm sustainable development, are jeopardizing the country. The economic system is still in good condition after having diversified industrially, but there has been no progress, not even an idea about what the next step in transformation might look like. Education standards are the main problem for the whole society – a lack of high-quality human capital will make it difficult for the country to rise to developed status. Meritocracy, which is the basis of Singapore‟s prosperity, is not stable in Thai society. Thai people ‟s behavior is killing the society and, without a huge social paradigm shift, Thailand cannot get through middle-income trap.
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