Economic challenges faced after independence and strategies Challenges Strategies Inexperience of new leaders who had to undertake

Sense of urgency called for centralised and macro ED planning for ED I: Sukarnos extreme nationalism without a long term economic development program led to 2000% hyperinflation and a near collapse of the economy. An overall direction for industrialisation was only implemented with Suhartos Repelita IV, with a target growth rate of 9.5%, instead of the previous 3% growth rate for agriculture. V: 2 Five Year Plan from 1976 to 1980 focused on the development of heavy industry (in response to the earlier primitive agrarian economy) as well as the complete transformation to socialism in the South. T: Focused on agricultural development from 1947, expanding irrigation land from 600,000 to 2.2m hectares before focusing on investments and exports Nationalisation of key industries and anti-foreign policies to promote indigenous ownership of strategic resources which generated wealth for ED Nationalisation E.g. oil: Pertamina (I), Petronas (M), Singapore Petroleum Company, Philippines National Oil Company E.g. tin: Malaysia Mining Corporation E.g. rice: East Asiatic Company (B) Anti-foreignism P: Garcias 1954 Retail Nationalisation Trade Act forced Chinese out of corn and rice trades; 1958 Congress Bill stated that 60% of important industries were to be at least 60% owned by natives. Successful: Three-fold increase in Filipino participation in the import trade from 1948 to 1965. T: Government issued directive for Chinese to establish centralised associations in gold trading, jewellery trading and banking Successful: Thai businessmen joint ventures with the Chinese, enabling them to tap on Chinese wealth and expand their businesses rapidly Government-run infrastructure to spearhead ED I: Bulog was the governments rice trade monopoly, which coordinated rice procurement and distribution; Bimas was the states agricultural programme that provided subsidized fertilisers for high-yielding varieties of rice. Successful: Rice production increased by 50% between 1960 and 1980, unparalleled in Asia. B: Rangoon Electric Works provided assembly plants and electrical equipment for businesses; Continental Trading House stored fisheries. S: Different from other countries, focused on manpower (technical and vocational) training for infrastructure upgrading.
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Foreign ownership of resources

Lack of infrastructure (particularly in the aftermath of the JO, which resulted in food shortages and destruction of physical capital)

Lack of an autonomous private sector Over-reliance on primary sector

Successful: Led to equipped workforce and surge of foreign investors ISI phase: Governments protectionist policies created a conducive climate for early native industries, replacing absence of private sector and encouraging development of domestic enterprises. M: 1958 Pioneer Industries Programme gave pioneer status and protection for domestic primary industries Successful: More than 10% increase in native consumption goods and durables by the end 1960s. T: 1960 Promotion of Investment Act guaranteed private enterprise against state competition and nationalisation. Successful: thirty-fold increase in Japanese and Western manufactured exports by 1980. EOI phase: Scaling back of government role; publicprivate sector ventures; export promotion; tax incentives to attract MNCs. P: Promotion of joint venture-ships between Filipinos and foreign TNCs in 1960s. Successful: breakthrough in garments, cement and textiles by end 1970s. S: As early as 1978, companies were allowed 100% foreign ownership; $1b Cluster Development Fund set up to support investments, diversifying its economy into a service-based center. M: Launched Malaysia Incorporated in 1983 in a bid to encourage public-private joint ventures; 1986 Promotion of Investments Act granted new incentives to foreign capital.

Widespread poverty Need to achieve economic equity

Growth of agriculture sector; quest for selfsufficiency; (in socialist countries) governmentinitiated equal land distribution and land reforms. B: 1965 Tenancy Law re-distributed land to poor farmers. M: 1971 New Economic Policy included distributive policies favoring bumiputeras. *Why Malaysias more successful as a policy? It was moderate in nature despite retaining Malay control of certain sectors of the economy, private enterprises and heavy industry were allowed at the same time. Drive for foreign assistance and investments S: Tax exemptions and pioneer status policies Foreign investment in manufacturing rose 24 times between 1965 and 1970. T: Through 1950s and 1960s, received more than $900m in aid and loans from the US; Sarit invited foreign corporations for joint ventures in agricultural and industrial development. In contrast, B: insularism meant economy failed to keep pace with SEA counterparts.

Lack of domestic capital

Effectiveness of strategies Handle

Impact on effectiveness

Short-run vs Long-run

SR: Nationalisation effective in promoting indigenous ownership LR: Discouraged foreign investments Evident in success of ultra-nationalist regimes which later opened up I: Sukarnos nationalist regime vs Suhartos emphasis on foreign investments T: Phibuns anti-Chinese economic directives vs Sarits foreign drive SR: Attracting foreign loans provided necessary capital for industrialisation LR: Limited by foreign debt, particularly when they were not judiciously channeled into appropriate sectors I: In 1980, foreign loans constituted 42% of state development fund P: foreign debt was US$25b by 1983, making it one of the ten most indebted nations in the world SR: Government participation addressed lack of autonomous sector LR: Failed to eventually develop a sustainable middle class and state monopolization continued I: In 1969, Bulog appointed Bogasari (a miller jointly owned by government, Liem Sioe Leong and Suhartos step-brother) as the sole flour mill, instead of encouraging new business P: Under Marcos, role of state intensified and public enterprises proliferated to more than 300 companies, dominated by Ayala and Lopez clan In contrast, S: Governments scale back and cooptation of private sector with 1986 Regional Business Forum illustrates appropriate GI Difficulty in overcoming inherent challenges such as over-reliance on primary sector. While all capitalist countries embarked on ISI by early 1970s, overall dependence on primary sector still continued (except in S and M) primary exports constituted more than 75% of all exports for T, I, P Socialist strategies were unsound and ineffective, because they focused on equity, with little being done about the lack of foreign funds and expertise. V: New Management System B: 1965 Tenancy Law These strategies of heavy industrialisation were also not built on comparative advantage like capitalist economies, and led to crises. V: 2 Five Year Plan in 1976 led to neglect of agriculture and per capita food consumption went below subsistence levels B: Focus on heavy industry led to fall in agricultural investment and stagnation in productivity; rice exports fell from 1500 thousand tons to 200 thousand tons
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Different effectiveness for different challenges (inherent vs non-inherent)

Different effectiveness in different countries (capitalist vs socialist economies)

Other factors that contributed to effectiveness

Principles of governance: transparency, accountability (S and to some extent M) vs cronyism, self-interests (I, P) Ideology: capitalist (S, M, I, T, P) vs socialist (B, V) Political stability (S, M) vs instability (P during Marcos era, V during war with US, B during 1988 coup/disunity within AFPFL) Inherent factors: S had economic planning under the British, resulting in formation of EDB in 1961; good geographical location increased gains from entrepot trade as well as exposed it to manufactures earlier External conditions: 1970s oil crisis (I vs T, P); 1980s recession (S vs others); Cold War climate (V vs rest)

Depends on implementation of strategies

Moderate nationalism (S, M) vs extreme nationalism (I under Sukarno, B) Attraction of foreign funds for constructive projects (S, M) vs low-yielding projects or worse still too much dependence leading to accumulation of foreign debt (I, P, T) I: Over-protectionism of automobile industry ensured protective tariffs persisted till 1990s, which Astra and Indomobil were dependent on for survival P: Given Benedictos dependency on the government, it continued to intervene by absorbing losses of more than 14b pesos when world sugar price collapsed in mid-1980s Government-run enterprises (S) vs state monopolies which excluded private sector competition leading to inefficiency (I, P) S: 1980s Regional Business Forum coopted members of private sector into economic activities Successful transition from ISI to EOI (S, M, T) vs slow transition that was mostly in form but not substance (I, P) Pursuit of economic growth in capitalist countries (S, M, I, T, P) vs focus on equity and ideology in socialist countries (B, V)