The Economic and Political Growth Pattern of Asia-Pacific 9789814376891

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Institute of Southeast Asian Studies

The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia. The Insti· tute 's research interest is focused on the many-faceted problems of deve· lopment and modernization, and political and social change in Southeast Asia. The Institute is governed by a twenty-four member Board of Trustees on which are represented the University of Singapore and Nanyang Univer· sity, appointees from the government, as well as representatives from a broad range of professional and civic organizations and groups. A ten-man Executive Committee oversees day-to-day operations; it is ex-officio chair· ed by the Director, the Institute's chief academic and administrative offi· cer. The opinions expressed in this publication are the responsibility of the authors and not that of the Institute.

Pacific Forum The Pacific Forum was established early in 1975 to provide an informal international venue for the exchange of views, proposals and ideas on re· solving the pressing policy issues and problems related to economic deve· lopment, resources and stability in the Pacific region. It is a private nonprofit international organization dedicated to the candid and objective exchange of views and ideas on resolving the major international policy problems and issues related to economic develop· ment, resources and stability in the Pacific region. It is guided by an international Policy Council of distinguished per· sons from a wide spectrum of responsible positions of leadership. In co-ordination with other organizations and institutions in the Paci· ftc, the Pacific Forum conducts conferences, seminars and workshops. Occasional papers and reports are published to stimulate the exchange of different view-points and to provide objective analysis of international issues. Affiliated with Pepperdine. University and incorporated in the State of Hawaii, the Pacific Forum is located in Honolulu.

THE ECONOMIC AND POLITICAL GROWTH PATTERN OF ASIA-PACIFIC

Papers and Proceedings of a Private Conference organized by the Pacific Forum, Honolulu, and the Institute of Southeast Asian Studies, Singapore

Edited by:

Lloyd R. Vasey George J. Viksnins

Institute of Southeast Asian Studies in co-operation with Pacific Forum

Published in 1977 by Institute of Southeast Asian Studies Cluny Road Singapore 10

Pacific Forum 190 South King Street Honolulu, Hawaii 96813

© Institute of Southeast Asian Studies

Pacific Forum

Printed by Eurasia Press

CONTENTS

PREFACE INTRODUCTION The Economic and Political Growth Pattern of Asia-Pacific

OPENING ADDRESS S. Rajaratnam

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THE EMERGING POLITICO-ECONOMIC SETTING The Future of Asia-Pacific and the U.S. Role John H. Holdridge Towards Progress and Stability in Asia-Pacific: A View From East Asia Kim Kyung Won Outlook for Economic and Political Stability in Asia-Pacific Thanat Khoman

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40 52

NEW ECONOMIC PATTERNS AND TRENDS The Economic Outlook - Opportunities for Cooperation and Progress in the Pacific: An American Opinion Walter E. Hoadley The Role of the Private Enterprise System Julius Tahija Opportunities for Future Cooperation and Progress: Economic Trends Erne Yamasita Commodities, Resources and Raw Materials - A Future Strategy for International Cooperation Datuk Musa bin Hitam

61 75

86

101

FOREIGN INVESTMENT AND THE NEW ENVIRONMENT The Foreign Investor in Asia-Pacific: A Suggested Framework for Regional Investment Policies Six to K. Roxas Panel: A Direction for Foreign Investments in Asia-Pacific. Comments on the OECD Document Published on June 21, 1976 J.E. Bywater Investment Priorities in ASEAN Augustine H.H. Tan A Direction for Foreign Investment in Asia-Pacific James A. Thwaits Foreign Investments in Asia-Pacific Tadayoshi Yamada The Emerging Non-Market Economies in Asia- China and Vietnam: Their Potential Impact on the Region Louis E. Saubolle The Food Problem and Regional Cooperation K.Y. Chow COMMITTEE REPORTS The Political Outlook and Its Impact on Economic I Progress Chairman: Eric Khoo II Emerging Economic Patterns and Policies and the Impact on Economic Development Chairman: Sir John Marks III Investment Policies and Proposals Chairman: Clifton D. Terry CONFERENCE BACKGROUND PAPERS Perceptions of Future Stability in Asia-Pacific Lloyd R. Vasey Asia-Pacific and the Emerging Economic Order George J. Viksnins PARTICIPANTS

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131 136 143 149

166 187

200

204 206

211

231

268

PREFACE The past year had witnessed dramatic developments in the international political and economic scene of the Asia-Pacific region. The full implications of these momentous changes for the future of the area were still unclear and had yet to be fully assessed. With this in mind, both the Pacific Forum and the Institute of Southeast Asian Studies felt that the time was now ripe for a small expert group of Asian and non-Asian industrialists, bankers, governmental policy-makers and informed academics to come together and informally exchange views on the changing international scene, assess the probable impact of these changes on the future economic progress, development and stability of the area, and recommend new directions for international cooperation. A specific focus of the meeting was the role of foreign investment in the new international environment of Southeast Asia. The conference on ''The Economic and Political Growth Pattern of Asia-Pacific" was well attended and stimulated considerable productive discussion. It also produced a set of interesting papers and reports which form the basis of this volume edited by lloyd R. Vasey, Executive Director, Pacific Forum, and Professor George R. Viksnins of Georgetown University. The Pacific Forum and the Institute of Southeast Asian Studies wish to thank the Honourable S. Rajaratnam, the Foreign Minister of Singapore, for delivering the opening address. They also acknowledge the courtesies and hospitality extended by the Goodwood Park Hotel, Ltd. (Singapore), Sime Darby Holdings, Ltd. (Eastern International Division), the Bank of America (Singapore), the Development Finance Corp. Ltd. of Sydney, the Korean Traders Association, the United Overseas Bank Group (Singapore), Minnesota Mining and Manufacturing Co. (Singapore), and Intervest Inc. (Singapore). It is also fitting that the Pacific Forum and the Institute should record their gratitude to the individual participants in the Conference for their contributions. Finally, while wishing the authors all the best, it is clearly understood that the responsibility for facts and opinions expressed in the proceedings, reports and papers that follow rests exclusively with the authors, and their interpretations do not necessarily reflect the views or policies of the Pacific Forum or the Institute. Kemial S. Sandhu Director, Institute of Southeast Asian Studies Uoyd R. Vasey Executive Director, Pacific Forum

THE ECONOMIC AND POLITICAL GROWTH PATTERN OF ASIA-PACIFIC: An Introduction The last quarter of the twentieth century promises to be a very significant time span in the history of the peoples of Asia-Pacific. In the political arena, the reconfiguration of the Indochina states has raised serious questions - at least in the minds of many outsiders - about the viability of neighbouring states. Even if the countries of the region can maintain their verve and avoid outright military conflicts, at least for the near-term future, the region still appears as a continuing battleground for competing ideologies. It is also economically a key area, and the struggle for influence among the major powers is certain to continue. The year 1976 itself, marked the end of a long and painful period of foreign military involvement in Indochina; the phase-out of U.S. facilities from Thailand in the spring of 1976 was the last step in the process of American disengagement, not entirely voluntary, from that particular area. While it may be too ~arly to dismiss entirely the so-called "domino theory," many observers are encouraged by the formation of a new spirit of national self-reliance and the emergence of increased regional cooperation in Asia-Pacific.

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in the eyes of many, such flexibility is very important to the long-run political stability of the region. Another area of considerable strength is the very rapid growth recently experienced by most of the countries of the Asia-Pacific region; despite the world-wide recession in 1974-75, the beginning of 1976 found all of the ASEAN economies in a strongerthan-ever position. While political alliances and military

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relationships may be becoming less clearly defined, the economic integration of Asia-Pacific into what might be termed the "Free Enterprise Market System" is proceeding apace. To set the frame of references for the Conference deliberations, the political speakers on the first day reiterated major themes. The first of these might be called the negation of the "domino theory." As the Hon. S. Rajaratnam noted in his Opening Address ".... The usual approach of seeing Southeast Asia as a region divided between a monolithic, coherent, and a politically and economically dynamic bloc on the one hand and a fragmented, blundering, and conflictridden non-Communist area on the other has, in my view, no firm foundation." This theme was echoed by Dr. Kim Kyung Won of Korea, who pointed out that his country is growing so rapidly " .... that there is no longer any room for serious doubt as to which side, South or North Korea, is going to be the winner in the competition .... " Non-Communist societies have been far more successful in achieving economic development and modernization, Dr. Kim continued, " .... and, in the end, stability is linked more closely to the ability to grow and prosper than sheer military alliances or ideological orthodoxy." A second theme concerned the importance of regional cooperation, i.e., the candid recognition that "united we stand, divided we fall." This argument was clearly enunciated by Dr. Thanat Khoman " .... While ASEAN has so far chosen to adopt a low-key approach, in case of need and if the danger becomes more ominous and ascertainable, ASEAN may strengthen itself to meet the challenge. Although the organization may not be a match to Vietnam's juggernaut, it is endowed with an important political value and potential which the other side may be lacking. Learning our lesson from the Vietnam War, one is inclined to believe that, at least on certain occasions, the use of political means may be

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as efficient, if not more so, than the military ones." The key role of the ASEAN organization was also stressed by Dr. Julius Tahija, Chairman of the Board of Caltex/Indonesia, who stressed the need for a greater private-economic contribution to the countries of ASEAN. (It was pointed out that the Pacific Forum may be useful in this connection.) The third major factor taken up by the Conference participants concerned the U.S. role and the continuing close American identification with the viability of the area. While most observers agreed that a reduced, but potent, military presence would continue as the basic posture, the economic interests of American firms were predicted to increase over the long term. According to the Hon. John Holdridge, the American Ambassador to Singapore, the countries of Pacific Asia can attain their goals of political independence and economic development only if the existing balance of power in the region is maintained. This would require the U.S. to continue to carry the burden of leadership and provide a balance to the general rivalry between the U.S.S.R. and China; an effective U.S. military presence would continue, and also a certain amount of economic assistance (perhaps increasingly through multilateral aid agencies). Supportive themes were developed by representatives of the U.S. private sector; along these lines, Walter E. Hoadley of the Bank of America noted that a new sense of realism was entering the American political life. According to his assessment, there will be less willingness on the part of Americans "to go it alone" in foreign policies and programs, and the American electorate will increasingly want to know about "value received from foreign aid," particularly if we are talking about bilateral grant programs. According to J. A. Thwaits (of the 3M Company), there exists a great deal of misinformation about the activities carried out by the so-called multinational corporations, most of which are based in the United States. In particular, he pointed out that investments

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by U.S. firms in the region were presently very low, and yet most countries in the Asia-Pacific region were heavily reliant upon foreign trade as their basic growth sector. In the economic development of the Asia-Pacific region, significant changes have also been taking place. The nonCommunist economies of ASEAN countries, plus the Republic of China, Hong Kong, and Republic of Korea have experienced extremely rapid GNP growth over the last five years. While many economists are beginning to question the advisability of setting up "Growth First" as a production goal for a country - as the Japanese participants at the Conference noted, their country is moving toward a "Living First" strategy in its latest economic plan - nevertheless, we should realize that most social and economic indicators are very closely correlated with the GNP level. This complex issue of national economic policy was treated in a very careful and sophisticated manner by the participants at the Conference. Of particular interest was the presentation made by Sixto Roxas of the Philippines who argued that rapid GNP growth very often accentuated "dualism" - by which we mean the uneven pace of development between the "urban enclave," which becomes more and more closely integrated into the free world market economy (in some cases becoming more "Western" than the West), and the rural "hinterland," where little change is taking place for the better. Mr. Roxas' proposal to redress this problem was accepted for further study. Most of the economies of Asia-Pacific have been showing spectacular growth in GNP, even "real" GNP, after a correction has been made for price changes. This fact was noted in the advertising copy developed by the Wall Street Journal for its new cousin, a joint venture between Dow Jones and several prominent Asian newspapers, and discussed in Prof. Viksnin's paper: .... Asian economic growth is spectacular. [From] 1969-

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19 74 the GNP of nine East Asian countries grew at a rate nearly triple that of the world's industrialized nations and almost four times that of the U.S. and this is real GNP growth - after eliminating inflation's effects! Examples of GNP growth: The Philippines, +34%; Thailand, +37%; Japan, +40%; Malaysia, +41%; Indonesia, +42%; Hong Kong, +58%; South Korea, +58%; Singapore, +72%; Taiwan, +143%. Today, trade between Asia and the U.S. exceeds that between the U.S. and the entire European Economic Community. This economic expansion in Asia-Pacific has been led by very fast growth in the export trade of the various countries. Again, as is mentioned in the background paper of Professor George J. Viksnins, trade results for the area countries have been spectacular in recent years - Indonesian exports (principally in petroleum) have grown by a compound annual rate of nearly 60%. South Korea is not far behind, with a yearly growth rate above 50%. Singapore, Thailand, and Taiwan experienced export growth rates of about 40% per annum, and all of the other area economies showed yearly growth rates of more than 20% as well. All of these countries seem to be doing quite well under present economic arrangements - though all problems of material well-being have not been solved by any means, the region has shown considerable economic strength, even under the rather difficult economic conditions which have plagued the world economy recently. It is, to some extent, puzzling to some outside observers, therefore, that leaders of the region have decided "to cast their lot" with the so-called Group of 77 countries. An excellent summary and a spirited advocacy of this position was presented at the Conference by Y. B. Datuk Musa bin Hitam, the Minister for Primary Industries of Malaysia. The Minister provided the Conference participants with a brief recapitulation of the proceedings at the Nairobi meeting

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of the United Nations Conference on Trade and Development, known as UNCTAD IV. It will be recalled that the United States' proposal for an International Resources Bank was not adopted. The Group of 77 or the "South's" own position focused on the creation of a "Common Fund" to carry out an "integrated program" of price stabilization (in order to avoid deterioration of the terms of trade relative to manufactures), and this would be done on a "commodityby-commodity basis." The general notion of smoothing out fluctuations in commodity prices through cooperative governmental efforts received strong endorsement at the Conference in Singapore, particularly from the Japanese participants, Erne Yamasita and Tadayoshi Yamada. While for some commodities physical buffer stocks might be used, as is currently the case with tin, for others, producerconsumer agreements may suffice. In the discussion of these proposals, it was argued that it may be unnecessary, or even undesirable, to index raw material prices in a world that is rapidly running out of resources, and that private market forces, already at work in most commodity markets, would be sufficient to keep price fluctuations within reasonable bounds. Counter to those arguments, some conferees pointed out that American representatives tend to use free market arguments on a theoretical plane, when it is most convenient for their position, but forget all about the free market when faced with practical decision-making matters (e.g., using embargos, quotas, and other such direct control measures). Despite the very rapid growth experienced recently in export earnings and even real GNP, many of the developing country representatives expressed concern about the dualism problem mentioned earlier. The very first point of the Committee II Report (chaired by Sir John Marks) on "Emerging Economic Patterns and the Impact on Economic Development" was that " .... increased emphasis be given to the problem of promoting rural development and raising agricultural

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productivity in the Asia-Pacific region." A number of speakers reiterated the need to modernize and. develop the agricultural base, involving, to the extent that it is possible to do so, private sector institutions in such an effort. The use of tax incentives and disincentives in the corporate sector, greater utilization of trading companies already familiar with the geographic area, and cooperative organizations were all ideas brought forth in the discussion. How to turn petroleum profits into rural development is a serious concern for policy-makers in Malaysia and Indonesia - while foreign exchange is available for new projects, on a per capita basis the amount is still rather small. Difficult questions of efficiency and equity remain, even if one has seriously decided to allocate more resources to the agricultural sector. Yet, despite this growing realization that dualism must be addressed explicitly, it was pointed out by Dr. Augustine H.H. Tan of Singapore that the recent ASEAN Economic Ministers' meeting made significant steps toward real regional cooperation, but this was done by approving an industrial investment project for each member country. While the projects are at least in agriculture-related fields, the point raised by Dr. Tan is well taken - we do play increasing lip service to the significance of the agricultural sector in the development field, but the best talent and the biggest budgetary allocations go to glamorous projects in industrial and technical fields. As leaders of multinational corporations and other busi-

ness ventures, many Conference participants showed considerable interest in the foreign investment field, particularly in recent changes in regulations governing joint ventures. While industrial development may have to be de-emphasized somewhat, so as to provide a better balance for agricultural development, all participants agreed that foreign capital and technology would continue to play a significant role in the economic development of the ASEAN countries. As Com-

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mittee III (headed by Clifton D. Terry) on "Investment Policies and Proposals" concluded, the " .... world-wide need for investment capital can be expected to exceed the presently identifiable supply. If this be true, then the countries of Asia-Pacific must recognize the need to create a truly competitive posture if they are to receive their fair share of available investment capital." The specifics of recent foreign investment trends in the region were discussed in the panel concerned with "Directions for Foreign Investment" by Messrs. Bywater, Tan, Thwaits, and Yamada. On the part of the recipient country, it was stressed that government actions should be clear and consistent, made within a reasonable time frame, and, above all, avoid retroactive application of administrative initiative. The problems of "unconventional practices" and "extraordinary charges" were privately discussed in a frank and open manner. One participant mentioned the development in many countries of "bureaucratic capitalism" - where bureaucrats oversee and regulate most of the decisions made by the capitalists, and force the capitalists to become bureaucrats in order to protect themselves. As far as foreign investor behavior is concerned, it is important for each subsidiary operation to become a good corporate citizen of the country in which it functions first, and view itself as a branch of an international business firm second. The problems of encouraging minority investments by foreign investors in joint ventures were discussed; it was pointed out that a number of governments are setting general quantitative goals to assure majority local ownership, but that these percentages could be modified somewhat on a case-by-case basis. While the OECD code governing foreign investment (brought up by J. E. Bywater) was extensively discussed at the Conference, it did not become a formal recommendation. It was indicated that further study and consideration was needed, since the Code had been approved by the OECD itself just very recently, and it was suggested

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that a regional code to coordinate the ground rules on foreign investment may be more appropriate. The perennial issue of food shortages was high-lighted in a paper circulated in advance of the meeting by K. Y. Chow who suggested an innovative regional concept of cooperation. His proposal was endorsed in principle and has been referred to the ASEAN Secretariat. As a way of summarizing the conclusions of the Conference, we can take up briefly the conclusions reached by Committee I (with Eric Khoo at the helm). The Committee pointed out that recent political events had "... created an atmosphere of unpredictability which brings both opportunities and dangers to medium and small countries." In many of the area countries, the incumbent elites have tended to tum inward and pursue more nationalistic policies in the economic area. Ironically, however, national development and economic growth can only be achieved by links with outside markets and sources of investment capital. The Committee report went on, however, to warn that the U.S.S.R. and the PRC are competing with each other to subvert the economic and financial system which has emerged in the "free world" countries. At the very least, as was noted in the expert commentary provided by Louis E. Saubolle, area countries should be aware of both China and Vietnam as potential commercial rivals. Both countries have large and well~isciplined labour forces, as well as a diversified resource base; while China's infrastructure remains rather inadequate, Vietnam inherited a well-maintained infrastructure and can probably begin exporting both agricultural ana industrial goods in the very near future. Whether such commercial competition will be all that the Asia-Pacific countries will need to consider remains the overriding question. U.S. interests and influence in the region should continue to grow and develop in the near future, and the overall tone of the Conference wound up as guardedly optimistic.

OPENING ADDRESS S. Rajaratnam

From time to time I am asked whether, in view of the decline of European and American power in Southeast Asia, the non-Communist states comprising ASEAN would not eventually go the way of Indochina. What I propose to do tonight is to give a more detailed answer than I have done hitherto. It is essentially an optimistic one. It is not wishful thinking - a case of whistling in the dark. I would however like to preface my optimistic evaluation of ASEAN's prospects by conceding that the ASEAN countries have entered a period of instability and turbulence. These derive from many sources, and not simply, as most political analysts imply, as a result of American military withdrawal from the region and the emergence of Communist regimes in Indochina. These latter two are contributory factors but even without them the ASEAN states would be encountering many of the social, economic and political problems they face today. So the first point I would like to stress about the apparent turmoil in ASEAN states is that it is not peculiar to ASEAN states. Political and economic instability is global in dimension. There are very few states in the world, Communist or otherwise, which are not filled with a sense of uncertainty about their future simply because the world system which embraces us is itself out of control. There are many other regions of the world about whose future I would be more uncertain than I would be about ASEAN. Compared with the turmoil in the Middle-East and in Africa the ASEAN states, in my opinion, are a haven of relative stability and tranquillity. ASEAN's instability is largely seen in terms of the challenge of Communism.

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If so then I would worry more about the prospects of a Communist take-over in Western Europe than I would of a Communist take-over in ASEAN. In ASEAN countries there are, as compared with some countries in Western Europe, strong and stable governments - a number of them backed by democratically elected and decisive majorities. All of them, as compared with some Western European regimes, have not found it necessary to enlist at least the goodwill of Communists to keep themselves in power. In ASEAN, if the Communists come into power it would have to be through armed violence simply because the established governments are far more positive about their non-Communism and because in those ASEAN states where the democratic process obtains, the electorate has steadfastly refused to vote Communists into power. A striking example of this was the recent elections in Thailand. Much has been written about the possibility of Thailand going Communist. There may be a great deal to worry about in Thailand in this respect but the fact nevertheless remains that the Communists and pro-Communists suffered a crippling electoral rout. By way of contrast Communists have been making impressive headway not through armed violence but through the democratic process in a number of Western European countries, notably Italy. In my view we should at the moment worry more about the Communist problem in Western Europe than about a possible Communist take-over in ASEAN. In Western Europe there is a strong possibility of Communist regimes emerging constitutionally and democratically in some countries and there is very little one can do about a constitutional take-over by Communists. As a matter of fact, as far as Singapore is concerned, it is not the Chinese or the Russians who are now creating difficulties for us in our efforts to contain the Communists but an articulate group of noisy European pro-Communists

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who appear to have infiltrated the Socialist International and in particular the Dutch and British Labour parties. At least the Russians and the Chinese are honest about their attitude towards Communist insurgencies. As Communists they admit ideological sympathy for struggling Communists everywhere. But they also assure us they would not interfere in the domestic affairs of other countries and if we lock up and conscribe our Communists they would make no protests. So far the Russians and Chinese have kept their word. But European pro-Communists posing as non-Communist socialists have not only become advocates of the Communists in our region but also demand by way of resolutions and threats that detained Communists should be freed unconditionally. It occurs to me that the European Marxists for all their anti-imperialism today manifest the traditional arrogance of the European towards lesser breeds. The European Marxists, like the older but at least honest imperialists, believe that they have not only a mission to rescue Asians from incompetent and native leaders but also a divine right to interfere in the heathen's domestic affairs. The European Marxists, I read in the newspapers yesterday, have also prevailed on the Japanese Socialist Party to send a protest note to Singapore demanding the release of, to quote them, "political prisoners." The Japanese Socialists have hitherto shown no interest in Singapore's "political prisoners." One assumes therefore that the Japanese Socialists have been roped in somewhat belatedly to create the impression that this European-led agitation on behalf of the local Communists has Asian backing too. The dishonesty behind this agitation can be seen from the terminology these pro-Communists use. They demand the release of "political prisoners" - never, what is in fact "Communist detainees" who would be and have been re-

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leased the moment they disavow the Communist policy of armed insurrection. I have dwelt at some length on European Marxists primarily as a corrective to the prevailing belief that the Communist threat to ASEAN countries comes only from the Soviet Union, China or from the Indochina states. The other point I want to make is that though there are many disturbing developments within ASEAN, they, seen in the context of world-wide instability, are more manageable and more reassuring than the convulsions many other regions of the world are now going through. By these standards I would rate the ASEAN region as among the safer and more stable places in the world. Having said all this, I would like to assess prospects for ASEAN countries within the context of developments in Asia and particularly Southeast Asia. It is true that what has been termed the post-Vietnam period has been marked, within ASEAN states, by a more assertive Communist insurgency. Certainly in Northeast and Southern Thailand the insurgency movements give an impression of growing strength. In Malaysia there are now at least two parallel Communist organisations competing for influence but nevertheless agreed on a common objective - the violent overthrow of the established government. In the Philippines, too, an irredentist movement, though contained, nevertheless contributes to the mood of uncertainty in the ASEAN region. Apart from the Communist threat there are other domestic causes - economic dissatisfactions, racial and religious polarisation and a host of other factors - which intensify the impression of growing instability within the ASEAN region. All these have been highlighted with dismay or satisfaction in newspapers, learned publications, speeches or books. I was recently in Bangkok at an Asian business briefing

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organised by the Financial Times. A great many of the speeches dwelt at length on the less reassuring developments within the ASEAN region since the end of the Vietnam War. A great deal of what was said was both true and necessary. Yet at the end of the meeting I felt that only one side of the coin has been studied. The unstated assumption was that in a Southeast Asia now divided between a Communist bloc of Indochinese states and the ASEAN countries, the latter was in a process of disintegration while the former was consolidating and growing in strength. The contradictions and conflicts within ASEAN were freely and frankly analysed but what was hardly touched upon were the contradictions and conflicts, either actual or potential, within the Indochinese states themselves. The usual approach of seeing Southeast Asia as a region divided between a monolithic, coherent and a politically and economically dynamic bloc on the one hand and a fragmented, blundering and conflictridden non-Communist area on the other has, in my view, no firm foundation. It is true that in the freer atmosphere that obtains in ASEAN countries our shortcomings and deficiencies are not hidden from public scrutiny. Newspapers discuss them quite freely. Visiting journalists and academics have any amount of data readily available on which to base their friendly or unfriendly alarm about our shortcomings. In the closed societies of Communist countries we can make judgement only on the basis of data provided by the Communists and these not unsurprisingly convey a picture of growing strength, solidarity and predictable advance in all fields of human endeavour. But when you look at the facts, ASEAN is far more united, if somewhat loosely, than the Indochinese states. ASEAN is a regional organisation and one formed voluntarily out of a recognition of common interests. It has

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existed for eight years and though it might not have moved towards regional consolidation as fast and as decisively as many of us would have liked it to, the areas of regional co-operation have widened progressively over the years. True there are differences and even dissensions within the association but these have never been allowed to get out of control or endanger the organisation. Far more than people realise, ASEAN has succeeded in compelling its members to balance national interests with the imperatives of collective interests. ASEAN solidarity is both directed and institutionalised. Many routine problems which before ASEAN would have been discussed and disposed of in purely national terms are now increasingly discussed and resolved in ASEAN terms. Not a month passes without some ASEAN group or committee, governmental or nongovernmental, meeting in one of the ASEAN countries to deal with some problem or other. Maybe some of the meetings are inconclusive but the point I want to stress is that over the years, perhaps without some of us realising it, an ASEAN, regional approach to problems has crept into our thinking. As far as I know there is no comparable regional association in Asia. So the picture of a disparate, disunited and contending ASEAN bloc has far less substance, in fact. Economically ASEAN is far more dynamic and has reached a higher level of modernisation than the states of Indochina. This is not due to any fault on the part of the Indochinese states. They had known no real peace since the end of World War II. They were subjected to the devastation of a protracted war for independence. They had no opportunities or the energy to concentrate on solving the economic problems. Now that peace has come to Indochina I have no doubt that its people can, if they so will it, achieve as much for themselves economically as we in A SEAN, in happier circumstances, have been able to do for ourselves.

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As far as the ASEAN countries are concerned, there is nothing we would like better than enter into mutually fruitful economic relations with our Communist neighbours, provided our neighbours do not feel any compulsion to convert us to their faith. The ASEAN countries have no desire to rescue the people of Indochina from Communism. Nor do we want anyone else to feel that they are under an obligation to rescue us from our non-Communist way of life. But as of now ASEAN countries are economically far ahead of our neighbours and I believe we can maintain this lead if we do not do anything foolish. I believe that if the decisions reached by the ASEAN Heads of State and Government in Bali earlier this year are translated into action, the next few years, provided the world economy recovers its poise, would see ASEAN thrusting forward economically far more rapidly than ever before, during the · next few years. The other concern about ASEAN is internal security. The post-Vietnam period has undoubtedly seen a revival of Communist activity. But as I said in a speech I made last night (and which I do not propose to repeat here) there have been many occasions in Southeast Asia when Communism re-emerged stridently forward only to collapse again. The present resurgence of Communism is due to the recovery of their morale in the wake of the Communist victories in Indochina and the disarray of non-Communist powers as a consequence of their defeat in Vietnam. The shock was no less great for the non-Communist countries of Southeast Asia. Overnight the assumptions on which their confidence and political vision were based melted away. There was confusion and uncertainty as to how they should react to these dramatic changes in the Southeast Asia political scene.

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The indigenous Communists took advantage of this momentary confusion. The Communists who, as revealed by Samad Ismail, had been secret adherents of the "domino theory" no doubt felt that they should strike back while its adversaries were in confusion and disarray. But it is my belief that after the momentary confusion ASEAN countries are recovering their poise. No domino has fallen. A year ago because the Thais were faced with serious domestic political problems the prognosis then was that Thailand would be the first domino to fall. It has not; and my impression, talking to Thai leaders, is that though they are going through a difficult period, the country will not go the Communist way. In my view the Communists in ASEAN countries would once again be contained because they have moved too soon and showed their hands too soon. They threw the challenge not because they believe the countries of ASEAN were ripe for revolution but because they thought that a successful Communist revolution in Indochina must spark off Communist revolutions in the rest of Southeast Asia. This is not the first time that Communists have fallen victims to what is their version of the "domino theory". Trotsky subscribed to a similar theory when the Russian Revolution succeeded, and he came to a sticky end. There may be discontent and conflicts in some ASEAN countries but these do not constitute a revolutionary situation. For a revolutionary situation to appear there must be a near breakdown of the social, political and economic system. The people must be reduced to utter despair when they become convinced that any system is preferable to no system. This is not the condition in which ASEAN states today find themselves. Therefore by striking too soon, the Communists have merely alerted relatively strong non-Communist govern-

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ments in ASEAN to the threat the Communists pose. The challenge can therefore be met by the non-Communist governments of ASEAN from relative positions of strength. This will require courage, imagination and determination on the part of the non-Communists. Given these qualities and an awareness of the Communist threat, Communism, as many times before, can be contained and reduced to a perennial police problem.

THE EMERGING POLITICO -ECONOMIC SETTING

THE FUTURE OF ASIA-PACIFIC AND THE U.S. ROLE John H. Holdridge

Introduction The Asia-Pacific area has been characterized by considerable ferment since the momentous events of April-May 197 5, with old political alignments in some cases undergoing attenuation and new ones coming into being to take their place. There has been much uncertainty among the peoples of the region about its future, due both to the continued existence of a potential military threat (for example, the end of the fighting in Vietnam has not necessarily brought peace, either to Indochina or to adjacent countries), and the continued effects of the world economic recession. Uncertainties exist in the PRC political succession, which may have some bearing on China's relations with its neighbours. At the same time, the economic and strategic importance of the region is increasing (43% of U.S. trade is now with this region, which also lies athwart Japan's oil tanker route to the Middle East), and it is becoming increasingly involved in USSR-PRC power rivalries. It is perhaps too early to make firm predictions about the future of the Asia-Pacific region, but a look at the forces at work may help to draw some tentative conclusions.

Major Trends Among the Countries of the Region (with Emphasis on non-Communist Nations) - Greater Independence in Foreign Affairs

The U.S. presence in Vietnam kept a status quo in effect for twenty years in Indochina. While this presence did not

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prevent political evolution in other areas, it did serve to maintain a regional balance of power which occupied the attention of the great powers (and Hanoi), and established a kind of stasis regionally. Now, however, power balances have shifted, and AsiaPacific nations are in many cases seeking new relationships. ASEAN is a prime example of this trend, and may mark a movement toward a greater degree of regional cooperation, not only on the part of the member nations but between ASEAN and major economic entities such as the European Economic Community, Japan, and the U.S. At the same time, greater divisions have occurred worldwide between developing and developed countries, and the pull on Asia-Pacific nations of "neutralism" and of the non-aligned world has increased. Within the ASEAN group, thought is being given to the concept of a "Southeast Asian Zone of Peace, Freedom, and Neutrality." The result has been the creation of much more diversified and independent-m inded foreign policies (with some implications for domestic policies - see below). This does not mean that old alignments have totally disappeared, as reflected in the continued heavy reliance of Japan and the Republic of Korea on the U.S. deterrent, but there is much greater attention being paid regionally to the national interest and a finer definition is being made as to just what this national interest consists of. - Intensified Nationalism

Throughout the region, there is more of a sense of nationalism in both the political and economic spheres. This is implicit in what was said above on independent foreign policies, but nationalism is increasingly affecting economic policies, especially in Southeast Asia (e.g. the "bumiputra" policy in Malaysia, "pribumis" in Indonesia, and joint stock companies in the Philippines with Filipinos having 60% own-

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ership). This development is a factor that foreign investors will need to understand, and accept. (At the same time, however, the countries of the region should consider the desirability of maintaining a careful balance between nationalistic economic development goals and the need to continue attracting foreign investment.) -Political and Economic Instability

At least in some countries, internal instability has existed for some time. However, post-Vietnam War developments have resulted in further political and economic instability as old, familiar patterns of governmental and business relationships have changed into something new, and those new relationships have not yet solidified. This problem is likely to exist for an extended period, exacerbated in a few areas by Communist subversion and terrorism. (While there is little or no evidence thus far to suggest that increased numbers of weapons have found their way from Vietnam to subversive groups, there can be no doubt that the latter have taken much heart from the Communist victory in Vietnam.) -Deepening Involvement in the Web of International Econo· mic Relations

Paradoxically, while the Asia-Pacific nations are struggling for a new identity and are simultaneously being beset by new political and economic problems, they are at the same time becoming increasingly dependent on foreign capital sources for their national development programs and tied to the developed countries for main markets for their products. Development itself is a sine qua non throughout the region because of population growth and the rising expectations of the people, but many of the Asia-Pacific nations will need to increase their economic activities many times just to maintain existing living standards and political balances. As Japanese Ambassador to the U.S. Togo said

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in a speech in San Francisco on May 25, all nations are "hostages to one another" for their economic well-being and survival. This applies even to the Soviet Union, the PRC, and the Democratic People's Republic of Korea (DPRK), as well as to the Asia-P~cific countries. Forms of interdependency are: - Reliance on the Interfliltional Money Market

This takes the form of credit loans from institutions such as the World Bank, International Development Association (IDA), and the Asian Development Bank (ADB), but also loans from international banking consortia. Thailand, Malaysia, Indonesia, and the Republic of Korea, are all heavy users of this form of capital acquisition. - Reliance on Foreign Investment

It is safe to say that without direct foreign investment, the Southeast Asian nations in particular would find it difficult to reach development goals. For example, in the Third Malaysia Plan, a key role is to be given to the private sector for formation of developmental capital in the fields of housing, manufacturing, and processing of food and raw materials. Investment for the development of oil and gas resources will also be very substantial. In all of this, particularly oil and gas, foreign investment is a key component. And for foreign investment, in many cases read Multinational or Transnational Corporations (MNCs or TNCs). - Transfer of Technology

A uniformly sought-after objective, technology transfer can only come from the developed countries under terms - both political and economic - which make it attractive to those who possess the technology in the first place. The fact that it is occurring indicates that the requisite conditions remain generally favourable among the recipient countries.

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-Markets

Quite clearly, while goods produced by some Asia-Pacific nations find an important market in developing countries, the major and most reliable markets continue to be the developed countries. This is most evident in raw materials such as rubber, tin, and oil. (In manufactured goods, the electronics produced in Singapore are another case in point, being exported for the most part to the U.S. and Western Europe.) At the same time, the Asia-Pacific countries continue to be steady and reliable markets for many products of the developed nations. The linkage thus works both ways. - Raw Materials and Foodstuffs

Some, although not all, of the raw materials used in the Asia-Pacific region, originate in the developed world. Perhaps of equal importance, the developed world (and especially the U.S.) remains the most significant source of major items of staple foodstuffs (e.g., wheat and corn) used in the AsiaPacific region. Other Major Forces at Work in the Asia-Pacific Region Since World War II, the Asia-Pacific region has inevitably been involved in the "cold war" e.g. the Korean War and the Sino-Soviet dispute. The ending of the Vietnam War and the U.S. withdrawal from Vietnam have not ended this involvement, as the USSR has subsequently been moving more vigorously (in a presumed vacuum?) to extend its position in Southeast Asia, and the PRC has been doing what it can to counter the Soviet moves. Even without any U.S. presence whatsoever, Sino-Soviet competition in the region would continue, and, in the absence of the stabilizing influence of the U.S., would inevitably intensify. Meanwhile, Hanoi has become an active factor on its own, and not necessarily a constructive one in view of the attacks it has made on ASEAN and its call for overthrow of the ASEAN

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states' governments. Tension remains high in Korea. It is against this background that the U.S. endeavours to maintain its traditional balancing role. -The USSR

The Soviets are very active in Southeast Asia, and have just established diplomatic relations with the Philippines. The size of their presence as represented by diplomatic missions and other official or quasi-official bodies (Aeroflot and trading l:ompanies) is generally on the increase. Soviet economic activities are particularly noticeable in the fields of shipping, fisheries and banking. As recently as June 10 the PRC attacked such activities, and in particular the operations of the Moscow Narodny Bank, in a "People's Daily" article. In view of Soviet statements in connection with Angola to the effect that detente does not mean cessation of the ideological struggle, one can raise the question as to whether the Soviets have "ideological" purposes in mind in their relations with the Asia-Pacific countries. Certainly, in contacts with various Asian nations they continue to put forward a proposal for an Asian collective security arrangement - a concept which the PRC regards as anti-China. Soviet military power is regularly put on display in the region as Soviet warships transit the Malacca Straits en route to and from the Indian Ocean, and as Soviet naval and air units exercise near Japan. - ThePRC

PRC activities have been lower-keyed than those of the Soviets, and are likely to remain so pending a resolution of the PRC's internal situation and the evolution of its economic and military capabilities into a nature and dimension sufficient to challenge the Soviets. China, feeling itself up against an unremitting effort to hem it in, must still remain tactically on the defensive (though it considers itself

27

strategically on the offensive via trust in the "tide of history" and confidence in "people's wars"). Thus the Chinese undertake only limited aid programs, with Indochina absorbing most of their efforts. They maintain rather smaller and less palpably active missions than do the Soviets; and they inject no direct military presence into countries outside their borders apart from their roadbuilding units in Laos. Up to the present, at least, their naval forces have remained within or near Chinese territorial waters. Nevertheless, they are doing what they can to increase PRC influence via trade, espousal of issues supportive of Asia-Pacffic policies (e.g., the "Northern Territories" and ASEAN). They also continue to provide formal support through the Chinese Communist Party for the "liberation struggles" of Communist parties elsewhere, while assuring the affected nations of PRC noninterference on a state-to-state basis. The fact remains that despite USSR-PRC imbalances in physical strength, the PRC is near and the Soviets are far away - a fact which Peking capitalizes upon. - The Democratic Republic of Vietnam (DR V)

Since its victory in Vietnam in April 197 5 the Democratic Republic of Vietnam (DRV) has become a new and important regional force. However, in terms of actual behaviour Hanoi has concentrated since April 1975 more on unification and reconstruction of Vietnam than on projecting its military power. Ideologically speaking, though, it has taken a strong "pro-revolution" and anti-ASEAN stance. (This stance could be undergoing some modification, however, as evidenced by the goodwill tour of a number of Southeast Asian countries by the DRY's Deputy Foreign Minister.) Hanoi appears to have established a degree of hegemony in Laos and, with Soviet backing, evidently is engaged in a contest with China for influence in Cambodia. From time to time Hanoi spokesmen have commented favourably upon a

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"Confederation of Indochinese States," and the creation of such a grouping, under Vietnamese control, may still be an ultimate Hanoi objective. There is much concern in adjacent countries on the question of what Hanoi may do with captured Vietnam war material, and with its large standing army it has the capacity to cause much difficulty for its neighbours in Southeast Asia. - The Democratic People's Republic of Korea (DPRK)

North Korea continues to exert political and military pressure on South Korea, and to resist any progress in the North-South talks. It calls for a peace treaty with the U.S. (but not the ROK) under terms which would eliminate but not replace the Armistice Agreement, and the complete withdrawal of all U.S. forces. There is no sign at present of any intention on North Korea's part to initiate hostilities, but a North Korean attack could come at any time with little warning. Role of the United States If the Asia-Pacific scene is looked at objectively, one feature stands out: the Asia-Pacific countries can attain their goals of political independence and economic development only if the existing regional balance of power is maintained. If a significant power vacuum were to occur, forces which are now in relative equilibrium would move to fill it either on defensive grounds (in the case of the PRC which would want to keep its borders secure), or to advance ideological purposes. This above all is where the U.S. comes in. To quote the U.S. Ambassador to the Philippines William Sullivan in a recent speech in Manila, the U.S. "is prepared to continue to pay the price and carry the burden of maintaining a power balance in the world," (which, of course, includes the Asia-Pacific region). Ambassador Sullivan added that "not only the security but the economic develop-

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ment and future prosperity of the countries of Southeast Asia depend on the maintenance of that equilibrium." What he was in effect saying was that without a stable international political environment, capital investment will not be attracted and economic growth will be inhibited. In this respect, the U.S. capital investment is a critical element in the ability of developing Asia-Pacific nations to realize their plans for economic growth. Thus, the U.S. role becomes: - Maintaining Sufficient Military Forces in being to deter efforts to alter existing power relationships through the threat or use of force. - As a practical matter, U.S. ground forces are concentrated in Northeast Asia in accordance with the U.S. Japan and U.S.-ROK Mutual Security Treaties, but can be shifted quickly via air and sea to other areas if necessary. U.S. air power also is present in Northeast Asia, in Japan and Korea. - U.S. military power is projected into areas beyond Northeast Asia, e.g. Southeast Asia and the Indian Ocean, primarily by the 7th Fleet, which has a supporting base structure in Japan and the Philippines. - In these U.S. military activities, a point which should be stressed is that U.S. forces are not present for the purpose of bringing pressure to bear on the countries of the Asia-Pacific region, or to interfere in their internal affairs. They are there to preserve an equilibrium, from which all the region stands to benefit. - Continuing to Serve as a Reliable Reservoir for Developmental Capital

- The U.S. is the largest contributor to international financial institutions such as the World Bank and the IDA. It is an important contributor to the Asian

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Development Bank. Institutions of this nature are drawn upon heavily by developing Asia-Pacific nations. - The U.S. also provides direct grant aid on a bilateral basis. In recent years, Congressional action has brought about a decline in this type of assistance, which is now given mostly in the form of food aid via the Food for Peace program. The overriding needs of countries elsewhere (e.g., the Sahel and Bangladesh) increasingly preempts such aid to the Asia-Pacific countries. PL 480 food remains an important ingredient in the economies of a number of Asia-Pacific nations, however. - A factor of increasing importance is credit loans by private U.S banks acting singly or in consortia. Another significant source of capital is direct U.S. private investment in Asia-Pacific economic development projects. The U.S. Export-Import Bank and Overseas Private Investment Corporation (OPIC) help to underwrite such investments. Multinational corporations also play a very important part, particularly in large-scale projects where capital requirements are very great. There is much U.S. private investment. - Continuing to Provide Advanced Technology

- As a leading nation in world technology, the U.S. is helping to make advanced technology available elsewhere, primarily through the investment channel, but also through direct government-to-government transfers. This process will continue so long as the business climate in any given country or in the region as a whole is attractive to U.S. investors, and political/ security conditions are such as to welcome technology transfers. -Providing a Steady and Very Large Market for Asill-Pacific Goods

- The U.S. is near or at the top of the list of important markets for the goods produced by the Asia-Pacific

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countries. In fact, for some of the countries in the region continued access to the U.S. market is vital to economic well-being. The point does not need to be emphasized, but U.S. imports of manufactured goods (autos, steel products, electronics, etc.) and raw materials (notably rubber, tin, and meat) from the Asia-Pacific region constitute an essential element in world trade, and one for which there is no perceptible substitute. Outlook It can be said without too much exaggeration that the Asia-Pacific region is in the process of passing through a major historical turning-point, with the outcome yet unclear. One possibility, of course, is for greater instability and economic decline. This possibility will certainly become much more likely if the present regional equilibrium deteriorates, internal problems multiply, and the Asia-Pacific governments in consequence fail to attract the capital investment from abroad which they need to meet the developmental requirements of their people. However, favourable auguries appear to outnumber unfavourable ones, and the Asia-Pacific region can be said to be pointed in the direction of stability and orderly economic growth. These favourable signs are: - Despite the changed situation in Vietnam, the regional balance of power has so far not shifted appreciably. The U.S. military presence has been withdrawn from the Southeast Asian mainland, but, as noted above, still consists of effective forces stationed elsewhere in the region. In fact, the positioning of U.S. forces is now essentially as it was prior to the Vietnam War. What is more, the other great powers most concerned with the situation as it exists today in the Asia-Pacific region, the PRC and the USSR, appear to be accepting

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-

-

-

-

the status quo and not attempting to challenge it. The Chinese, for instance, are not calling for a withdrawal of U.S. forces from the region. The dominoes have not fallen. Admittedly the end of the Vietnam War has had an unsettling and perhaps even traumatic effect in some countries, but political institutions and national self-confidence have in general withstood the strains. Popular political and economic aspirations are being met, if not altogether to the fullest extent desired, at least sufficiently well to assure stability - or at least to prevent instability. The new sense of nationalism has not conflicted with older but still important bilateral ties. Communist subversion and terrorism have not reached levels which the governments concerned are unable to contain. In the main, the centres of Communist strength are in areas remote from major population centres and economic development zones. A reasonable rate of economic growth has been reestablished throughout the region after a period in which the effects of the world-wide recession were felt in most Asia-Pacific countries. The recession now appears to be tapering off, and growth rates in fact are climbing back to what they were two years ago. This economic progress has helped to keep political tensions under control, and to limit the spread of subversion. As an important adjunct to economic growth, the flow of investment capital into the region continues at a steady rate. Although capital investment from private sources may h,ave dropped off somewhat, this has been offset in part by the willingness of international and private financial institutions to make credits available to development-oriented countries. (It should be noted, though, that such credits now tend to be relatively short-term.) Japan has emerged as a key source of

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investment capital, both in the form of private investment and in commercial credit. - With the flow of investment capital has come a high level of technology transfer. Singapore, Malaysia, and Indonesia are good examples of countries where such transfers have taken place. A most striking example is Indonesia's Asahan project. - Promising new regional economic relationships are coming into being, e.g., ASEAN, which offers the prospect of allowing its member states to deal with powerful economic entities on an equal basis and to expedite regional growth through new forms of cooperation. And, as indicated by the recently-concluded ASEAN Foreign Ministers' meeting in Manila, political cooperation goes hand-in-hand with cooperation on other matters of mutual concern. Altogether, then, the nations of the Asia-Pacific region have at hand the necessary political, economic, and military features to keep their house in order and to proceed down the path of economic development in an orderly manner. The road before them may be difficult at times, but if the leaders of the region's nations retain their self-confidence and draw fully upon all the assets available to them, they should be able to keep on fulfilling their national goals in ways which are most congenial to their people, while at the same time preserving fruitful relations with countries outside the region.

DISCUSSION Melchor: You started off by identifying the security aspects. There is a tendency in starting this way, to obscure the economic development problems in the region. As far as the ASEAN countries are concerned, we do have our priorities. In terms of the coun.tries that have a rural base, the problem of security relates itself to the problem of poverty.

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I would assign high priority to the various institutions that you have mentioned as sources of development capital - for example, the World Bank and also the Asian Development Bank, but the United States is falling behind in its subscription to the capital of both of these institutions. In this connection, I think Mr. McNamara has said that as far as the lending programme for the World Bank is concerned, this would currently be at the level of US$5 .8 billion with no increase. If it is at a constant level, when you account for inflation, it will be a declining lending programme. For the Asian Development Bank, we also need infusion of new capital and with the present funds available, our lending programme can be met only up to 1977. Granting a 135% increase in our capital in the Asian Development Bank and if our efforts to get the capital markets to raise funds are successful, the lending programme in the Asian Development Bank will grow from US$660 million which it was last year to about US$1.3 billion in 1985. This would come to an increase of US$125 million a year. But this is contingent upon America's contribution to the capital increase. You also cited the bilateral aid program but you pointed out that this was declining. You also identified the other sources of funds in terms of private foreign investment, credit available at the Ex-Im Bank, and also whatever additional funds can be mobilized by the consortium. In terms of the development problem in the region, I think the countries need long-term money. If the World Bank and the ADB are going to be drying up, the only source of long-term capital is the New York Capital Market and private foreign investments. What are the prospects in terms of the replenishment of funds or contributions in this area? I think you have articulated very well the policy positions of your government. However, the gut issue here is reaction of your Congress and your public. Will you Congress support additional contributions of the United States to these inter-

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national institutions? Holdridge: I think that the Congress will, in due course, but the problem is - we are sort of suffering from the aftermath of Vietnam. This is election year and there are a lot of Congressmen who are thinking about solving the problem at home first, before worrying about the problem in every other country in the world. Nevertheless, I noticed that the U.S. contribution to the ADB has at least gone through; not for the soft loans, but for the other, I think it was about US$148 million. There has been a lot of pushing and hauling in Washington, but the administration is certainly committed to a policy of continuing to make this type of capital available. Congress is currently a little reluctant, but I think, given a reasonable period of time, will follow though. And there seems to be a different mood on the part of the American people now. We are not turning inward now certainly, not becoming isolationist for example; we are voting military aid and appropriations which are considerably higher than the ones in previous years. I think there will be a willingness also to consider not simply the security aspects, but also the developmental ones that you have mentioned. Commentator: The speaker began by assigning priority to the security dimensions of the U.S. role. It was then suggested to diversify this by regarding the economic dimension of the U.S. role here as being one of even greater importance. Now, I am not sure if I understood the thrust correctly, but I thought that what you meant was that there was a kind of linkage between both the security dimension and the economic dimension in the U.S. role. Without a kind of equilibrium, without a kind of security environment which the continuing U.S. role can provide in this part of the world, we cannot expect continuity in the U.S. role in terms of the economic dimension, as a reservoir of capital development and technology.

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Holdridge: I do believe that there is a definite linkage between the security situation and the availability of development investment capital. From the Asian standpoint, development may have a higher priority than stability, but from the standpoint of the U.S. investor, the international banking consortium and the international financial institutions, and so on, it is quite clear that unless there is a large or reasonable degree of political economic stability, the developmental capital is simply not going to be forthcoming. You cannot have the one without the other; the money will simply not come in. MacNaughton: The climate for giveaways in the U.S. is declining. Those additional funds that are going to be needed in some magnitude, in my opinion, over and above the present levels, will have to come largely from private sources. Private sector lending will probably have to increase, but I think a good deal of it will be in the form of equity money, because the person that provides the equity money continues to have some control over its use, over the direction of these funds, even though it may be a minority input to the joint venture. But a person that loans money is active at the time that the loan is established, but beyond that, the recipient of that loan takes the money and uses it pretty much as he sees fit as long as he does not violate the the arrangement that they have already tried to make with answers to economic problems from the inside, and this means attracting additional equity money, in my opinion. Adie: Regarding Soviet interest in the region, I think what we are having is a game of encirclement and counterencirclement with the Russians, as was mentioned, trying to encircle China with a collective security arrangement with the countries of the area. They are seeking to extend the arrangement that they have already tried to make with countries further abroad, like Egypt, Iraq, and India. That is a matter .of global policy which follows the strategy of

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Lenin and Stalin and is only to be called, in rather oldfashioned cold war terms, perhaps, the final victory of Communism. I think they are still perfectly dedicated to this, although they may use rather more sophisticated methods to achieve it. But their rivalry and struggle with China enables them to pursue these long-term aims which are often called ideological, but which are rather more imperial, under the cover of allowing people to balance off one Communist power against the other. It is felt that arrangements with China may perhaps help at that point to balance off the entry of Soviet power into the area and vice-versa. This kind of thinking may sometimes be dangerous since a sudden reversal of the situation in China is always possible, particularly after the death of Chairman Mao. In the immediate period then, I think if you talk about the interests, I would prefer to talk about the aim of the Soviet Union to exploit the confused and fluid situation which has emerged in the area in the last few years. Particularly to exploit the Sino-Soviet dispute, the USSR wishes to try and acquire positions, even if they are ancillary positions, like trading and banking and other forms of less political, diplomatic or military influence with a view to encouraging people to think this may help them to counter the Chinese presence in the region - particularly among those who believe that possibly the United States is no longer willing to enter into this balancing role as it used to be. The Russians may face considerable competition from the local Chinese, because of the existing overseas Chinese economic network. These firms trade with many countries, for example, with Japan - and the PRC seek to export and use this network for its own purposes, of course, also in competition with Taiwan. And I do not really see what instruments the Russians have which would possibly compete with this ready-made network. If, as time went on, the PRC

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becomes more genuinely industrially-developed, perhaps it would be able to use its petroleum industry for the development of more modem, or a higher rate of technology. The Russians have their Navy, they have global influence, but one thing they do not possess is any kind of a commercial network that can be used in this way. Commentator: If the Russians are really trying to counterbalance overseas Chinese influence, it is in contradiction with what they are doing in the Narodny Bank, because 99% of this business soon automatically goes to the Chinese network. It includes not only, I think, Indonesia and Singapore, but also Australia. So, if you think that the Narodny Bank was used to counter-balance the Chinese influence, the reality seems to be different. But globally there are different motives for that which might come out one of these days. The motive may be that when you finance the Chinese network in such a huge amount as is happening now, and suddenly you withdraw this amount of money, then many of these Chinese businessmen will collapse. If the Narodny Bank were to withdraw reserves, I can see that in the months to come many of the Chinese businessmen will not be in a position to refinance their debts - and that includes Singapore, Indonesia and a lot of other countries. Sandhu: We seem to be building up a sort of scenario of the growth of the Soviet power here and the question of the Chinese and so on. Is it possible that we are rushing to panic situations too fast without really making a coldblooded analysis of the situation? Because if we think in terms of power, really there is only one country here which is in a position to bring power to bear on any particular area, at least East of the Bay of Bengal, if not beyond. So, we want to try and put the question of the Soviet presence here in some perspective before we all run off to buy shares in the Moscow Narodny Bank. And in that sense earlier on, a question was also raised about in-

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surgencies in this area. This, too, also needs to be set in proper perspective, in the sense that the problems of these Southeast Asian countries have more or less been the same from the very beginning. The question is - how do we bring about a modicum of economic and social reform? In other words, the ball has always been in the domestic court, but it is always fashionable to point a finger at some outside force as being the villain of peace. Increasingly now, hopefully, we are beginning to hear leaders admitting that the problem is largely internal.

TOWARDS PROGRESS AND STABILITY IN ASIA-PACIFIC: A View from East Asia Kim Kyung Won

A year after the debacle of Vietnam, the Asia-Pacific area once again seems to have regained a measure of stability, although it is clearly still premature to dismiss concerns and anxieties caused by the fall of Vietnam as unnecessary and irrelevant. The sense of crisis, a feeling that a dam was broken and there would ensue a flood in which dominoes would continue to fall one after another, was perhaps never justified by facts. But, if the Communist victory in Indochina had the effect of making Communists outside of Indochina such as Kim 11 Sung of Pyongyang become agitated with visions of other Communist victories to follow, it also posed serious security dilemmas for non-Communist countries in the Asia-Pacific region. When viewed against the background of initial shock and deep concern following the tragic events of the spring of 1975, what is most remarkable about the situation in this region a year after is not only how stable the area seems to have become but also how confident the peoples and leaders have become in their own future. Economically, the AsiaPacific region undoubtedly is the fastest growing region in the world and is most certainly likely to remain so for a long time to come. Politically, the avalanche feared a year ago has not taken place. On the contrary, we can detect the emergence of a new political maturity, a new realism, as it were, in most countries of the region. What can account for the seeming return of stability, or at least for the failure of the worst predictions to materialize

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in post-Vietnam Asia? First of all, the fact that dominoes did not fall can be attributed to the absence of dominoes. Much has been said about and critically of the so-called "domino theory". It is also far from clear what the theory was originally meant to describe. If it was intended to suggest that a Communist victory in one country would raise the level of threat to a non-Communist country adjacent to it, it certainly was a sensible warning. But to think of Asian states as being mechanically so linked as to make their fall automatic on the collapse of any one of them is obviously to ignore important and significant differences in the internal conditions of the countries concerned. What the debacle of Vietnam and the year after in Asia have demonstrated is that, in the final analysis, it is a country's internal conditions that in the end determine whether it can maintain its political integrity or not in the face of external attack and internal subversion. And it is quite clear that conditions are not identical in the countries in the AsiaPacific region. It is also evident that, although there are certain similarities between the conditions that led to the failure of non-Communist experiments in Cambodia as well as in South Vietnam and the situations that prevail in certain Asian countries, the combination of factors and events that brought about the Communist seizure of power in Vietnam was rather unique and not at all applicable to other countries in the same fashion. It is well to remember, in this connection, that most of the non-Communist states in the region have shown remarkable resilience, enjoying the fastest economic growth rates anywhere in the world which could not have taken place without basic political stability. To be sure, many of these countries do not lack problems, least of all Communist challenges of internal subversion which in many cases are intertwined with ethnic and cultural conflicts as well. But,

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here again, what is remarkable about such countries from the perspective of the post-Vietnam era is not that there are internal subversion threats but rather how successfully so far such countries have been able to withstand challenges within. Compared to Vietnam, differences are more impressive than similarities. Secondly, the victory of Communism in Vietnam has led to a more sharpened awareness of the Communist threat throughout Asia, particularly against the background of euphoria induced by the U.S. opening toward Peking and other openings that followed; it is almost surprising to find what a sobering effect the sudden fall of non-Communist Vietnam has had on the peoples of Asia. Of course, in the case of some countries such as the Republic of Korea, there was never any danger of underestimating the seriousness of the Communist threat. On the contrary, it is not too much to suggest that some of us have been always suspected of exaggerating Communist threat. But even those who shared in this suspicion seem to have found what happened in Vietnam in the spring of 1975 a little bit too much to take altogether as a matter of routine. The inescapable realization that Communists meant what they preached and their revolutionary conquests, unless restrained, would seriously affect the equilibrium and stability of the Asia-Pacific region seems to have had a positive effect on the attitudes and policies of the nations. Even in Japan, where public reticence about security policy discussions is well known, Vietnam seems to have produced a greater willingness to engage in serious and sober discussion concerning security requirements. In the ASEAN countries, as well as in Australia and New Zealand, it is easy to detect the emergence of serious and realistic concerns with security matters. And these attitudes are not unrelated to the experience in Vietnam. To be sure, the effect of Vietnam on world politics is not

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going to be like the effect which the Communist invasion in Korea had in the 50s. The Korean example decisively contributed to clarification of global political alignments and sharpened confrontation between global alliance systems. But the effect of Vietnam is more regional than global, and more national than regional. For, as pointed out earlier, what Vietnam demonstrated is not simply the seriousness of the Communist threat as such but also the decisive role of a country's internal conditions in determining whether that country can overcome such a threat at all. That is why the sobering effect of the Vietnamese tragedy is felt in each of the countries concerned in a manner relevant to each. Measures taken by Asia-Pacific countries in the aftermath of Vietnam cannot, therefore, be uniform. What is common about them is the increased awareness of threats posed by Communism in Asia, and that certainly is a factor in the stability of post-Vietnam Asia. Finally, but also very importantly, the relative success with which the Asia-Pacific region has been held together and away from the post-Vietnam deluge must be attributed to the steadfastness of the U.S. posture in Asia in those most trying months after the fall of Saigon. Repeated and strong reassurances of U.S. commitments to its allies in this part of the world were much needed and helped calm bruised nerves. President Ford's enunciation of the Pacific Doctrine on December 15 of last year went a long way to clarifying with added reassurance the structure of interests and commitments which the United States sees in its relations with the countries of the Asia-Pacific region. In fact, one of the unexpected curious effects of the tragedy of Vietnam may well be that it has helped establish America's interests in Asia on a more permanent basis. In the past, two factors contributed to the seeming lack of permanence in America's involvement with Asia. First, the tradition of a Europe-first policy made it uncertain

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if America had both the will and resources to be involved with Europe and Asia at the same time. Second, the impression was widespread that if possible the United States would rather prefer to stay out of the world altogether. The historical pattern of U.S. foreign policy in which periods of relative isolation were broken up only by spasmodic crusades abroad tended to exaggerate the so-called isolationist tendencies, which were in reality postures adapted to certain unique historical circumstances and therefore could not be sustained in the changed international environments. In any case, the fact of the matter is that the post-Vietnam. crisis of confidence has been largely overcome by the steadiness with which the United States has handled the Yietnam shock. And by doing so, the U.S. has not only avoided the crisis which surely would have faced it had it lacked assurance and confidence to reassure its allies, but also importantly contributed to create a framework for more durable relations in the future. In sum, the first post-Vietnam year has not produced a catastrophe. On the contrary, it has been a good year. But in a little deeper perspective, the situation in the AsiaPacific region is not without some major uncertainties, any of which could seriously affect the region's stability in the future. First of all, we must remember the fact that if there is one factor that can affect stability in the most decisive way, it is the Soviet Union. And its intentions are far from clear at this point. Even if we assume that the Kremlin no longer has the revolutionary fervour which was once thought characteristic of all Communist regimes, the history of Russia's drive toward the East and southward affords us scant reason to be smug about the future course of its policy in this part of the world. In fact, with the best possible intentions, the Soviet Union would still constitute a formidable threat factor by virtue of its sheer size and weight

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in the balance of power in East Asia. Uncertainty in the case of the Soviet Union pertains to the manner in which it is likely to project its power and presence into Asia-Pacific. If it is willing to restrict its efforts to non-physical forms of power projection such as economic and cultural presence, it does not have to disturb the regional equilibrium to the point of bringing about an armed conflict. Should it, however, fail to achieve its purpose through non-coercive means and therefore resort to military and crude ideological means of action, it could precipitate a major crisis in the region. And there is nothing in the record of the Soviet Union's behavior in the past that can assure us that it is necessarily going to act with subtlety, prudence and responsibility. The second factor of uncertainty concerns the future of Communist China. Two sets of questions arise in connection with Peking's future. First, can Communist China hold itself together after the death of Mao? If so, which among the contending groups and personalities will succeed in the post-Mao struggle for power? Will the winning group or coalition be capable of avoiding serious instabilities and succession crises? The second set of questions relates to foreign policy orientations. What will happen to the SinoSoviet relations? Is hostility going to diminish, increase, or remain unchanged? What are the chances of Sino-Soviet rapprochement? Will Peking decide to support insurgencies in Asian countries or seek to develop pragmatic relations based on expanding trade and investments? These are only examples of questions that need to be asked about the future of Communist China. And yet there is not a single question to which one can provide an answer with certainty. The record of predicting events in China is not one which Peking-watchers can be proud of. The sense of confidence with which the Western media described the security of Teng Hsiao-ping's position of power after the death of

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Chou En-lai has now become a matter which the experts who seemed to be so confident once would rather forget and have forgotten. About the Chinese economy too, the optimism once shown by those who took their pilgrimage to Peking following Dr. Kissinger's trip to the city is no longer sustained by the people who have come to know better. In fact, about Peking's political and economic prospects, one of the most recent visitors to mainland China, Prof. Stanley Spector of Washington University, expresses great skepticism bordering on pessimism and disappointment. The only thing that can be said at this point about Peking is that it is one huge question mark, the outcome of which can significantly affect the future stability of Asia Pacific region. Thirdly, uncertainty still shrouds Hanoi's intentions. As is well known, Vietnam historically had imperial pretensions in Indochina. It is also a considerable military power with an undoubted capacity to upset the fragile peace in the area. Hanoi's pronouncements concerning ASEAN have been, for instance quite hostile.U With only a small part of its energy and resources, it is in a position to encourage and support insurgencies in a number of countries. Nobody at the moment can predict what Hanoi's true intentions are. It is not even clear where Hanoi stands on the Sino-Soviet dispute, although indications are that it is closer to Moscow than Peking. If Hanoi actually moves closer to Moscow, it will have serious strategic repercussions through Asia-Pacific, for it will surely provide an opportunity for the Soviet Union to project its power into the eastern Pacific in the most tangible way, thereby threatening to upset the balance of power over the entire region. Next, North Korea -still remains a factor of considerable threat to the balance of power in this part of the world. l/ Editors' Note: Hanoi has subsequently adopted a more conciliatory attitude toward the ASEAN states, and has re-established diplomatic relations with all five.

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Unlike some other Communist states, North Korea's intentions are not much in doubt. If it could, it would not hesitate to upset the regional equilibrium by seizing control of the entire Korean peninsula. Restrained presently from carrying out its design for conquest only by the certainty of failure guaranteed by the readiness of forces in the South, North Korea nevertheless has not shied away from dabbling in the business of exporting insurgencies abroad through its guerilla-training programs and other more direct participations in acts of subversion abroad. Only its sheer ineptness and geography ensure that its activities in this direction remain so totally ineffective. That Pyongyang is no match for Hanoi is quite obvious. In one respect, however, Pyongyang poses a threat similar to the one posed by Hanoi. Namely, the geography of the Korean peninsula is such that depending on the political configuration at any given time the peninsula can provide an opportunity either for Peking or Moscow to project its power in a very critical manner into the Asia-Pacific region. And North Korea remains an important variable that can upset the current configuration of power which stands in the way of providing such an opportunity for the Communist powers. The balance of power on the peninsula, in other words, is intimately linked to the balance of power in the region. In addition to the uncertainties and risks discussed already, there are a number of developments which could have serious consequences for the stability of the region, such as a dramatic internal upheaval in China, a Chinese leftist takeover of Hong Kong, a Soviet decision to seek a Soviet-Japanese entente at any cost, the escalation of hostilities over the Spratley (Nan-sha) or Senkaku (TiaoYu Tai) islands or another disrupting oil embargo. But most such developments would occur only within broad international contexts bounded by the policies of the rna-

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jor powers and the basic trends associated with the permanent interests of the countries involved. The major question, therefore, is what is going to be the future balance of power in the Asia-Pacific region. Everything depends on this question, and nothing is important apart from it. To put it most succinctly, the stability of Asia-Pacific is going to depend on the equilibrium of power among the major states. It is the uniqueness of Asia-Pacific that all the major powers and their vital interests intersect in this region. The balance of power in the region therefore is a global balance of power. Of the four major states, two pose major uncertainties for the future stability of the region, as has been already suggested. The policy task for the future can be conceptualized in terms of minimizing those uncertainties. Speaking very generally, maintenance of the equilibrium is going to require the following measures. First of all, the United States must continue to play a major role in the region, since vast and far-reaching changes in the balance of power are bound to become inevitable without its participation in the region. It must be also pointed out that the sort of major role required of the United States is inconceivable without its maintaining some form of physical presence in the Western Pacific as well as Northeast Asia. Its retreat from these forward positions will put into motion forces of change of which neither the direction nor the extent is exactly predictable. It is, therefore, essential that whatever adjustments the U.S. undertakes in its posture in the region should be planned within the framework of fundamental continuity in both its role and capability, unless of course it is prepared to renounce its responsibilities and retreat from the world which fortunately, it does not seem to be prepared to do. To be sure, it is easy enough to notice in the U.S. symptoms of an isolationist mood, of a certain fatigue with its heavy global respon-

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sibilities and a desire to be left alone. But these signs are both understandable and, in the overall American political context, not significant, not certainly decisive enough to alter the fundamental direction of U.S. foreign policy in the foreseeable future. By and large, it is safe to assume that the U.S. is going to continue to play its role in AsiaPacific and maintain its commitments in our region. Secondly, it is also very important for Japan to maintain continuity in its basic posture. If it decides to seek a new direction in its foreign policy by either moving away from its present pro-Western orientation or acquiring an independent military capability commensurate with its economic resources, it is in a unique position to disturb and disrupt the stability of the balance of power in Asia-Pacific. In this sense, it constitutes one of the most critical variables in determining future stability in the Asia-Pacific region. It is, for instance, analytically conceivable, although highly unlikely in reality, for Japan to enter into different power alignments in place of its present alignment with the U.S. Most such scenarios of change in Japan's future foreign policy are linked to prospects of change in its domestic political scene. And it is Japan's domestic polarization in terms of ideological and foreign policy orientation that gives outside observers a sense of uncertainty. But to the extent that Japan derives real and substantial benefits from the existing structure of relations with the outside world and also as long as the current arrangement allows it sufficient scope for its energies, it is not likely to risk great uncertainties that are inevitable should it seek to venture out of the familiar framework. Thirdly, stability of the region cannot be maintained unless nations threatened by either external invasion or internal subversion succeed in overcoming such challenges to their existence and political, territorial integrity through their own efforts. The relationship between the balance of

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power among the major states and the viability of nonmajor states is a highly important dimension of overall stability in the long run. After all, wars throughout history have been fought over non-major states, even when they were fought by major powers. Small states, in other words, have the function of precipitating conflicts among big powers. And they are likely to play that role not as a matter of deliberate policy but more often as a result of failure to protect their own integrity as nation-states. It is, therefore, of paramount importance for nations in the region to demonstrate their own viability as coherent political communities. Fortunately, nations which are currently faced with external and/or internal threats are also coping with their problems as effectively as can be expected under the circumstances. It also happens that most of them are showing the greatest economic vitality at the present time. The Republic of Korea, a country under most obvious and intense continuing threat in the region, is demonstrating not only its will to survive but making such rapid growth that there is no longer any room for serious doubt as to which side, South or North Korea, is going to be the winner in the "competition for development, construction and creativity" which President Park Chung Hee proposed in his National Liberation anniversary speech on August 15, 1970. Quite simply, non-Communist societies are by far more successful than Communist ones in terms of economic development and modernization. During the Cold War years, non-Communist alliances may have been more tightly bound together than they have become since. But it must be admitted that there is now much greater self-confidence among us since non-Communist pragmatic models of development and growth offer us by far a greater assurance of successful progress than Communist models. And in the end, stability is linked more closely to the ability to grow and prosper than sheer military alliances or ideological orthodoxy.

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In conclusion, we can say not only that the year since the debacle of Vietnam has been, all things considered, a relatively good year but also more importantly that the prospects for the progress and stability of the Asia-Pacific region are very good indeed. As a matter of fact, it is no exaggeration to say that, compared to other regions, AsiaPacific offers most exciting prospects for the future progress of mankind.

OUTLOOK FOR ECONOMIC AND POLITICAL STABILITY IN ASIA-PACIFIC Thanat Khoman

More than a year has now elapsed since the momentous change took place in Indochina after the collapse of the non-Communist regimes in Cambodia and South Vietnam at the end of April last year. Since then, the authorities in Hanoi, the real prime moving force, lost no time in scrapping both the coalition government and the monarchy in Laos, and fashioned the country to their own image, into another so-called democratic republic, keeping both the former King and Prime Minister in virtual house arrest, free only to till their gardens and play an occasional bridge game. South Vietnam, as could be expected, was unified with the North and its capital lost its name to North Vietnam's Father, Ho Chi Minh. Now it has just begun a new life under Marxist principles and discipline. Thus, Indochina, with the exception of Cambodia, was consolidated under Hanoi's authority and more or less direct control as in the case of Laos, while Cambodia is struggling to set up its own brand of a Marxist regime but shies away from accepting Vietnam's tutelage and brotherly supervision. In appearance at least, with the exception of only scattered pockets of resistance without much significance for the security of the new regimes, Indochina has settled down to follow a new national course and a novel way of life, leaving the past in misty oblivion. While peace and tranquillity have now returned to wartorn Indochina and a new order has been installed, the question which comes to many people's minds, especially those who live in the close neighbourhoo d, seems to be,

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where do we go from here? To this, Hanoi authorities and their associates and friends, would blurt out that, because of more than three decades of war destruction, the paramount task facing the new regime is reconstruction and rehabilitation. Such an answer would sound soothing and encouraging for the future stability of the region. The difficulty is whether we should take it at face value or whether some qualification and interpretations have to be added to the principal premise. In this connection, scattered indications from non-Communist sources which tried to establish economic contacts with these authorities do not seem able to testify to the success of their attempts. Few, if any, results have come out. Rather, the impression gained was that at least for the time being, the new regime is more preoccupied with internal consolidation of its authority rather than with trade or economic contacts with the outside world. This, in itself, is not unnatural. What is important to find out is how long the process of internal consolidation is likely to last. Another question of much concern to us is whether domestic consolidation is the sole preoccupation of the new regimes or whether other undertakings may also take place while the above process goes on. Particularly those extra-national activities in the form of men and material support to subversive and insurgency groups in neighbouring territories - would these be conducted simultaneously with the task of re-building the nation? Offhand, the answer can hardly be in the negative and few people, if any, would be so naive as to believe that one precludes the other. In practice, what is happening in Thailand can attest to the fact that some new regimes are conducting those activities concomitantly, and if it is true that Hanoi is preoccupied with its reconstruction job, it can also find the time and means to do some other things besides. How much and how far will these extra-curricular activities go on, depend on a

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number of factors. Firstly, it will depend on the capability and effectiveness of the countries subjected to this form of indirect aggression, including Thailand, in coping with the situation. If they are apt to meet the danger with skill and adroitness, the chances are that the other side may relent in their nefarious efforts. On the contrary, if the victims lack determination and resoluteness, and worse, if they are weakened by internal dissension and corruption the aggressors will redouble their efforts, hoping they can pick up rotten fruit. It will also depend on the joint efforts of the regional community which eventually will face the same danger, for the aggressors are likely to be insatiable. Like all expansionistic adventurers in the past, they would keep going further on until their force is spent or they meet staunch opposition which breaks their will and their momentum. In the present case, Hanoi realizes that the Association of Southeast Asian Nations (ASEAN) is not in favour of its expansionistic schemes, although ASEAN has repeatedly extended a hand of friendship and expressed willingness to enter into a neighbourly relationship with it. To many expressions of cordiality, Hanoi growls its hostile and threatening utterance in response. Lately, however, it switched its tactics. Instead of voicing verbal attacks, it offered to send goodwill missions to three countries out of the total of five members, namely to Malaysia, Philippines and Singapore. This discriminatory, selective method hardly veils the intention to create a rift among ASEAN members, thus probably hoping to weaken the Organization for which Hanoi entertains no special fondness, knowing perhaps that it may well represent a kind of obstacle (not military perhaps, but possibly a political one) to its imperialistic or hegemonic design. While ASEAN has so far chosen to adopt a low key approach, in case of need and if the danger becomes more

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ominous and ascertainable, ASEAN may strengthen itself to meet the challenge. Although the organization may not be a match to Vietnam's juggernaut, it is endowed with an important political value and potential in which the other side may be lacking. Learning a lesson from the Vietnam War, one is inclined to believe that, at least on certain occasions, the use of political means may be as efficient, if not more so, than the military ones. Of course, ultimately, the use of force cannot be entirely ruled out in international affairs. However, the political weapon, if it is appropriately and aptly wielded can serve a variety of purposes and yield satisfactory results. In this light, the role of the major powers for international peace and order must be considered. With the end of the cold war and the abandonment by the U.S. of the antiCommunist policy, the dichotomy of the world in two clearly divided camps came to an end. The multi-polar structure has now taken over with new power centres, especially endowed with considerable economic potential, vying with the two traditional super-powers for influence, opportunities and clHmtele. In Asia-Pacific, four powers have emerged as the prominent actors moving about with more or less agility on the political and economic scene. Of these four powers, the PRC is the newest element which broke off its isolating cocoon in 1971 to sail triumphantly into the United Nations and begin its role as one of the dominant powers in this part of the world. In spite of its defeat in the last war, Japan, because of its tremendous economic strength, has joined the rank of leading powers in the Asia-Pacific region. Though constitutional restrictions on military force do not allow it to play to the full its political role, Japan has been the object of constant solicitude from the other Pacific powers which try to woo it to their side. The USSR wanted Japan to under-

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take the development of Siberia and offered to carry out many important development projects such as those at Tyumen and the Sakhalin seabed oil fields as well as the construction of a pipeline to carry oil or alternately a railway line to the Pacific sea coast. The PRC objected particularly to the construction of the railway, which it argues would strengthen Soviet military potential and thus endanger its security. In return for Japan bowing out of the Siberian projects, the PRC offered to supply large quantities of oil at a competitive price. The US also had a part in causing the failure of Siberian transactions by declining to join, as suggested by Japan, in the partnership in the projects. Thus Japan was pulled away from closer relationship with the Soviet Union, by delicate manoeuvring on the part of the other two Pacific countries which succeeded in maintaining the status quo in the present balance of powers in the region. In the meantime, the US has indicated openly the importance it attaches to Japan. In the so-called Pacific Doctrine enunciated at Honolulu, Hawaii, President Gerald Ford declared the US intention to entertain a special relationship with that East Asian country and its readiness to carry out its defence commitments. Such an unambiguous declaration of intent brightens the prospects of peace and stability in that part of the world. These encouraging developments in the eastern part of Asia raise the hope that, while realizing that the region represents an area of great interest to the major powers, were similar efforts to be extended further to the west, to Southeast Asia more exactly, where the situation is more fluid and marked by a measure of uncertainty after the takeover of South Vietnam and Laos by Hanoi, the chances for orderly developments might greatly improve. It is true that President Ford, in his Pacific Doctrine statement, also mentioned Southeast Asia but he did so in a comparatively less emphatic tone. Nevertheless, the change from

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the previous disengagement attitude of the Nixon Doctrine constitutes a marked improvement which the parties seeking to extend their hegemonic aspirations cannot fail to note. Such efforts on the part of the major Pacific powers corroborated by indigenous ASEAN endeavours to enhance conditions of peace and stability should lead to positive results in the future. If a measure of firmness and quiet determination is accompanied by offers of friendship and cooperation as it is being accomplished by the nations of the area, the positions of all parties concerned will be clear and any attempt to disrupt the stability of the region is likely to be disapproved of and resisted, as the overwhelming desire is for peace, tranquillity and orderly evolution rather than war and conquests. While efforts in the political field are useful for the creation of conditions of stability they should be supplemented by economic measures designed to enable those nations in the process of development to carry out projects which will usher them along the road of advancement and progress. Already hard hit by the energy crisis and the manifold increase in the price of oil, those nations are facing a bleak future when the price of their primary products on which their development hinges show a tendency to decrease, rather than the opposite. If they are deprived of adequate income from their products not only will future progress be denied them, but even a decent livelihood for their peoples may become difficult. That may explain why the socalled "South" countries preferred their idea of a Common Fund rather than the proposal concerning the International Resources Development Bank put forward by the U.S. As far as I can guess, the developing nations find that their needs are so pressing because of their heavy indebtedness resulting from oil price increase, that the proposed institutions which may require time to set up and put to work

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will not function promptly enough to obviate their problems. What they have been consistently insisting on is rather a system of "indexation" linking the prices of raw materials to those of manufactures whose tendencies and variations, as we all know, are on the increase rather than otherwise. Obviously, the problem lies in the gap and the discrepancies between the two sets of prices. So far, the industrialized countries have, deliberately or otherwise, joined together in a solid front to resist the demands of the producers such as those put forward at the UNCTAD IV meetings in Nairobi concerning the conclusion of commodities agreements, indexation of manufactures and raw materials prices, cancellation or reduction of international debts, the restructuring of decision-making processes relating to monetary matters and a system of generalized trade preferences. Southeast Asia, which is known for its abundance of raw materials supplies, depends to a great extent, on the farsightedness and rationality of such great economic powers as the US and Japan. If, in their wisdom, the latter find it possible to accede to some of the reasonable requirements of the producing countries such as joint efforts for stabilizing commodities prices by producers and consumers in Tin and Rubber Study Groups, they will be making a valuable contribution to a healthier economic, social and political situation by bringing much needed relief to the present plight in which the people of this part of the world find themselves. They will help assuage the restlessness which may fuel adventures and disorders. It is our fondest hope that those who stand on the side of peace, stability and orderly progress may join with the peoples who aspire for a hopeful future as well as a reasonably decent present to build a more promising new World Economic Order as well as a region where life is worth living.

NEW ECONOMIC PATTERNS AND TREND S

THE ECONOMIC OUTLOOK OPPORTUNITIES FOR COOPERATI ON AND PROGRESS IN THE PACIFIC: An American Opinion Walter E. Hoadley

A healthy new realism currently dominates the thinking and mood of most U.S. voters in our Bicentennial year. Traditional idealism and compassion among our people certainly have not been lost, but are now tempered by widespread public recognition of the very practical limits to the responsibility which the U.S. can now accept to help police, feed, finance and heal the rest of the world. An important force shaping American foreign economic and political policy is the simple realistic principle that whatever we do for others must result in something identifiably positive for the United States. In my view this greater realism is highly constructive for the U.S. and the world at large. Indeed, this is precisely what many of our friends and critics have been demanding for some time. Yet, I suspect this very same realism may well cause new fears and misunderstandings about what the U.S. will do, especially as it affects others in the changing world ahead. Nevertheless, I believe the prospects for cooperation and progress in the Pacific and elsewhere are improved by this rise in realism. Greater realism iu the U.S. means: 1. Fuller understanding of what the U.S. actually needs from the rest of the world and vice versa. 2. Less willingness to go it alone in foreign policies and programs. 3. More determination to achieve value received for U.S. official government expenditures to help other nations.

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4. Substantially higher U.S. public and private priority to conduct continuing careful appraisal of individual foreign country for opportunities and risks where U.S. interests are or could be involved. 5. More special attention to an appraisal of the basic strengths and weaknesses of individual foreign countries to improve our bargaining position, and to direct inquiries to determine the degree to which U.S. know-how and investments are actually welcomed and well utilized. 6. Far more determination by private U.S. corporations to measure the return on comparable investments in other countries against those in the U.S., with the very likely result to invest more at horne. These dimensions of U.S. realism clearly have significance for all concerned with the Pacific and should provide some new perspective in judging the future. U.S. public and private leaders are still anxious to have a major role in world affairs but are less willing to make commitments without assurances of more mutual interest and support from abroad. Most observers are well aware of the long-standing strong cultural, political and economic links between the U.S. and Western Europe. Developments in other geographical regions of the world receive a great deal of U.S. attention but on most occasions less than developments on the other side of the Atlantic. The unhappy experience of the U.S. in Vietnam has caused many Americans not surprisingly to become noticeably less interested in what is going on in Asia and the Pacific. Nevertheless, all informed Americans and particularly those who reside along the Pacific Coast of the U.S. recognize the fundamental interest of our country in the Asia-Pacific region. Japan remains a cornerstone of our worldwide alliance. It is my personal opinion that the Asia-Pacific region contains the roots and seeds of the next greatest wave of human progress and development. How soon and how well

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these roots and seeds sprout into full foliage and bloom of course will depend upon the resolution of many of the economic, political and related issues before this conference. The success of the U.S. in managing its own internal economy obviously is a critical factor affecting the AsiaPacific region and the world. U.S. Economy Attains New All-Time Highs There is little doubt across the United States that our economy has now completed the recovery phase of this cycle reaching a new all-time high in real and current dollars at an annual rate. This dramatic rise was mainly accounted for by improved confidence, a sharp turnaround in inventory investment, continued strong consumer spending, particularly on durable goods, and comparatively low inflation. Meanwhile, housing and new capital investment remained sluggish and the balance of payments contribution declined. Real growth will continue over the remainder of 197 6 and throughout 1977 but at a slower rate. In 1976 as a whole, U.S. real GNP growth will probably rise about 6.5% and probably a little less next year. This expected gradual growth should not be viewed as a cause for alarm because the initial strong recovery reflected earlier over-reaction to the recession. Most businessmen now plan to increase their inventories in step with sales gains, and with few exceptions, inventories currently are right where businesses want them to be. The slowing down in inventory building augurs well for a solidly based, long uptrend in the economy. Moreover, as a result of recent developments - improving profits, favourable financial market conditions, and strong endmarket growth - a solid foundation for investment growth has been established to undergird new broad expansion in 1977. The 1976-77 U.S. inflation rate should average 5-7%. Considerable research across the world including the Pacific seems to point strongly to the U.S. as the locale for

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the best investments at least in the next few years. The rationale is usually cited as political stability, lower inflation, greater availability and less cost of money, competitive unit labour costs including fringe benefits and a large expanding domestic market. Many U.S. based multination al corporation s seem likely to undertake much more expansion in our country than they have for quite some time. The political pressure to invest in the U.S. is minimal, but the economic facts in support of such investment seem more and more convincing. These are some of the many reasons why I do not now expect the excesses normally associated with a boom and subsequent sharp downturn so wildly feared by a majority of U.S. business leaders and some U.S. and overseas economists for the period ahead. World Recovery Outlook Continues Encouraging Beyond the U.S., the world recovery from the deepest recession since the 1930s also in my judgment is now firmly underway. The global economic growth rate is likely to be about 5% and the global inflation rate around 10% in contrast to near zero and plus 15% respectively last year. In my view, 1977 promises to be a still better year for most regions of the world. Against this background of U.S. and global recovery and new growth, we can already detect important improvements in world trade. Admittedly , a large portion of recent trade expansion reflects filling some inventory pipelines which were cleaned out unduly in 1975. Moderate and orderly growth in production and trade over the remainder of this and next year now seems generally the prospect with the U.S. continuing its leadership role. All nations which can benefit from renewed global economic expansion - and that is virtually all - should find improveme nt both in their domestic and internation al

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markets. Few, if any, significant global shortages are in prospect during the coming year. Undoubtedly, some selected bottlenecks will occur in 1976-77 probably first in the U.S. but these should not be a major deterrent to the upturn in worldwide business. The next global wave of new plant and equipment expenditures is not likely to get underway until late 1977 or 1978 in most countries. As indicated, the U.S. is already showing signs of an earlier expansion in capital expenditures from (1) resumption of maintenance and routine improvements deferred during the recession plus, (2) strong indications of moderate expansion of existing productive facilities in 1977, and (3) improving prospects for large-scale expansions in entirely new facilities in 197 8 and beyond. Looking ahead, the Asia-Pacific region should at least keep pace with the expected 5% real increase in economic growth for the world at large in 1976 and 1977. Similarly, the regional rate of inflation should compare closely with the world average of about 10% in 197 6 and 1977. Obviously, there will be a great deal of real growth variation within the region but Asia-Pacific as a whole should do better than Western Europe and Latin America and keep pace with the real expansion rates in the regions of North America and Africa. The inflation outlook for the Asia-Pacific region is more promising than that of Africa, the Middle East and Latin America, but less so than the U.S. and North America. U.S. Priorities Are Changing While most observers within and outside the U.S. now take a rather positive view toward our country's economic prospects for the remainder of 1976 and 1977, I am convinced that underlying structural changes and a redirection of our priorities are of more overriding significance for the Asia-Pacific region and the world. For the first time in modern history, the U.S. public

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suffered severe inflation in 1974-75. Even though the period of double-digit inflation was short-lived, it affected the entire country, while unemployment at most directly affected about 15% of the population. Unlike most foreign countries, the U.S. public is coming to recognize that inflation and unemployment are deeply related; one follows the other, and they are also now regularly seen to occur simultaneously. Inflation now seems to be the problem people are most concerned about nationally. Moreover, the focus is more on the source of inflation than the price of bread and butter. The majority of the public has an increasingly strong belief that government is largely responsible for inflation, resulting in higher taxes. The impending U.S. presidential election is not likely to have a major economic impact. Traditionally, election pressures have resulted in new stimulative fiscal and monetary policies, to the point that the postelection year invariably has been stronger economically than the election year itself. While economic improvement in 1977 seems now virtually certain, the cause will be found more in momentum from the private sector this time. The outcome of the presidential election is not likely to cause major changes in economic policies, as the platforms of our two political parties will be relatively similar this year. The results of the primaries suggest overwhelming public demand for financial conservatism or fiscal discipline. The U.S. still has many rich resources and ready access to more throughout the Western Hemisphere. It is fully understood, however, that our country will look to Asia for increasing quantities of goods and services. What sometimes confuses observers and critics of the U.S. is a failure to appreciate that U.S. imports and exports, while absolutely large, are actually relatively a very small part of our more than one-and-one-half trillion dollar economy. Closely related, our society has been shifting for many

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years from preeminence of industrial and consumer goods to an even more substantial role for services of all types which require less material resources. Moreover, at long last my fellow countrymen have begun to acknowledge that we are a wasteful nation and must conserve more. Accordingly, conservation is slowly becoming a factor limiting growth of our resource requirements as well as the future real growth of the U.S. Here is firm evidence of the new realism in America, but I suspect in the final analysis that our new realism will be reinforced largely in reaction to crises. Should serious threats or actual shortages of key resources occur, the U.S. citizens will make more dramatic responses and demand more precise remedies. In my judgment, this all means that the greatest growth industry in the U.S. for the next decade will be in conservation, especially energy. This will involve research, technological breakthroughs, and a host of related techniques and investments designed to reduce the amount of energy and other resources required to support the U.S. standard of living. So long as resources were deemed abundant and inexpensive, very little attention was given to conserving them in the U.S. This has now begun to change. I personally sense a strong undercurrent of interest and action across America to capitalize on our new "conservation market". Obviously, this indicates a slowing in the rise of U.S. demands for overseas resources, and perhaps in some instances may mean actual decreases because of more substitutions as well as even sharply lower usage. Public opinion polls in the U.S. reflect some rising concern among our people about the well-publicized fact that we comprise only about 6% of the world's population, but use more than one-third of the world's resources. I certainly doubt that most Americans are about to accept a lower

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living standard voluntarily. On the contrary , most Americans still look forward to higher living standard s but less in tangible goods and more in services and leisure. The basic desire of the people of our country to help other peoples is blunted by what appear to be almost constant political attacks and continui ng reports of misuse of U.S. assistance which place the U.S. in an almost "no win" position . The U.S. voters understa ndably are not anxious to have more of their tax monies used for "no win" purposes. Accordingly, it will be increasingly difficult, especially in an atmosph ere of growing U.S. fiscal conservatism, to get larger government appropri ations for overseas purposes unless there can be far more assurances of full value received by all concerned. The American people are more and more convinced from experience that few enduring friends are won by economic aid or liberal financial advances. Above all, there is a strong desire to help substantially only when those seeking help are making an all-out effort to help themselves and will continue to do so with U.S. assistance. Developing Nations ' Financial Problems Receive Major Attentio n In all branches of internati onal finance, no subject is of greater importa nce now than the financial problems of many developing countries. The recycling of the surplus funds of the oil-producing nations has been technically quite successful, but the basic intercou ntry resource adjustm ents required to reach a new internat ional financial equilibrium have hardly started. Never before have so many financial and economic specialists in global banks, official monetar y instituti ons and many other multinat ional bodies given so much attentio n to increasing their understa nding of the transfer, sovereign, and credit risks of the third and fourth world nations. In general, there seems to be rising confidence that the

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problems of most individual nations can be managed in an orderly fashion despite contrary headlines in the global financial and business press. Some debt rescheduling already is in progress for a few developing countries where the debtors and creditors are combining constructive realism, fundamental understanding, and further trust in expectation of what can and should take place in these economies over the next few years. To a large degree, acute financial problems of developing nations are being resolved on a government-to-government basis. As a result, relatively little disruption is to be expected in relevant financial markets. Most borrowing countries and lenders realize of course that a default on a private debt commitment would be quite a different matter. Such an occurrence would almost certainly mean an abrupt termination of any further credit facilities to the defaulting borrower from all private sources and perhaps some public ones as well. Because of the risks and a lack of information by which to judge them, some international banks are becoming less interested in extending credit to developing countries. Nevertheless, the overall volume of carefully agreed upon and soundly judged loans still remains comparatively high. The need for more lender/investor portfolio diversity is limiting some new debt. Along with standard credit and transfer risk evaluations, the accumulating impact of outstanding debt is becoming a new portfolio deterrent even for loans to some countries with sound, underlying economic strength. While each nation's individual financial situation must be considered on its own merits, it must be acknowledged that nations with seemingly similar problems and prospects tend to be evaluated as a group. Moreover, an adverse development in one may be quickly linked to the others. Both borrowers and lenders have an enormous responsibility to try to ensure that confidence in international

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lending in the future is not reduced for individual countries or developing countries as a whole. The Asia-Pacific Region Demonstrates Strength The Asia-Pacific region remains of fundamental interest to Americans but some subregions, noticeably in Southeast Asia, are being judged with less enthusiasm than a few years ago. Many Asian nations have to resell themselves to many Americans. In reviewing the recent economic records of Asia-Pacific countries, I am surprised how well most of them have done in the recession years of 1974 and 1975, relative to the sharp decline in the growth rates of major industrial countries. The mechanical transmission of business cycles from major industrial countries to developing countries was not so apparent as among major industrial countries. This same lagging relationship may also occur on the expansionary phase of the business cycle of the developed countries. So far, however, many Asia-Pacific countries have recorded strong export growth in this recovery period, especially Hong Kong, Korea, Taiwan and Singapore. The performance of Asian economies during the first half of 1976, therefore, must be viewed as quite positive. Continued strong performance in the latter half of the year and in 1977 will be closely tied to the pace and diversity of world recovery, particularly in Japan and the U.S. whose prospects are deemed favourable. The situation of the lower-income developing countries of South Asia has not been too favourable. Their exports account for a very small portion of their GNP, and their economies have grown rather slowly. Moreover, their inability to tap international markets reduced their import capacity and the growth of the economy, on which their future debt service capacity depends. The year 1977 does have some heavy maturity problems to be faced and some adjustments may be inevitable but should be worked out.

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What American Investors Seek Overseas When an American investor considers utilizing his capital overseas, several economic and political factors are taken into account. As with any investment decision, he will consider the overall opportunity for a profit, safety of his capital, resources available for development, market for his product, return on capital relative to the rate of return elsewhere, and the policy consistency of the host country to foreign investment in forms of remittance provisions, taxation laws, and legislation on local participation. Most Asian countries can respond favourably to these questions. However, the most important concern of a private investor is whether he can predict any change in political and governmental measures. In fact, from an American point of view, and for many others as well, the most important consideration in judging the future of a nation or region is political stability, especially in relation to the ability of government to maintain a reasonable balance between real growth and inflation. There must also be strong internal evidence of willingness to work to solve problems for themselves. At the moment, a fairly strong American consensus appears to judge Japan, Singapore and possibly Australia as having above average economic prospects with degrees of investment attractiveness depending upon specific government regulations. Hong Kong, Malaysia and Taiwan are judged as having average economic prospects with selective opportunities for investment. Other nations such as Indonesia, India, Korea, Thailand and the Philippines are viewed with more caution for a variety of economic and political reasons. These evaluations are subject of course to continuing change, and an enormous amount of time and effort is now being spent to make such judgments prerequisite to any important decisions - financial or otherwise - involving these countries.

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What Should Be the Place of Private Investment? I am aware that many observers critically view the role of foreign multinationals, advocating less emphasis on foreign capital inflows to developing countries. Excessive reliance on foreign capital is said to create payback problems in the balance of payments in future years, and also may increase the capital/labour ratio in many industries when efforts to increase the labour-intensive industries would seem more desirable. The basic issue is how much improvement in living standards is needed and desired in each developing nation and whether foreign capital is required to achieve the goals. If not, then obviously ,none should be used; but this seems to be the exception. This is a time for the reappraisal of the fundamental purposes of private investment. How much has it contributed to the more successful developing countries by global specialization offered by foreign multinationals? How can goals of individual developing countries be met otherwise? Constructive realism is called for on the part of all foreign investors and hosting countries in appraising the future role of private investment. Among other things, foreign investors should have more understanding of the sensitive political problems of the hosting countries. The hosting countries' demands in turn should also be realistic in order not to shut off needed foreign private investment. American leadership seems more convinced than ever that our market system is the most effective way to improve human well-being at least for people of our culture. It is being widely noted around the world that the American marketing system with all its problems none the less is emerging from the recession with about the best cost results among all industrial nations. U.S. managements have succeeded in substantially reducing waste and inefficiency whereas in many other countries government social-related restric-

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tions on management freedoms apparently have not made this possible. Consequently, U.S. industry now appears to have relatively more economic competitive strength than at any time in the last fifteen to twenty years. Realistically it is well recognized that our system cannot be transferred intact to other countries with automatically the same results. U.S. corporations are founded on flexible market principles and really are not very effective when such principles are seriously modified or abandoned. As a consequence, the real questions to be answered in promoting more economic cooperation and progress in the Asia-Pacific region are: how well can the (1) government and other governme nts work together? (2) U.S. private and foreign private corporations operate jointly? and (3) U.S. private corporations work jointly with foreign governme nt or quasi-government organizations? Americans have learned a great deal about the value of such cooperation. Obviously much more must be done to try to use the constructive force of the U.S. market system with the generally more regulated nationalistic policies of foreign countries toward common ends. Whenever there are successes in these joint efforts, you can be sure the results will be communicated almost instantaneously across America and through U.S. leadership worldwide. Summary Observations World economic recovery and new U.S. growth in 1976-77 should provide a good basis for greater cooperation and progress in the Asia-Pacific region. The U.S. dollar is almost certain to be the principal currency to be used in financing expanding trade and development. A hard currency bloc is also forming including the U.S. dollar, Deutschmark, Swiss franc and Japanese yen, which will play an importan t stabilizing role in world currency markets.

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Much of the world, especially the U.S., is now watching the policies and progress of the ASEAN nations individually and as groups, and particularly the degree of their own cooperation. Recent developments are encouraging, particularly in industrial cooperation, because the region has such a tremendous potentia l to realize through greater integration. U.S. global financial organizations are seeking practical, prudent and profitable opportu nities to assist as many Asia-Pacific nations as possible through proper public and private channels. By more realistic cooperation considerable progress can be expected. Internal willingness and determination to solve problems will encourage further help from outside. Because of my long-time interest in Asia and the Pacific, I am confident that considerable cooperation and progress will in fact occur not only over the year ahead but for a long time to come. My confidence rests particularly upon the conviction that there are strong interdep endent needs between nations of the Asia-Pacific region and the U.S. and the new realism in our country will be met by an equally effective new force of realism in Asia with mutual benefit.

THE ROLE OF THE PRIVATE ENTERPRISE SYSTEM Julius Tahija

Undoubtedly we live in a very interesting, challenging, but also difficult and sensitive era. The fact that there are going to be more and more people on this globe while at the same time our means of communication is becoming extremely effective, sometimes too effective, will make the respective tasks of political, business and community leaders not easier in trying to maintain political, economic and social stability. I am sure that 200 years ago when American leaders started their revolution for freedom, there were instances when they wished their communication system were better. But now, 200 years later, there are times when some of us may wish that communications were less effective. The nations in the Asia-Pacific area, both the developed and the developing countries, are undergoing many changes. During the last ten years or so several organizations, governmental and business, have been making an effort to coordinate and correlate the activities of the respective governments and businesses in this area. As business leaders gathered today we have wondered what will be next after the Indochina event when our area of operations and opportunities have again been reduced and limited. It is obvious that the developing nations in Asia in general and Southeast Asia in particular, where there is still an opportunity to practise the private enterprise system, are confronted with the question whether the private enterprise system, as we know it, is still the better system to develop a country's economy. These same developing nations are often puzzled by some

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of the events now taking place in the United States, the champion of the private enterprise system, where apparentl y there is a tendency to curtail and limit and even discourage the developm ent of such a system. I feel that the recent summit conferenc e of the heads of state of the ASEAN countries can definitely contribut e to the stability in this area. In many respects the desire to cooperate means that one is willing not only to take, but also to give. During the last twenty years organizations such as the Stanford Research Institute of Menlo Park, California, the Conference Board in New York, the KEIDANREN in Japan, the European Management Forum and now the Pacific Forum, have fostered and encouraged social and environmental responsibilities. They have definitely assisted in avoiding conflicts and in promotin g a better mutual understanding between the operating companies and their employees, and between the foregoing and the people and governments in the environm ent where these companies operate. The time has gone when business leaders can only look at their balance and profit and loss sheets and neglect their social and environm ental responsibilities. The ASEAN organization is determine d to play an increasingly importan t part in the political and economic stability, not only in the ASEAN nations but also in Southeast Asia and the Asia-Pacific area. Already we see that leaders in the developed nations of the Pacific basin area are taking a greater interest in the activities of the ASEAN organizat ion. The ASEAN leaders are aware of this fact but are also aware that the results of their statemans hip, wisdom and leadership are being observed closely by their own people and also by those who do not believe in the private enterprise system. This is a challenge not only to government and business leaders of the ASEAN and other developing nations, but also to the leaders of the developed nations of the Pacific basin.

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We have no other choice than to establish a mechanism, governmental and private, to ensure that people in this area can be freed from poverty and inequalities as much as is feasible. This is easier said than done, since after all, people are people with all their shortcomings. I personally believe that the desire to survive and succeed shall encourage leaders and nations to act maturely, free from emotions, particularly in times of adversity. The ASEAN organization will develop and establish a mechanism to serve and achieve the goals as set forth by the members. The take-off stage has been reached and the ASEAN Secretariat is being established in Jakarta. The Conference of Ministers from time to time shall outline certain policies to be further discussed and developed by the standing committee that, in turn, will utilize the services of the ASEAN Secretariat to implement the respective programs. From a timing point of view it is hoped that in early 1977 the ASEAN Secretariat can commence its activities. The ASEAN organization is also cognizant of the fact that it should develop the private sector to ensure faster economic growth through investment, transfer and exchange of technology and science, and other activities. The ASEAN Chamber of Commerce and Industry has been established and is presently chaired by the Malaysian Chamber of Commerce and Industry, headed by Mr. Kamarul Ariffin in Kuala Lumpur. I believe that it would be profitable for the Pacific Forum to maintain close contact with the ASEAN Chamber of Commerce and Industry and with the ASEAN Secretariat. It might be desirable in the future to invite to these conferences representatives of both the ASEAN Secretariat and the ASEAN Chamber of Commerce and Industry. Not only the ASEAN nations, but also other developing nations in the Pacific basin area, continue to need investment

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and transfe r of expertise. It is here where the developed nations in the Pacific basin and Europe can particip ate as partner s in development. As business leaders we can only observe what is happening in the environment where we operate as far as the political arena is concerned, but we can definitely contrib ute substantially to a greater economic and social stability if and when given the opportu nity to do so politically. The recent events in the United States, as I mentio ned earlier, are in some ways a blessing in disguise to business leaders. Certain pattern s and ethics are now being scrutinized and certain rules of the game are being spelled out regarding the behaviour of multinationals. I would like to draw your attentio n to a paper delivered by Mr. J. E. Bywater, Chairman, Sime Darby Holdings Limited , at the Manila Conference sponso red by the Stanfor d Research Institut e in Februa ry this year. I think Mr. Bywate r most articulately described how an interna tional trading compan y can effectively particip ate in the economic development of the ASEAN nations or in any similar kind of regional organization. As mentio ned earlier, many changes are taking place and all of us in government and business must be able to readjust our own philosophies from time to time due to realistic changes, since only in this way do we keep an open mind for the other man's view and in so doing try to establish points of commo n interest to be served by all interest ed parties. Leadership means manage ment and discipline. ASEAN governments have so far been successful in their efforts to develop greater prosper ity for their people. A fair distribution of the gained prosper ity is not an easy task for those governments. Unemp loymen t is a matter of great concern. Increasing bureaucracy and unconv entiona l behaviour are obstacles to the development of effective admini stration as well as to attracti ng greater and more effective participation

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by the private sector. Conversely, the private sector must refrain from certain unconventional activities on its part, which is not always easy. It is in the interest of both the government and private sectors that we maintain an acceptable moral standard and avoid erosion of basic ethical principles. Otherwise this can only lead to chaos and pave the way for those who do not believe that the private enterprise system is a worthwhile partner but is an enemy of the government and the people. Our contribution as business leaders to a greater economic, social, and political stability in the Asia-Pacific area is to look beyond our immediate scope of activities, take time to think and think globally, and consult and make plans based on our observations and experience. We are often our own worst enemy in that we keep running without stopping from time to time, to meet new challenges more effectively. It is for this reason that this meeting is so welcome. It is here that we can exchange views and talk things over. Any criticism we may have can only help us to be more constructive in the future to build a better "tomorrow" for all of us who believe in the private enterprise system as a vehicle to serve governments, nations, and people. DISCUSSION Sycip: The speaker, of course, has quite properly emphasized that the governments in ASEAN are all committed to preserving an essentially private enterprise system. I would like, however, to pose a question. It may have occurred to some of you, but others may not have thought about it. In varying degrees, the governments of all five ASEAN countries today practise development planning. The degree of government intervention in economic matters, Which is what planning is all about, varies somewhat. But basically I think, the governments have decided that, if we are to achieve the kind of development that will enable them

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to preserve the private enterprise system and to achieve political stability, they have to practise develop ment planning. Yet, they are committ ed to carrying out these development plans under an essentially private enterprise system. The point I would like to raise concern s two very basic contradictio ns, and foreign as well as local investors certainly should recognize these contradi ctions. They should see if the contradi ctions can be resolved if they are to make sound business decisions. The first contradi ction arises from a basic contradi ction of objectives. Develop ment planning, as you all know - at least in its avowed objectives - seeks to distribut e the benefits of develop ment as broadly and as equitabl y among the people as possible. The workings of a private enterprise system, however, as you all know, seeks to concent rate the benefits of develop ment in the enterprises that participa te most effectively in the develop ment process. So there is a rather basic oppositi on of objectives here. I am not saying that they cannot be resolved. They can be resolved if governments structur e the incentives and disincentives carefully; if they have a sophisti cated and comprehensive set of rules. As V. Arthur Lewis, the well-known political econom ist, has pointed out it should be possible in a private enterpri se system, to motivate the system or the entrepreneur to do the socially desirable things, but generally speaking, the governments have not quite faced up to that proposit ion yet. Most do not have a sophisti cated and comprehensive set of incentives and disincentives. Therefor e, there is this conflict of objectives. The second contradi ction is one that has to be candidly faced. I realise that many businessmen do not like to talk about graft, corrupti on or other things like these. But one should realise that the more the governm ent practises develop ment planning the greater is the power of the bureaucracy. This is necessarily so, because if the governm ent plans,

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then the government implements. Therefore you have the situation where even relatively low level bureaucrats are in a position to deny a businessman the opportunity to make a profit, or to enable him to make a greater profit. You have, therefore, a situation where the power resides in the bureaucracy, while the profit opportunities legitimately lie with the private sector. In such a situation, it should not be surprising to any of us that graft and corruption tend to become a major problem in countries that are practising planned development in an essentially private enterprise system. Aside from this there is the emergence of what is sometimes described as bureaucratic capitalism: the bureaucrats become capitalists, and the capitalists, in order to protect themselves, become bureaucrats. And this, as the Marxists like to point out, is the stage before private enterprise loses out to state enterprise or to Socialism, as bureaucratic capitalism becomes increasingly avaricious and oppressive. The question I pose before you is: What are some of the pragmatic things that the business community can do to cooperate with the government in order to overcome these two contradictions. I believe they can be resolved but unless we frankly face up to these contradictions we are not likely to resolve them - and if we do not resolve these contradictions private enterprise may become irrelevant in the face of the need to effectively plan national development. In Singapore, apparently, they have been able to substantially reconcile these contradictions. Marks: The interesting comments on the issue of Development Planning prompt me to try to identify some of the problems encountered by foreign investors. I think the message is loud and clear, namely, that ASEAN area countries will require a greater quantity of private capital and that a large percentage of this capital requirement will be on an equity basis. I would suggest to governments

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of the ASEAN area that there are a lot of proposals and a lot of countries seeking additional investment; in fact, the demand for investment capital will undoubtedly exceed the supply and any further restrictions placed by government on private investors will make the problem become more serious as the area will have to compete with other areas which do not impose any restrictions and whose needs have prompted their governments to offer attractive inducements to the foreign investor. I do not believe that the bulk of investors require more than a 25% equity interest, but they do not want to see the remaining local capital of 75% to be in the hands of one single investor. From the sponsor's viewpoint if the majority of equity is in one hand, it could well mean that the technology they are introducing into the local company for the benefit of ASEAN areas can too easily pass to one of their worldwide competitors, and to avoid this risk is one of the main reasons why major companies will not participate in the area without a greater measure of control. To sponsor and participate in the capital of a new company in the ASEAN area and to make available your technology to this company requires a far greater dispersal of the local equity capital, and of course this highlights the requirement of having a larger stronger local capital market particularly in the equity area. If one is prepared to establish a new venture it will probably be five years before the new enterprise will be in a position to pay a dividend to its shareholders and there are numerous instances that emphasise the problems of marshalling capital from locals when some years will elapse before the investment provides any income to the participants. I would like to make a suggestion that would assist ASEAN governments to help establish more effective capital markets and at the same time meet their longer term objec-

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tive that their people own an adequate stake in industry established in their respective countries. I also believe that this proposal would offer greater security for local funds marshalled for the venture and obviate certain bureaucratic decisions that turn the foreign investor away, for example, the local view that a new enterprise must be placed in a particular area to be successful when the sponsoring foreign investor has different ideas. Governments would be well aware that there are a number of instances where foreign investors would be prepared to bring in all the equity capital and all the required loan funds if the enterprise was to be 100% owned and the foreign investor was satisfied that local capital was being provided in a more suitable form. The foreign investor would still be prepared to guarantee interest on and the repayment of the principal of loan funds to the venture. With this background, I submit the following proposal for consideration: 1. On receiving advice on the funding of a proposal by way of equity and loan funds the host country's requirement for the percentage of equity that it ultimately requires to be in the hands of local investors would not be immediately raised as equity share capital; it would be raised in the form of interest-bearing loan capital. 2. This form of security could have the requirement that it is not transferable to those other than nationals of the country. 3. These securities could be quoted on the local stock exchanges. 4. The securities for interest-bearing loan capital would not only be entitled to an annual rate of interest, the holders of the same would also have the right to convert their loan capital certificates into ordinary share capital on a previously determined date. 5. Interest payments and repayment of principal

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on the interest-bearing loan capital securities would be guaranteed by the sponsoring foreign company until the securities had been converted by the holders into ordinary share capital. If you examine the above proposal it would provide a fair means for ultimately having the desired percentage of equity shareholding held by the nationals. It would make a tremendous contribution towards developing stronger local capital markets. It would mean that people subscribing to the securities received interest on their investment during the period the enterprise was being established and could convert to equity once it had become established. The foreign investor who would be guaranteeing principal and interest on the loan capital would have the necessary incentive to ensure that the venture was successful, not only for the benefit of local investors, but the host country, and this could help obviate the need for some well-meant intrusion by government officials into an industry where they probably have no knowledge. Commentator: I gather that part of this suggestion was that both the capital and the interest were to be guaranteed by the foreign investor. If we are talking about a brand new enterprise, then there is very definitely, a higher credit risk to expect. And this is the sort of risk that the institutional investors can bear because they have the facilities for doing the proper investigation. However, it is not the sort of thing at that stage that you can distribute fairly widely in the market. But if it is guaranteed by the foreign investor, then that makes the proposition quite different and it may be capable of wider distribution. The problem then hinges on the economics of the project. Because here the foreign investor is putting up 25% of the equity, but guaranteeing 75% of the debt and assuring fixed interest return on a project that is not yet income-earning. Now, if the foreign investor is prepared to do that, it certainly is stacked very

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heavily in favour of the nationals. And definitely, if you put enough goodies in a security then you should be able to sell it. The problem hinges on whether the foreign investor, depending on the project, will continue to find the proposition attractive. I suppose that there are certain lines of enterprise where the market risks and the technological risks and so forth are such that it may be possible. Perhaps if they are firmly established exploitation of oil reserves, that sort of thing could stand the kind of economics that would be involved, but anything else that would involve market risks or exploration risks or technological risks and even just the start-up risks that would be involved invariably even in enterprises as old as paper-making then it may not prove too attractive.

OPPORTUNITIES FOR FUTURE COOPERATION AND PROGRESS: Economic Trends Eme Yamasita

I feel greatly honoured to have been invited to the Pacific Forum and given this opportunity to exchange views and discuss common problems with representatives of various Asian countries. Until I resigned my post of Vice-Minister for International Trade and Industry in November 1974, I served for thirtyone years as a public servant in the field of economic affairs. In consequence, the views I hold naturally tend to uphold the position taken by Japanese industry or to be representative of the thinking of a Japanese public servant. For this, I wish to ask your indulgence. Japanese Imports from Asian Countries The Japanese economy plunged into its worst postwar recession following the oil crisis of October 1973 and the subsequent fourfold increase in petroleum prices. Because of this recession, Japan was compelled in 1975 to drastically reduce the quantity of raw materials it had been buying annually from various Asian countries. Our statistics show that the value of Japanese imports from the whole of Southeast Asia in 1975 was as follows: Natural rubber US$155 million, 74.3% of the amout for the preceding year. Lumber US$918 million, 52.7%; Copper US$297 million, 55.5%; Tin US$146 million, 62.4%; Crude Oil US$3,332 million , 90%; and Petroleum products US$578 million , 53.3%.

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We are well aware that such a drastic cutback in purchases created various difficult problems for the countries exporting natural resources and raw materials, which they found unable to manage by ordinary means. The Japanese contracting parties explained to their partners in the exporting countries the circumstances in which they were placed and appealed for their co-operation in overcoming these adverse economic conditions. It gives me great pleasure to note that, although there are still some disputes that await solution, we were able to weather through the 1975 crisis without a major quarrel that would have created a rift in international relations. When we look at the statistics for the first quarter this year - that is, January to March - we can discern a rapid increase in Japanese imports from various Southeast Asian countries. Among the countries in which purchases have increased more than 30% when compared to the corresponding period of the preceding year are: Korea, Hong Kong, Taiwan, Laos, Malaysia, Singapore, Burma, Bangladesh, and Afghanistan. For Southeast Asia as a whole, purchases amounted to US$2,935 million, that is 113.9% of what we had bought in the first quarter of 1975. As you are probably already aware, the Japanese economy this year was buoyed by the favourable trend in the export of automobiles and electric appliances, coupled with a recovery in individual consumption and investments for housing. Domestic production has increased steadily in the six months from November 1975, and the rate of operation in industry has also moved upward during that period. Japanese enterprises are beginning to feel confident that they have moved out of the recession. This is because the rate of increase in profits as an average of the 420 representative Japanese companies showed a sharp upward curve ~t the close of the latter half of the 1975 fiscal year accounts In March, registering 144%, when compared to the former

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half of the fiscal year. Orders for machinery have shown a definite recovery since January. This activity was further heightened in March and April, when orders received showed a I 0% increase over the same months in 1975. Will this trend towards recovery in the export industries also extend to all the basic industries such as machinery, steel, aluminium, metals, and chemicals? Will companies decide to invest in larger production facilities, thus spurring private plant and equipment investments? The answers to these two vital questions should be provided during the latter half of this year. The projection upon which the Japanese Government proposes to manage the economy in 1976 foresees a 14% increase in individual consumption, a 7% growth in plant and equipment investment, and a 15% augmentation in housing investment, accompanied by a I 0% rise in mining and industrial production, with an industry operation rate of94%. · This should result in a nominal 13% and a real 5.6% growth in the Gross National Product. Exports are expected to grow 13%, with imports registering a 15% increase. Prices for cereals, minerals and other raw materials have recently risen in the international commodity markets, but it appears inevitable that, with the recovery of the Japanese economy, our purchases of raw materials will expand. The Japanese Position on the New International Economic Order (NIEO) Japan has suffered from the skyrocketing rise in prices and shortage of the raw materials that it must import. The years 1973 and 1974 were marked by a sharp upward movement in the prices of all raw materials beginning with

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those for wool and cotton. Lumber, cereals and minerals followed, and finally came the increase in petroleum products. A reaction set in in 19 7 5. There was a recession, prices fell, and imports were reduced. These wild fluctuations posed the problem of how all nations could develop a new order that would bring about increased stability in international commodity markets. A representative group of seventy-seven developing countries has propounded an argument that has been advanced at a series of international conferences culminating in UNCTAD IV, the United Nations Conference on Trade and Development, that was held in Nairobi in May. This argument contends that a new order be established since history has proven that fluctuations in the price of primary commodities on international markets widen, rather than nartow, the gap between the South and the North or the poor and the rich; this condition must be corrected if stability is to be maintained. This is one of the main pillars on which the edifice of the New Economic Order, advocated by the South, would be supported. I believe that Japan should take the South's position of correcting the existing defects to ensure stability. Today, liberal capitalism has reached a state of overmaturity in North America, Europe, Australia, and Japan - a comparatively small area of the world. Unless some of its evident defects are eliminated to improve the system's constitution, it will undoubtedly meet difficulties in order to survive. For instance, big capital should not be allowed to continue profit-grabbing speculation by taking advantage of excess liquidity in funds, presently prevailing throughout the world. We also must prevent a wastage of the limited resources of the world by excessive competition.

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The fatal defect of capitalism is a matter of equity. We must, therefore, confront this problem and guide our policies towards reducing the gap between the rich and the poor. Since the importation of primary commodities is a vital problem for Japan~ my country should take the lead in proposing the following measures. First, establish a framework that will assure stability, by limiting the span of upward or downward fluctuations and, as a result, contribute to equity. Second, create a system within this framework, through discussions between producers and consumers, that would retain the choice of selectivity in investments through a natural harmony between competition, effectiveness and supply and demand. The eighteen products listed by the South are divided into three or four groups, reflecting historical or environmental situations. Discussions should be carried out on the same principle, item by item, so as to develop concrete measures. The questions concerning these products naturally cannot be solved by Asia alone; however, experts should undertake discussions on concrete policies, with regard to individual products that are of major interest to Asia, in order to formulate measures on buffer stocks, long-term contracts, stabilized price ranges, and necessary financing. Japanese economy is supported by free enterprise. There are 1,850 companies with capital exceeding 1,000 million yen (US·$3.3 million). In addition, there are 1,270,000 companies capitalized at less than 50 million yen (US$170,000). The total of all companies reaches 1 ,290,000. Because these firms enjoy complete freedom in their economic activity, the excessive competition and speculation they engage in on the domestic market often create abusive fluctuations that verge on the outrageous. Problems occasionally arise from the domination and

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pressure of big capital on small firms. These circumstances have given rise to an increasing number of question s being asked about the responsibility of enterprises towards society. As a result, compan y managements have had to adopt an attitude to meet these various social demands. These call on industries to the effect that although they may be free, they should not create pollutio n; that they should hold meetings for a dialogue with those living in areas adjacent to factories; that when they build an atomic power plant, they should obtain the total assent, not only of the local governmental authoriti es, but also of the inhabita nts of the area; that they should disclose their business records; that they should restrict too frequent changes of models in their products and improve "after-se rvice" facilities for the repair and exchange of defective parts of their products for the protecti on of consumers and finally assume responsibility for product safety. In consequence, Japanese compan y managements today face problem s they can no longer ignore. As I have stated previously, the Japanese economy is now recovering from the recession, but it can no longer aspire to an average annual real term growth of 12% as in the past. We all realize that from now on the growth rate will be on an annual average of 5% to 6%. Japan is now entering a low-growth era. This means that Japanese compan y managem ents can no longer comply with the demands for a 15 to 20% annual increase in wages that labour unions boldly make in their annual so-called shunto or spring offensive. This is a matter of equity which has injected a new and increasingly grave social and political problem into our national fabric. Today, the attentio n of our parliame nt and political circles is absorbed by the so-called Lockhee d bribery scandal,

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which was touche d off in Februa ry by hearings in the United States Congress. The investigation into the case being carried out by our own State prosecu tors has entered its final stage, and the public is waiting for the results which are expecte d to be announ ced by the end of August. In the meantim e, the rivalry betwee n the five factors in the ruling Liberal Democ ratic Party has continu ed unabate d, while a division has arisen in the views of its elder and younge r members. As a result, the unity and the capacity for leadership of the party have been sharply reduced . Moreover, six parliam entary membe rs have left the party recently . Until now, the four opposit ion parties, led by the Socialists, were numerically incapable of forming a government. They look upon the Lockhe ed bribery scandal as a heavensent opportu nity to inflict a grievous blow on the Liberal Democ ratic Party. However, these four parties are deeply divided among themselves, being unable to work out a commo n policy platform or even engage in a joint electoral campaign. This comple tely rules out, at the present time, the possibility of reversal in the political order where the Progressives would be in power and the Conservatives in the opposit ion. Then why is it that the Japanese public is so interest ed in the Lockhe ed bribery scandal? We have a saying to the effect that a rumour lasts but 75 days. This time, however, more than 180 days have elapsed and still no sign of waning has been shown by the media; the newspapers and public continu e to closely watch the progress of the investigation. This, I believe, is because the Japanes e econom y, althoug h it had its ups and downs, has continu ed to grow for thirty years since the war. On the political side, the Liberal Democratic Party, riding this wave of econom ic develop ment, has continu ously remained in power during that long period. It is only natural that stagnat ion and corrupt ion have crept

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in. I also believe that the wish is spreading among the people to see politics cleaned up and society revitalized at a time when Japan has come to a turning point as it enters a low economic growth period through the retirement of the leaders of today, who have left a track of dubious collusion among political, financial and government circles. The new leaders should have the strength to cut open the cancers of stagnation and corruption, guarantee the people growth without inflation and carry out reforms required to bring about social equity. It is my belief that, only when leaders capable of adopting such measures at home take over, will it be possible for Japan to take positive steps towards a New International Economic Order. Japanese Evaluation of Economic Cooperation within the Association of Southeast Asian Nations and the Progress of Industrial Projects within the Area Since the meeting of ASEAN Heads of Government held on Bali island in Indonesia in February this year, a number of ASEAN conferences have taken place successively with great energy. The second meeting of ASEAN Economic and Planning Ministers held in Kuala Lumpur in March is worthy of special attention in that in its conclusions it gave numerous indications as to the future trends for Asian economic development. The five ASEAN nations are individually important trade partners of Japan, and trade with the five countries, taken collectively, represents 11% of Japan's total import and exports, placing it second to that with the United States. The island nation of Japan, situated in the north of Asia, which maintains a regime of liberal capitalism, has felt a close kinship for geographical, historical and economic reasons to the ASEAN countries, as well as to Korea and

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Taiwan. Unfortun ately, because of the difference in levels in per capita income and in industrial development, there is a wide so-called economic disparity between Japan and the various ASEAN countries, with the result that the condition s to form a common market in an homogen ous society do not exist. However, a promising environm ent for the future of the Japanese economy is indicated as we visualize the 227 million people of the islands and peninsulas of the ASEAN nations united to form an economic entity and to develop modern industries, and thus to constitute a large market in the world economy. Moving in this direction, ASEAN countries have undertaken to join in a common study on the feasibility for each to establish modern steel and petrochem ical plants that will be internatio nally competitive. In the most realistic first stage of ASEAN industrial projects, attention has been directed to the productio n of urea, superpho sphates, diesel engines and soda-ash. Moreover, it has been agreed that studies would be undertake n for according favoured treatment to these products within the area, and that the profits arising from such operation s would be equally shared among the five participating countries. In addition, industries in metalworking machine tools, fisheries, electrolytic plating, heavy-duty rubber tyres, and electronic compone nts have been cited among future ASEAN industrial projects. Expert studies will also be undertake n on the establishment of manufact uring facilities for newsprint and potash. I am convinced that Japan places a very high evaluation on this concrete indication of a first joint step forward for the industrialization of the ASEAN area, which will serve the interests of not only our country but those of the whole

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of Asia, and looks forward to seeing continued efforts that will achieve steady progress towards these objectives. Until now, Japan has been extending economic cooperation to Asian countries to its utmost ability. In 1975, Japanese governmental expenditures for development assistance amounted to US$1, 148 million, consisting of grants, technical cooperation and direct loans, as well as contributions to international organizations. Excluded from this sum were all commercial transactions. Japan ranked fourth in this respect, among the Development Assistance Committee member countries, and the amount thus expended represented 8.4% of the total provided by the committee's member nations. It is to be noted that 75% of this sum was funnelled to Asian countries. Behind this is Japan's wish to see Asian countries emerge from poverty, improve their living standards, and develop their economies, even if this means sacrificing its own growth; for what its deems important is to narrow the gap between the rich and the poor in Asia. However, grants can be effective only if the recipient country demonstrates a will to help itself. The decisions for economic co-operation recently taken by the ASEAN countries fully demonstrate the spirit of self-help and selfreliance that pervades those countries. It should become clear, as ASEAN industrial projects assume a concrete shape, in what sectors Japan can be of assistance in their realization. My country will readily extend such assistance, although strictly maintaining an attitude of helping, but not meddling. However, it is to be expected that in the process of bringing these projects to maturity, technical and financial assistance will have to be sought from either the United States or Japan. There are some who suggest that ASEAN integration

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the existing will run coun ter to Japan's interests and that bilateral trade relations are more desirable. I do not believe that is Japan's position. t ASEAN An agreement could not be reached in the recen this idea now conference to establish a free trade area, and that this attriseems to have been set aside. Some suspect idea. Although the to n bute d indirectly to Japanese oppositio such a line, some individuals may have had thou ghts along de. I do not believe it represents the Japanese attitu have trade who en, essm busin Although some Japanese countries, AN ASE in ries relations with or operate facto rules, plex com of oppose the com mon market idea for fear ot cann who n I believe such an opinion is that of a perso see the forest for the trees. nding With Japanese Efforts to Deepen Mutual Understa Asian Countries its economic As I have stated, Japan is well inten tione d in itions such cooperation with Asian countries. Various cond it elements as interest rates, repayment terms, and cred recipient the of ur favo the in have been improved each year countries. ted, being Why is it then that such co-operation is resen aggression? looked upon as a means of Japanese economic of Japanese The ruthlessly rational management meth ods often mism dyna their entrepreneurs, their diligence, and also They ity. result in sales that startle the local commun of roots The make investments that become conspicuous. resentment are there. processing For example, a joint enterprise was enaged in very made , sales their parts for electrical appliances, and in the sed arou it large profits. The local partn er rejoiced, but dislike of the local com mun ity. ther with In 1973, the Japan Foreign Trade Council toge lished estab stry Indu and e the Ministry of International Trad

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"Standards for Investment and Behavior in Developing Countries". Four representative major economic organizations in my country, such as the Federation of Economic Organizations and the Chamber of Commerce, concurred with them and called upon their member companies to observe these standards when extending their operations overseas. I shall not go now into a detailed explanation of the nine standards that have been set down, but let me state that they all consist of adequate instructions on how Japanese enterprises should seek to merge with the society which they are entering. It teaches Japanese businessmen that when they leave Japan to work abroad, they should go prepared to love the country that they are entering, understand it, and blend into it. It is, however, true that there is not a country in Asia that by nature will accept Japanese economic activity in its midst with good grace, because of the wide economic gap and inherent social and cultural differences. When I was on active service as a senior officer in the Ministry of International Trade and Industry (MITI) in 1973, the Ministry sponsored the Asian Club for Promoting Economic and Cultural Communication, an organization devoted to the public interest. I am today an advisor to this group. It has brought together people who will not spare efforts in realizing the club's ideal of eliminating, little by little, the demarcation fences surrounding Asian countries. We are now seeking to expand our membership, placing emphasis on intellectuals, young people, and women. It has been most encouraging for us to learn that a sister club was organized in Manila in 1975. We have come to the realization that unless we succeed in obtaining a mutual understanding of the different cultures

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that form the roots of life in the various Asian countries, it will be impossible to achieve a homogeneous society. The realization of an Asian common entity still has a long way to go, but we hope that it will become a reality several generations from now, and we are therefore pursuing our efforts in that direction.

DISCUSSION Viksnins: While I found Mr. Yamasita's remarks with respect to the failures of liberal capitlism most interesting, I believe we may have been too pessimistic in 1975 and early this year. We have heard the Group of 77 and others talk of rather large program to meet the emergency. This situation may have already passed and, to some extent, we may really be worrying about a nonexistent problem that private market arrangements are well under way to solving. Because now it has become profitable, very profitable, to provide this buffer stock program on a completely private basis and there is, therefore, less of a need for large governmental buffer stocks. Such supragovernmental program are very, very costly and often have administrative nightmares connected with them. What I advocate is a slower wait-and-see attitude before rushing into very large and very expensive government-to-government programs, which may be unneccessary a couple of years from now. Commentator: I think it is important to consider the situation of the developing nations. During the recession of the last eighteen months certain actions taken by the developed countries caused concern to producers in this part of the world. On palm oil, for example, because palm oil is the cheapest form of oil to grow per acre, there have been reactions in North America by the soyabean growers to try and control the imports of palm oil into North America. Also, there were actions by Japanese buyers to establish new standards of timber quality, which is really a way of preventing the free transfer of raw materials to the

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traditional buyer but without actually imposing rigid quotas or controls. And the third example that can be cited is natural rubber where there seems to be a tendency to fix the price of natural rubber on its historic base - whereas in fact it should be fixed with reference to the price of synthetic rubber produced in developed countries. I think it is very important that the developed countries recognize the strength of feeling in the producer countries concerning actions of this sort. They are not acceptable. Whether the solution is a buffer stock, or whether it is negotiation between supplier and purchaser, I do not know, but the exchange of views between both parties has to be completely honest, both when there is a recession and when there is a boom. Commentator: A comment was made about private buffer stocks as against government intervention. This is a very interesting question, because of the contention that the recession period was an extraordinary period and that the producer countries are too panicky about going into this program, but let me say that experience has shown that non-governmental intervention would have produced economic disasters. I am not talking about the U.S. experience, although even that differs from _pure theory - the U.S. policy towards wheat, for example, departs from letting the market bear the brunt of the adjustment. If I am not mistaken, the U.S. is a member of the International Wheat Agreement, one of the few commodity arrangements that it is in - Why? Because it is a major producer and had been suffering from fluctuating prices as well. Now, there you had some sort of intervention, even at the national level. If it were given purely to the private sector to stockpile commodities, past experience has shown that this could be used to relieve upward price pressures. But there have also been other cases where prices are down, when other developing countries are also suffering from low prices. Then a lot of dumping also takes place and produces further disasters

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in certain developing countries. Malaysia had a very bad experience with rubber and tin in 1973 or 1974, when the U.S. decided to release its rubber and tin stockpiles. Malaysia made representation and the U.S. agreed that they should release slowly and they would make notification when doing it. The U.S. has gone further than that now, and has signed the tin agreement. Viksnins: One of the major problems with respect to agricultural commodities especially is that the buffer stock concept is simply impossible. There is no way that you are going to be able to stockpile enough rice (or indeed bananas) in order to stabilize prices or to make sure that the price remains within some fairly well-defined floor or ceiling levels. In the longer run, it is important to work for greater price responsiveness in world market conditions rather than less. When we had a real crunch with most food commodities in the 1973-74 period, it was the refusal of the EEC countries, of Communist China, and also the Soviet Union to allow their prices to go up at all that produced an enormous, excessive reaction in the prices in those areas where free market principles were still working. And it seems to me that this problem affected the developing countries rather more seriously than it did the United States. So before rushing into a "common fund" and an "integrated program" one should go through rather carefully the long-term consequences of attempting to freeze commodity prices, particularly in a world that is running out of resources. Commentator: What is important when one talks about the common fund or the integrated programme is that the commodities be identified first. Relative to the problems of management of buffer stocks, there exists certain commodities for which this works - for example, tin. What is needed is a producer-cons umer agreement, commodity by commodity.

COMMODITIES., RESOURCES AND RAW MATERIALS- A FUTURE STRATEGY FOR INTERNATIONAL COOPERATION Datuk Musa bin Hitam

In looking at the future, it is only logical that we should begin with the current situation and make it the starting point of our discussions. In my view, the elements and conditions for continued confrontation are still imposing their influences upon our minds and therefore, in a way, are inducing us to put our minds further into efforts to enhance the more positive approach of cooperation and collaboration, which everyone agrees is necessary and should be pursued. As UNCT AD IV was the major recent forum which dealt at great depth on this very contemporary subject of commodities, resources and raw materials, it would be useful to do a post-mortem on what had transpired in Nairobi in May this year. While there was direct confrontation and opposition to the Group of 77's proposals for the establishment of a Common Fund to finance the Integrated Program for Commodities from the Group B developed market economy countries, characterised by the proposal of the United States of America for the establishment of an International Resources Bank as a complete alternative, there were positive signs of a changing outlook and approach in the stand taken by certain countries in Group B. I refer specifically to the positions taken by the Nordic countries and the Netherlands in particular and the European Economic Community in general. Group D comprising the socialist countries of Eastern Europe presented the least amount of substantive amendments to the proposals of the Group of 77.

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A casual glance at the synoptic table comparing positions adopted by the Group of 77, Group B and Group D would indicate large areas of almost identical viewpoints. This, however, appears to be more apparent than real in as far as the positions of the Group of 77 and Group B were concerned on the major proposals vis-a-vis the Common Fund and the Integrated Program which are regarded as the key points on which are hinged the main thrust of the proposals put forward by the Group of 77 on commodities. In fact, the issue of the Common Fund was the main cause of lack of progress in negotiations on the Integrated Program. Irrespective of which viewpoints you identify with, i.e., for or against the proposed New International Economic Order, you could conclude, however, that there were positive signs of progress towards a further understanding of the underlying aspirations, hopes and fears of the participating groups of countries. It should be noted that the current rise in prices of most major commodities with some quarters refusing to discount another boom in the offing is received with mixed feeling among most producer countries. We are constantly aware that where there are substitutes, consumers may shift to them. We also know that current remunerative prices and the predicted boom, should it come, will not last and we would be back to square one and will have to put up with a depressing situation. Even the consumers are coming out with the warning flags. It should thus be appreciated that the proposals of the Group of 77 for the establishment of a New International Economic Order was the result of painstaking study and analysis of the ills and weaknesses of the current order of things. To the Third World, changes are imperative. They are not calling for total changes, but are only pursuing the restructuring of current practices by which the world conducts its trade and monetary policies and plans for its

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future in a more orderly manner minus the bust-and-boom syndrome. President Gerald Ford's statement at the recent Economic Summit at Puerto Rico also stressed the desires of the developed market economy countries to avoid having to face the same fluctuating trends in economic developments. But, as you are also aware, the solutions being suggested are in total contrast to each other. Our position is that the free enterprise system with its attendant free market forces operating without hinderance is not the answer to the sum total of the problems faced by developing countries, especially the commodity-raw material exporting countries. At the risk of sounding unoriginal and cliche-ridden, may I say that there are advantages that free enterprise can bring to economic growth patterns, but there are limits to orderly growth that we seek as we struggle to put up with wildly fluctuating incomes and returns. As we look at the fears and reservations of the developed market economies and the counter proposal for the establishment of an International Resources Bank, we see their preoccupation with security of supplies, which I dare say is accepted by the Third World as a legitimate interest. Their desire to see no interference with free market forces, however, is rather dogmatic and unappreciative of the reasons for our desire for changes. It should be apparent that for some time now the developing commodity exporting nations' preoccupation with fair and remunerative returns and the developed world's obsession with security of supplies are the meeting points of the ideas which are not inconsistent to each other. Here lies the starting point of our search for the right solutions. Malaysia as well as the other countries in the Group of 77 is committed to the Common Fund and the Integrated Program proposals and will be pursuing both matters further. At this point in time, it is more than impossible to expect us to backtrack and continue to accept the status

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quo. But as realists, we must expec t that in the long-term,

romis e we are open to new ideas and possibly even to a comp se~ as a short -term temp orary soluti on to overc ome the impas group N ASEA the that In this conte xt, it shoul d be noted ation al of count ries had absta ined from voting on the Intern sal, Resources Bank proposal. On considering the U.S. propo that we found certai n provisions worth considering. We felt stemm y largel sal propo the oppo sition in Nairobi to the U.S. sts intere real ed from the U.S. failure to recognise the very on developing count ries have in their proposals for a Comm on on Fund . Developing count ries saw in the U.S. positi would which ative altern an Bank the Intern ation al Resources the that find sia Malay in replace the Comm on Fund . We al ation Intern the refere nce made in the U.S. proposals that stock r Resources Bank would meet our needs for buffe sals. financing is a glaring short comi ng in the U.S. propo rces Resou al ation Intern the t Malaysia too canno t accep der consi rably favou Bank as an alternative, but we may ional addit an gettin g round to accep ting the propo sal as to this facility to the Comm on Fund . If the U.S. can agree results line in principle, then we see prosp ects of tangible befor e AD UNCT by held be to emerging from negot iation s March 1977. ing If the Comm on Fund is accep ted as the majo r financ ation al facility for comm odity arran geme nts and the Intern arrangeResources Bank as an addit ional facility for such Bank the of rs backe the ment s as may be acceptable to ing financ of e propo sal, there could emerge a wider choic tive attrac for backe rs of the Integ rated Program. What is nteeabou t the Bank propo sal is its declared aim of also guara cal politi tain uncer of light the ing inves tment s. This, in e privat for tes clima stabil ity and there fore unsafe inves tment r answe the be capita l in certai n areas of the world , could to l to developing count ries' search for much neede d capita natur al develop capita l intensive industries and explo it their

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resources. I hope that each of the parties concerned in the current impasse' would look again at each other's proposals and in the spirit of cooperation and collaboration try and seek out the merits of the contending proposals and work out a way to arrive at a suitable and amicable settlement of the issues, even if from the point of view of an interim solution. We have come to realise that the open-ended nature of the list of commodities that finally emerged in the Group of 77 proposals for the Integrated Program to be financed by the Common Fund was the major source of opposition from the Group B countries, apart from the quite insistent demand of Group B that they would prefer a commodityby-commodity approach rather than the Integrated Program. The Malaysian position is that the Integrated Program and the commodity-by-commodity approach are not inconsistent with each other since negotiations for appropriate stabilising mechanisms would still have to be initiated and continued for each and every one of the commodities listed in the proposals of the Group of 77, even after the ~stablishment of the Common Fund and the International Resources Bank. The other alternative would be for each side to go it alone establishing separately the Common Fund and the International Resources Bank and to continue discussions later on integrating the two. This of course would mean abandoning collaboration and opening the way for continued confrontation. Hopefully this would be temporary in nature taking the optimistic viewpoint that continued dialogue would lead to a minimising of the divergent viewpoints. On the other hand, if compromises are not forthcoming we could be headed for more trying times. You will notice that I have not really dealt with a future strategy, but rather the possibilities of moving ahead to enhance collaboration after analysing and rationalising the

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curren t situat ion. The Malaysian strategy for the future calls for positive collaboration rather than negative confronta tion. Our conviction on this line of appro ach is made all the more necessary since we are a multi- comm odity produ cing count ry. We will contin ue to strive for the s acceptance of producer-consumer arrangements on variou commodities. We have made some progress in that we have come a long way from rhetor ic and declarations. This is indicated by the signing of the Fifth Intern ationa l Tin Agreement even ts by the Unite d States of America. The declared comm itmen e of Britain, Belgium, Luxem bourg and Canada to help financ The and e Franc to on additi tin buffer stock opera tions in Netherlands indicate that our idea for full rights and responsibilities is also being gradually accep ted by the internation al comm unity. The success so far achieved is reasonably satisfactory given the fact that it had come during such a short space of time al since the Sixth Special Session of the Unite d Nations Gener of nt ishme Assembly came up with the idea for the establ the New Intern ationa l Econo mic Order. This augurs well for the future .

FOREIGN INVESTM ENT AND THE NEW ENVIRONMENT

THE FOREIGN INVESTOR IN ASIA-PACIFIC: A Suggested Framework for Regional Investment Policies Six to K. Roxas

I

My assignment is to suggest a framework for regional investment policies in the Asia-Pacific area. This also is by way of a sequel to the subject I was given in the Honolulu meeting where I traced the implications for the ground rules affecting investments and finance of the future patterns of resource exploitation in this area. At that meeting, I suggested that the developing countries of the Asia-Pacific region have developed an ambivalence towards foreign investment and the forms their ventures have typically taken in this part of the world. These countries realize their need for technology, management, and finance, and know that foreign investments and multinational companies are prime sources of these elements. They also know from the experience of the last thirty years that projects devoted to the exploitation of single resources do not give them a balanced and total utilization of their natural and human resources. They seek a form of development that elevates whole communities, applies management and entrepreneurial leadership to the transformation of their rural villages, the improvement of domestic agriculture, the reform of domestic marketing and distribution, the establishment of interlinked domestic industry, and the evolution of institutions that serve the financing needs of domestic enterprise. Such a pattern does not emerge out of a development

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spawned by the projects of a multipl icity of specialized companies - some looking for specific resources - oil, iron, copper, nickel, logs, hard fibres, rubber, palm oil - others seeking to market consum er goods and capital equipm ent that are far too sophist icated for the genuine needs of the greater mass of their populat ions. There has been some disench antmen t with the role that import ed technol ogy, capital, manage ment, and enterprise play in the develop ment of nations . Develo pment, it has been realized, must be principally a task of nationals and the result of strategies and techniq ues that are developed indigenously by a painful process of trial and error. A new spirit to self-reliance has thus emerged among the developing countri es of the region. Its manife station in the field of business and economics has been reinforc ed by a similar spirit in the matter of nationa l security. Here three factors have been at work: 1. Vietnam has dramat ized the limited reliance that a country can place on outside suppor t - even from the most powerf ul nation on earth - in the face of interna l insurgency. 2. It has brough t out in stark relief the realization that when the threat to security is internal, countri es must rely on their own interna l resources and capabilities to cope. 3. The externa l threat to security that, it was formerly believed, might originate from China or the USSR, has become a less likely conting ency because of detente and the Sino-Soviet confron tation. This latter is deemed to be a stabilizing factor in the power balance of Asia. The assump tion of this posture of self-reliance has been accomp anied by a paradox ical keenness on the part of the Asian countri es to strengt hen ties with one another . The most import ant recent develop ment in the Asia-Pacific area has been the Bali Summi t and the signing of the ASEAN

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Concord. This has established in fact a new charter for the formation of an ASEAN community with a clear political mandate from the member governments to design into the individual economies greater complementarity with one another and for this purpose to harmonize the economic and industrial plans of the individual countries. It has been the strongest manifestation of a political will to achieve, in stages, true economic integration, that ASEAN has received in its over eight years of existence. This mandate will have far reaching consequences on investment policies within this region that in turn will affect relations with the other countries of the Asia-Pacific area. The Asia-Pacific countries share a number of objectives: 1) industrial expansion and diversification to render them less vulnerable to the vicissitudes of foreign markets. 2) export of manufactured goods instead of raw materials. 3) development of local enterprises and increase in the sophistication of indigenous entrepreneurs. 4) upgrading the skill of the work force. Except for Singapore and Hong Kong, the countries also place a great deal of emphasis on employment generation and rural modernization. They would like to see a dispersal of development to other regions within the countries, the creation of growth poles outside the primate cities, and equalization in the distribution of benefits among the rural population, which in the case of Malaysia and Indonesia, corresponds also to the ethnic Malays (bumiputras or pribumis).

II

While the countries have certain common objectives, each may place a different emphasis on one or another of the goals. The differences are partly the result of differences

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in objective circumstances, partly the result of differences in perceptions and psychological attitudes. The obvious cases are Singapore and Hong Kong which have no rural hinterland and no natural resources to speak of. Their situation obviously contrasts with that of Indonesia with a large rural hinterland, unemployed and underemployed labour, and rich natural resources that are only partially exploited. The degree of economic nationalism embodied in a country's policies varies directly with the extent to which indigenous entrepreneursh ip has developed. Countries where there is as yet no large or growing class of indigenous entrepreneurs tend to be more open to the entry of direct foreign investors. Also, countries that are engaged principally in importsubstituting forms of industrial projects tend to be more protective than those engaged in export-oriente d enterprises. Within an import-substit uting environment, foreign enterprises are seen as competitors seeking to cut up the limited domestic markets even further. In export-oriente d economies, foreign enterprises are viewed as prospective partners in gaining access to foreign markets. These propensities account for some of the differences in attitudes towards foreign investments in the different countries of the Asia-Pacific area. The problem that looms large at this time is that of rural development. We may define this somewhat more precisely in the following paragraphs. Over the last thirty years or so, development as measured in the conventional criteria of GNP per capita has proceeded in inverse proportion to the size of countries and more specifically to the size of the traditional rural population. The paradigms that have been used to provide the analytical basis for economic plans and programs, the models for designing, evaluating, and selecting development projects,

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seem to have been successful only in creating and further expanding the colonial enclaves of modernized sectors in the less developed countries. They have been ineffectual in transforming the traditional rural communities and integrating them 'with the modernized sectors. The latter have thus remained enclaves alienated from the rest of the country and more closely tied to the economies of the Western industrial nations in a system of trade and investments. Those countries then where the traditional agrarian societies have been the major segment of the nation have performed poorly. By contrast, those countries where the colonial enclaves were the principal community, the citystates and the plantation economies, have performed spectacularly. This growing divergence between the two types of societies has been tolerable for as long as the traditional societies continued to have frontier areas suited for the mere multiplication of their agriculture-based communities. The fact is, however, in most of the Asia-Pacific area the prime lands suited for the traditional wet-rice cultivation that has been the mainstay of these societies are reaching the limits of their carrying capacities. Further growth needs the kind of technological revolution which precisely the countries have not effected successfully with the paradigms, strategies, and techniques of the past. The approach to development has not worked for the countries with the large traditional agrarian sectors. New approaches are necessary, but the old approach is deeply engrained in all the institutions, practices, criteria, instruments, and managerial skills that have emerged in these last thirty years or so to serve the tasks of national development. More critically, they form the basis of aid, loans and investment policies that presently provide the vital resources for the development projects actually undertaken in the developing countries of the free world.

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Because the underlying paradigms and techno logy are best suited for the enclaves, resources tend to favour countries where the enclave is the predom inant sector. These come out as the countries with the "favou rable investment climat e" or with the "large absorptive capacity for investment resources" etc. The countries where the traditi onal agrarian sectors are large and prepon derant becom e the "hards hip cases," the "fourt h world, " the nation s with low "absor ptive capaci ty." On reflect ion, one realizes that in the last thirty years, we have followed a strange course. We have taken as given a preconceived set of ideas - paradigms, models of projec t design, corresponding criteria of feasibility - and searched for areas where they would be applicable. In the Asia-Pacific region the areas where these tools worke d were limited and left large bodies of popula tion outsid e the fold of progress. Normally, in other fields this would have precip itated a reexam ination of the ideas underlying the approach, and a search for a new set of tools that would meet the problems besetting the major portio n of the populations. This, however, is not what has happen ed. We have fitted the problems to the tools instead of designing the tools to fit the problems. I am suggesting that we now take the logical course and search for the paradigms, models, and projec t criteria that will fit the Asian condit ion.

lli that have guided development ts concep What are these efforts in the free world these past three decades? Let us call it the "enterp rise system ." The system is modified according to the balance selected betwee n the prepon deranc e of the state or of the private sector in its workings. In the last nearly two hundre d years, two main curren ts have emerged. One consists in substit uting state for private enterprise. The second has consisted mainly of substit uting

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"planned" for "free" enterprise. a. In the first case, the balance is sought by transferring the ownership and control of enterprise to the state - nationalization, in other words. In a system where private profit is the ruling motive, community welfare takes a junior position in the order of priorities. Where enterprises are state operated, since the state will not seek profit, the community's welfare will take precedence in the operations of the enterprise. This was the basis. The trouble is that in private enterprise, profit is also the measure of efficiency and performance. Once this test of efficiency is removed, the organization deteriorates very rapidly. In the end, public welfare suffers because the quality of the performance of state enterprise drops to substandard levels. b. In the second case, economic activity remains largely in the private sector, but the freedom of the private sector is curtailed by the dictates of state planning. These are translated into production and capacity quotas, marketing allotments, price controls, and subsidy programs, etc. These programs have been found more effective in curtailing business than in pushing business to do the essential functions that are unattractive. Thus, in the world today, various regimes exist with varying modifications of the enterprise system: state over private enterprise, planning and controls over free enterprise. Only a third alternative remains unexplored and untried, that is, the transformation of the enterprise system itself. I think this is the most promising CC?urse of all, certainly in Asia. Let me explain. I mean by the "enterprise system" the mode of selecting functions in the economy in terms of specialized products and commodities as a way of defining the business that is to be undertaken. I go into the food canning business, or the textile weaving business, or the garment business, or

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building construction, or logging, or irrigation, or the equipment selling business. When the community's chores are cut up in this "enterprise" manner - after everyone has selected the enterprise he finds most attractive, even after the government has defined its own "enterprise" - protection health clinics, municipal water works, etc., large sectors of the population are left without access to essential community services in the cities, the towns and the rural villages. The absurdity of the system comes out most dramatically in the method by which the gross income of the community is accounted for. There are three groups of accounting units: the government, the enterprise sector, and the households. Each unit has a series of accounts: product, income, expenditure, savings and investments. These are totalled in a technical accounting consolidation that avoids double counting of transactions, i.e., only inter-group transactions are counted. Intragroup transactions cancel out. The resulting totals are supposed to measure the community's welfare; an increase in the gross community income is supposed to mean an increase in community welfare. Now let us visualize some of the events that produce an increase in the gross income of the community. Imagine a rice-farming settlement of perhaps 100,000 people on a river valley at the foot of a rain-forest-covered mountain range that serves as its watershed. Given the configuration, the population is probably clustered in 50-60 villages. There are probably 5 or 6 small market towns in the area with populations of 3,000 to 5,000 each and one large sort of regional capital, a town of maybe 10,000 people. Let us say the government opens up the upland areas for logging; there are 100,000 hectares of commercial timberlands above. The regional capital becomes the main headquarters of the logging and saw millif?.g companies. There is a boom in the town as jobs become plentiful for building

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the logging roads, constructing the office and saw mills, the log ponds and loading areas. The ecology of the whole area changes. Heavy equipment is brought in, needing base shops for maintenance, fuel depots, etc. An industrial work force emerges that needs housing in the town, recreation, schools for children, health and medical facilities, etc. Large logging trucks now flow through a road network in town that has not been designed for this kind of traffic. Recreation facilities spring up to serve the new labour force. In mobilizing the investment resources for its operation, the logging and saw mill companies of course only provided for the most direct requirements - which included the plant, base shop, loading and unloading facilities in the lowland areas, plus the required housing and field offices in the logging area. No provision was made for the additional community facilities in the town. So there is a marked deterioration in the quality of life in the town. Slum areas develop, the cost of maintaining peace and order increases, health conditions deteriorate. After some years, if the residuals in the forest are not protected from settlers, they are burned by shifting cultivators and floods begin to occur with greater frequency. All these, however, are reflected in the gross community income accounts as pure growth. There is a marked increase in incomes, sales, taxes, and presumably in community welfare. In no way is the deterioration in the quality of life or environment reflected in the accounts. Even the floods merely add to gross community income because of the contract work and the materials that go into reconstruction represent additional accounting income. This is what I mean by the fragmentary character of the enterprise approach. The whole action is broken down into specialized business - starting with saw mill and logging, contract construction, house construction for rentals, land development, restaurants, night clubs, retail shops. The

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expecta tion is that while each of these is pursued for private profit, the total added togethe r will someho w add up to the general welfare of the commu nity. It is strange calculus. Since the whole is the sum of its parts, the quality of the whole must be someho w found in each of the parts. Each of the parts is entirely self-serving, but the sum is expecte d to be a measure of commo n good. Let us try to define the problem more precisely. On the bicente nnial of Adam Smith's Wealth of Nations, it continu es to be impossible to quarrel with his percept ion that "it is not from the benevolence of the baker that we get our bread but from his pursuit of his own best self interes t." Where the experience has not proved him right is in the "invisible hand" that ensures that the pattern of decisions resulting from individual self-seeking also corresp onds to the demand s of commu nity welfare. Econom ic interve ntion or dirigisme sprang precisely from this failure of the expecte d invisible hand to optimiz e in practice. There had to be a very visible hand to correct the distorti ons produc ed by the market . But the method of interve ntion has itself been influenced strongl y by the enterpr ise paradigm. The critical elemen t in the paradign that I am challenging is not so much the price mechanism as the combin ation of underta kings that enterprises select. It was analytically convenient to posit single-product enterprises. This made it possible to establish the require d functio nal relations among market prices, production levels, and produc tion costs. The method became beautif ully symmetrical. However, in practice, and as a matter of organizational efficiency, single produc t specialization was not necessarily the optima l way of distribu ting responsibility. This is the point I am making. Given a strategy for the develop ment of efficien t ecological systems, and the list of activities that must be underta ken, there is an optimu m design for com-

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bining activities and distributing the responsibilities for them. The criteria for designing the packages must come out of an organizational theory rather than an economic theory. It must take into account the best mode for compelling single organizations to achieve the optimum balance between conflicting objectives inherent in the nature of each of the activities. The host of problems which classical economics subsumed in the analysis of internal versus external economies becomes relevant here. New investment policies require a new theory of the firm. LDCs should not expect that investors will undertake projects that are not profitable simply because they provide livelihood for the community. It is an essential part of good design that projects be in packages that, on balance, provide safe and adequate returns. Neither should investors be permitted, however, to skim the cream off opportunities taking only the most profitable and leaving those activities which, while being essential to community welfare, do not by themselves offer attractive enough returns. This is analogous to permitting miners to "high-grade" mineral deposits, taking only the ore with the highest mineral content, and leaving the low-grade ore beyond economic recovery. A community is entitled to require that investors undertake projects in packages that offer them an adequate average return while giving the community a suitable complement of diversified sources of livelihood and supply of essential facilities and commodities. Here is where the classical economic paradigm has been deficient. By atomizing economic activity it provided no basis for the design of optimum clusters or packages of enterprises. When the unit of management was not the enterprise but the community, this sort of "high-grading" of investment opportunities could not happen. The diverse

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requirements of the communities had to be met together. All I am maintaining at this point is that for the less developed countries with a large traditional rural sector, at this point in history, the classical model of enterprise selection and undertaking leaves the majority of population outside the mainstream of development. However, I am not sure that the predicament of cities like New York is not a symptom that the enterprise model is not working all that well either in developed economies; that would be a different inquiry altogether. IV

What is a viable, practical alternative to the "enterprise" approach? At this point, let me digress a bit and mention some of the problems that beset inquiries along this line. The trouble is that the answers tend to be sought along doctrinal lines. "Free enterprise" is a belief system held in the modem business world with the unshakeable tenacity of a religion. Discussions on it thus tend to generate the same sort of heat that accompanies debates on religious doctrine. On the contrary, the search should be more in the nature of designing alternative modes for the distribution of responsibilities and rewards in any organization: should we combine particular functions under a single manager for greater efficiency or separate them for better control and built-in checks and balances? In this spirit, I submit an alternative approach. The alternative really advances a different sort of modification of the enterprise system from that between state and private, planned and free. I propose two other modifiers: singlepurpose, and multi-purpose. The "single-purpose enterprise" system tends to produce distortions in the patterns of national development because the market mechanism does not really ensure that a critical mass of business projects

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in suitably complementary combinations will be undertaken to break a community out of an underdevelopment trap. For such a complement of projects to be undertaken in the needed sequence, business opportunities must be made available in suitably designed package-forms. Suitable design, in the proper combinations, is the key to the whole process. That design does not emerge by chance out of the workings of a blind market. The clue to an alternative is provided by an age-old system of giving regulated monopoly privileges over market territories. I refer to the public utility system under which franchises are given to single companies to provide, say, electric power to defined territories. The right is exclusive but the obligation is total. In other words, the company has to distribute power even in areas where the level and dispersal of loads make it uneconomic. In other words, the price for serving the profitable areas is partly the obligation to serve the non-profitable areas. Let us suppose countries were divided into similar "development franchise areas." Each area would be defined to encompass certain natural resources, a given population, such that a viable development plan could be designed for it. Part of the test of viability would be that the process of development would generate sufficient incomes to compensate a prime total development contractor. Through some politico-legal process, duly institutionalized, the community would define the general elements of development it desires and then seek to get a prime contractor that will translate the development goals into a suitable practical strategy and into the corresponding business elements. The prime contractor then would mobilize the consortium of enterprises that would be required to execute the individual elements of the development and business strategy. It would have a franchise over the territory under a con-

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tract with the community. The contract would spell out the minimum specifications of the resulting developments in the area and in the community at each phase, and the manner in which the prime contractor and the consortium members would get compensated for their performance under the principal contract and sub-contracts. There would be provisions for audit and inspection to avoid exploitation and ensure the proper balance between profit-seeking and community welfare. The essential point here is that the totality of the undertaking by a prime contractor should build into the design of the strategy the optimum balance between projects that enhance the income and welfare of the community and the projects that provide revenues to the contractors. The practicability of this whole procedure hinges on the assumption that the optimum development strategy for a defined community will generate enough incomes that can accrue to and motivate a private business group if the contracts are designed properly.

v What are the implications of such an approach for private investors? This really forces investors to form themselves into consortia in order to build up the capability for multiple lines of enterprise. If the basic resource is a mineral deposit, the logical prime contractor is a mining company. However, the mining leases will specify responsibilities for undertaking settlement or resettlement projects with all the elements of land development, infrastructure construction, housing, building of commercial centres, health and education facilities, plus the establishment of firms to operate transport, communications, waterworks, agri-business enterprises, small scale manufacturing, etc. The design will sort out the projects that government

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will have to undertake directly and which it will finance out of budget funds and borrowing. In general, the activities allotted to governments will be those in which the benefits accruing from the investments cannot be appropriated through a market price and must be recaptured through taxation. All the projects that produce a marketable commodity or service will be subcontracted to private parties. At first blush, the responsibility for undertaking all these other lines of business seems an awfully onerous burden for private industry to assume, but firms that operate company towns usually do most of the functions set forth here. They provide housing, schools, health facilities, recreation, power and utilities, transport etc. They generally do not feel, however, that they have the responsibility down the years to provide the diversified sources of livelihood for the growing community. The expansion and logical extensions of their own business are the paramount consideration. If these plans provide additional employment for the community, well and good; if they are inadequate, too bad. The government is really responsible for over-all growth in employment opportunities. Nor am I suggesting that private enterprise subsidise the community. Not at all. In undertaking the responsibility for supplying, say, suitable transport, private enterprise is expected to structure the transport operations as a viable business in itself. The "prime contractor" is asked simply to promote the venture, raise the capital and oversee the operations. The same would be so of the diversified small-scale industries. It is up to the prime contractor to set up the marketing and distribution network, get the design and production supervisory personnel who will then get the local craftsmen trained and organized to fabricate the goods according to vigorous specifications and time schedules. Again, with

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proper management, it should be feasible to structure the operation so that it more than pays for itself. I realize these are ideas at a very preliminary state of formulation. Much work remains to simulate cases and do the rigorous economic analysis that alone will determine what operations are viable and what combinations complementary. This forum is as severe a testing ground as any for the practicability of ideas. I throw. these on the table largely in hope that a combination of objective criticism and positive suggestions may produce a workable protocol that the rural developing countries of the Asia-Pacific region can adopt. Heavens knows how badly a new formula is needed.

DISCUSSION I am very interested in the question MacNaughton: of whether it is possible for corporations to do this. It is and it should be possible for a corporation in this kind of endeavour, particularly in this part of the world, and at this stage of development, to do these things. However, as the operation matures and there is a high degree of indigenization, it is often the case that the corporation that finds itself in the position of performing these services gets very little credit for them. It is not permitted really in the minds of the negotiators that any credit should be given for them. In other words, to provide housing is often an increasingly expensive proposition, but even if the firm succeeds in doing so, there is no thought of it in the negotiations. Even in a new area, there should be a question about experiences from elsewhere around the world which may cause the participants to be very cautious about getting into such programs at all at the outset. I am not disagreeing with you, but only making this observation. Roxas: The practice in many countries is for the company to provide so-called company housing; however,

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this is not what I had in mind. When I speak of a package, a viable mix of services, then in this case, instead of providing company housing, what the company would provide would be the management and the entrepreneurial abilities to promote a housing company. They might also establish and sponsor a mortgage complex - in other words, the key to housing would be to establish the sources that would generate mortgage money. This is more important than trying to subsidize home construction costs, because the extension of the mortgage say, to twenty-five years from a conventional ten years immediately doubles the purchasing power for housing from the monthly allotments that any household budget would provide. But the difficulty in many countries is the lack of the management and entrepreneurial skills to design that kind of a mortgage system. It need not be put under the umbrella of the company, but it should be part of the function of the company precisely to promote the establishment of the network of enterprises that would provide that particular service. This is what I mean, so that each particular unit becomes a viable business proposition. Another example might be the setting up of a trading company that would handle the merchandise, design and marketing of handicrafts - organizing the handicraft workers and providing training facilities and so forth, but setting up in such a way that it becomes a viable business. But, to provide the funds and high-powered management required to get that process started, we would probably need to look to large scale corporations. Such corporations would, as a matter of practice, probably have a senior vice-president for development whose principal function would be to handle all types of enterprises relevant to the community needs rather than only relevant to the main business of the corporation itself. Marks: In this connection, it might be worthwhile to consider the history of Australia. In the early days, all

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the capital and foreign investment went into the eastern states of Australia. In other areas, people were complaining that they were out in the wilderness and that no one looked after them. In response, the Western Australian Government

agreed to guarantee a bank account for a farmers' cooperative society. Today, the largest private enterprise in Western Australia, other than mining, is "Wesfarmers". It is a co-operative and it has grown by the man-en-theland's subscribing for shares and providing loans to others. It developed into a marketing co-operative for wheat and

cattle; Wesfarmers provided the selling mechanism and each farmer negotiated the sale through the co-operative. The many and varied services supplied by Wesfarmers today are indeed numerous and the strength of this co-operative has been such that it has sponsored and participated in the capital of a number of new industries that have been established in Western Australia. Although I have made reference to Wesfarmers, many other successful co-operatives have been established in Australia and this form of co-operation has been followed in many primary industries - for example, wheat, sugar, wine, etc. I believe the co-operative approach also provides political and social advantages; the participants in particular industries feel more responsible for their own welfare, they are less reliant on government, they have a greater appreciation of problems that should be overcome and there is a strong inducement for them to improve their own industry. Commentator: There is another model that I have in mind which is the sophisticated trading company. There are currently about five trading companies in this area that have developed over a hundred years and do meet many of the criteria that have been mentioned. The difference between the trading company and the multinational firm, which has a single product or a single technology, is that the trading companies are like moths, attracted to the light;

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if there is a profit opportunity, they always go towards it. They take greater risks in going towards profit opportunities than would a conventional multinational. The result of this is that they finish exactly where Mr. Roxas wants them to be. I suggest that the currently unfashionable trading company again should become fashionable. A major task here is to get the able managers of the multinationals to divorce themselves from their patterns of thinking in terms of their own technology and their product lines - and make themselves available to support trading activities in this part of the world. Hoadley: If I have read the real meaning behind Mr. Roxas' paper, he senses an impending crisis, unless we do something. I also believe - not cynically, but positively, - as a matter of principle - that nothing happens to resolve difficult issues except in a crisis and that out of a crisis we can do something. We should recognize that the multinationals, for example, are not doing a totally satisfactory job since their overseas activities in developing nations are usually devoted to the industrial sector, while the most pressing problem now is unemployment in the rural sector. This has become a very critical situation for many developing countries and it must be resolved. Similarly, if it is going to be necessary to end this crisis by some modification of the enterprise ownership system itself then such modification has to be a reflection of the thinking of the leadership of the particular country involved as well as all others concerned. I suggest that this conference might very well accept this matter not only for further study, but also to look into the possibility of some specific experimental implementation. Against this background, let me make a few additional comments - reflecting on the complexity of the problem, but also suggesting some element of hope - in order to

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attract the attenti on of the best manag ement talent. Because there is no other alternative, the problem can only be solved by strong leadership. Whatever the realities in the United States as to the best course of action , they are irrelevant unless there is a comparable understanding and reality in some other places that will bring the involved countr ies together. First of all, I do not think most multin ationa l corpor ations have given any great priorit y to investing specifically in the rural areas. As a matter of fact, they may resent being pushed into rural areas. They have not typically been invited into that field and often they have been ordered. If so, it is not surprising that they have backed away, or somehow not given this issue their best attenti on. What I hear from you, Mr. Roxas, is that a forceful presen tation of the problem from the developing countr y's standp oint in the contex t of a needed solutio n involving multin ationa l companies may simultaneously lead to an invitat ion to partici pate in something new - and also a require ment that the multinationals be much more sensitive to the political necessities of the countr ies in question. My second principle is that multin ationa l companies almost always want to stick to their particu lar specialties rather than venture into new but unkno wn areas. Considerable experience reinforces their viewpoint. I think there is a danger in this proposal in trying to push all the problems - the hot potato es, if you will, in political terms - on to the multin ationa l firms. There has to be a harmo nizatio n of the interests; only then do we get to the nitty-g ritty of solid agreements. The private sector can work with the public sector, if you have an accounting system that permits the private sector to invest in its capital, make its return , and operat e within consis tent ground rules. The private sector can take the economic risk, while the public sector - which in its

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own accounting does not have to make a profit - undertakes the social risk. The trick is to put the two together by somehow designing a better measurement system incorporating the best elements of both sectors. I am convinced that this will be a most important area for further development for at least the next twenty years. It is going to require a new accounting system which separates responsibilities and allows political leaders to survive with the voters and which permits the multinational to receive reasonable profits through opportunities to manage freely that portion of joint public-private projects in which it has its own investment. So I would suggest that there is something genuinely significant about this entire proposal. It will require far more work to research and to design the new accounting system. The concept of joint but separate public private investments in rural areas is sound. We need to explore it further. Roxas: I appreciate your comments because I think you have your finger on the precise, practical heart of this entire problem, and that is the accounting problem. Our accounting system is enterprise-oriented - and even our Gross National Product Accounts are an accounting consolidation from enterprise accounts - and I think this is the reason the Gross National Product is becoming increasingly unsatisfactory as a measure of the quality of life. It is because the unit of account is the enterprise. What we are suggesting here is that the unit of accounting be the human community. Once the human community becomes the unit of accounting then a lot of the elements that we ignored by using the enterprise as the unit - such things as environmental questions, and the so-called external diseconomies and external economies - would be incorporated into the accounts. M. Nor: I think Mr. Roxas' proposition is very crucial in terms of future strategy in this region. This subject is very close to me in terms of my own immediate

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responsibility. How does one approac h develop ment within the context of a country where almost 80% of the populati on are living in the rural sector, but where another sector may be producin g some of the most importa nt commod ities for the world? I would like to go further than the proposit ion made by Mr. Roxas in terms of the basic structur e, which needs to be organized. For example, the Malaysian Government is currentl y trying to improve the socio-economic livelihood of about 500,000 families dealing with rubber. These are smallholders - who have less than 100 acres, with about 80% of them having less than 7 acres. How does one arrive at what I would consider mobilizing small, viable economi c units so that these would grow and mushroo m into either the Australian model or more expande d trading activities. I must say that we are all trying to look for some model which will fit this environm ent. We have been trying to look at how Taiwan, South Korea, possibly Japan, have succeeded, in terms of mobilizing these small farmers so that they can become what I call producti ve units. We need to try to find the optimum combina tion of what the foreign investors are intereste d in, and at the same time benefit the receiving countries. And I think the success stories, which have been mention ed prove that this can be done. The majority of the ASEAN countrie s have people living in the rural sector. Unfortu nately, most of these poor farmers have very unecono mical holdings, their producti vity is low, and there exist inadequ ate credit and marketin g systems. How does one go about building systems which can solve these problems? And thus, the proposit ion by Mr. Roxas is very close to my heart. I second the motion in terms of trying to get this forum to undertak e some kind of study. To me, being quite familiar with the rubber sector, we are taking in large numbers of people here - about 500,000 families dealing with this - and Indonesi a has got 10 million families dealing with this, while Thailand has another 500,000 or so families involved.

PANEL: A Direction For Foreign Investme nts in Asia-Pacific To set the stage for the panel, the first speaker, J.E. Bywater, provided the following brief excerpts from the OECD Document published on June 21, 1976 with his own terse comments.

STATEMENT

International investment has assumed increased importance in the world economy This is true in Asia just as much as elsewhere in the world and will be even more true in the future. STATEMENT

Multinational enterprises play an important role This has always been true in Southeast Asia and must continue to be true particularly in technological areas. STATEMENT

Cooperation by member countries can improve the foreign investment climate and minimise and resolve difficulties which may arise from their various operations ASEAN is following the lead set by other international trading groups of companies but there is a long way to go before enough countries are represented in ASEAN and before ASEAN has really shown its worth in this field of cooperation. STATEMENT

Member countries should accord to foreign controlled enterprises treatment under their laws and administrative practices no less favourable than that accorded to domestic enterprises

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There are indications that some countries in the area are not prepared to treat internatio nal companies in this way. If they do not, internatio nal companies will put their money elsewhere and this will be unfortuna te. STATEMENT

Member countries retain the right to regulate the entry of foreign investments This is vitally importan t and internatio nal companies should stop moaning about the fact that there are rules and regulations governing their entry into host countries. They are not forced to invest here. STATEMENT

Member countries will make specific laws, regulations, and administrative practices as transparent as possible, so that their importance and purpose can be ascertained and informati on on them can be readily available In Asia, sophisticated bureaucracies are not available in every country. Singapore has no problem and Malaysia is catching up but, apart from them, there is a lot of clarification of attitudes needed by all countries. Even further, countries must make the point clear that, having established their rules and regulations, they will stick to them. STATEMENT

Multinational enterprises bring substantial benefits to home and host countries by contributing to the efficient utilisation of capital, technology and human resources. The complexi ty of these multinational enterprises and the difficulty of clearly perceiving their diverse structures, operations and policies sometime s give rise to concern It is nice to see some countries (some twenty-five of them) have agreed on the importan ce and advantages that international organisations can bring. The fact that they have

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complex structures is directly related to lack of standardisation and common approach from one country to the other and if a company is going to operate in more than one country then structures inevitably become complex. I do not believe that the concern felt by countries is any greater than the concern felt by companies because they do not like complex organisations either. STATEMENT

Member countries will give their full support to developing countries by encouraging the positive contributions which multi-national enterprises can make and by minimising and resolving problems Here for the first time that I know is a statement by developed countries that they will help developing countries to police the activities of international companies. I am not certain that I like this statement because I can see malpractices and injustices arising but at least we can wait and see. STATEMENT

Within OECD the program will be pragmatic and balanced Three cheers for pragmatism - we need more of it. The guidelines stated as follows:

for the multinational enterprises themselves are

STATEMENT

Take into account established general policy objectives of the member countries We for our part have publicly stated that we will do just this. However, the complexities of international law and international corporate organisation mean that one cannot - in fairness to both shareholders and employees - rush into solutions which may create problems greater than those that they solve.

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STATEMENT

Give consideration to those countr ies' aims and priorities with regard to economic and social progress I agree. STATEMENT

Supply information taking into accoun t legitimate requirements of business confid entiali ty Again, I agree, and our own annual report is often criticised as being too comprehensive and in the one or two respects where we do not meet OECD guidelines, we are prepar ed to introd uce additional inform ation immediately our accoun ting practices are structu red to provide the data required. STATEMENT

Allow their compo nent entities freedo m to develop activities and exploi t their advantage in domes tic and foreign markets consistent with sound commercial practice We have already acknowledged this ahead of OECD guidelines with the annou nceme nt of our organisation on an interna tional divisional basis, where we have stated that each major interna tional division is free to trade outside its geographical boundaries in areas where it has specialist knowledge. STATEMENT

When filling responsible posts take accoun t of individual qualifications withou t discrimination We do. Of the top 360 Sime Darby managers throug hout Asia, 280 are Asians. Of the remainder, many are specialists who contri bute to our operat ions in all parts of the world and could equally be headqu artered in any countr y where there are teleph one and post office facilities. However, to move them from Asia or to artificially create jobs for

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Asians in specialist areas would be a disservice both to the company in Asia, and to those parts of our operations which are overseas. Even further, taking them away from Asia would take away their spending power and their payment of personal income taxes here. STATEMENT

Do not render any improper benefit to any public servant or holder of public office We agree entirely but wonder why OECD has restricted this statement to public servants and holders of public office. I would say the same about any purchase officer who works for a company. STATEMENT

Do not make contributio ns to political organisations unless legally permissible I am sorry that they use the phrase "unless legally permissible" but I suppose it would be too much to ask politicians not to have money channelled in their directions.

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INVESTMENT PRIORITIES IN ASEAN Augustine H.H. Tan

I propose to limit myself to the ASEAN countries partly because I am more familiar with them and partly because the ASEAN countries face a critical challenge in the next five to seven years to demonstrat e to the ASEAN masses that their present political and economic system can deliver the goods. In my view, ASEAN can succeed in doing so only if it sets its investment priorities correctly. With the exception of Singapore, the bulk of ASEAN's population depends upon agriculture for a living. Malaysia has nearly 50% of its economically active population in agriculture, Indonesia has 62%, the Philippines has over 51% and Thailand has over 81%! The figures for non-urban population are even more revealing; for the 4 ASEAN countries mentioned earlier, between 66 and 85% of their population live in non-urban areas (Table 1)! Yet, agriculture appears to have very low productivity. In Malaysia agriculture contributes only 32.4% to Gross Domestic Product (GDP), in Indonesia, the contributio n is only 42.9% while in the Philippines it is 29.2% and in Thailand it is 27 .9%. Even if we were to add the contributio n from the mining sector in each of these countries, it is clear that the rural sector as a whole is very unproductive. Moreover, another characteristic of the sector is the over-dependence on a few commodities or minerals: "in each of the four primary producing countries of ASEAN, more than 3/4 of their exports were accounted for by only 5 major export products."!./ This of course renders those !) Vicente Paterno, "The Economic Perspective of ASEAN" in the Conference "Regionalism in Southeast Asia," at the Centre for Strategic and International Studies, Jakarta, October 22-25, 1974.

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economies vulnerable to primary product price fluctuations and declining trends. A further significant feature to note is that, with the exception of Singapore, the other four ASEAN countries still have very high population growth rates (Table 2). Such high population growth rates, experienced particularly during the post Second World War period, have made the population in ASEAN youthful in proportion, and harder to employ.V All these considerations suggest to me that the four primary producing ASEAN countries ought to set themselves four goals to pursue with all urgency: 1) to raise productivity in agriculture and thereby improve the lot of the peasant; 2) to provide sufficient employment by giving top priority to agricultural development and to agro-related industries; 3) to curb population growth rates; and 4) to reduce vulnerability of their economies by a program of agricultural diversification. The first objective is necessitated by the sheer concentration of population in agriculture. The second objective of providing sufficient employment is usually thought to be achievable via industrialization. In fact, most writings and speeches on ASEAN are concerned with cooperation in manufacturing operations. The bulk of the report on "Economic Co-operation Among Member Countries of the Association of South East Asian Nations" by the U.N. Team headed by G. Kansu dealt with industrial, transport and financial subjects. Agriculture was only briefly alluded to. The ASEAN Bali Summit did have a resolution to stabilize commodity prices and to intensify cooperation in

1J "More than half of all Indonesians are under 20 ........ Unemployment is estimated a 20-30%." G.J. Viksnins, The Economic and Political Growth Pattern of Asia-Pacific, p. 52.

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the production of basic necessities; however, the subsequent Finance Ministers' Meeting in Kuala Lumpur produced agreement on industrial projects, although they were agrorelated ones like fertilizer and diesel engines. The point I want to get across is the need to create employment in the rural sector of ASEAN, where the bulk of the population is. The third objective of curbing population growth ties in with this. The fourth objective, of reducing vulnerability to primary product price instability, can be met in the process of developing and diversifying agriculture. In order to fulfill the four objectives, the Governments of the four primary-producing countries of ASEAN will have to give top priority to investment in agriculture. The infrastructure of irrigation, communications, credit and marketing facilities must be created. The systems of land tenure will need urgent attention. What role can private investors play in all these? Well, there are inputs like fertilizers and farm implements and machinery and there are marketing, distribution and processing activities generated by agriculture. Moreover, the purchasing power derived from a more productive agriculture will create demand for consumer-type industries. Role of ASEAN What can ASEAN as a regional body do to promote the four objectives outlined earlier? ASEAN can and should set up a regional Agricultural Institute to provide a clearinghouse for agricultural information and to generate further research into the scientific, economic, and social problems of agricultural development. At the same time, by demonstrating common purpose and cohesion, ASEAN can provide a sense of greater stability. Stability reduces uncertainty and engenders a longer time horizon for investors. At all times ASEAN must be conscious of the need to have the injections of outside capital and technology plus the necessary access to markets in the industrial countries. The

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figures on trade of ASEAN are very revealing in two respects. First, there is scope for improvement of intra-ASEAN trade. It is now almost nine years after its establishment, yet intra-ASEAN trade has shown no discernible improvement (Table 6). Trade between ASEAN and the industrial countries like the U.S., Japan and the E.E.C. reveals an asymmetry: they are major markets to us as well as significant sources of supply to us but our share of their imports and exports is paltry! (Tables 3, 4 and 5). It may be that our primary products will prove strategic and indispensable in a future resource-scarce world; for the present, so long as substitutes exist for rubber, vegetable oils and tin elsewhere, our bargaining position is to that extent limited. Role of Industrial Countries However, I would hope that the industrial countries look at ASEAN in a proper perspective. Firstly ASEAN, by our very economic and political institutions, belong to the so-called Free World economy. If we fail, the rest of the system must be the poorer and weaker for it. Secondly, ASEAN's natural resources and primary products are not inconsequential ; in fact, we are major world producers of rubber, tin, palm oil and coconuts. Moreover, we still have potential mineral and oil resources yet to be explored . Thirdly, unlike the E.E.C., ASEAN is not a rich man's club. Our region does not have the market potential of an E.E.C. because of our relatively low per capita incomes. For a long time to come, ASEAN will need the infusion of outside capital expertise and technology and the access to world markets. It would be a grave mistake, therefore, for the industrial countries to presume that ASEAN can look after itself. Instead, those countries could help by resisting protectionist attitudes and by facilitating investment flows to ASEAN and by making agricultural technology available to us.

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TABLE 1 The Agricultural Secto r in ASEAN, 1974 %of Econ omica lly Activ e in Agriculture

Coun try

83 71 66 40 85

62.2 49.1 51.4 3.0 81.4

Indonesia Malaysia Philippines Singapore Thailand SOURCE:

Share in GDP %Non -Urba n Population Agric ulture Mining

42.9 32.4 29.2 1.7 27.9

5.6 5.6 2.3 0.3 1.1

oping Asian Development Bank, Key Indicators of Devel Memb er Countries of ADB, April 1975.

TAB LE2 ASEAN Population Coun try

Population (milli on)

Indonesia Malaysia Philippines Singapore Thailand SOURCE: See Table 1

129.10 11.65 41.46 2.22 41.02

Grow th Rate Average 1970- 74

2.4 2.9 3.0 1.7 3.1

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TABLE 3 USA's Trade With ASEAN, 1974 Imports from U.S.A.

Exports to U.S.A.

Country

US$m

%of USA

%of A SEAN

US$m

%of USA

%of A SEAN

Indonesia Malaysia Philippines Singapore Thailand

609.8 397.3 828.8 1174.4 424.1

0.6 0.4 0.8 1.2 0.4

15.9 9.7 24.1 13.2 13.5

1580.3 595.4 1133.1 862.6 195.8

1.6 0.6 1.1 0.9 0.2

21.3 14.1 42.4 14.2 7.9·

Total

3434.5

3.5

14.6

4367.2

4.3

19.1

SOURCE:

International Monetary Fund, Direction of Trade TABLE4 Japan's Trade With ASEAN, 1974 Imports From Japan %of A SEAN

Exports To Japan

Country

US$m

%of Japan

Indonesia Malaysia Philippines Singapore Thailand

1131.0 915.5 923.9 1502.8 986.6

2.0 1.6 1.7 2.7 1.8

29.4 22.3 26.8 16.8 31.4

3969.3 713.9 932.4 660.2 630.9

6.4 1.2 1.5 1.1 1.0

53.4 16.9 34.9 10.9 25.6

Total

5459.7

9.8

23.3

6906.7

11.1

30.2

SOURCE:

Same as Table 3

US$m

%of %of Japan A SEAN

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TABLES EEC's Trade With ASEAN Exports To EEC

Imports From EEC U.S.$m

%of EEC Exports

%of A SEAN Imports

U.S.$m

3,249.8

1.2

13.9

2,760.9

SOURCE:

Same as Table 3

%of %of ASEAN EEC Imports Exports

0.9

12.1

TABLE6 Intra-ASEAN Trade Imports from ASEAN %of Country's Imports Country

Indonesia Malaysia Philippines Singapore Thailand SOURCE:

1960's

4.3 19.6 4.1 38.2 2.5

(1962) (1968) (1967) (1963) (1968)

Exports to ASEAN %of Country's Exports

1974

1960's

1974

9.4 14.7 2.3 21.2 2.1

25.6 22.3 2.7 45.9 13.0

8.6 23.9 1.3 23.1 17.7

Direction of Trade and Augustine H.H. Tan, "ASEAN In Perspective And The Role of Singapore," in You Poh Seng and Lim Chong Yah, ed., The Singapore Economy, Table 1

A DIRECTION FOR FOREIGN INVESTMENT IN ASIA-PACIFIC James A. Thwaits

My purpose in being at this meeting is to learn more than expound on the role that multinational companies might play in the future of the Asia-Pacific area. However, I do have some general views to stimulate discussion. First, with the perspective of a businessman, I will make a few observations about the economic present and future of this area. Second, I will address myself to the role that the multinational corporation might play in achieving economic and social development. Specifically, I would like to point out what I believe to be eleven popular myths concerning U.S. multinational companies, in an attempt to bring some understanding to their true potential in bringing about economic and social progress. It is important that we understand what these business enterprises can do and what they cannot be expected to do. When I look at this part of the world, I see, as most of the other conference participants see, great potential for constructive change. I am also struck by three important facts. 1. Economic progress, here as elsewhere in the world, is being stifled by population growth. What good is an increase in income of 5% per year in real income if this gain in living standards is largely negated by population growth? What is the answer? Quite simply population growth must be controlled and the tempo of real economic growth speeded up by encouraging more capabilities of producing wealth. This brings me to fact number two. 2. In terms of total foreign investment by U.S. citizens

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and businesses, this area of the world does not rank as high as it should. In fact, only about 10% of U.S. direct investment is in this part of the world despite its large population. I think that we should all consider why this is the case and find ways to make the Asia-Pacific area more attractive to investors, not just from the United States but from anywhere in the world. 3. Fact Number Three. I am impressed that the AsiaPacific area already is heavily dependen t upon world trade. In many ways, over many years, this area has led the world in establishing beneficial commercial relations between diverse nations and cultures. Take the statistics for exports as a percent of Gross National Product. For Singapore, as I am sure you are aware, exports accounted for 83% of GNP in 1975. For Hong Kong the number is 70% and Malaysia 43%. Here are the numbers for other countries: Taiwan ........ ........ ........ ........ .... 37% Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16% Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11% Japan ........ ........ ........ ........ ..... 10% So, to summarize my observations as they relate to the present and future social and economic development of the area. It is importan t we recognize that, if real economic growth is to outpace populatio n growth, more capital investment and foreign management skills will be absolutely necessary. This capital investment necessarily must be attracted from the parts of the world where it has not been forthcoming in sufficient quantities. In addition, capital investment must be relevant to the national economies that already depend heavily on foreign trade. Given the resources of each nation of the area - none is self-sufficient completely - it follows that this area must continue to be trade and investment oriented in the future. What does this imply?

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For government, I think that it implies policies that are liberal in terms of encouraging trade and investment. It implies recognition of economic inter-dependence among nations. It does not and should not connote that economic internationalism threatens national cultures, religious heritages, or the integrity of languages. In this respect, I think that people of the Asia~Pacific can be comforted by the history of Europe. Such countries as Belgium whose exports are about 80% of GNP and Italy which is heavily dependent upon imports as well as exports, certainly have not lost their national identities, even though they are part of a common economic market. For multinational corporations, I think that the current facts of life in this part of the world also have important implications. These corporations are nothing more or less than organizations of people who in combination with capital can achieve economic and social progress. As such, multinational enterprise is the means by which capital and technology get transferred from one country to another. In fact, multinational corporations have led the way in achieving economic progress in much of the industrialized world. They have thus far achieved relatively little in the developing countries but this is not to say that their potential is not great and their future promising. Recently, multinational enterprise has been put under the microscope by a number of national and international bodies. I think this is healthy. However, there are still a number of misconceptions or myths concerning their role in the world. I hereby cite such myths: 1. All multinational corporations are cut from the same cloth and operate in the same manner. This is the basic assumption upon which a great deal of legislation, publicity, and regulation is founded. This is a myth, the logic does not hold true for other social institutions such as religions, governments, charitable institutions, pro-

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fessional bodies or unions, so surely it is unreasonable to apply it to the social institution of corporations. 2. A subsidiary of a multinational is a branch of a foreign parent company directed by people who are unsympathetic to local needs. This is a myth; if management is unsympathetic to local market needs, their enterprise is preordained to fail. 3. Ownership of a subsidiary means absolute control of it and part of the local economy. This is a myth; the subsidiary is primarily a corporate citizen of the host country and secondarily part of a MNC. 4. Multinational corporations are centralized monoliths run by a pyramid-type organization. This is a myth. Successful MNCs depend upon decentralization and strong local management. 5. MNCs and national governments are natural adversaries. This is a myth; both desire peaceful conditions, economic growth, and monetary stability. Both have to have an interest in controlling inflation, education of people, producing a growing "middle class," and sound social development in order to survive. 6. The sales of MNCs can be compared with the GNPs of nations to equate relative power and influence. This is a myth and is analogous to comparing the weight of an elephant to the weight of a man to equate their relative power and influence. MNCs do not levy taxes, raise arms or pass laws as do sovereign nations, and their major power is the ability to organize people to provide goods and services, all of which occur within the framework of sovereign nations. 7. MNCs are catalysts of immorality because of bribes or the illegal acts of a few companies or individuals in them. This is a myth, as human institutions, they are no more immoral than the people within them and the people with whom they do business.

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8. MNCs are more exploitative particularly concerning labour than national companies. This is a myth if you consider that MNCs invariably pay higher wages than local industry and provide better working conditions. 9. MNCs take the short view in terms of maximizing returns to their stockholders. This is a myth in view of their prime objective of obtaining long term growth which requires large investments and/or long term commitments. I 0. MNCs are capable of manipulating national economies. This is a myth as even if they had such desires they would be unable to satisfy them by reason of the many national and international laws governing intercou ntry relationships such as transfer paymen ts, dividend remittances and tax treaties, etc. 11. MNCs have an unlimited appetite to invest capital. This is a myth, there are few corporat ions that are not suffering from a shortage of capital, so risk and return on investment are importa nt in establishing the priority of their investment decisions. It is importa nt that all of us recognize that there is ample opportu nity to combine and harmonise the capability of MNC with a nation's economic and social objectives. This can only be done, however, if both businessmen and people in government recognize what these multinational enterprises are capable of achieving and what they should not be expected to do. Their prime objectives relate to management, productivity, invention and economics, not to politics. They come into conflict with government when economic decisions are politicized - when government expects them to perform functions that are at odds with their economic objectives, their ability to continue life as economic entities. I can assure you that our corporat ion is constant ly looking for opportu nities to develop new technologies and expand our existing technologies. As new technologies do not de-

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velop in a vacuum and are an outgrowth of need, we have established subsidiaries in most countries in Asia-Pacific to better understand the needs in your countries. We have given the responsibility to the Managing Directors of these subsidiaries, to work with the national government authorities to seek all opportunities and new creative ideas where we can contribute to their economies and at the same time further develop our own business. We realise that these opportunities must be good for the host country but they must also be good for the shareholders that have invested in our corporation so that the relationship is of mutual benefit. In other words we are willing, able and organized to contribute in any Asia-Pacific country where the government is willing to open the door on reasonable terms. It is in that spirit that I am here today.

FOREIGN INVESTMENTS IN ASIA-PAOFIC Tadayoshz" Yamada

I would like to begin my address by describing Japan's overseas investment activities in this region. Post-World War II overseas investments by Japanese business were initiated in 1951, but until the mid-1960s our yearly investment on a government approval basis remained below the US$200 million level. However, with the four-stage liberalization of overseas investment control regulations by the Japanese Government, our overseas investments registered a remarkable increase. They averaged US$580 million a year during the six-year period, 1966-71, against the annual average of US$63 million during the fifteen years up to 196 5. Then in fiscal 197 2 and 197 3, during what became known as our "overseas investment boom," the volume of Japan's overseas investment rose to US$2,340 million in fiscal 1972, a 2.6 time increase over the previous year and to almost US$3,500 million in fiscal 1973, or 1.5 times the amount of the previous year's investment. Although our overseas investment declined by 32% in fiscal 1974, it, nevertheless, amounted to US$2,400 million, which was US$60 million more than total investment in fiscall972. Factors which led to the "overseas investment boom" in fiscall972 and 1973 were: i) Increasing wage costs and labour shortages at home which weakened the competitive strength of Japanese textiles, sundries, some electric machines in the international market and necessitated a search for low wage labour in LDCs, particularly in Southeast Asia. ii) Japan's need to secure a stable supply of raw materials.

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iii) Increasing difficulty in finding suitable factory sites in Japan because of environmental issues. iv) The upward revaluation and floating of the yen which lowered Japan's overseas investment costs. v) The sharp rise in Japan's foreign exchange reserves. vi) Various measures, including tax incentives, adopted by many developing nations to invite foreign capital in the interest of domestic industrialization. The "oil shock" in October 1973 and the subsequently prolonged economic recession, together with Japan's domestic tight money policy, led to a liquidity shortage and the deterioration of investment environments in recipient countries, including a strongly nationalistic outlook with respect to resources and more selective policies vis-a-vis the introduction of foreign capital. The Japanese Government, as a consequence, discouraged investment in overseas real estate and in the service sector in early 197 4 which resulted in the afore-mentioned slowdown in Japanese overseas investment during fiscal 1974. However, it is felt that as long as the above enumerated factors which were conducive to the "boom" of 1972-73 remain basically unchanged, Japan's overseas investment can be expected to increase with the years. Thus, despite the prolonged recession in Japan, our overseas investments increased to a cumulative total of US$12.7 billion at the end of fiscal year 1974, which increased by nearly US$1.6 billion as of September, 197 5, the end of the first half of fiscal year 1975. There is, however, no denying the fact that Japan is a relative newcomer to overseas investment. Out of the total US$14.3 billion overseas investments made by Japan up to September last year, as much as US$9 .8 billion originated after 1972. Thus among the member nations of Development Assistance Committee (DAC) of OECD, Japan's share of overseas investments was only 6%, considerably below that of the U.S. and the U.K. and about the same as the investments of West Germany or France.

151

Compared with the overseas investments of other nations, Japan's investments show some unique and attractive traits. One of these is the dominance of investments in developing areas. As of September, 1975, Japan's largest investment was in Asia with 26% of the total, followed by North America with 24%, Latin America with 19%, Europe with 17% and the Middle East with 6%, whereas in other industrialized nations' investments, LDCs accounted for 20-30% of the total. Particularly in Southeast Asia, Japan's share among the foreign investors is conspicuous. Japan is the leading investor in South Korea, the Philippines, Thailand, and Indonesia with 66%, 48%, 41% and 28% respectively, and in Hong Kong and Malaysia second only to the U.S. and Singapore respectively. Only in Singapore, Japan's share remains at the 10% level and is thus exceeded by the U.S., the U.K. and the Netherlands. Another characteristic feature is that Japanese overseas investments are almost evenly divided among the manufacturing industries, the resource development industries, and the tertiary industries, namely commerce and services. In our investments in the manufacturing industries, labour intensive industries such as textiles, electric machinery, and other machinery have increased remarkably in the Southeast Asia region as compared with greater emphasis on capital-intensive industries such as transporta tion, chemicals, steel, etc. by U.S. and West German investors. Generally speaking, a large part of Japanese investments in the manufacturing sector went to Asia and Latin America, while most of the investments in the banking, insurance, commerce and service sector went to the U.S. and Europe. Most of the Japanese investments in the Middle East are oriented towards petroleum development, and our investments in mining are dominant in Africa and Oceania, 3% and 6% respectively of the total investments. Perhaps another interesting feature is that Japanese investments in the mining sector are more or less evenly distributed geographically

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within Asia, Europe and Latin America accounting for 22%, 22% and 15% respectively of the total investments in mining industries. As for the future of Japan's overseas investments, I must repeat that, in spite of the slight decline in 1974 as compared with the peak year of 1973, so long as the abovementioned major factors which provided incentives for the expansion of Japan's overseas investments in 1972 and 1973 remain unchanged, it is safe to expect a considerable increase in Japan's overseas investments from both a medium and a long range point of view. It is commonly predicted in Japan that by the end of fiscal year 1980 Japan's total overseas investments will reach US$40 billion. Classified by industrial sectors, the following areas are expected to attract increased Japanese investments. i) Resource development industries such as petroleum, LNG, iron ore, lumber, marine products, etc. ii) Labour-intensive consumer goods industries such as textiles, sundry goods, glass and glass-ware, watches, sewing machines, cameras, etc. iii) Capital-intensive basic material-producing industries such as iron and steel, oil refining, petrol-chemicals, aluminium, paper and pulp, etc. iv) Backward integration, aimed at export of hitherto parts and accessories-making, or knockdown industries such as TV sets, radio, coil, etc. v) Developing hitherto import substitution industries into export industries such as automobiles, bicycles, etc. vi) Construction and engineering industries aimed at large-scale development projects. vii) Various accommodations and equipment aimed at inviting more tourists and at leisure enjoyment. It must be borne in mind in connection with investments in the Southeast Asian region that several medium or largescale projects which were planned during the "investment-

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boom" period of 1972 and 1973 were suspended or temporarily cancelled due to the recession following the oil shock. It is most probable that both the governments concerned and private sectors in this region will revive such suspended projects in the very near future and ask for financial and technological assistance of the governments and business circles of the Pacific rim countries, notably the U.S., Australia and Japan. Since each of these projects requires US$100 million or more and a long period of time for completion, the risks involved by foreign investors are bound to be huge. Furthermore, during the past few years, it has been recognized that too much dependence on Japan for trade has made most of the developing nations of Southeast Asia highly vulnerable to changes in Japanese demand, and this is particularly relevant now that a slower growth rate - 6.5% average during the remainder of the current decade as compared with 11% during the 1960s - is forecast for the Japanese economy. Consequently such countries will exert every effort to speed up increases in the volume of their industrial production and to diversify their exports and export markets. Among such countries, Korea, Taiwan, Hong Kong and Singapore showed the fastest growth rates in the region until the "oil shock" seriously hit their respective economies. However, each of them, together with oil-producing Indonesia, has prospects of achieving real growth rate higher than that of Japan during the 1976-80 period and has already developed a high proportion of manufactured products in its exports. It is expected that by 1980 about 82% of Korea's exports will be industrial products, that of Hong Kong 96%, that of Taiwan 85% and that of Singapore 60%. Some fifteen years ago, in 1960, only 19% of South Korea's exports consisted of manufactured products, that of Hong Kong 83% and that of Singapore 24%. Even Malaysia, Thailand and the Philippines, which were for so many years

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primarily dependent on tin and rubber exports, rice and other agricultural exports, and sugar, lumber and copper ore exports respectively, are expected to increase the export of manufactured products to 35%, 29% and 27% respectively by 1980. To achieve such goals , it is obvious that investment will play a key role. IMF statistical data indicate that gross investment over the next five years is expected to equal 30% of the GDP of Singapore, about 25% each for the Philippines and South Korea; 24% for Thailand, 20% for Malaysia and 18% for Indonesia. Furthermore, with the exception of Singapore and Hong Kong, the two highly developed trading nations, Indonesia, Malaysia, the Philippines, Thailand, Taiwan and South Korea will continue to need the inflow of foreign capital to finance their development. Although Japan has been the leading or the second leading foreign investor in these countries, and with the U.S. will continue to play a significant role as foreign investors in this region , their respective dominant share in the total foreign investments of these countries may gradually come down because of the policy of Asian countries to diversify their sources of foreign investment. Moreover, the overly excessive presence of Japanese capital in recent years in this region has caused undue tension in many recipient countries. Unlike the U.S., the U.K., and other European investors, the Japanese lack of experience in investment activities and in labour management in the developing areas as well as the lack of personnel with the proper knowledge for dealing with the local people caused unnecessary misunderstanding and trouble in the host countries. ASEAN has set up a joint study group with the countries of the European Community (EC) in order to obtain better access to EC markets and help in the form of capital and technology from the European countries. Among the PacifiC

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rim countries, Canada which shares Commonwealth membership with Singapore, Malaysia and Hong Kong has lately shown increasing interest in expanding trade and other financial relations with Asian nations. Several Canadian banks and mining, petroleum, aluminium, and chemical companies, some of which have already made some investments in these and other Asian countries, are looking forward to much greater activities in trade and investment in this region. Australia which already has a considerable amount of investment in Indonesia and Hong Kong and has given technological assistance to Singapore is also expected to expand its investment activities in this area. At the summit meeting of ASEAN held in Bali in February this year, the Economic Ministers of the five member nations were assigned the task of "initiating co-operative action towards establishing large-scale ASEAN industrial projects," and significant moves were made toward industrial cooperation at the subsequent meeting of the Economic Ministers in Kuala Lumpur. It was tentatively agreed to establish several manufacturing plants to serve the region's 225 million people, including two urea plants (one in Malaysia and one in Indonesia), a superphosphate facility in the Philippines, a diesel engine plant in Singapore and a soda ash complex in Thailand. Output from these plants will benefit from lower transportation costs and preferential tariff treatment within ASEAN. These are all medium-sized projects which can be completed and put in operation within three years. ASEAN hopes that the necessary US$1.2 billion financing of these plants can be arranged with the World Bank group, the Asian Development Bank, the U.S. Eximbank, and perhaps other financing institutions. However, depending upon the negotiations of each country, there may be considerable room for private foreign investment to contribute not only financial help but technological assistance. The completion of these plants will provide for

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all member nations of ASEAN much needed chemical fertilizer on a stable basis so that they can achieve self-sufficiency in agricultural products supply. Proposals by Singapore for a petrochemical plant and by the Philippines for a two million ton integrated steel mill were tabled, but no agreement was reached on them. However, according to recent reports, the proposed integrated steel mill project of the Philippines is likely to be approved at the Economic Ministers' meeting in the Fall, and I am personally delighted at the news as I think this is going to be one of the outstanding projects which should draw the attention of foreign investors. The Southeast Asian Iron and Steel Institute reports that the total steel consumpt ion of the five member nations of ASEAN was 5 .1 million tons in crude steel tonnage in 1973, but is expected to increase to more than 8.5 million tons by 1980 and to 11.9 million tons by 1985, whereas the estimated output of steel will be 2. 7 million tons in 1980 and 4.3 million tons in 1985. Thus, there is the possibility that they will depend heavily on imports from Japan and elsewhere even ten years from now. From this point of view, the Philippines integrated steel mill project should receive good support of other industrialized nations of the Pacific rim as well as of ASEAN. According to the original plan, a two million ton per year steel mill will be constructed by 1980 at Gagyande Oro in Mindanao. It will have one 2,500 cubic metre blast furnace, two converters, three bloom casters and one slab caster which will be expanded to double capacity by 1985 with an additional blast furnace, converter, and slab caster and with the installation of a hot and cold strip mill. The total cost for the first stage construction wili be US$1 ,057 million at the 1974 price, including US$159 million for infrastructure, and the sources of funding will be US$328 million from domestic sources, and US$729 million or approximately 70% of the total

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cost will depend upon foreign sources. Since the price of machinery and equipment has risen considerably, the above estimated cost may have to be revised upward by 25 to 30%, and the dependence on foreign sources of funds is likely to exceed US$900 million for the first stage program. It is hoped that this project will receive enthusiastic support and technological, engineering and financial assistance from the Japanese and, if possible, from the Australian Government and their steelmakers, as well as from the World Bank group and the Asian Development Bank. Furthermore, because of the discrepancy between estimated demand and output, ASEAN member countries should, if financially and technologically possible, plan to expand the existing steel mills so that only a few million tons of sophisticated finished steel products will remain dependent on imports. Taiwan consumed more than 1.5 million tons of steel in 1970 and is expected to increase consumption to almost 4 million tons by 1980 and to 7.2 million tons by 1985, yet its estimated production will be 3.1 million tons in 1980 and 4.2 million tons by 1985. An additional steel mill is needed and Taiwan has at present a 1.5 million ton integrated steel mill under construction at Kaohsiung. Its capacity will soon be increased to 2.7 million tons per annum. In South Korea where steel consumption jumped from 11 0,000 tons in 1961 to 3 million tons in 197 3, a most successful integrated steel mill of 1,030,000 ton capacity known as the Pohang Steel Mill was constructed in 1972 at a cost of US$284 million, including Japanese government grants, government to government loans, private loans for a total of US$140 million; and with technical and engineering assistance of Japanese steelmakers. This plant recently completed the second stage expansion programme to increase its steelmaking capacity to 2.6 million tons per year at an additional cost of US$548 million, out of which Japan-

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ese government and private loans provided US$153 million and European loans US$188 million. Further expansion of the capacity to 5.5 million tons by 1978 is now being planned at Pohang. The successful construction and operation of the Pohang Steel Mill in Korea is attributed to the fact that Korea built the necessary infrastructures under the First Five-year Plan of 1962-66 and had available many educated and diligent workers from the construction stage. Aside from these steel mill projects, the proposed petrochemical complex in Singapore and the proposals for an electronics plant and news print plant presented at the ASEAN Economic Ministers' meeting are worth noting from the viewpoint of foreign investor interest. According to a recent announcement of the Singapore Government, it has awarded a US$8.4 million contract to a Japanese construction company for developing the island of Pulau Ayer Merbau for a modern 123-hectare site suitable for constructing a giant petrochemical complex. Approximately US$400 million or 50% of the estimated total cost of the project is expected to be invested by foreign petrochemical firms. In any case, these and other projects some of which are sponsored by governments such as highways, ports, nuclear plants, plants for petroleum refining and processing, pulp and paper, cement and utilities, low cost housing construction, hotel construction, etc., all require large amounts of investments in addition to a considerable amount of government spending. From the viewpoint of fund-raising, therefore, in order to safeguard the investments and avoid the host nation's criticism and anxiety over too much fmancial assistance coming from a single country, it is desirable that investments in large projects be multinational, participated in by a large number of enterprises of different nations, and that there be some sort of guarantee against risks on a government level. Furthermore, as an aid to large-scale

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investments, international syndicate loans and international financing by such institutions as the World Bank group, the Asian Development Bank, the Private Investment Company for Asia, etc. should be encouraged. Prior to investment it should be mandatory that realistic feasibility studies be made by dependable engineering or consulting corporations. In doing so they should bear in mind the promotion of proper and just geographical distribution of industries in this region in the interest of working towards the international division of labour and the contribution to the industrialization and regional development of recipient countries. Needless to say, they must keep abreast of local economic plans, business conditions, and attitudes. Asia-Pacific is developing much faster than other developing regions. The five member nations of ASEAN, Taiwan , and Korea as well as the trading nation of Hong Kong, all offer great potential, and in order to implant such potential, they all welcome foreign investments. In addition, there is Vietnam which, with the re-unification accomplished, is gradually emerging as the third socialist giant of the world. It promises to be a pragmatic trading nation in this region , not insisting on a strictly planned economy. At present, aside from the Soviet Union and the People's Republic of China , only three free nations, namely, France, Sweden and Japan, are participants in joint ventures in Vietnam in response to Vietnamese approaches for aid in reconstruction . However, in the near future it is expected that Vietnam will provide an attractive place for the U.S. and other European investors. Finally, regarding the basic position to be taken by the foreign investors interested in Asian-Pacific countries, I would like to call your attention to the Pacific Forum's recent publication, "Japan and Southeast Asia - Conflict and Cooperation" which contains extracts from Dr. Saburo Okita's book entitled Japan in the World Economy , Dr.

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Okita emphasizes the importance of making investments which would be welcomed by the host country and which consequently would take firm root and become an integral part of the local economy and community. He enumerates various means by which this objective can be achieved, including business based on mutual trust, the employment and promotion of local workers, the fostering of related industries, local reinvestment of profits, and great care in the education and training of local employees as well as in the selection of qualified Japanese personnel for such overseas assignments, etc. On the other hand, in order to make effective use of these foreign investments, there are some important things that the host nations should undertake, not the least of which is the construction of infrastructures, particularly road construction, the expansion of harbour facilities, improvement of communications, the generation and distribution of electric power, improvement of irrigation, and water control. The recent rapid industrial growth achieved by Korea and the island nation of Singapore was due partly to their building of infrastructures in the early 1960s. The industrial wonder of Hong Kong was also preceded by the construction of infrastructure. Secondly, I would like to emphasize the necessity of reducing the illiteracy rate of the working population. Statistics show that the illiteracy rate is considerably low in Korea, Taiwan, the Philippines and Singapore. For farming, wood-cutting, and fishing, education may not be an important factor unless modem technology and advanced methods are needed, but for workers in the manufacturing and service industries, a certain degree of education in reading, writing, and calculation is absolutely necessary. Furthermore, in order to maximize the effectiveness of investments, whether from domestic or foreign sources, it is imperative for any nation to have many educated and competent technicians and engineers. From this point of

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view, I would like to encourage the establishment of technical and engineering courses at both the high school and university levels. Without such efforts on the part of the host countries, the technological guidance and cooperati on that accompanies foreign investments will not produce the desired fruits.

DISCUSSION Comment ator: I wish to comment on the question of kickbacks. One has to differenti ate between kickbacks for personal gains as against contribut ions to political organizations. The first category is out of the question. Concerning finance for political movements or parties, I think it is a general practice in different countries, whether developing or developed, to have parties seek funds. It can be done, in various ways - mostly it is considered just a normal thing that, if a political organization is collecting funds, anybody who cares to contribut e may do so. This can also be interprete d as blackmail - by not contribut ing you may be risking falling out of favour with the government. But there is a fine difference. I think there is such a thing as collecting funds on an unsolicited basis, in which case they are voluntarily given. The rationale for doing so, as far as big companies or the private sector is concerned , is simply that you believe a particular government can uphold a system, which will protect the interests of the private sector in the long run. In that case, there is every reason for you to want to contribut e. Lyman: Most businesses do not like to make political contributi ons at all. It is a fact of life, however, that if we want our enterprise system to survive, as opposed to a Communist system, then we are going to have to support political parties. It is interesting that individuals can support political parties, political organizations, foundatio ns, trusts, religious organizations, everyone can support political parties

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except business. If business does it, it is dirty, it is wrong, it is illegal, it is immoral. Why? I do not have the answer, I just pose the question. What is the difference if a subsidiary of a multinat ional, - which is really a host country compan y that has links with an internati onal organization, - what is wrong with it giving a political contribu tion? Commentator: Concerning the right of member countries to regulate the entry of foreign investments, this is an important point as far as the OECD formula tion of the rules and guidelines is concerned. Whereas member countries do retain the right to regulate the entry of foreign investments, one should not forget that whatever regulation has been formulated by the member countrie s would have to be depende nt on the acceptability of the regulation to fit the mutual interests of the country and potentia l investor. In our country , each project that is being proposed will be considered on the merits of the case. Each program that files an application will have to be the result of a sit-down discussion between the potentia l investor and the recipient country. Once you sign on the dotted line, it is understo od that an agreement has been reached by both parties, which would serve the interests of both parties. The developing countrie s in the ASEAN region are very flexible on this issue because they do have the principle of majority of local or national participa tion as well. Still they are flexible and each project can be considered on its own merit. If after negotiations and careful scrutiny, the investor decides that he is not going to invest, then that is accepted. But, once he does invest, then it is presumed that the principle and the concept of investm ent on a joint partners hip basis has been accepted. MacNaughton: Our compan y is one of those that has extensive operatio ns in the Philippines, such as a large pineapple and two large banana plantations. We certainly employ more than 500 people, in fact many times that. And when

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the executive order was put out about selling or growing rice - rice to be provided to your employees at a price below the current market - we had to make some hard decisions. Rather than just going to the market place and buying rice, thus subsidizing this food requirement, we analyzed it carefully and decided to take a swing at it ourselves. The result is that today we have 2000 plus hectares under cultivation. We have not, in any way, disturbed the original land tenancy, the ownership or the lease-holders situation. Some of the people using that land were already growing rice under their own methods and capability. Some of the land was pasture land, and other sections were bush lands. All needed to have some sort of water flow made available. These are not padi-fields anymore, they are larger areas of land, which had to be prepared so that the water distribution would be even and regular, and perfectly controlled. We fertilized, seeded, and put on the pesticide control by air. We financed all of this, and any mechanical equipment. The results have been very good - we are now in production and operation, and our yield experience is at least more than twofold previous yields. This is a greater yield per crop and also a greater number of crops per field. The people farming the area continue to do that - they are provided work and there is also profit participation for them. I am happy to say that the result has been, even at the very low price permitted by the government, a modest profit return to our corporation. The only disappointment has been that the government administration of the total program has been so successful that it has stimulated speculation of land, which is undesirable. We have had nothing to do with that. However, there have been some exciting opportunities and experiences for us, and so far the results are very gratifying to all concerned.

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Melchor: Our programs in the Philippines have attached the very highest priority to the agricultural sector, because the bulk of our people live in the rural area. We will set basic targets in the agricultural sector. In the last year or so, a structural change has taken place in our economy that has been brought about, because of our balance of payments financing. Our import bill for the last year has gone up to about US$3.5 billion for oil, and even more for needed raw materials and capital goods. Our projections for what this import bill will be in ten years from now show something like US$14 billion. Considering our debt service as well as the population growth, which is between 2.8 and 3%, we are not going to make ends meet through agriculture. Also, in terms of small and medium scale industry, cottage industry, I think we have reached a saturation point for employment in the cottage industry. Therefore, we are going to have to go into industrial manufacturing in the same way that Hong Kong and Singapore are going. This is not because of problems of our own making but because of the higher import bills that we now have to pay, projected over the next ten years. Panglaykim: When we assess the multinational, we should distinguish between those that are American-based, where the management system is quite different, and those coming from Japan ..... When you talk about subsidiaries, you mentioned that first they consider the national objective and second the MNC goals. One could dispute that with regards to the Japanese-based MNC purely because of the system used by the Japanese. When they come to a joint venture in Indonesia or in other countries, the subsidiary there is just another extended arm of the headquarters because of the royalty system, because of their employmen t, etc. Although the Japanese never call themselves MNC, basically they are now MNCs - they are, however, rather different. I can imagine, for example, that a Frenchman

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can become head of the American MNC, but I can never visualize an American as head of Mitsui. What I am trying to put across is that we from the ASEAN countries do not look upon the American MNCs as a major problem. The impact here in the ASEAN countries of the Japanese MNC is much more profound than the Americanbased MNC. Generally the Japanese-based MNC is working in manufacturing, and because the system of management is the Japanese system - the so-called consensus system - this means that they come in teams to all the joint ventures. You cannot separate them. Americans probably send one to a place, but the Japanese company cannot send less than ten or twenty people to one small project.

THE EMERGING NON-MARKET ECONOMIES IN ASIA - CHINA AND VIETN AM: Their Potential Impact on the Region Louis E. Saubolle

It is in the context of anticipation that I should like to couch my remarks today. I hope to be able to convince you of some changes in Asia-Pacific which can and should be anticipated. For many years, one of the all-pervading influences upon the economic and political scene in Asia was the war in Indochina and the accompanying American presence. No country was unaffected - whether it was an inflow of dollars from free-spending G.Is on R&R, the supply of goods and services to the U.S. military, or even the trappings of American society. We face an entirely new but nevertheless tolerable situation. The defeat of non-Communist forces in the area is a tragedy in many respects, but it is not and should not be viewed as a disaster in terms of American interests. There is little likelihood that, as a result of Communist victories in the Indochina states, China or Vietnam will exert strong direct pressure on other Asian nations in the period ahead. Of paramoun t importan ce in this regard is a comprehensive analysis of the role Vietnam will play in the years to come. As a banker, I will leave the political and military implications to those with such expertise, and will concentra te largely on economic and· financial matters. In the past five years, we have seen the People's Republic of China emerge as a genuine world power whose actions and wishes must be taken into account. Although other non-market economies exist in Asia (Mongolia, Laos,

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Cambodia and North Korea) their influence is presently insignificant; therefore, my remarks will be confined to Vietnam and China. My thesis in regard to these two countries can be simply put: they will become, in the 1980s, significant economic forces in this region. Their actions and the manner in which they develop will have considerable affect, not only on trade and the domestic economies of Asian nations, but also, even if to a lesser extent, on world prices and economic stability. We have not generally been accustomed to thinking in these terms when considering Asian non-market economies. Ten years ago, a planner needed to pay only scant attention to the impact of these countries on his own nation or on the future activities of his company. This is no longer the case. Consider these three factors which China and Vietnam have, or will shortly have, in common: 1. abundant national resources, including potentially large petroleum deposits; 2. a cheap, organized labour force; and 3. self-sufficiency in food. Assuming these three factors hold good, both countries will be in a position to order their priorities so they can produce export items of good quality at competitive prices. They can tum the labour of their people into much-needed foreign exchange with which to purchase modem products and technology. This in tum will enable them to make fuller use of their rich natural resources. I do not wish to give the impression there are no negative factors involved. Certainly, a socialist state has some advantages, particularly in the areas of controlled planning, ordering of priorities, and price control, but these advantages are at least balanced by such problems as: population growth;

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potential political instability; nsmg expectation of the people; lack of managerial skills, bureaucratic inertia; and potential lack of incentive. Although these problems may well tend to slow growth, we will be doing ourselves a favour if we carefully examine the situation, and make preparations for what I believe to be the likely eventuality that China and Vietnam will become increasingly important to the economic system of the region. I will now examine these two countries individually, and then conclude with some more detailed observations of the impact they will have.

China Although I would agree that one cannot completely divorce politics from economics, particularly when considering a socialist country, let us look at where China stands now from an economic point of view, and in doing so let me first paraphrase from an acknowledged American expert on the Chinese economy: Arthur G. Ashbrook. As of last year, he said the Chinese economy has been shaped by the working out of four interdependent long term factors. They are: 1. GNP growth that has provided a substantial margin over subsistence for use in building up the capacity of the economy and maintaining a formidable military defence; 2. agricultural growth, that supplemented by comparatively small imports, has sufficed to feed the expanding population; 3. industrial growth that, starting from a small base, has provided rapid increases in capacity and output of industrial materials, machinery and military equipment; and 4. foreign trade growth that, for more than a decade, has been geared to acquiring advanced industrial equip-

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ment, industrial materials, fertilizer and grains from nonCommunist trading partners. And what does this mean in figures? Statistical data in regard to China must of necessity be estimated, but here is how the picture generally looks for 1975: 1. a GNP growth of 4-5%, producing a total GNP of about US$234 billion. 2. grain production which is variously estimated at between 260 and 280 million metric tons, but which Vice-Premier Ku Mu has put at 283 million metric tons; 3. crude steel output of about 24 million metric tons; crude oil output of about 80 million metric tons; and 4. total foreign trade valued at approximately US$14.5 billion. Naturally, the key question in any country concerns its ability to feed the population. The difficulty of responding to this problem with hard facts is obvious - no one really knows how many people there are, including it seems, the Chinese themselves! In 1971, China's leading financial expert, Vice-Premier Li Hsien-nien, said that different government departments operate on vastly different assumptions of the size of the Chinese population, using estimates that vary from 750 to 830 million. The Foreign Demographic Analysis Division of the U.S. Department of Commerce, on the other hand, puts mid-1974 population at 920 million! What is clear, in my conviction, is that China is not only providing sufficient food for the population, whatever it might be, but is also making every effort to ensure that food production matches population increase. Witness the plan announced last Fall by Mr. Hua Kuo-feng (who is now Prime Minister and First Vice-Chairman of the Party) to mechanize agriculture, and the purchases in the last four years of US$500 million worth of fertilizer plants.

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Thus I would concur that while feeding the people is, and will remain for some time, the main priority of the Chinese Government, sufficient success in this endeavour has been achieved to allow other importa nt, if slightly less vital, areas of the economy to be developed. These areas include concern with the quality of life, rather than mere subsistence: improved housing, better quality consumer products, and improved working conditions, amongst many others. Additionally, there is the development of heavy industry to consider - such as steel producti on, petroleum and ship building. How do these factors impinge on the rest of the world, and on the rest of Asia? First, the spectre of China being forced to physically push beyond its own borders in order to feed its populati on can be laid to rest. But economically, as well as politically, China is now making itself felt and will continue to do so. I will concent rate on the simple statistic of foreign trade to elaborate on this point. Except in 1959, China's foreign trade did not top US$4 billion until 1970. In the next five years, trade value rocketed - US$4.3 billion, US$4.7 billion, US$5.9 billion, US$13.7 billion, and US$14.5 billion. We are currently experiencing a testing period in China's trade policy. To what extent, the question is being asked, will changes in the political leadership in Peking affect China's economic posture in the world? As is often the case, no clear answers have emerged thus far, but I can say categorically that many foreign businessmen have been told by Chinese officials in the past few months that China will continue to purchase foreign technology and products as needed for the development of the domestic economy. One of-the criticisms directed against former Vice-Premier Teng Hsiao-ping was that he wished to slavishly follow foreign progress. Furtherm ore, greater stress is being placed

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once again on the concept of self-reliance. I do not feel, however, that these factors should be interpreted to indicate a mass cutback in foreign trade, neither imports nor. exports. China does intend, and went some way in this direction last year, to balance its trade, and this may mean a temporary decrease in imports and slow down in the growth rate of total trade. China is determined not to be dependent on any country or group of countries to develop its economy. But foreigners are still being invited to go to Peking to conduct technical seminars; China is still sending trade missions abroad; China is still expending considerable effort in examining foreign markets. I cannot, of course, rule out dramatic political changes in Peking which could conceivably reverse what is happening today. Barring such unforeseen changes, I anticipate a China which will increasingly be impinging on foreign economies, particularly in Asia and Africa. China will become a challenger to us on an economically competitive basis. Vietnam Just as China has emerged, in recent years, to play a key role in Asia's economic and political arena, so too in the years ahead can we envisage the reunified Vietnam - with its considerable human and natural resources - having an important influence on the region. It seems extremely likely that Vietnam will become a powerful force in Southeast Asia in the 1980s; and my feeling is that the country's economic reconstruction could be so successful (within this time-frame) that its impact will be considerable. While no one can overlook the present difficulties facing the Vietnamese in the form of various shortages, (such as spare parts for factory plants, modern technology, managerial talent, and the problems of integrating the economic systems of the north and south), we can reasonably assume that they are relatively short-term.

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Vietnam's assets are something we should bear in mind when we speak of reconstruction. The combined area of North and South is over 300,00 0 square kilometres, while its popula tion totals 45 million, among which there is a fair percentage of skilled labour. Natural resources include coal, iron ore, hydroelectric power, oil, and timber. Unlike the majority of its neighbours, whose economies have developed impressively over the past decade, Vietnam was unable to fully realise its rich potenti al because of the war. With its fertile agricultural Mekong basin in the South, the country can become self-sufficient in food, and in the foreseeable future, have surplus for export. Besides rice, a rich variety of tropical fruits can be cultivated and sea food exploited. Unlike other countries in the region which have to spend substantial foreign exchange for importing food, Vietnam can conserve these reserves for its programme of industrialization. While Vietnam will probably be self-sufficient in food, the country 's leaders recognize the danger that population growth could outstrip productivity. In 1974, Party First Secretary, Le Duan, said that despite the heavy loss of life in the war, the popula tion had increased too rapidly - by more than ten million people from 1960 to 1973. In the area of light industry, Vietnam's impact on the region can be dynamic, and it can very well emerge as a serious compet itor in the next decade. The country possesses all the factors of production: raw materials, plentiful land, and a vast reservoir of skilled labour. It is significant that in his address to the National Assembly, Party Secretary Le Duan called for a rapid development of light industry. He specifically stressed the need for improved quality in products destined for export. Vietnam's planners fully realize that one way in which the country can enhance its earnings from export commodities is not by increasing the quantities it sells but rather getting

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more return from the value added in the processing of those raw materials before they go to the markets. Iron ore, for example, would not be exported in ingot form, but transformed into parts for heavy industry. Timber will be manufactured into furniture, and copper into electronic parts. Besides its own natural resources, the South has inherited an array of industrial foundations from the Americans. These included: - three large textile mills - one of which was a modem and sophisticated polyester fibre plant; - pharmaceutical plants, capable of supplying most of Vietnam's needs; - two large paper and cellulose mills; - one large and several small refrigeration plants; - one large cement plant in Ha Tien; - small tractor assembly plants; - two chemical related plants; and - medium sized installations for manufacture of bicycles and tires, batteries, small steel ships, light bulbs, etc. The capacity of the textile mills is some 250 million metres annually. This is especially significant in view of the fact that markets throughout the world are becoming increasingly protectionist in their attitudes. Most of the Asian countries are producing textiles for export to a seemingly shrinking world market. Ever since the introduction of quotas, Asian textile exporters have gone through the annual ritual of bargaining for more. When Vietnam emerges as an exporter in this field, it could well be classified in the 'developing countries' category, in which case import tariffs and quotas would be more generous. This, together with its relatively cheap cost of production, will make Vietnam a serious competitor, particularly in the European Economic Community and African markets. The same applies in the case of other light industries.

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While Vietnam's light industry sector could present a considerable competitive challenge to its neighbours, its heavy industry could supply many of their requirements. Presently, apart from China, Japan is the only country in Asia manufacturing heavy equipment, and, because of expensive labour and fuel costs, prices are unavoidably higher than would be the case for Vietnam. The nucleus of an infant heavy industr y has already started. The Thai Nguyen steelworks, built at great cost under Hanoi's first Five-Year Plan (196165), but severely damaged during the war, is reported to have been restored to pre-war produc tion (estimated at 176,000 metric tons of steel per annum). The Gia Sang rolling mill, largely assembled at the Thai Nguyen plant, went into produc tion last year. The Vietnamese realize that any country aspiring to join the league of heavy industry manufacturers must have modem technology; and their leaders have gone out of their way to acquire this. Besides aid from the Soviet Union, China and other socialist countries, Vietnam has received assistance from Japan, Sweden and France for their "techno logical revolut ion." The country 's economic planners are aiming at a 20% growth in industrial output, and a 30% growth in capital constructio n this year. With aid from the countries mentio ned, this goal can be realized. The Soviet Union has pledged to finance forty capital projects in North Vietnam. These include a hydro-electric power station, with a capacity of 1.7 million kilowatts; the development of a coal mine, with an anticipated annual produc tion of 2.4 million tons; and light industries such as food processing plants. The Chinese are building a nitrogen fertilizer factory; developing the road from Hoa Binh to the Laotian border and beyond ; and constructing the country 's largest road and rail bridges across the Red River, northw est of Hanoi.

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Vietnam suffered enormous war damage, but at the same time, a decade of U.S. military activity has left the South with a modern infrastructure - probably the best roads in Southeast Asia, port facilities, sophisticated telecommunications, and an airfield in almost every town. Crucial to the pace of Vietnam's economic reconstruction are two factors: oil exploration in the Mekong Delta, and the United States' future attitude towards the country. There is evidence of rich oil deposits in the South China Sea off Vietnam. A number of oil companies obtained concessions from the former Thieu Government and, by last April when the present government took over, strikes had been made by Shell (Pecten Vietnam Petroleum Company) and Mobil. About US$110 million had been invested by American oil companies in the drilling process. Realizing that their political independence and economic well-being would be considerably enhanced by oil revenue, the Vietnamese have been quick to give signals that former prospectors are welcome to resume their search for oil, though under different terms, which would include such requirements as production-sharing and service contracts on a joint-venture basis. Despite the embargo on Vietnam by the United States Government, American oil executives have been able to conduct talks with Vietnamese officials in Paris. Nothing concrete has so far developed, in view of present Vietnam-US relations, but a team from the French Compagnie Generale de Geophysique started offshore explorations in the South a few months ago. A group of major Japanese oil companies have been holding discussions with Vietnamese officials in Hanoi and it is likely that they will be able to start operations in the near future. Still, much hinges on Vietnam's relations with the United States. If the US embargo on trade with Vietnam is lifted, American companies could take advantage of Vietnam's

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economic reconstruction with the sale of modem technology and capital equipment. The Vietnamese leaders have said on many occasions that such a comeback would be welcomed on a "mutually beneficial" basis. American financial participation could also be the key to Japan's activities in oil exploration and exploitation. Although an amendment to the Foreign Military Assistance Bill, which would have temporarily eased the embargo, was deleted following President Ford's veto of the Bill, I feel confident that the embargo will not last for decades, as it did in the case of China. But it seems unlikely that further progress will be made in this direction during a Presidential election year, and I would not therefore anticipate the lifting of restrictions much before the end of 1977. Conclusion Thus, we are faced with two socialist countries in Asia with considerable potential to not only develop their own economies, and clothe and feed their populations, but also to have significant quantities of production available for export. And it is my belief that this potential will be realized to an impressive degree in the 1980s. Assuming this comes about, what sort of impact should be looked for? Let us start with the basic - food. Even today, China exports large quantities of food products - particularly to Hong Kong, but also to the rest of Southeast Asia, and, increasingly, to the rest of the world, including the United States. Additionally, stores in African countries that formerly filled their shelves with British goods are increasingly replacing them with Chinese products. As for Vietnam's potential food exports, Vietnam used to be a major supplier of rice to the rest of Southeast Asia, with exports standing at 300,000 tons in 1960. The years of conflict reversed this, and it became a net importer, but the country could well begin to compete again with Thailand

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and Burma. Indeed, since the end of the war, Vietnam has already sent trial shipments to Singapore and Hong Kong. There is every reason to believe that these shipments will expand in the future, thus stabilizing rice supplies and possibly reducing prices. Seafood and tropical fruit will also become earners of foreign exchange, particularly from Japan, where shortages of fish are forcing the Japanese to look elsewhere for supplies. The really big money-5pinner, of course, could be oil. Undoubted ly, China, and Vietnam eventually, will be saved the sometimes crushing expense of importing oil; and undoubtedl y, China will continue to export oil to such countries as Japan, Thailand, Hong Kong and the Philippines. However, predicting the rate of expansion of these exports is difficult in view of problems encountere d with the quality of the oil, uncertainty about China's willingness to purchase the technology and equipment necessary for full exploitation, and China's rapidly increasing domestic demand. Nevertheless, while predictions that China will be another Saudi Arabia in ten years may be a little optimistic, Peking is in the oil-exporting business, and is most likely to remain an important producer. The situation with Vietnam is the other way round. Hanoi has shown itself willing, even eager, to allow foreign firms to participate in the exploitation of its oil reserves, but those reserves have yet to be fully verified. The consensus is, however, that Vietnamese oil exports are only a matter of time. Thus, Thailand, the Philippines, Malaysia, Singapore, and perhaps India, will be finding themselves with new sources of supply. Singapore, particularly, as an established refining centre, could be very much involved with Vietnamese oil. In the area of light industrials and consumer products, both China and Vietnam have excellent bases for expanded

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produc tion and export. In the past two years, China has concentrated heavily on market research, sending missions to the United States and Western Europe. Lack of knowledge of foreign markets and the resulting problems of packaging, brand names and the like, had been a serious hindrance to Chinese sales of consumer products. This situation can be expect ed to improve markedly. In Vietnam, skilled labour, marketing ability and modem plants are all in place, particularly in the fields of electronics and textiles. Textiles, incidentally, are also one of the Chinese strengths. These products will affect this region in two ways: first, an increase in Asian markets of relatively cheap, relatively good quality consumer items; secondly, compe tition for Asian produc ts in the markets of the world. This compe tition will be felt most strongly by Hong Kong, South Korea and Taiwan. There are, of course, impor tant political factors which will influence the pace of the developments I have suggested. These include normalization of relations with the United States, domestic political issues in China, Vietnam's relations with the ASEAN nations, and many more. I do not by any means wish to say that these are unimport ant. They are, of course, extremely impor tant. What I do believe, however, is that whatever the outcom e of the political questions, the economic development will proceed. It is largely the timing that could be influenced. I am convinced that trade and commerce in Asia are headed for a period of sustained expansion, and that the ensuing economic climate is going to be one of great change. I wish to leave you with the though t that new business compe titors are looming on the horiz on- and should not be overlooked, because of the tremendous influence they will exert in certain fields - the non-market economies of Asia.

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DISCUSSION Panglaykim: If you look into the import composition of China in 1974 and 1975, about 20% appears to be going for food - how does this reconcile with your statement that China is self-sufficient? Its other trade is about half in industrial products, which means the impact of China's trade is not towards developing nations, but more towards developed nations. So, when it comes to the import composition, it is Japan and the United States that may benefit by an expansion of Chinese trade and development. Looking into· the export composition, of which 40% is also in industrial products but probably of light industrial goods, here the impact will be negative upon the developing nations.

Saubolle: It is absolutely correct that they had this 21% import of food products in 1974 -this is due to three main reasons. First, there was a period of drought which depleted their strategic reserves. To rebuild their stocks from 1973 to 1974, they had to have massive imports of U.S. grain. The Chinese, as you know, are fearful of an outburst of conflict with the Soviet Union and are keeping huge reserves of grain concealed underground. Secondly, you must look at the other side of the balance sheet, that is, the percentage of export of food during that same period. As you can see, they had imports of food 21% and exports of food 32%. So what is China doing? China is exporting high quality rice, feeding Hong Kong and importing lower cost grain because that is very advantageous to them. For each ton of rice they export they can import 2.3 tons of grain. Therefore, they feed 2.3 times more mouths with the same quantity of money. So, this is very important. The third side of this question is, the population growth. Despite the fact that they have reduced their population growth to only about 1.4% in 1974, this still represents nearly twelve million more people every year. And to feed this extra twelve million increase in population they require five million

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more tons of grain - we are dealing here with huge figures. Commentator: Concerning self-sufficiency in food production, there are some statistics which tend to support the assumption that this has been achieved, but also I have heard some different stories from other experts who have visited China. An agricultural expert, for example, investigated farming techniques in China and compared them to the techniques in pre-revolutionary China - and did not find sufficient evidence of modernization of farming to the point where they can be self-sufficient. This is still an open question - in fact, he was warning us that if China cannot feed its population, this will have a major impact on the world agricultural food market and the price of agricultural products because China will have to earn enough foreign currency with oil and other resources to buy the food. So, we will have a major problem on our hands if the more pessimistic scenario actually takes place. You noted that China will have a major impact on the world economy, or particularly as a competitor with other developing nations, but I' think this is a question of time. If it is within two years, some of the countries you mentioned are in major trouble - but then you said it may be five years or ten years. I would suggest that it may be even more than ten years, in which case it would be wrong to assume that the composition of the commodities which these countries export will remain stationary. It is absolutely correct that their farming Saubolle: techniques are still very primitive - the new five-year economic plan, which was to be announced but got delayed, was to stress mechanization of agriculture. In fact, Hua Kuo-Feng is still in favour of this - as you know, he is an agriculture expert and appears to have a personal interest. However, if they go to fuller mechanization of agriculture, what shall they do with their farmers, with their agriculture labour? They must take this into consideration. Self-

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sufficiency in food is a concept hard to measure, but we should not apply our western standards. It is for them a grave problem of having sufficient food - I think they will do anything that needs to be done to have sufficient food, because of the possibility of grave internal disturbances. They are trying to be self-sufficient and to increase the quality of the food. From year to year there are more and more vegetables, more meat in the markets. One of the biggest questions is weather. Being such a large country, a drought right away means for them 30-40 million tons of grain. And again, you must take into consideration the reserve stocks built up on account of their fear of the Russians. Thus, maybe they do have several months of food on hand; it is very hard to evaluate the extent of the economic impact on Hong Kong, Singapore and elsewhere. As you pointed out, it is a question of timing. One very important point is the timing of U.S. relations because this might dramatically change their economic development - a few years after the normalization of relations they will get most favoured nation (MFN) status and then be able to compete in the American market with Korea, Taiwan and Hong Kong. I think that survival for the export-oriented industries of the area will involve moving more into highly sophisticated industries for export and better quality. This is something that Hong Kong went through for the last twenty years. You may recall that their cheap goods flooded the area. Now Hong Kong is producing very sophisticated garments that are competing with Paris. MacNaughton: Many of us, who are outside, question the roots of socialist motivation. In Russia, for example, the individual farmer, as an individual in his own plot behind his little cottage, produces very well for the needs of his particular family. But when he goes to the communal farm to supply his contribution to the nation's effort, he does not work that hard. There are some of us in our

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country who think Russia is always going to be looking at our midwest to supplement its grain needs. Do you find anything or do you sense anything perhaps in the minds of the individuals of China that might indicate something like this? Saubolle: No, it is quite different. First of all, in China the farmer also has an individual plot allocated by the State. I went into this extensively, and was told that they can have one quarter of an acre of land in order to work and produce their own needs. They grow vegetables, raise poultry, produce other goods which they are permitted to sell in the free market in China. In fact, most of the vegetables, eggs and poultry you find in the streets of the cities come from these private plots. However, I think there is a tremendous difference from the agricultural system in the Soviet Union, which came near failure in the last few years. The basis of Maoism lies in starting the revolution in the countryside, whilst in the Soviet Union, Marxist-Leninism was more for the urban worker and the intellectuals. I wish to point out another difference - that Vietnam is not following China in the same socialist patterns. In Vietnam, the government is encouraging private plots and in fact the people that have left Ho Chi Minh City to go into these economic development zones, agriculturists, get title deeds to the land; they are receiving title deeds to the four acres of land they are getting, which is amazing. I was astonished to learn in Hanoi that you can own your own real estate - you can own your own house and have title deeds, and you can sell and buy something else. Commentator: Regarding the issue of MFN treatment, I don't believe it is as significant as you indicate. They can have it right now, if they choose to settle an outstanding issue, which is the issue of the claims versus the assets that have been sequestered in the United States, the bank accounts, and so on. But the Chinese do not appear to want

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to settle that particular issue. They could do it but apparently decided that it would be a political embarrassment to proceed with it at this particular moment. If they were to proceed with this, they could have MFN treatment and trade would go ahead. I think when it comes to trade with the United States that, if they get something of high technology which they really want, they will go ahead and pay the price. To them price is not all that important, although it does have some bearing on their willingness to buy a particular item. They have bought fertilizer plants, ammonia fixation plants, Boeing aircraft, and so on; all these arrangements were consummated without the benefit of MFN treatment. Referring to the grain purchase which the Chinese made at one time, they must have been embarrassed to go to the United States, a capitalist country - one of the imperialist countries as they describe it - and buy large amounts of grain. One of their main messages in international forums is their self-sufficiency. Even with normalization, the pattern for future development in Chinese trade with the United States is going to be at best uneven. It is not going to be a rapid, explosive growth - while I think there will be some increases over a period of time. These will occur when the Chinese will want certain types of technology and they are not going to be deterred by the price problem. Lowe: Do you believe that China is a potential market for the Western countries for technology expertise, research information, etc.? Saubolle: China is definitely a market. They are just at the beginning of their technological revolution or expansion. In 1971-72 they started buying technology from Japan, United States and other Western countries - this involved going for the first time into international finance. This also surprised us because they were forced to bend their ideological principles and to borrow funds. How-

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ever, there is a recent feeling that they will not jump into new ventures and contracts. The internal conflict surrounding succession is part of it; that is one of the reasons for a slowdown in the exploration of oil. They have been discussing this with both American and Japanese groups but in fact there was no major breakthrough in the purchase of technology for their exploration. One has the feeling that they would like to go on their own but this will be determined in the outcome of the internal political struggle. Commentator: To what extent can the emerging capital markets in Southeast Asia, specifically Singapore and Hong Kong, begin participating in the development process? Saubolle: There is a difference in Vietnam from what we have seen in China. I am sure you appreciate the problems of information in dealing_ with the socialist countries. The main difference is that Vietnam is not going to be under the same ideological restraints that China was. For example, Vietnam is already asking for assistance and for export finance. Nations sending delegations to Vietnam find out that one of the first questions they will ask is what are you going to contribute in outright grants for healing the wounds of war? This is completely opposite to the Chinese concept - e.g., we're going to be self sufficient, we are proud to say we are the only country not having external debts. Vietnam's planning will be based on foreign assistance and they are going to search it out. And this is why I feel that today Vietnam may need the United States more than we need Vietnam. They are more anxious to normalize relations; they are extremely short of foreign exchange, and are shopping for grants, and for long term loans. There is a consortium of European banks that has just put up a large loan to Vietnam. Commentator: The problem between the United States and Vietnam is not one-sided. There are some further provisos, the Paris Accords and the question of those missing in

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action (MIA). I think you have conveyed the impression that it was just the U.S. Government's attitude that prevents the establishment of diplomatic or trade ties. There are some problems on Vietnam's side which make it difficult to proceed. Secretary Kissinger has said on frequent occasions that the U.S. is not going to be bound by the past, and is willing to look to the future. And when a gesture comes from the other side, the U.S. is willing to respond. Adie: I just want to add one or two observations on the question of grain production and population-grain production balance. It is rather dubious whether one can use the phrase that China is self-sufficient in grain. There are so many political factors which complicate the decisions the Chinese made on this. For instance, it was mentioned that they make money by exporting rice and importing wheat but I would draw attention to a doctoral dissertation which has just been published by a former member of the Wheat Board in Australia which briefly shows this is not the reason they do it. In fact, they do have to import wheat, they have a definite deficiency of food. And such questions as the mechanization of agriculture are not for the increase of production but for the consolidation of political control over the countryside by abolishing the system of collective ownership by the peoples' communes and converting to what they call ownership of the whole people, in other words, total state control. It has nothing to do with production. The matter of stockpiles also is related to the tunnel-digging programme that they have and this is not only because of a fear of Russia particularly, but it is also a preparation for civil war and a continuation of what happened on a smaller scale in the Cultural Revolution and so on; there is a lot more on that. On oil, there is a recent report published on the basis of information from the CIA by the Library of Congress. It shows that the projections for exports of Chinese oil have

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in the past been rather optimistic and it is quite likely that over a period the Chinese will export oil in order to import technology but it will tail off in a few years and not become so important. Now, just on the matter of, for example, Chinese exports, which Mr. Saubolle mentioned in Africa, in Tanzania and Zambia because of the structure of the financial arrangements for building the Tanzam railway, these countries were forced to accept Chinese exports which were in fact unacceptable to the public and could not be sold. They were supposed to generate counterpart funds in local currency and they failed to do this. So, there are a lot of special factors in this. Saubolle: As far as the CIA report on oil is concerned, I must say that it has been discouraged by most of the Chinese specialists in the area - and even by the members of the U.S. Department of Commerce - saying that it was a bit fanciful. Of course we do not have the exact details on their actual production. Just to wrap up the whole thing, although I tried to divorce politics from economics, naturally politics will enter very strongly into all their economic planning. For example, in order to capture certain markets for a political gain, they are in a position to cut their prices as much as 3040%. So this is the point, for political reasons, they can just dump their consumer goods, their export items on foreign markets at a low price.

THE FOOD PROBLEM AND REGIONAL COOPERATION K. Y. Chow

"Food and love are the basic needs of men," said confucius in the fifth century before the Christian Era. Today biologists say that for life, whether it is plant or animal, the fundamental needs for survival and reproduction are food and love. Food is the essential of all essentials. When one is hungry, nothing else really matters, not even love. Thomas Robert Malthus in his "Essay on the Principles of Population" published in the late eighteenth century warned that - due to a geometrical progression of population increase against an arithmetical food increase - men are inevitably doomed to want. If the too speedy population growth was not checked by prudential restraint, nature would take its course resulting in war and natural calamity. Malthus' theory had been much argued but little read until recently, when the threat of food shortage became so keen and so impending. Food and population growth have been well-balanced so far in the developed countries. As a matter of fact, people in the United States and in the Western European countries are better fed today than ever before. The situation however is not so in the poverty-stricken areas in Asia, Africa and Latin America. In Asia, where two-thirds of the world population resides, only one-half of the world's food is produced. Many countries are being threatened by hunger. Millions are suffering from malnutrition. How can the onefourth population in developed countries live on peacefully, while the other three-fourths fight for survival? Peace is indivisible. The hungry mob will threaten the world peace!

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Population & Food Production Birth control and increase in food production are the only remedies for the critical situation. They are of equal importance and must be exercised simultaneously. Birth control is comprehensible in its meaning but difficult to put into practice. Religion, the mundane tradition, illiteracy, ignorance, all contribute to the adverse forces that resist the efforts of family planning workers. I will not dwell longer here on birth control, important as it is, since our chosen subject "How to increase and manage food production?" requires in itself even more time than we can give it. The conventional way of increasing food production is to increase land output, because 99% of our food needs are from the land. The conventional methods of increasing land output are: opening up new arable lands; using new plant strains; improving irrigation; applying fertilizer, practising insecticide and weed control, and promoting agronomic mechanization. The chance for opening up new arable land is slim at best. More than two-thirds - 71% to be exact - of the earth's surface is water. Of the remaining 29%, only about 3% is arable land. As the experts see it, even with the most ambitious and imaginative land development programs, the amount of arable land can be increased by only a small fraction, given ample time and resources. Now, as to the other factors: to develop new plant strains is a slow process. Irrigation alone can help increase land output, but the effect is insignificant. Pest and weed control do not increase land output but they do eliminate causes that restrict it. Agronomic mechanization requires big investment and technical know-how. Even if all of these factors are available and applied in proper balance, there cannot be significant increases in land productivity without the use of chemical fertilizers. With fertilizers - and the other inputs in proper balance - there can be really significant gains even without a change in traditional farming methods.

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Fertilizer Industry Since the German scientist Justus von Liebig discovered in the Nineteenth Century that certain chemicals made plants grow better, the world had used, until 1906, only a little more than 2 million tons of chemical fertilizer a year. There was little increase for the next forty years with some sharp drops during the two world wars. Peace brought restoration to the world and an onrushing technical advance in agriculture. As a result, the amount of consumption soared up from 10 million tons in 194 7 to 30 million tons in 1961. In the following four years, by 1965, the use of chemical fertilizer totalled a significant 40 million tons. The experts forecast that, by the year 1980, the world will require an additional 60 million tons of fertilizer to meet a total requirement of 100 million tons! The efficiency of modem farm management and the massive use of chemical fertilizer has enabled food growth to outpace the population growth in the developed countries like Holland, Belgium, Germany, France, the United States and Japan. Although farmers represent a minority of the population in these countries, they are able to provide the food needs for the whole country. Some even have surplus. For instance, the food requirements of 200 million Americans are provided by farmers who comprise merely less than 5% of the total population, and they even provide great amounts of crop surplus. Asian countries are mostly agricultural countries, and on the contrary have 80-90% of their population engaged in farming. Their increase in food production has not caught up with the population growth and gradually the food gap widens and even at best is lagging far behind. A generation ago, Asia, Africa and Latin America had surplus grain for export. After World War II, the trend was reversed. The much widened gap between demand and supply of food, resulting from population explosion, pushed up food needs so high that those who once were able to

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feed themselves, now are dependent on importing food for their very existence. These countries, however, have one thing in common: very low unit land output and almost the total absence of modem farming techniques, including the absence of the use of chemical fertilizer. The present land output therefore is no more than the productivity level the land has naturally conceived - actually, in most cases, far lower because the natural elements have been used up. It can be assumed that the massive use of fertilizer, coupled with adequate water supply, could entirely change the outlook of these countries' farm sector. A more optimum use of all resources could bring dramatic impact changes. An economically sized fertilizer plant, according to today's standard of free world competition, is a multimillion-dollar project. Besides the huge construction cost, there is farm credit. In addition the fertilizer industry also involves highly specialized technical skill and marketing know-how. Few countries in the developing or underdeveloped areas are both financially and technically capable of operating a viably-sized fertilizer facility. Under the circumstances, the following two conditions become the pre-requisites for developing such an industry in such areas: 1. Financial and technical assistance from the developed countries. 2. Cooperation among countries within a region that have common objectives, interests and common needs. In other words, countries in the same region need to develop a fertilizer complex with joint efforts. The complex should then be located at the most suitable location within the region. Such a location should be: situated at the geographical centre of the region, so fertilizer can be delivered to all countries within the region by the shortest route, to save time and freight, equipped with or having the possibility to develop

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deep sea facilities for recelVlng phosphate rock and potash from today's large bulk carriers and to facilitate the dispatch of products by sea or land, in an area where there is great potential demand for fertilizer, in an area politically stable and economically sound. Food Centre Some people believe that with continued application of science, infusion of capital and non-restrictive programs, developing countries could increase their land output to the level of the developed countries. Moreover, explorers and scientists are finding new food sources from the sea, and making food from petroleum products. They are trying to convert radiant solar energy into edible agricultural products, and sea water into fresh water to tum barren land into arable soil. They are even worrying about the possible adverse effect of food over-production, not food shortage. Such worries may have grounds, but not when measured against the problem of TIME. In one-fourth of a century, the world population will inevitably double - it will total an incredible 7 billion in 2000. This means that in as little as one or two decades' time, we must duplicate the same level of food production that man has achieved since the dawn of history. And we must do it at a time when almost all the land suitable for cultivation has been cultivated, and when arable land is decreasing as the exploding population crowds over it. In the developed countries, the rate of food increase has kept up with the rate of population growth, but the widened food gap in the developing and under-developed countries is rapidly depleting the surplus crops of the developed countries. During the last two decades, the United States exported several hundred million tons of grain. In the early 1960s, there was still a considerable amount of grain surplus. The U.S. Government gave a subsidy to the farmers to limit

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agricultural production. Consequently, over 60 million acres of fertile farmland were in retirement. But since 1965 big quantities of agricultural surpluses have been sent to the needy nations. Coupled with abnormal weather conditions, in some years, some of the U.S. agricultural surpluses have dropped to such an extent that the output of stocks, such as soya bean, oil seed and butter were not enough for their own use. The U.S. Government has changed its policy, as a consequence, to bring 50 million acres of land in retirement back into production. Excessive crop surplus harms farm economy. Serious food shortage creates nightmares! Our problem today is how to elevate the majority of the population out of poverty and misery and to save billions of lives from perishing in the formidable force of natural balance which will emerge in this century. The globe gets smaller and smaller in this jet age. The boundaries between nations are being reduced into mere political lines. The European Common Market, the Great Asian Highway, the Asian Development Bank, all these activities have stretched national boundary lines into boundaries of regions. The United Nations and the World Bank are signs of another step forward. They are world organizations that look after international affairs and international interests. Due to the dwindling distance between peoples in the pace of our modern life, such institutions are necessary. Food is the basic need of men, and agriculture is the foundation of all industries. Without rural prosperity, industrialization can be damped down or throttled all together. Therefore, a food shortage crisis is not only a threat to the developing or underdeveloped countries, but a threat to all mankind. Only the collective efforts of all peoples can put such a threat under control. Any plan for such a purpose must be made on a widened scale; on a regional basis or even of an international nature.

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Men can't as yet control weather, not even that in the developed countries. Agriculture is still greatly affected by weather and other natural occurrences. Storage of food is therefore both necessary for emergencies and for exercising sound farm policy. In China, in the olden days, taxes levied on land output were collected by the central government through district authorities in the form of crops or silver. The crops collected were partly kept in district-level government owned storage for emergency purposes. Such stocks were usually kept for three successive years and then disposed of after the third year of storage. The spaces vacated were to be filled with new crops. This arrangement saved many lives in time of disasters caused by flood, drought, locusts, etc. when the principal means of transportation were animals and river boats. The present transportation facilities of the underdeveloped countries in the remote areas are not much different from that time. This emergency storage device can perhaps be remodelled to a much larger scale for today. It is conservatively estimated that even if more food is produced with extra effort, the accumulated surpluses of many developed countries like the U.S.A., Canada and Australia, would not be sufficient to cope with the shortages of developing and underdeveloped countries. It is therefore imperative to encourage and help all nations, especially countries with the food shortage, to achieve self-sufficiency in their own food requirements. The time element plays an essential role in catching up with the geometrical increase in world population. There is no time to lose in encouraging rice-producing countries with potentiality to produce more, such as Burma and Thailand, whose land output is still at a low level but already with a surplus for export. With technical and financial assistance, these countries can easily be of great help to the needy nations. They could easily increase their farm produce to

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meet both domestic and export needs using all the processing and storage facilities available accompanied by experience. It is estimated with confidence that once chemical fertilizer and modern farming techniques are simultaneously applied, agricultural production could either be doubled or tripled with ease. However, when such a stage of abundance is achieved, all the surpluses must be disposed of with the necessary help of the.developed countries. Otherwise, should all the farmers find no outlet for their products, the national economy of the producing nation in the region would be at stake. Collective efforts of the developed nations in cooperation with regional governments must therefore be efficiently exercised in giving the farmers a guaranteed minimum basic price for their food products, calculated on the basis of all costs incurred in producing such surpluses. This incentive is much desired to encourage farmers to continue their endeavours to produce more food for the world. If countries within a certain region could cooperate and set up a "Food Centre" or a "Food Bank" with the help of developed nations and the support of international organizations like the World Bank, the FAO and the Asian Development Bank, then the "Food Centre" would be able to adopt appropriate measures to purchase agricultural surplus at a guaranteed minimum price and to store the purchased surplus crops. This would on the one hand ensure farmers of the disposition of their products at a minimum flooring price and on the other hand provide a supply source from which to meet emergency needs of countries within the shortest possible distance and time in the region. In practical terms, how would national food banks help meet the need of developing countries? They would do so in at least three ways: First, food banks would protect the people against hunger or famine caused by unusual weather or other natural

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disasters such as drought, floods, plant diseases or pests. Once the government has built up an infrastructure of food storage facilities throughout the country, stocks would be available to meet emergency shortages at home or in neighbouring countries. Second, the availability of food storage facilities would make it practicable for the government to establish a guaranteed "floor price" for the farmer's harvest and to buy all his produce when he offers it for sale. Third, the existence of food storage facilities would permit the government to build up buffer stocks of food during times of plenty to be held for sale in periods of short supply. Through proper management of these national food stockpiles, it would be possible to smooth out the wide fluctuations in food commodity prices which are so characteristic of the international market today. This would contribute to orderly economic growth and assist in earnings' stabilization. The possibilities of creating a world reserve of food surplus are being studied by the World Bank, the F AO, and the United Nations. Experts have opined that priority be given to the development of food reserve on a regional basis because, firstly, a regional food reserve centre would be more suitable to meet the present situation in developing/underdeveloped countries where storage, transportation and marketing facilities are inadequate; secondly, having proper adequate storage in poor regions would greatly reduce deterioration due to insects, etc.; thirdly, such a centre would save time and freightage due to shorter distance from the "Centre" to the needy country within the region; fourthly, it would be easier to materialize the plan on a smaller scale than to attempt to set up a "Reserve" on a World Basis.

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Thailand - A Test Case For Regional Development Thailand is endowed with advantageous conditions for agriculture, especially for rice production. With over 80% of its 42 million people working on 12 million hectares of farmland, the Thai farmers are capable of producing nearly 6.4 million tons of agricultural surplus every year. This represents 90% of the total export value of over US$1, 150 million dollars. The national economy of Thailand depends on rice exports and rice exports ensure Thailand of economic stability. Thailand's population is increasing at a rate of 3.2% per year: one of the highest rates of population increase in the world. In 1965, Thailand was the number one rice importer in the world. In 1966, it dropped to number two. Due to the rapid increase in population, it is envisaged that if food production does not make a proportionate increase in less than 20 years' time, Thailand may need to import rice to feed its own population, not mentioning rice surplus for export! Where will this rice come from? As the Thai farmers have used little or no chemical fertilizers, the present crop yield is no more than the natural productivity the land allows. Thus) fertilizer could have great effect on the Thai soil. The present consumption of merely 300,000 tons is met by imports. A very conservative estimate of the potential demand for chemical fertilizer, based on land available, types of soil and crops, and using economic rates of application-, comes to about 1.6 million tons a year. If you use the estimated rates applied by many developed countries, the yearly consumption would reach several million tons. The Thai Government has been putting much effort during the last ten years into developing irrigation systems, introducing new farming methods, and encouraging the popular use of chemical fertilizer. A proposal has been drawn

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up to set up a modern fertilizer complex of one million tons of N-P-K fertilizer per year capacity. Capital investment involved in this connection is estimated at U.S.$250 million. This will be an international joint development plan, an attempt to turn a Test Case into a Show Case of regional development. Prior to the execution of the project a Seeding Plan will be carried out. The purposes are to establish a physical distribution system for constructing storage facilities, for marketing of fertilizers directly to farmers, for showing the proper use of chemical fertilizer, and to educate farmers in the knowledge of the benefits derived from their use. Thailand is situated at the geographical centre of Southeast Asia surrounded by Burma, Malaysia, Laos, Cambodia, and Vietnam. India, Pakistan, Indonesia, Philippines, and China are within the scope of an outer circle. These are all agricultural countries and have similar economic conditions. The aggregate total population in the area accounts for one-third of the world's total. On account of its annual rice exports in sizeable quantities, Thailand is reputed to be the "Rice Bowl of Southeast Asia." It has over 10 million hectares of padi field producing over 14 million tons of padi yearly with about 10,000 rice mills and handling facilities and personnel in the rice business, both for local use and export. These assets qualify Thailand to be chosen as a fertilizer and food centre for Southeast Asia. With the support of the government of Thailand and of the respective governments of our associated companies from the developed countries, a Test Case is being developed in Thailand. All participants have confidence in its eventual success. It is our hope that men of action of this generation will assume the responsibility of getting development started within other regions, tackling with success the greatest challenge man has ever had.

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Conclusion Man has only 5 ,000 years of recorded history, and even adding another 5,000 years to it, 10,000 years is only a flash of time compared to the eternal history of the universe. The History of Mankind is a continuing record of problems and how our ancestors faced them and surmounted them. The fear of coal exhaustion in the early Twentieth century resulted in the industrial revolution and the discovery of crude oil before the fear became a threat. Petroleum has since replaced coal's position in energy supply. Now the rapid increase in demand for petroleum leads some to worry about the exhaustion of crude deposits. Well, the discoveries of nuclear energy and radiant solar energy lit up hope for new sources of energy to replace petroleum. Difficulties hit hard on men, yet man has never been at his wit's end. Man can make the impossibles possible when the need is desperate. Towards the end of this Twentieth century, men are having bundles of problems - how to maintain the world peace? How to wipe out poverty? How to carry out proper education? How to develop nuclear energy for peaceful use? How to develop underdeveloped areas? But perhaps the most imperative problem of all is how to prevent the calamity of a population explosion and a food shortage crisis? Before our scientists and intellectuals can fmd us a new way out, conventional means are still being sought to cope with the problems. Hence, despite the possibility of new energy sources, oil refineries are still being built everywhere; however futile, discussions of disarmament are still being carried on at the meeting tables of the United Nations. The time has come for action to solve the population and food problems. We must develop and implement birth control. We must increase food production. The time has passed for talking and for setting up principles. Action is now demanded. A Test Case is being projected in Thailand. It is hoped

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that the Test Case can be successfully materialized and can thus serve as a Show Case demonstrating how regional cooperation could contribute to the subjugation of the Food Shortage Crisis.

COMMIITEE I REPORT

THE POLITICAL OUTLOOK AND ITS IMPACT ON ECONOMIC PROGRESS Chairman: Eric Khoo

Situation Since the Fall of Indochina The Committee took the view that "Detente" - together with the Guam doctrine, U.S. Congress' war powers resolution of November 1973, the Arab-Israeli War, the energy crisis, and the fall of Indochina in April 1975 -had (along with other longer-term factors) thawed out the international system and created an atmosphere of unpredictability which brings both opportunities and dangers to medium and small countries. While the superpowers wrestle, the incumbent elites in other countries are more free to tum inwards and pursue perceived 'national interests' or local rivalries and pursue 'non-alignment' or 'equidistance' between the big powers and other international forces like multinationals (MNCs) and resource cartels. This may encourage tendencies towards economic and political nationalism as local politicians seek to meet rising expectations of their supporters. But as a participant pointed out, paradoxically local growth can only be achieved by links with outside markets and sources of investment capital; self-reliance and interdependence are two sides of the coin of national development. The overall trend is for LDCs to integrate more closely with the global free-enterprise-based economy as they develop. The Asia-Pacific region has been doing particularly well in this modernization process.

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But the USSR and PRC are competing with each other to 'bury' the post-World War II economic and financial system, which is suffering strains partly due to the successful development of new economic powers, like Japan, by application of the free enterprise principles. Both Moscow and Peking seek to exploit the "North-South" conflict and resources crisis for their own state interest in the first place, and to bring about eventually the 'general crisis of capitalism' predicted by their ideology. The ideological crusade waged against each other by Moscow and Peking reflects irreconcilable state interests, gut racial hatreds and personal grudges among the leaders. But a tactical rapprochement between the two after Mao's death is always possible. The naval, political and economic expansion of the USSR into the Pacific area and the PRC's counter-measures - the Cold War of encirclement and counter-encirclement - can, if not properly handled, become a source of instability in the area, as each side seeks to exploit weaknesses and occupy or deny positions of influence. It is also a temptation to local governments to achieve 'equidistance' by improving relations with both Moscow and Peking and playing them off against each other, with the underlying assumption that these are the powers whose interest in the Asia-Pacific is permanent and growing while that of the U.S.A. is somehow less reliable since the Indochina debacle. In fact, all participants in the Conference agree that continued U.S. military presence and economic activity to guarantee 'stability' in the Asia-Pacific region is essential. The participants trust that this will be maintained even if the Nixon-Kissinger liaison with Peking breaks down. To a considerable extent, the keys to 'stability' were agreed to be: 1. The state of U.S. public opinion - whether it will permit or prevent the next administration to (a) firmly

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maintain the global balance in the face of Soviet threats, and (b) maintain the involvement in Asia-Pacific which is needed to prevent sudden changes in the situation of Japan, which would upset the global balance; and to deter further military disasters in Southeast Asia and give the Asia-Pacific countries time to build up national and regional resilience; and 2. Precisely this national resilience. What is to be Done by Non-Communist Countries in Asia-Pacific? 1. The governments in the region must take the lesson of Vietnam and strengthen the social fabric of their countries; by priority attention to the rural sector where the bulk of the population still is, and by dealing with economic inequalities and communal tensions that offer leverage to subversive forces from within. 2. They must bear in mind that excessive nationalism in economic relations will deter necessary foreign freeworld investment, and weaken their economic and political resilience. 3. They must also bear in mind that, in view of the Vietnam trauma, U.S. public opinion is rather sensitive to public speeches by Asian-Pacific leaders. What is to be Done By and In the U.S.A.? The international investor has to be put in possession of the true facts about the area, especially Southeast Asia. This requires a thorough campaign of information and public relations to correct erroneous and exaggerated images of political instability, corruption, etc., purveyed by the media. This would make it easier for the U.S. to play its role alongside other industrial countries - in promoting economic security by investment.

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What is the Role of the Pacific Forum in the Region? In view of the resurgence of self-confidence over the past year, members of the Pacific Forum have to organize themselves to promote the Asia-Pacific region as an area of high economic growth and good investment potential. Some of the method~ could be to invite business leaders, journalists and other opinion-makers in the U.S.A. and other industrial countries, through seminars, parliamentary exchanges, trade missions, etc. What is the Role of the Pacific Forum in the U.S.A. and Other Developed Countries? Similarly, members of the Pacific Forum could organize seminars, etc., with visitors from ASEAN and other Asian countries (all or some) so as to change the climate of opinion among the mass media and business leaders in the U.S.A. and other industrial countries. Delegates recommend that a high level investment conference be held in Honolulu, attracting investment leaders and decision-makers from the Pacific region and particularly from North America.

COMMITTEE II REPORT

EMERGING ECONOMIC PATTERNS AND POLICIES AND THE IMPACT ON ECONOMIC DEVELOPM ENT Chairman: Sir John Marks

The following points represent the major deliberations reached by the Committee: 1. That increasing emphasis be given to the problem of promoting rural development and raising agricultural productivity in the Asia-Pacific region. That the need to modernize and develop the agricultural base of the developing countries be given equal if not greater emphasis than industrial development. In this respect, areas such as technical assistance programmes, rural infrastructure development and the mobilization of domestic savings be further explored possibly emphasizing agro-business systems which would deliver social services as well as promote economic development. 2. That in developing priorities for industrial development, foreign investment should be directed into areas which complement rather than compete with existing domestic industries and that foreign corporations be encouraged to utilize "conglomerates" or trading companies within the host country or region through reinvestment of profits. 3. That host governments in the Asia-Pacific region take progressive steps to reduce the number of bureaucratic constraints which impede the flow of foreign equity investment which the Committee recognizes as a major catalyst for economic development. At the same time, the Committee recognizes the diversity of national econo-

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mies and the need for different criteria in evaluating the gains and losses from foreign investment. 4. That both the host country and the private investor recognize the legitimate objectives of the host country in regulating the ownership and control of its domestic resources and industrial corporate sector. In this respect, there is a need to coordinate the ground rules for foreign investment perhaps through the development of a regional code on Foreign Investment possibly along the lines of the OECD Code. This would serve both to eliminate the competition in terms of fiscal and monetary concessions on the part of the recipient country and at the same time provide the investing organization with an objective and stable basis for project evaluation. 5. That greater emphasis be placed on creating a more effective and a more productive private capital market and give consideration to sponsoring special institutions to assist in achieving this objective.

COMMI'ITEE III REPORT

INVESTMENT POLIUES AND PROPOSALS Chairman: Clifton D. Terry

The Committee on Investment Policies and Proposals accepts the premise that foreign investment is essential if the lesser developed countries of Asia-Pacific are to meet the social needs of their peoples. The Committee directed its attention to the more pragmatic aspects of foreign investment both from the viewpoint of the investor and the host countries and concluded that much can be done to improve the flow of investment capital. It offers the following observations: 1. The world-wide need for investment capital can be expected to exceed the presently identifiable supply. If this be true then the countries of Asia-Pacific must recognize the need to create a truly competitive posture if they are to receive their fair share of available investment capital. 2. The private investor will be the largest source of needed investment capital whether it be in the form of equity or mid to longer term credit arrangements. 3. The private investor will be the decision maker as to where and under what terms and conditions its funds are to be made available. While the host country in seeking foreign investment has the right and duty to its people to prescribe the terms and conditions under which such funds will be welcomed, favourable decisions on the part of the foreign private investor will be enhanced if the host countries were to: 1. Maintain a high degree of consistency and creditability of government policy on foreign investment and communicate in a clear and concise manner any modifi-

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cations in such policies. 2. Communicate and make available positive statements as to the objectives of the host countries so that the potential private investor can make rational decisions as to compatibility of his objectives with those of the host country. 3. Arrange for prompt and reliable response to formal applications and where possible set defmite time frames within which a final decision can be expected. 4. Assure that administrative procedures are consistent with government policies and objectives and avoid retroactive application of administrative initiative.

CONFE RENCE BACKGROUND PAPERS

PERCEPTIONS OF FUTURE STABILITY IN ASIA-PACIFIC Lloyd R. Vasey

On the eve of this conference, the pattern of international relations in Asia-Pacific continues in a fluid state as each nation adjusts its own political and economic policies in search of a secure future. The most disturbing international happening since the inaugural meeting of the Pacific Forum last year was the major reconfiguration of Indochina, the most encouraging is the recent vitality displayed by ASEAN, but the most enduring factor continuing to influence the future of the region is the interplay among the major powers.

Changing Attitudes of the Major Powers and Regional Progress A spokesman of the New Zealand Government succinctly placed the matter in clear perspective: .... It is only in Asia that the four major powers all have important political, strategic, economic and other interests at stake. They face one another directly in North-east Asia. This does not render that region necessarily the most likely trouble spot for a great power clash, but it does make it one of the world's most sensitive areas where the outcome of a grave miscalculation could be catastrophic. Ll Each power must take into account the repercussions of its own policies and actions on the others and the risks

!./ Brian Lynch, "Asian Security - A New Zealand Viewpoint," New Zealand Foreign Affairs Review, November 1975, p. 20.

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and instabilities involved in high tension relationships. It is only after reaching this broader understanding that these larger nations can then redirect their own energies and cooperate creatively to devote more intellectual and material resources to the regional problems of economic progress. The reality is that the over-riding concern of those nations armed with thermo nuclear devices is the need to reduce the sources of potential military conflict between any of them. It is this imperative that initiated the series of summit conferences in recent years involving international leaders who recognized their special obligations to avoid the triggering of a nuclear conflict through inadvertence, miscalculation or mis-judgement of each other's motives. The resultant modus vivendi known as detente (and rapprochement with the People's Republic of China - PRC) seemingly replaces the old bipolar confrontation with a theoretical international system based on a "balance of power and shared responsibilities" that stresses reliance on active diplomacy rather than military power to resolve mutual problems. The initial euphoria and expectations generated by the policies of detente seem to have faded in the West, especially following Soviet power plays in the Middle East, and recently in Africa. A more realistic and skeptical attitude on the part of Western leaders is now apparent and was reflected by a comment of American Defence Secretary Rumsfeld in reference to Angola: .... If one reads Soviet writings and their own descriptions of their opportunities in world affairs, it's clear that they consider such interventions to be fully consistent with their policy .... It fits their view of detente. The Soviets believe that what they are doing in terms of their involvement in various countries around the globe and in terms of the development of their military capabilities is consistent with detente....... If one thinks that detente means that the Russians are our friends- that we can trust them,

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and that they will conduct themselves the way we do in our country, that they believe in freedom and individual, God-given rights of man, that they will not continue to support 'lust wars of national liberation," or that they will not continue to develop substantial military strength to serve their interests - anyone who thinks that is dead wrong. That is not what Soviet policy or behavior is all about.V These remarks, which are typical of the disillusionment with detente now sweeping the American public domain, bring to mind the comment of Leonard Brezhnev who once said that the fundamental assumption underlying "peaceful coexistence" is a continuing struggle between the U.S. and the USSR because "the world outlook and class aims of capitalism and Communism are opposed and irreconcilable." Under this maxim, war between the super-powers must be avoided while the struggle goes on elsewhere as in Angola, Portugal, the Middle East, and Asia. Whether this changing American mood will eventually result in the reassertion of a more vigorous U.S. leadership role in international relations relevant to Asia remains to be seen. Recent commentaries in the news media indicate a renewed public interest in public affairs - a surprising development in this election year when the focus of interest was expected to centre only on internal domestic issues. Robert Thompson, an authoritative foreign critic of American policies made this observation: .... Of one thing I am sure: the hard core of America is sound when it is well informed on the fundamental issues. It is significant that proposals to reduce American force levels in Europe and South Korea have been dropped and that the warning statements of James Schlesinger (not ?:._! Interview with Donald H. Rumsfeld, U.S. Secretary of Defense, "Dead Wrong to Trust Russia," U.S. News & World Report, 15 March 1976, pp. 29-32.

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to mention Alexander Solzhenitsyn) are being heeded with increasing attention. The tide may be turning and, when the hazards of a Presidential year and the distractions of the bicentennial celebrations are over in 1976, we may yet see the United States back on course under a strong elected President.li It is unlikely that the election results will produce a substantively new American foreign policy, or a reversal of the policies of accommodation with the Soviet Union and the People's Republic of China. What is more likely is a clearer perception of the international issues and responsibilities facing the U.S., a consensus on how best to meet them and a stronger base of ·political support. There is already a determination by both major political parties to reverse the recent trend of declining U.S. military strength and a consensus that the Soviet Union should not be permitted to use detente as a subterfuge to project its military power for international political advantage. The present administration in Washington has initiated positive steps to reassure friends and allies that the U.S. will honour its international agreements and commitments and continue to play a major role in Asian affairs. Last year when the North Korean Premier threaten ed to take military action against the South, the American response was clear and firm. The President and the U.S. Secretaries of State and Defense left no doubt of the U.S. determination to meet force with force. Japanese official pronouncements and firm policy backing of the U.S. Josition also contribu ted to a 4 lessening of Korean tensions. Since then, the President has outlined a new U.S Pacific doctrine based on the following premises:

'li Sir Robert Thompson, "Southeast Asia after Vietnam," Pacific Community, October 1975, p. 13. '!/ Ed. Note: The recent U.S. response to the tragic murder of two Army officers in the DMZ is a more demonstrable example of U.S. resolve.

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American strength is basic to any stable balance of power in the Pacific. Partnership with Japan is a pillar of U.S. strategy in Asia. Normalization of relations with PRC, although no specific time table was mentioned. Peace in Asia depends on the resolution of outstanding political conflicts. A structure of economic cooperation reflecting the aspirations of all the peoples in the region. A continuing U.S. stake in the security and stability of Southeast Asia ..V It is likely that the foregoing broad principles will be inherent to future U.S. foreign policy objectives regardless of the presidential election results this November, but the questions of priority and emphasis and definition will take longer to resolve. The American public still suffering from the trauma of Vietnam have turned their eyes away from Asia-Pacific. In recent months the "action" in the media has focused on the Middle East, Angola, and the stratagems of detente vis-a-vis the USSR. The problems of Southeast Asia in particular seem remote to most Americans who do not appreciate the increasing strategic and economic importance of this vital region and its significance to future American interests. Frances J. Galbraith, a seasoned former American diplomat with extensive experience in Asian affairs, highlighted the deficiency . .... One of the problems with U.S. policy toward Southeast Asia - and one which probably has a great deal to do with the failure of some of those problems in the past is that very few people within the government of the United States, let alone among the people at large, or their representatives in Congress, or the press, and other media who influence their opinions, have been able to ?_I

Speech at East-West Center, Honolulu, 15 December 1975.

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make up their minds about the extent of the U.S. national interests in Southeast Asia or in any of the quite distinctive and different countries that make up the region.§} One might add that the Asians themselves also share a responsibility in this situation. The international news media seems only to emphasize the negative aspects of American foreign policies and actions, with counter-productive results when Asian assistance programs are debated in the U.S. Congress. Meanwhile, the Soviet Union seems to be expanding its own role in Asia-Pacific, although not as actively as in other regions of the world where it has undertaken large scale political, diplomatic, economic and cultural programs. The USSR continues to advocate a vague concept of collective security in Asia but has met with a cool reception except in Mongolia. All countries are generally suspicious of the underlying Soviet motives. A common perception of their Asian policy is that its primary objective is the containment of the People's Republic of China (PRC). However, it is probable that the central thrust of Moscow's Asian-Pacific policies has been reoriented in recent months to also exploit the apparent partial power vacuum in Southeast Asia in the aftermath of the collapse of South Vietnam, while continuing its efforts to blunt the PRC's ideological offensive. The fact is that China does not constitute a crucial strategic threat to the USSR, whereas the primary world wide competitor to the latter is still the U.S. Since the Indochina crisis, Moscow's presence in Southeast Asia in terms of trade, aid and diplomatic initiatives has been steadily increasing, although on a low key basis. Most observers believe the Soviets seek to secure a voice in regional affairs equal to those of the other powers, and to ~ Frances J. Galbraith, "Southeast Asian Policy After the Vietnam Disaster," Asian Affairs, July/August 1975, p. 329-336.

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halt what the Soviets believe to be the increasing influence of Peking in the area. Economically, the raw materials of Southeast Asia might be useful to the USSR, and the region represents a limited market place for Soviet goods. Of greater significance is Moscow's recognition of the importance of Southeast Asia as a vital strategic crossroads bridging the Pacific and Indian Oceans areas, East Asia and Australia. As for the Soviet's potential role in the Indochina states, it is too early to accurately assess the extent of their policies, interests and influence there. Moscow's influence in both Vietnam and Laos appears greater than that of Peking considering the massive material and technical support provided to Hanoi during the war. The Soviets are undoubtedly capitalizing on this past and continuing economic assistance for political purposes and eventually to acquire naval and air facilities or basing rights in Vietnam. Nevertheless, the nature and scope of the Soviet role will be limited to some degree by the leaders in Hanoi who will be concerned about the impact of those actions on Peking. In East Asia, the apparent Soviet objective is to weaken the Japan-U.S. alliance and convince Japan that a "balanced relationship" with both the U.S. and the PRC would be in its own best interests, and to eventually achieve a balance of power in East Asia favourable to the USSR. According to the Soviet perception, a Japan freed from the "excessively great influence of extraneous forces" could then develop some special relations with the Soviet Union based on "full equality, mutual benefit and noninterference in each other's internal affairs." Of course, a crucial factor in Soviet long-term ambitions in Asia-Pacific is the role of the PRC which has a greater influence on most of the regional states. The policies and actions of China, and the attitude of the regional states toward it form the framework within which Soviety policy

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must operate. The outcome of the recent and continuing power struggle in the PRC, and the policies that emerge, will have a most importan t bearing on the future of the entire Asian region. The perennial struggle in mainland China is between the socalled "radicals" who apparently want to retain the purity of the Communist society, while increasing the pace of agricultural and industrial development without dependence on external help, and the "moderat es" (sometimes called "pragmat ists") who, while not abandoning the hard line ideology, give emphasis to economic development with the help of western technology with the aim of building China into a powerful modem socialist country before the end of the century. The demonstrations in April leading to the replacement of Premier Teng Hsiao-ping by Mr. Hua Kuo-peng were initially interprete d by some observers as a victory for the radicals. However, it is now believed that the ousting of Mr. Teng was a temporar y accommodation to defuse a tense situation and to keep the radicals content. In the long run, the "moderat es" are expected to have their way because they have a stronger power base of support within the party, the military and the government. With this scenario, PRC relations with the major powers will not be likely to undergo any major changes in the foreseeable future. The rift with Moscow will continue to dominate China's foreign policies although some authorities believe that the "pragmatists" will make a greater effort to ease the strained relations with Moscow. Unless the "radicals" are successful in increasing their power base, the PRC will probably continue a policy of cooperation and restraint with respect to the Southeast Asian nations. Peking will identify with their interests, stressing national self-reliance, control of own natural resources, political independence of "super-power designs" and the "neutraliz ation" of the region, in an effort to gain

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increasing political and economic influence in regional affairs, and specifically at the expense of the USSR. While maintaining proper state-to-state relations, Peking will continue its low key support and encouragement to regional Communist parties, and a policy of people-to-people diplomacy on a world-wide scale. A longer range and more pessimistic view was presented in a recent SEATO publication: .... The Chinese Communists have not forsa.ken revolutionary movements in the area. They have merely indicated that, due to internal and external conditions, these movements are not yet ready to take political power, and should help Peking stave off the threat of Soviet expansionism. That task, in Peking's view, should be undertaken by existing Third World Governments and leaders, some of whom have now been given official recognition in the formal documents signed in Peking. While these forces are being used to help Peking resolve Peking's major contradiction, its duel with expanding "revisionists," Chinese Communists continue to have strong links with Communist parties and liberation forces in non-Communist Southeast Asia in the belief that they will one day form the governments in the area; .... Z! It is naive of course to expect China to abandon its ideological goals, but whether such a hard policy line reemerges after the passing of Mao will depend upon the outcome of the leadership struggle already in progress.~ A serious internal upheaval could well result in a complete revamping of China's foreign policies. Even then, China's immediate preoccupation would probably be its relationship with the

?J Leslie R. Marchant, "The PRC and the Liberation Movements in Southeast Asia," Spectrum, October 1975, p. 21. V Ed. Note: Since the demise of Mao, there have been no apparent major policy changes as this book goes to press.

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major powers, rather than with aggressively promoting wars of national liberation. Japan is also expected to be increasingly active in Asian affairs. Generally regarded as a "passive" great power, because its international activities are deliberately focused in the economic area, it is now believed that Japan's influence is slowly evolving in the political field as well. Kazushige Hirasawa, a well-informed former Japanese diplomat points out that Japan's diplomacy is inhibited by two primary constraints. .... One [constraint] is an international environment in which the Japanese people perceive themselves to be extremely vulnerable and limited in their options. The political-security dimensions of this environment are reflected in the tripolar structure involving the U.S., the People's Republic of China and the Soviet Union. Economically, Japan's vulnerability lies in her near-total dependence on imports for fuel, feed and food (other than rice) and virtually all the essential raw materials as well as a corresponding dependence on fair access to foreign markets for her exports.2..1 The other constraint is internal. Although Japan has been remarkably successful on the international economic scene, the Japanese people are still very reticent about taking initiatives in world politics. This is to an extent a legacy, of defeat and occupation, of extended dependence on the United States for economic prosperity and national security, and of the sense of impotence which flows from the postwar constitutional decision to remain perpetually a nonmilitary nation. 1 O/ According to Mr. Hirasawa, there are "tentative indications that political trends, both internal and external," are beginn?J Kazushige Hirasawa, "Japan's Emerging Foreign Policy," Foreign Affairs, October 1975, p. 155. ~ Ibid., p. 170.

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ing to move in the direction of easing these restraints in ways which "favour - or require - greater Japanese activism" in international affairs. Whether this so called "new realism" in Japan's diplomacy emerges is contingent upon achieving a broad consensus of support in Japan's domestic politics, an unlikely development in the foreseeable future. Meanwhile, Japan seems to be continuing a policy of separating economics from international politics, except where vital national interests are at stake, avoiding a military build-up, and continuing to favour a special relationship with the U.S. which is the major trading partner and the primary source of protection for external security. However, Japan's diplomacy is more independent, innovative and flexible than in previous years. This is due to the realities of the new international environment, and specifically the economic issues that affect Japan's livelihood. While Japan is moving cautiously to maintain a balanced and constructive relationship with both China and the Soviet Union, it is also maintaining a sense of priorities where vital national interests are concerned. Although China is not generally viewed as a major threat to Japan's security, cooperative relations with this country are deemed essential to the stability of Asia. There are economic factors as well that bring China and Japan closer together - Japan's need for oil and other resources- China's need of Japanese capital and technology - and the potential of trade and commerce. However, the ideological factors and differences of the two societies rule out a close entente between the two nations, especially as the leaders in Peking are reluctant to give their country too great an exposure to an open society. Japan-Soviet Union relations are more complicated and have been historically cooler. From a security standpoint, the USSR is considered more of a direct threat to Japan, and the periodic show of Soviet military power near Japanese territory serves to reinforce this concern. There is also the

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issue of the northern territories which is far from being resolved, and has inhibited the conclusion of a peace treaty between the two countries following World War II. Japan's policy with the USSR can be described as "correct and reasonably cooperative." Trade between the two countries continues to increase and some progress has been made in negotiating joint industrial ventures in Siberia and the Soviet Far East. However, a more significant factor in future Japan-USSR relations, according to Gaston Sigur,l.!/ Director of the Institute of Sino Soviet Studies in Washington, D.C., was the abandonment last year, after five years of negotiations, of the proposed joint development of the Tyumen oil fields in western Siberia when it became apparent that a much better deal could be negotiated with the PRC for crude oil supplies. A deeper consideration was the associated Soviet plan to build with Japanese financial assistance a second trans-Siberian railway which would certainly be useful in augmenting Soviety military strength in East Asia in addition to moving oil. These delicate interactions of Japan with the other major powers involve the vital interests of each and have profound implications for the economic future of the entire region, as pointed out by Professor Sigur. .... As Japan negotiates with both the Soviet Union and the PRC, she does so from the strength of the Japan-US Security Treaty. This alliance allows Tokyo and Washington, individually or together, to seek advantageous agreements with the major Communist states with the least amount of danger to their security interests and with the least blackmail potential, and provides a framework for them to keep the peace from a military standpoint and to assist less developed Asian countries to move ahead economically in a politically stable environment.llJ

!.!/ Gaston Sigur, "U.S. Interests and an Emerging Asian Balance," Orbis, Fall1975, p. 1149. !11 Ibid., p. 1141.

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A New Dynamism in Southeast Asia It was the non-Communist nations of Southeast Asia that have been affected most by the suddenness and totality of the fmal tragedy of Vietnam. These countries were deeply disturbed by the apparent lack of ability of the U.S. administration to carry through policy commitments made by previous administrations in Washington. The fact that the good intentions of the White House were thwarted by a noncooperative U.S. Congress was of no consolation to most of these countries who have placed their faith in the efficacy of a system of alliances backed by U.S. commitments. Consequently, the shock of the fall of Vietnam set in motion a number of fundamental concerns, policy changes and trends which are now re-shaping the future of the region. Many Southeast Asian leaders now look upon military alliances such as SEATO as having outlived their usefulness, and believe the future stability and economic progress of the region will depend more upon the maintenance of a "balanced" or "equi-distant" relationship with the major powers as well as with neighbours. Although there are uncertainties about future U.S. intentions in the region, there is an apparent consensus that the U.S. should continue to be involved with economic aid, low key political support, and a U.S. military presence. There are anxieties about the new Communist states in their midst, and a general hope they can be persuaded to co-exist peacefully at least for the next few years. And there are the longer range questions of the ambitions of Hanoi, Peking and Moscow in Southeast Asia. Despite these uncertainties, there seems to be a consensus that in an era of detente among the major powers the Southeast Asian nations must themselves find a way to work within the system of big power politics without getting involved in the issues of the larger countries. A Singaporean scholar presented a view that is probably common within the region.

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... . In any assessment of the international politics of Southeast Asia, one should start from the standpoint that the great powers will act in their own interests: in this case, to prevent the others from dominating the area, to have access to a strategic and resource rich area, and to maintain and expand its presence. But such interests have to be achieved through a changed strategy; a shift from military confrontation to political-economic cooperation.131 With the priority need to maintain the momentum of their economic development programs, the countries of Southeast Asia are faced with the question of the allocation of limited domestic resources between development needs, and the requirements for domestic and external security; a balance that must also take into account the perceptions, intentions and actions of the major powers, and of Hanoi as well. Since each Southeast Asian country has different political, economic, social and cultural considerations, the relationship that each is working out with these other power centres is tailored to their own unique interests and situations and is resulting in a galaxy of coexisting ententes. But as pointed out by Minister Ghazali bin Shafie of Malaysia, "Southeast Asian states have been quick to grasp the mutually reinforcing nature of national and regional resilience .... " There seems to be agreement among them that some of their common situational problems call for coordinated efforts that will give these nations added leverage and weight in the wider realms of international economic affairs. The reports in the media of the recent ASEAN summit meetings in Bali indicate agreement was reached on a common perception of the future of the region and of the

!1/

Lau Teik Soon, "Southeast Asia in the New Power Situation," Pacific

Community, October 1975, pp. 65-77.

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general directions in which the five countries need to mutually direct their efforts. Agreement by the heads of state on a Treaty of Amity and Cooperation and on the new Declaration of ASEAN Concord gives a fresh sense of purpose to ASEAN and provides a solid basis for closer collaboration in the economic, social, and cultural fields - and significantly in political and security affairs although this is played down in the official communiques and reports. It is clear that the ASEAN is capable of even more demonstrable progress in the common interests of the member countries. This will depend of course upon the continuance of the dynamic spirit of cooperation of the ASEAN leaders, as well as upon a framework of cooperative relations with the industrial nations that will attract the support and investment needed for the economic development of the region. Continuing Sources of Tension and Conflict Not all countries in the Pacific welcomed the rejuvenation of ASEAN. Shortly before the Bali summit meeting, Hanoi denounced the organization as an American based antiCommunist plot despite the fact that the member states had previously declared that ASEAN would not become a military alliance or a grouping of nations hostile to the new regimes in Indochina.-111 And only a week after the summit the official Communist party newspaper in Hanoi and the radio broadcasts from there urged underground movements in Southeast Asia to step up the fight to overthrow nonCommunist governments in the region. Only time will tell whether this is the customary rhetoric to bolster the spirit of the indigenous Communist parties or a prelude to a renewed struggle in Southeast Asia. There are !.1/ Ed. Note: Hanoi has since adopted a more conciliatory foreign policy toward the ASEAN states.

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two commonly held theories on this. One is that Hanoi will soon become an aggressive centre for spreading Communism throughout the region. The military equipment at its disposal provides an overwhelming capability to launch this campaign at any time. The other theory, and one that seems to be gaining increasing international acceptance, is that the leaders in Hanoi will be preoccupied for the next few years at least with economic reconstruction and consolidating their hold over present conquests to offer anything more than low key support of regional insurgencies. The Vietnamese Communists have a penchant for repeating political and military stratagems that were successful in the past. Now that the general elections "to bring about the unification of Vietnam" have been completed and foreign observers expelled from the South, the Lao Dong party, with its well entrenched cadres, is even in a stronger position to launch an accelerated version in the South of the five year, five stage program used so successfully in the 1950s to restructure the society and economy of North Vietnam. They may already be well into a first or "economic leveling" stage designed to neutralize the urban businessmen and the wealthier peasantry of South Vietnam. 15/ In East Asia the prospects for stability seem somewhat better than a year or so ago when there were many more imponderables involved. The perennial antagonisms between the Republic of China on Taiwan and the PRC seem to be largely ritualized and superseded by a tacit understanding that the use of military force would benefit neither side and alienate the user from the community of nations. There are clearly grounds for optimism that the leaders on both sides of the Taiwan Straits may evolve even further "understandings" that could eventually include economic affairs 15/ For a fuller discussion of this program, see George A. Carver, Jr., "The Faceless VietCong," Foreign Affairs, Apri11966, pp. 347-372.

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as well. But in the final analysis the continuing stability of this region will be as much a function of American security guarantees and influence with the PRC as of the attitudes toward Taiwan that emerge from the new leadership in Peking, and the willingness of all parties to accept the de facto status existing on either side of the Taiwan Straits. The situation on the Korean peninsula has also shown signs that both sides are adjusting to the realities of the new international relations in East Asia. Although still tense and fraught with danger, there seems to be an over-all decline in military and subversive incidents since 1971, and the North has not adopted a policy of all-out military confrontation despite its threats to do so. There are some significant internal and external constraints on the ability of the North to wage widespread aggressive action, but most notably the apparent desire of the major powers of avoid an outbreak of warfare in this region. Both Peking and Moscow have made strong efforts to avoid involvement in this area in any issue that would strain their relations with the U.S. or Japan. And as indicated earlier, the U.S. has made it quite clear that the outbreak of a war from the North would be dealt with promptly and forcefully. The international community obviously favours a compromise solution to the Korean problem. If major hostilities were to break out in this area, the entire international order in Asia-Pacific would be put in jeopardy. But the issues of Korea, Taiwan, and Communist subversion in Southeast Asia all stand in the shadow of the ideological dispute between Peking and Moscow. The policies of both major Communist powers toward the other countries will continue to be dictated by this conflict between themselves, as well as by the policies of the United States. The present era still finds the two Communist powers divided on fundamental issues - the ideological leadership and strategy in both the Communist and developing world,

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and the clash of interests at the nation/state level. Since the dispute first became public in the early 1960s, neither side has given way on ideological differences, and the Soviet Union has shown few signs of adjusting to China's great power aspirations. The two governments have periodically discussed their differences and in 1974 Peking in a wellpublicized message to Moscow made an apparent attempt to ease tensions between the two, but this may have been a ploy to keep the U.S. guessing about Chinese intentions. Although border incidents have dropped off in recent years, the fact remains that both sides still have formidable military forces facing each other in the frontier areas. Nevertheless, it is somewhat reassuring that in the seven years since the first major military clashes occurred along the border, the incidents have not escalated into major conflagration, even with the periodic rumours that the Soviets were planning to launch a pre-emptive attack against China's nuclear installations. The propitious time for such a move by the Soviets has now passed, which should be a source of relief to China's neighbours for the volcano would most certainly spill over on all of Asia-Pacific. As indicated earlier, both Communist powers may make an attempt in the post-Mao era to reduce the level of tension between them. But the obstacles to a fundamental SinoSoviet reconciliation are formidable, complex and unpredictable. A partial settlement of differences depends upon the internal situations in both states and particularly in China, and on the respective relationships with the U.S. At this juncture, it appears that the Sino-Soviet rift will require a long time to completely heal in any event. The Outlook The international setting of Asia-Pacific is fundamentally different from a year or so ago and the evolution continues. Alliances have been loosened and internation al relationships

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are less structured than before, permitting individual nations more flexibility to adjust foreign policies and priorities in terms of self-perceived national interests. Most states seem to be deliberately pursuing cooperative relationships that are unlikely to produce tensions, and in some instances are accommodating to other countries regardless of ideological or past differences. Nevertheless, there is increasing evidence, although not necessarily openly expressed, of a new sense of priorities and clear distinctions between allies and countries with common objectives on the one hand, and potential foes or rivals on the other. For there is a common perception that many of the tensions, threats and uncertainties of the old era remain and are more worrisome in some cases. The roles of power, violence, hostility, subversion and duplicity are still significant and will continue to endanger the stability of the region. But all nations at this juncture seem to appreciate or are constrained by the need for restraint and responsibility in pursuing their own national interests. The stable balance among the major powers will continue to set the theme for the international relationships of the entire region even though there are some negative feelings toward detente that may lead to a hardening of attitudes. Within this framework the Sino-Soviet rivalry remains as the greatest source of uncertainty and regional tension. In recognition of these sensitive relationships and the longer term strategic and diplomatic implications, all nations seem to be adjusting their policies to maintain a correct and balanced attitude toward both Communist powers while avoiding too close ties with either, but occasionally "tilting" to serve short term national interests. The role of American power, influence and diplomacy is central to maintaining the regional balance, and to achieving even more productive relationships in the future. The equilibrium provides a pause to negotiate differences between

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countries and evolve further understanding that might at least lead to the external toleration of different ideologies and political systems, and to reordering national priorities to constructive economic and social progress. Meanwhile, more emphasis is in fact being given to economic and diplomatic measures as a means to promote national interests and security, rather than reliance on military force. In Southeast Asia, the ASEAN nations are moving with a new sense of cooperation with respect to shared interests and problems as they pursue policies of national and regional "resilience." The outlook there for economic progress and stability is certainly more promising than a year ago. On balance, there is cause for cautious optimism for the future of Asia-Pacific provided nations continue to pursue constructive relationships and avoid pressing their own national interests and ideologies beyond the thresholds of tolerance.

ASIA-PACIFIC AND THE EMERGING ECONOMIC ORDER George J. Viksnins

Economic and political events of the past several years have invalidated many detailed forecasts of economic relationships and seem to have made widely-ranging political assessments an obsolete art form. In the economic profession, received neo-classical and neo-Keynesian orthodoxy is increasingly being questioned; it is certainly true that change is taking place rapidly in the "real world" of foreign trade and investment, and nowhere more rapidly than in the AsianPacific countries. In the early 1950s there was a lot of miive optimism around in the economics profession about the development process generally. This generally accepted optimism embraced trade, aid, and investment - it was widely believed that all three relationships were mutually beneficial for the "centre" countries as well as the "periphery." While many recipient countries - "South" in today's parlance doubted that this was really the case from the very outset, and moved to restrict trade and investment, most development economists!.! continued to apply neo-classical "comparative advantage" analysis to economic relations between the "North" and the "South."£/ It might also be pointed out that in some cases, this optimism was really an expression of deliberate cant and cynical misrepresentation of the bene11 An early statement of this problem can be found in Hla Myint, Economic Theory and the Underdeveloped Countries (London: Oxford University Press, 1971), especially Chapters I-VII; see also Myint's The Economics of the Developing Countries (London: Hutchinson University Library, 1973), Fourth Edition, Chapters 1-4 and Chapter 9. ?J For a sharper delineation of this, see Roger D. Hansen, "A 'New International Economic Order?' An Outline for a Constructive U.S. Response," Overseas Development Council Discussion Paper, No. 19, July 1975.

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fits which were to flow from particular aid projects or specific multinational corporation (MNC) investments to the inhabitan ts of the less developed country (LDC). Diplomatic representatives of "centre" countries occasionally became pawns of business interest, viewing their primary diplomatic duties as squiring big business executives around "host country" capitals, and their economic assistance program too often turned out to be very little more than financing schemes for export promotio n. Add a dash of clandestine activity by intelligence agencies and the unsavoury mess makes one yearn for a return to the days of simple isolationism, or even straight-forward colonialism. Currently fashionable "revisionism" in the development literature certainly promises to accelerate the trend toward isolationism. Conservative critics of aid programs, who have held that foreign assistance tends to be counter-productive all along, have been joined by "liberals" and "radicals" of various sorts, who invariably focus on ulterior motives and decry the political foundations of foreign aid - regarding it as an instrumen t of neo-imperialisml/ used primarily to bolster the "status quo" in reactionary countries. In economic terms, these revisionists argue that external assistance encourages excessively capital-intensive productio n techniques, is often simply a substitute for domestic savings, and leads to an unhealthy dependence upon Western technology and entrepreneurship.4_/ These views certainly have been echoed by intellectuals in many recipient countries; this seems to be particularly true of Latin American writers on the subject, who are very conscious of the evils of political

lf See, for example, Teresa Hayter, Aid as Imperialism (London: Penguin Books, 1971). V For two representative articles along these lines, see Keith B. Griffin and J .L. Enos, "Foreign Assistance: Objectives and Consequences," Economic Development and Cultural Change, April 1970, pp. 313-327, and Thomas E. Weisskopf, "The Impact of Foreign Capital Inflow on Domestic Savings in Underdeveloped Countries," Journal of International Economics, Feb. 1973, pp. 25-38.

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and economic "dependencia."~/ In a few instances, recipient country concern about the counter-productive aspects of foreign aid has even been translated into action. For instance, it is argued that Tanzania's policies of self-reliance were consciously based upon such motivation and that U.S. aid relations with India were terminated because of Indian dissatisfaction.§._/ The arguments used by the "radical revisionists" concerning foreign investments, particularly MNC direct investment in the developing countries, have been even more vehement. In the most extreme cases, the poverty of the "South" is taken to be directly and simply caused by the accumulation of excessive wealth in the "North"; in radical or neo-Marxist terms, the imperialism of the industrial capitalists is a logical necessity, a stage which is inevitably reached before the final downfall of the system. Most or all of the following arguments against direct foreign investment are usually made. First, as in the case of aid, the critics point out that an inappropriate capital-intensive technology is forced upon the host country, which typically has surplus labour and little capital. Curiously, this point is sometimes made in the same breath with the complaint that the MNC dumps too much second-hand, "obsolete" machinery on their LDC subsidiary. Second, and closely related, the MNC is seen as rewarding only the oligarchs of the LDC - legally as well as illegally, it has recently come to light in some cases - and thus contributes to a more unequal distribution of income ~ Even though this ~eems rather difficult to measure statistically _for most Latin American countries - as a percentage of GNP or imports, say, foreign aid is rather small. See, however, Osvaldo Sunkel, "Big Business and 'Dependencia': A Latin American View," Foreign Affairs, Aprill972, pp. 517-531.

0 For somewhat more detail on this, see Charles R. Frank, Jr., and Mary Baird, "Foreign Aid: Its Speckled Past and Future Prospects," in C. Fred Bergsten and Lawrence B. Krause (eds.), World Politics and International Economics (Washington, D.C.: The Brookings Institution, 1975), pp. 133-167. See also George J. Viksnins, ''The Decline and Fall of U.S. Foreign Aid," Intereconomics, July 1975, pp. 214-216.

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and higher unemployment. Third, MNC investments often involve merely a take-over of existing production facilities, which leads to greater market power for a few firms and discourages competition. Such investments often receive special preferences, such as tax holidays, exemption from import controls, protective tariffs, and the like, which may not be available to local entrepreneurs. "Investment promotion" laws may also lead to unhealthy competition among neighbouring developing countries anxious to attract foreign investment (Singapore bidding against Hong Kong and Bangkok) and lead to a serious erosion of scanty government revenue sources. Although most specialized investment codes customarily envisage a fairly rapid phase-out of tariffs and tax-holidays, in practice "promoted industries" often promote chiefly requests for further preferential treatment, lobbying for higher tariffs and lower taxes from the very outset. Finally, there is the general charge of "looting of scarce national resources" and "exploitation," usually summarized in terms of radical researchers finding excessive rates of profit being earned by MNCs on their "Third World" branches or subsidiaries. Critics of MNC investments point out, as if this was a startling revelation, that these corporations are interested in maximizing their world-wide after-tax profit. Clever use of transfer pricing and tax havens involves the parent MNC selling its U.S. output to a subsidiary in the Bahamas, Bermuda, the Cayman Islands, and Panama (among others), raising the price there, and then reselling it to the ultimate developing country destination. Thus, the corporation's taxes in both the U.S. and the final consumer market can be minimized and postponed, perhaps indefinitely)_! On the other hand, while very few academicians will be 7J For further details, see Ronald Muller, "Poverty is the Product," Foreign Policy, Winter 1973-74, especially pp. 93-100. This same argument is also outlined in Richard J. Barnet and Ronald Muller, Global Reach (New York: Simon and Schuster, 1974). For a particularly naive view on this, see Richard D. Wolff, "Modern Imperialism: The View from the Metropolis," American Economic

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inclined to argue that MNC investment invariably represents an unmixed blessing to the recipient country, some other evaluations can be cited, which come up with contrary fmdings to the sort of Global Reach exploitation thesis. For example, Peter F. Drucker has investigated a number of these charges by using data derived from a private survey of some fifty major firms. Drucker finds that very few MNCs rely heavily upon their investments in the developing countries in terms of their contribution to either total sales or total profits. Far from being the "mainstay of corporate capitalism" or an historically inevitable "higher stage," MNC operations in LDCs are typically less important than their Milwaukee or Portland district sales totals, accounting for 5-l 0% of total sales and a similar percentage of total profits. Second, in any general development and/or growth model, it can be pointed out that foreign resources are not absolutely necessary for economic growth. According to Drucker, both of the really "miraculous cases" of economic development of the last hundred years, Canada and Japan, relied on internal generation of resources for the most part. Canada restricted foreign investment to a few specific sectors (and the total investment level in Canada by Canadians themselves was ten to twenty times the inflow of foreign capital). Furthermore, Japan used "practically no foreign capital" in achievi~g very rapid growth and even today severely restricts its role. Thus, very frankly, the choice is not between stagnation or exploitation by foreigners. Third, the national interests of recipient countries need not be necessarily in conflict with MNC desires to maximize net profits. Beyond the obvious comment that an increase in output, employment and trade compared to a situation of no change at all will typically benefit both Review, May 1970, pp. 225-230. A more sophisticated argument, focusing specifically on the role of plantation-type investments, is found in George L. Beckford, Persistent Poverty: Underdevelopment in Plantation Economies of the Third World (New York: Oxford University Press, 1973).

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partners (though, to be sure, the gains may be unequal), a somewhat more subtle point can be made - because of the provisions of the tax system, it is very often the home countries of the MNCs that lose revenue and gain unemployment as a result of the capital outflow. Finally, says Drucker, it is foolish to use what amounts to a nineteenth century view of direct foreign investment to describe reality in the last quarter of the twentieth century. The nineteenth century relationship of a European "parent" with wholly-owned subsidiaries or "branches" in Asia, Africa, or America is completely inapplicable; nearly all investment today takes the form of joint ventures. Virtually all developing countries have extensive laws governing and regulating foreign investment, and foreign investment even on a minority partnership basis is becoming increasingly common.lU Other investigators tend to support the "centrist view" concerning MNC relations with the developing world. For example, a World Bank group economist, Dale R. Weigel, found that" .... total foreign payments, including remitted dividends and interest, of U.S. manufacturing corporations in Latin America were only 8 percent of sales in 1966, of which possibly 5 percent was for imported goods. "2./ Given such numbers in the aggregate, it is hard to believe that tax havens and sophisticated triangular trade arrangements are really all that common and all that significant. In short, no single, overall evaluation of direct foreign investment is possible in this sort of context, but "radical analysis" has probably contributed to a serious reassessment by "non-radicals," and changing attitudes on the part of recipients, which is probably more important. Whether such attitudinal shifts would have occurred anyway is a matter of conjecture, but the

fil Peter F. Drucker, "Multinationals and Developing Countries: Myths and Realities," Foreign Affairs, October 1974, pp. 121-134. 2./ Dale R. Weigel, "Multinational Approaches to Multinational Corporations," Finance and Development, September 1974, p. 29.

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general business situation will surely continue to be affected by the views of these zealous and proliferating MNC critics. National, regional, and international approaches will continue to be proposed, and some will actually be tried. As one astute observer puts it: .... the Mesozoic Era of direct foreign ownership investment has ended. A more limited notion of "property" will evolve for this purpose. The future belongs to the adaptable and their lawyers.l-.21 Third World Demands In an oft-cited observation, Lord Keynes remarked that the world of action is ruled by the world of ideas. "The gradual encroachment of ideas," as Keynes puts it, is much more powerful than the force of vested interest - practical men, who may believe themselves completely exempt from intellectual influences, in fact are usually the unwitting slaves of some "academic scribbler" of a few years ago (particularly if the media finds the "scribbler" to be fashionable). The revisionist critique of foreign aid and direct investment has influenced the real world largely because of such "encroachment." While being careful to avoid simplistic overstatement in this regard, it is certainly plausible to argue that some of the Third World challenges to the legitimacy of present arrangements in the international economic system are rooted in "liberal" and "radical" questioning of their legitimacy in the academic literature (largely published in "First World" industrial countries), which in turn has been "picked up" by the press. Third World spokesmen point to the fact that a dozen !!lf Covey T. Oliver, writing in the October 1972 issue of the American Journal of International Law, as cited in Robert 0. Keshane and Van Dorm Oooms,- "The Multinational Firm and International Regulation," in C. Fred Bergsten and Lawrence B. Krause, eds., World Politics and International Economics (Washington, D.C.: The Brookings Institution, 1975), p. 208.

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wealthy countries containing about 8% of the world's population produce about 40% of the "Gross Planetary Product" (using up an even greater percentage of resources and energy supplies in the process). These twelve countries have an average GNP per capita of nearly US$6,000. If we include another 28 high-income countries in this category, it can be shown that the "rich" one-fourth of mankind receives about 80% of the total income. Down at the other end of the scale, the poorest 60% of mankind (in nearly one hundred separate countries) has to make do with less than 10% of the world's income (or output, or resources, or energy). Given the existence of such inequality, a transfer of resources - both direct and indirect - will involve marginal income units of low utility in the "rich" countries being transferred to the "poor," where the marginal utility should be enormous. The following list represents a recapitulation, albeit very brief, of Third World initiatives in formulating the provisions of the so-called "New International Economic Order." No single such listing can be fully accurate, since Third World demands (Group of 77 Demands, as they are sometimes termed) have been made in various places and at different times, but we probably should manage to include here most of the key points raised at the most recent UNCT AD IV in Nairobi as well as in last year's Bank Group talks. The following four areas can be noted as important in these discussions. I. In the field of official development assistance, the "South" demands that the "North" meet, as quickly as possible, the 1% of GNP target in new capital flows. While some of the LDC spokesmen view these as indemnity payments for past exploitation, this need not be brought into the argument. As was pointed out by the Pearson Commission some six or seven years ago, actual resource transfers were falling short of this goal rather badly. Since the Pearson Report, this short-fall in economic assistance has become

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even larger, particularly in the case of U.S. bilateral aid falling recently. Rather ironically, since the U.S. was a generous donor in the early years of official development assistance programs, some recipient countries in Asia are currently finding themselves in the position of giving "reverse foreign aid" to the United States, i.e., loan amortization and interest payments at present exceed gross capital transfers. II. The Pearson Commission suggested a 70%-30% split insofar as the 1% target of GNP mentioned above was concerned; the 70% was intended to take the form of official development assistance (ODA), while the 30% remaining was to be in private capital flows. One of a number of key inconsistencies in more extreme LDC rhetoric may be noted in this connection - while the 1% aid target obviously includes a rise in private investment, "Southern" demands usually also mention "elimination of the traditional international legal restraints on the expropriation of foreign direct investment." Insisting simultaneously on the righteousness of what might be termed confiscation and also upon a maximization of exposure for such capital to be taken without compensation may well strike the average businessman as a little strange. A related "Southern" goal in this area of foreign investment concerns policing the activities of MNCs so as to increase the flow of benefits to recipient countries (as opposed to "just the companies themselves"). Specific suggestions usually involve the reduction of charges on the transfer of existing technology as well as the development of an "intermediate technology" better suited to the relevant factor-price proportions usually found in the developing countries, i.e., labour-intensive production techniques. Changing of patent laws and other institutional constraints presently leading to a monopoly of technological knowledge is often recommended. Special efforts to create, expand, and modernize "Southern" technological and scientific organizations are greatly needed, it is argued -

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many research activities in the developing countries are geared to a "Northern market" in ideas as opposed to being directed at the real needs of the country in question. Thus an Indian econometrician may be doing abstruse research at the very frontiers of Western theory, but not know the price of rice in the market across the street. III. In the area of foreign trade, developing country demands have become quite numerous in recent years. As some of the original demands - for a system of generalized trade preferences, for example - have borne fruit, demands which were only of a general nature have become more specific. Though events of the last few years have led economists to question the validity of the so-called Prebisch thesis,!.l/ most of the proposals made by the "Southern" countries are closely related to this concept - that primary-producer country export-import terms of trade tend to decline over time (terms of trade are defined as the average export unit price divided by the average price of an import unit). (1) Developing countries are asking for various forms of international commodity agreements which would stabilize raw material prices, hopefully at a higher level than in the past. (2) Non-reciprocal tariff reductions by the "North" to encourage developing country exports. (3) Greater emphasis on primary-product producing country export diversification. Some Third World spokesmen have gone so far as to provide specific quantitative targets in this regard - e.g., the UNIDO declaration in Lima was that 25% of total global industrial output (compared to 7-8% of the total presently) should be produced in the developing countries by the year 2000.

!1/ Named after R. Prebisch, well-known Argentine economist-statesman and founding father of the United Nations Conference on Trade and Development (UNCTAD). For further detail, see R. Prebisch, "Commercial Policy in the Underdeveloped Countries," American Economic Review, May 1959, pp. 251-273. For an evaluation, seeM. J. Flanders, "Prebisch on Protectionism: An Evaluation," Economic Journal, June 1964, pp. 305-326.

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Many economists can undoubtedly find flaws in these proposals. Trade preference systems may have to become more and more preferential over time, subsidizing weak and inefficient producers and inhibiting timely re-allocation of resources. Another area of serious concern is the naive belief in the "industrialization equals development" syndrome - in the early days of development planning, most countries tended to over-emphasize industry and totally neglect agriculture. However, as Roger Hansen has pointed out, it is not very important that "Southern" demands be economically consistent and rational - what is important is that they are being made as non-negotiable, fixed demands. To cite Hansen: The rapidly escalating rhetorical demands of the developing countries are in great part a reflection of their perceptions of a changing power balance in the world's political economy. They are aware of the growing restraints on the Northern use of force in North-South conflicts, they have witnessed the fissures within the Northern bloc as industrialized countries and corporations have competed for special economic arrangements with resource-rich developing countries, and they have observed the success of the OPEC countries in quintupling the price of oil in less than two years. ill A fourth major area covers the management and evolution of the international monetary system. Developing countries are pressing for a greater voice in running the existing international institutions, such as the International Monetary

!JJ Many Western economists would argue that OPEC is a special case, since few resources other than petroleum face an inelastic demand, and that in the longer run the price-elasticity of demand even for petroleum is significantly higher. At the time of Hansen's writing, however, it appeared that "cartelization" was a growing threat. Cf. Roger D. Hansen, A "New International Economic Order?"- An Outline for a Constructive U.S. Response (Washington, D.C.: Overseas DeveloJ?ment Council, July 1975), p. 13. See also C. Fred Bergsten, "The Response to the Third World," Foreign Policy, Winter 1974-75, pp. 14-15.

242

Fund and the agencies of the World Bank Group, for a greater emphasis on regional arrangements (such as ASEAN and the Asian Development Bank), and for a greater use of the multilateral aid techniques. In this last connection, the various proposals to link the creation of Special Drawing Rights (SDRs) and development assistance in a quasiautomatic fashion are worthy of special mention, since such a linkage has gathered broad support among Third World countries. 13 / There are a number of arguments that can be made in favour of establishing such a relationship - it would diminish the "patron - client" posture often characteristic of existing bilateral arrangements, and it would improve general support for greater use of SDRs and the creation of additional SDR balances, neither of which appears likely for the near-term future. Some progress has been made in this fourth area - one can point to the expansion of the Group of Ten to the Group of Twenty (as well as the Group of Twenty-four), to greater dialogue within U.N. organizations (though at times that dialogue has threatened to tum into a shouting match), as well as to the opening of regional development banks and creation of World Bank regional representatives as some concrete examples. Whether these are the beginnings of a long-term trend toward greater cooperation or whether they will soon be forgotten in a world of hostile confrontation remains to be seen. Recent Economic Trends in the Countries of Asia-Pacific In the context of this global setting we now tum to the more specific focus of our subject: the general question of whether there exists a special Asian perspective in this so-called "New International Economic Order." To narrow !1/ One of the earliest reviews of this issue can be found in James W. Howe, Special Drawing Rights and Development: $10 Billion for Whom? (Washington, D.C.: Overseas Development Council, 1972). A more recent discussion can be found in Mahbub a! Haq, '"Toward a New Framework for International Resource Transfers," Finance and Development, September 1975, pp. 6-9,40.

243

this question still further, we can ask - where do the relatively successful developing countries of the Asia-Pacific region fit into the "Third World" demands for a redistribution of world resources and economic power? In the last few years, it has become fashionable, in fact, to speak of "Third World" as a way of referring only to the successful developing nations, and to reserve the term "Fourth World" for the very poorest and the most underdeveloped nations of the "South." It has been generally recognized that "Southern solidarity" is probably a myth; the hundred-plus countries of the Group of 77 will all agree on very few specific issues. While all probably share a genuine antipathy for imperialism, neo-colonialism and the like, it is obvious that there exist both present and potential disagreements - and these cover matters of both an economic and a political nature. Some countries may prefer market-oriented solutions to the conscious use of either central national or international planning; still others will favour a high oil-rubber-tin-rice price, while their neighbours would benefit from a low-cost import. Before we tum to a final summary of these questions, some recital of the facts seems to be in order. Table 1 summarizes some very basic statistics for the thirteen major countries of a region which might be termed ''Asia-Pacific." We should probably have included Laos, Cambodia, Burma, Mangolia and Brunei for the sake of completeness, but the trade and investment totals for the region as a whole would not have been affected very much. The two largest countries shown in Table 1 can be considered, in a very general sense, as alternative and competitive models for Asian economic development. Both Mainland China and Japan have managed to bring their population growth rates under control, or at least down to "reasonable" levels (although Mainland China's estimated 1. 7% growth rate implies the "mind-boggling" prospect of a doubling of its population by the year 2018).

244

Although Japan's per capita income growth is the highest in the world (except for some OPEC countries), it must be recognized that, by our best estimates, Mainland China's per capita GNP has been growing at a rather respectable rate of 4-5% per year. The wealthiest developing countries of Asia-Pacific seem all to be following what might be termed the "Japanese model." This approach to growth appears to be chiefly based upon ( 1) a fundamental reliance on the market system, allowing the forces of supply and demand to allocate resources and provide incentives, (2) a governmental system that is sensitive to the needs of the populac~ and to public opinion, yet basically sympathetic to business interests, (3) a theoretical view that economic growth is based upon the accumulation of capital and an advancing technological base, and (4) an "outward-looking" economy, which encourages rapid growth of exports as a major sectoral contributor to overall growth and development. While it is important to avoid doctrinaire overstatements on an issue as complex and loaded with emotional-cultural overtones as to what works best in economic development, we can point out that The Wall Street Journal - often castigated, of course, as the mouthpiece for unbridled capitalism - has recognized that the "capitalist-roader countries" of Asia-Pacific have become "where the action is." To quote from the advertisement, which an~ounces the formation of The Asian Wall Street Journal (to be published in Hong Kong) . .... Asian economic growth is spectacular. [From] 196919 74 the GNP of nine East Asia countries grew at a rate nearly triple that of the world's industrialized nations and almost four times that of the U.S. and this is real GNP growth - after eliminating inflation's effects: Examples of GNP growth: The Philippines +34%; Thailand +37%; Japan +40%; Malaysia +41%; Indonesia +42%; Hong Kong +58%; South Korea +58%; Singapore +72%; Taiwan

245

+143%. Today, trade between Asia and the U.S. exceeds that between the U.S. and the entire European Economic Community. 141 TABLE 1 Population and Production Aggregates for Selected Asian Countries, 1973 Country

Population (millions)

GNP per capita

Population Growth Rate 1960-73

GNP per capita Growth Rate 1960-73

China (PRC) Indonesia Japan Philippines Thailand Korea, Rep. of Vietnam, D.R. (S. Vietnam) China, Rep. of Korea, D.R. Malaysia Hong Kong Singapore

811.4 124.4 108.4 40.2 39.4 32.9 23.2 19.9 15.4 15.0 11.3 4.2 2.2

270 130 3630 280 270 400 II 0 160 660 340 570 1430 1830

1.7 2.0 1.1 3.0 3.1 2.2 2.8 2.6 3.0 2.8 2.6 2.3 2.1

3.8 2.4 9.4 2.3 4.8 7.1 0.3 0.6 6.9 4.6 3.9 7.0 7.1

SOURCE: Internationa l Bank for Reconstruction and Development, WorldBankAtlas, 1975,p.16

To be sure, GNP growth is not everything. Since GNP is a measure of production and not consumptio n and/or want satisfaction, it sometimes measures things in a perverse way. An economic system set up to produce cars that fall apart after twelve months will show a vastly higher GNP

!1/ See any recent issue of The Wall Street Journal or the Far Eastern Economic Review, 7 May 1976, pp. 4041.

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growth than a country that builds cars that last for twelve years; an earthquake or a flood will tend to increase GNP (though not NNP, net national product) in the year of its occurrence, as the country starts to replace destroyed capital. Gasoline being burned up by the commuting businessman as he sits in a traffic jam will be counted as a plus for GNP, but if he washes his own car, that will not. Similarly, a rising population will increase GNP, ceteris paribus, but resource depletion will not be subtracted from it. The fact that GNP is an imperfect measure of economic growth is being widely recognized by most Asian scholars; a Thai social scientist paints the following dreary picture for the consequences of GNP growth in the 1980s; . ... the cereal supply will be barely adequate for the populace, while other food supplies, especially protein, will be very short, as has been apparent since the early 19 70s. The supply of fish will dwindle due to overcatching from the sea and to pollution of all waterways and the ocean. The arable land for cultivation, 90 million rais, will be too small for a population of fifty-five million and will not yield enough to feed the people.... Resources in Thailand, especially mineral, will be depleted. Huge deposits of oil shale may be tapped, but at a high cost. Forest reserves, estimated to be a mere 15 percent of the forest in 1973, will be further destroyed. Wood products, which have been major export items, will be exhausted by 19 76, and importation will begin.Z5/ To continue for a moment, in our discussion of this crucial point, we should not be misled by aggregate statistics. We should, of course, seek to replace GNP, a faulty statistic in many ways, by better measures of economic welfare (such as the Tobin-Norhaus MEW statistic or the Net National

!2 Amara Raksastaya, "Foreign Aid to Public Administration in Thailand in the 1980s," SEADAG Paper 74-7, presented at the SEADAG Seminar in Chieng Mai, 20-22 June, 1974.

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Welfare measure developed by the Japanese Economic Planning Agency) ..!§/ However, if economic growth in Asia is also accompanied by persistent population pressure and growing inequality of income distribution,111 the spectre of Parson Malthus will return - and return in the very near future, bringing about vast political and social consequences. The most dramatic example of Malthusian population dynamics in Asia-Pacific is, of course, Indonesia. Though extraordinarily rich in natural resources and enjoying sharply higher export earnings at present, Indonesia will experience severe population pressure in the current decade, adding some 25 million people to its population by 1980. The island of Java, in particular, is already experiencing severe unemployment and nutritional deficiency problems. Despite considerable foreign assistance, the situation is deteriorating; a massive breakdown of the political framework and of traditional social relationships would threaten not only foreign trade and investment, but perhaps the stability of the rest of the region as well. Thus, the broad overview given by Table 1 is not necessarily an optimistic one. A continuation of past trends would leave the majority of the people of many of these nations still desperately poor by the end of the decade. Java will be subject to tremendous absolute population pressure, and relative pressure will be on the rise in both Thailand and the Philippines. Though, because of these considerations, there is no room for complacency, our overall assessment of economic trends in the region has to share the basic enthusiasm and general optimism shown by The Wall Street Journal. Since the 197475 period produced the worst recession on record in the 1jJ See Frederick R. Strobel, "GNP and Economic Welfare," Federal Reserve Bank of Atlanta, Monthly Review. June 1974, pp. 74-79.

!1J It has been pointed out that economic growth leaves the lives of the poorest half of the population unchanged or alters them for the worse. See H. B. Chenery, Redistribution with Growth (London: Oxford University Press, 1974).

248

past forty years for the U.S. and the other industrialized countries, which have been the major trading partners for Asia-Pacific, the "weathering of this storm" should produce calmer waters ahead. According to the Far Eastern Economic Review, Hong Kong and Singapore should experience real growth rates of as much as 8-10% in 1976, compared to only 1-2% in 197 5. Interestingly, both South Korea and Thailand did considerably better in 197 5, growing by 7.4% and 6.0% respectively; the year 1976 promises to bring roughly the same growth for both of those nations as well as roughly equivalent expansions for Malaysia, the Philippines, and the Republic of China. According to the very latest reports, the economic recovery in both the United States and Japan is running ahead of earlier expectations, which should bode well for the export sectors of all of the abovementioned nations. Foreign Trade and Investment Trends of Asia-Pacific Tables 2A and 2B provide a broad summary of the commodity exports and imports of the principal countries of the Asia-Pacific region. While Japan itself accounts for roughly half of the total, taken together these countries provide the world with approximately US$1 00 billion in exports and represent a like amount as a market for the exports generated by the rest of the world. Table 3 shows export performance for these countries for the 1970-74 period and provides an annual growth rate computation. It is interesting to note that very rapid growth in export volume as well as the 197374 commodity price boom have made most earlier analyses and forecasts appear nearly ludicrous. Thus, the extensive study headed by Hla Myint and done for the Asian Development Bank forecast 1980 export earnings of less than US$10 billion for the countries of Southeast Asia (mainly ASEAN); by 1974, Indonesia itself had nearly surpassed that projection for the end of the decade, and all of the other countries

TABLE2A Asia-Pacific Countries 1974 Exports (in millions of U.S. dollars) Country

Total

China, Mainland 5202.2 China, Rep. of 5521.0 Hong Kong 5958.4 Indonesia 7449.7 Japan 55513.5 Korea, N. 242.8 Korea 4460.2 Malaysia 4235.9 Philippines 2673.0 Singapore 5484.6 Thailand 2492.6 Vietnam, N. 39.5 (Vietnam, S.) 141.3 n.a.

u.s.

Industrial Countries

2202.9 3896.3 3761.9 5861.6 21709.3 168.6 3611.5 2282.3 2414.2 2162.6 1262.8 30.0 52.8

= not available or not applicable.

115.3 2052.9 1573.5 1526.8 12928.5 -

1492.2 595.4 1133.1 776.2 188.2 -

9.3

Japan

1185.6 849.1 413.3 3954.8 n.a. 98.8 1380.2 713.9 932.4 637.6 639.2 27.3 27.9

U.S. as Japan as %of total %of total

2.2 37.2 26.4 20.5 23.3 n.a. 33.4 14.0 42.4 14.2 7.6 n.a. 6.6

22.8 15.4 6.9 53.1 n.a. 40.7 30.9 16.8 34.9 11.6 25.6 69.1 19.7 N

.j::.

"'

N

TABLE 2B Asia-Pacific Countries 1974 Imports Countries

Total

China, Mainland 6652.5 China, Rep. of 6984.1 Hong Kong 6773.1 Indonesia 3754.1 Japan 62063.6 Korea, N. 835.8 6854.4 Korea, Rep. of Malaysia 4156.2 Philippines 3444.0 Singapore 8592.8 Thailand 3215.8 79.0 Vietnam, N. (Vietnam, S.) 1325.5

Industrial Countries

4828.7 4969.4 3580.7 2463.2 20167.5 634.1 4 772.1 2317.6 2271.4 3922.0 2136.8 55.4 932.4

U.S.

887.7 1685.1 915.8 600.7 12681.0 -

1701.5 397.3 828.8 1132.8 406.5 742.1

Japan

2181.6 2221.2 1416.3 1139.2 n.a. 277.0 2620.6 915.5 923.9 1528.5 1009.8 22.5 114.8

Vl

0

U.S. as Japan as % of total % of total

13.3 24.1 13.5 16.0 20.4 n.a. 24.8 9.6 24.1 13.2 12.6 n.a. 56.0

32.8 31.8 20.9 30.3 n.a. 33.1 38.2 22.0 26.8 17.8 31.4 28.5 8.7

SOURCE: International Monetary Fund,Direction of Trade, 1970-74, October 1975.

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TABLE 3 Export Performance, Asia-Pacific Countries

China, Mainland China, Rep. of Hong Kong Indonesia Japan KoreaN. Korea, S. Malaysia Philippines Singapore Thailand Vietnam, N. (Vietnam, S.)

1970

1974

Ratio

Annual Growth Rate*

1673.8 1424.5 2514.9 1160.7 19317.9 114.6 835.1 1686.8 1042.7 1553.7 710.1 14.6 9.6

5502.2 5521.0 5958.4 7449.7 55513.5 242.8 4460.2 4235.9 2673.0 5484.6 2492.6 39.5 141.3

3.108 3.876 2.369 6.418 2.874 2.119 5.341 2.511 2.564 3.530 3.510 2.705 14.719

33 40 24 59 30 20 52 26 26 37 37 28 95

*Compounded at an annual rate of growth. SOURCE: International Monetary Fund, Direction of Trade, 1970-74. of the region were well ahead of their projected levels as wel1.18/ Among the major developing countries of Asia-Pacific , Indonesia heads the list as the most rapidly growing export nation. Since 1970 its exports have grown at a compound ~ For the ADB study, see Hla Myint, Southeast Asia's Economy in the 1970s (New York: Praeger Publishers, 1972), Appendix A. Table 4. Based on Kiyoshi Kojima, et al., "Foreign Economic Relations," Sector Report No. 4, Asian Development Bank, Table 2. For a further discussion, see George J. Viksnins, ''The Economic Consequences of Falling Dominoes," Asian Survey, November 1975, pp. 944-952.

252

rate of nearly 60%. Japan is Indonesia's leading trading partner, accounting for slightly more than half of its total exports; the United States ranks second, followed by Singapore, Germany and Holland. The bulk of its export earnings comes from petroleum, but other primary commodities are also quite significant - these include rubber, timber, palm oil, coffee, tea, and tin. Indonesia is currently in its Second Five-Year Plan period (REPELITA II covers 197478), and its growth pattern is a classic example of what is usually termed the "export-led economy." Many of the questions that have been raised by concerned Brazilians about their own "economic miracle" also appear to apply to Indonesia. Although exports are projected to exceed $10 billion by the end of the Second Plan period, and while its position as the eighth leading oil exporter seems secure for now, Indonesia is a very poor country with a very large, young, and hard-to-employ population. More than half of all Indonesians are under 20, and Java has 7% of the country's land area, but two-thirds of its population. Unemployment is estimated at 20-30%, and more than half of the adult population is illiterate. During the Second Plan period, more than one million people will be entering the labour market each year.l 91 To this structural imbalance between the export sector and the subsistence-level domestic economy, we can add a dash of mismanagement (Pertamina) and a pinch of political unrest (the January 15 Affair, with 13 killed and 770 arrested). Much of the progress in infrastructure development has been financed through foreign borrowing, either official (Indonesia is the World Bank's leading Asian customer at present) or private, and debt service looms as a problem. While the rewards of doing business in Indonesia have been great, the risks appear to be commensurate.

!!lJ Some further detail can be found in Stephen Grenville, "Indonesia: The Second Five-Year Plan," Intereconomics, January 1975, pp. 23-25.

253

South Korea is in second place in annual export growth, as can be seen from Table 3. Starting from a base of less than a billion dollars in exports in 1970, its export sector has increased fivefold, growing at an annual rate in excess of 50%. While Indonesia's export growth has had the assistance of the OPEC cartel, this has not been the case in Korea, which relies heavily on manufactured goods in its export trade. Roughly a third of Korean exports go to the United States and another third to Japan. Korea has a highly skilled and motivated labour force, government policies that encourage saving and capital formation, and an outwardlooking attitude. In development economics, it is often mentioned as the classic case-study of export promotion policies, which involved a substantial reduction in governmental "red tape" and centralization of responsibility, as well as the use of financial institutions in the mobilization of domestic savings. 20/ Korea is one of very few developing countries that is not facing substantial unemployment problems at present - the "open unemployment rate" fell steadily from 7.4% in 1965 to 4.5% in 1970. 211 Many radical critics of export-led development have argued that such a strategy benefits only foreign investors (the MNCs), and strengthens the tendency toward dualism. It is, therefore, interesting to note in passing that Korea has achieved its tremendous export sector growth largely on its own. As pointed out by Hone, " .... while at the end of 1969 total foreign capital was $1,781 million, only $106 million, 5.9 per cent, was direct investment for foreign nationals .... 2 2 ?&/ For further detail, see Sung Hwan Jo and Seong-Yawng Park (eds.), Basic Documents and Papers of Korea's Third Five-Year Economic Development Plan (1972-76); Korean export development is one of the case studies used by Benjamin I. Cohen, Multinational Firms and Asian Exports (New Haven, Conn.: Yale University Press, 197 5), especially pp. 55-89.

W ?JJ

Cohen, op. cit., p. 79.

Cf. Angus Hone, "Multinational Corporations and Multinational Buying Groups: Their Impact on the Growth of Asia's Exports of Manufactures -Myths

254

The Republic of China (Taiwan) is in many respects both political and economic, similar to South Korea. Having little in the way of basic raw material resources, it too has had to rely upon an export-led growth strategy. Both Korea and Taiwan were major recipients of U.S. economic assistance, and are often mentioned, therefore, as "success stories" in Army Intelligence Department (A.I.D.) literature. By 1975 Taiwan had clearly joined the ranks of the semiindustrialized countries, with 40% of GNP originating in the industrial sector and a per capita GNP of about US$900. Taiwan's exports have been growing at about 40% annual rate during the first half of the 1970s, and its economic well-being clearly depends on the external sector since exports account for nearly half of GNP. Due to the recession in the industrial countries - especially the U.S., which takes nearly two-fifths of Taiwan's exports - growth in 1974-75 slowed to a quarter of the 10-12% average annual growth rate in output, which had come to be regarded as normal. A welcome byproduct of this slowdown was the cessation of inflationary pressure in 197 5, which had run at a 34% rate of increase in the CPI during 1974. Largely as a result of this, the trade balance deficit in 1975 shrank to about US$200 million, compared to US$1.1 billion "in the red" for 1974. As Hone points out: .... The role of foreign capital in Taiwan's manufactured exports is somewhat more important, although textiles, plywood, plastics, sugar. cement, [and} canned goods exports such as pineapples, mushrooms, asparagus and oranges are totally in Taiwanese hands. 23 1 The role of export-processing zones and similar administrative enclaves seems to be another item that is often overand Realities," World Development, February 1974, pp. 145-149. See also Hyong Chun Kim, "Korea's Export Success: 1960-1969," Finance and Development, May 1971. ?1J A. Hone, "Taiwan's Export Structure: Some Projections for the Period 1968-1980," Industry of Free China, January 1970, pp. 9-14.

255

stressed by the critics of an export-led growth strategy exports from Kaohsiung in Taiwan were roughly US$300 million in a national total of about US$2. 7 billion in 1973. 24 / It has been argued, however, that the paradigm used by Japan, South Korea, and Taiwan - which we termed "the Japanese Model" earlier - is inapplicable to the rest of the developing world; Lefeber implies that these three countries are an exception and that their experience has no lessons whatever for the other countries of the "South." 25 / We shall see below that a few additional exceptions to "Lefeber's rule" seem to be surviving in AsiaPacific. This is not to say that the basic point raised by these autho~ is invalid - attempts to transplant Western technology, engineering and economics have often been relatively unproductive and, in a few cases, counter-productive. Singapore's export growth of 37% per year during 1970-74 has contributed further to improving the standard of living in this already quite well-off city-state. Singapore is the world's third largest petroleum refining centre, after Houston and Rotterdam, and the home of the "Asian dollar." Its principal exports are industrial machinery, fuels and fertilizers, transport equipment, and a wide range of other products. As an "open economy," with prices largely marketdetermined, it was greatly affected by the 1973-74 commodity inflation; in 1973, the consumer price index rose by 26% and in 1974, by 22%. This was really quite shocking by Singaporean standards, since in the previous five years the CPI increase averaged about 1% per annum. All this took place despite an upward revaluation of the currency from S$3.09 dollars to US$1 in 1969 to roughly S$2.40 in 1974 and S$2.20 in 1975. The Economic Development 24/ Cf. A. Hone, World Development, Ioc. cit., p. 46.

ill Louis Lefeber, "On the Paradigm for Economic Development," World Development, January 1974, pp. 1-8. A similar argument can be found in E.F. Schumacher, Small Is Beautiful (New York: Harper & Row, 1973).

256

Board has attracted a large number of prominent MNCs to Singapore, including Texas Instruments, IBM, Philips, Timex, and Rollei, in the expectation that the "companies will bring markets with them." The government is engaged in a number of ambitious infrastructure projects, including a sizeable land reclamation scheme; foreign investment continues to grow - Shell Eastern's chemical complex , GE's eighth project, and Hitachi's investing nearly $100 million can all be cited as examples. 26/ While the first half of the year was very dismal, with unemployment rising to over 5%, real GNP expanded by 4.2%, and inflation was brought under control- by October 1975 the CPI was below October 27 1974. ' Thailand also has shown more than a tripling of exports in the 1970-74 period; despite a loss of earnings from U.S. bases, political uncertainties, and unrest in border areas, the economy shows considerable resilience. The export price of rice quadrupled from 1972 to 1974, and the prices of other principal exports (rubber, tin, maize, and sugar) more than doubled. Roughly one-fourth of Thailand's exports go to Japan, followed by the U.S. (8%), the Netherlands, Singapore, Hong Kong, Malaysia, and Indonesia. Real GNP grew by more than 10% in 1973, but by considerably less (3-5% per year, according to preliminary estimates) in the past two years. Consumer prices rose by 20% in 1973 and by about 18% in 1974; while the 1975 price rise slowed to about 5%, the standard of living in urban areas was seriously affected. Since the average Thai spends roughly 40% of his income on food, mainly rice, such inflation has serious

?Y Far Eastern Economic Review, Asia Yearbook, 1975, p. 274, for a further discussion. 1JJ Cited in "The Chairman's International Survey" (The Hong Kong and Shanghai Banking Corporation), Far Eastern Economic Review, 7 May 1976, p. 56. General background may be found in Theodore Geiger, Tales of Two City-States: The Development Progress of Hong Kong and Singapore (Washington; D.C.: National Planning Association, 1973).

257

political implications. It is reported that the higher rice prices benefited farmers but little, and that landlessness is on the rise - especially in the Bangkok Central Plain, traditionally the wealthiest, and politically the most conservative and stable, region of the country. In the foreign policy area, the Thai government is trying to find an accommodating posture vis-a-vis Communism in the rest of Indochina and to maintain support for the U.S. - a feat that should be challenging, even for the Thais. Among the principal developing countries of the AsiaPacific region, the _Philippines is relatively most dependent on private foreign capital. The canned-pineapple industry has been dominated by Dole and Del Monte, and Boise Cascade is significant in the plywood industry; Hone estimates that 20-25% of Filipino manufactured exports are accounted for by foreign-owned firms. 28/ While the Philippines benefited greatly from higher sugar and copper prices in 1973-74, its current trade account balance represents an economic trouble-spot - about one-third of its import bill has to be used to pay for its petroleum imports (despite efforts to cut consumption), but both copper and sugar prices have been weak lately. Three-fourths of Filipino exports go to the U.S. and Japan, which greatly affected its economic well-being in 1975. Politically, martial law has been in force since 1972, and repression of dissent has reportedly become more severe. Agrarian reform is being cited as the main reason for the continuation of President Marcos' "constitutional authoritarianism," but rather little actual redistribution of wealth and power seems to be taking place. 29/ The Muslim insurgency continues to be a troublespot as well. 2JJ

Cf. Hone, World Development, op. cit., p. 148.

2JJ Cf. Benedict J. Kerkvliet, "Land Reform in the Philippines Since the Marcos Coup," Pacific Affairs, Fall1974, pp. 286-304.

258

Over the 1970-74 period, the export trade of Malaysia has grown at a 26% annual rate - somewhat slower than most of the other countries of the region in relative terms. Exports account for nearly half of GNP; Singapore is the main destination for Malaysian products, followed by the U.S., U.K., West Germany, and the other European countries. Industrial output has risen more rapidly than GNP, and industrial products are presently the largest export category. Industry appears to have taken over as an "engine of growth," and in this respect the Malaysian experience could serve as a model. As Wolfgang Kasper has put it: .... This change seems to have been less painful in Malaysia than in many other developing countries. The infrastructure and social services .have reached quality levels that are rarely attained elsewhere in the tropics.... Malaysia relates to the surrounding countries almost as Switzerland did to its neighbours in the 1950s: a well-to-do, politically stable, neutral, and rather conservative country with a laissez~{aire economy. 301 Significant oil and natural gas finds have also been made, and a 1980 target of 500,000 barrels of oil per day is being mentioned. Greater national participation in the benefits of economic growth is a very sensitive political issue in this racially diverse country (Malays or "bumiputras" account for 56%, Chinese 34%, and Indians 9%). "Bumiputraization" of foreign investments is being promised by politicians how quickly this is done, and on what terms, may determine whether the government's ambitious targets for economic growth during the remainder of this decade will be achieved. Another political development worth watching is the hangover of guerilla activity from the "Malayan Emergency" Communist terrorists blew up nearly US$1 0 million worth

'JSlJ Wolfgang Kasper, Malaysia: A Study in Successful Economic Develop· ment (Washington, D.C.: American Enterprise Institute for Public Policy Re· search, 1974), p. 2.

259

of road-building equipment on the eve of Prime Minister Razak's visit to Peking, and the Malaysian-Thai border area has never been really safe for either government. Hong Kong, of course, is yet another example of the use of the "Japanese paradigm" - with market forces being even more significant than they have been in Japan. With 1974 exports of nearly US$6 billion, tiny Hong Kong exports more than Mainland China; its exports are well-diversified in terms of customers, with the U.S. in first place with more than a fourth of the total. While over 200 foreign companies have investments in Hong Kong, and this includes virtually all of the famous MNCs, it is interesting to note that foreign firms account for roughly 13% of industrial employment and 10% of exports. To cite Hone once again: .... It is certainly true that foreign finance capital through UK-controlled banks and insurance companies played a critical role, but the industrialization leaders have been Chinese from Shanghai or the areas around Canton as well as native Hong Kong industrialists working closely with British trading houses. The electronics industry represents 12-15 per cent of total exports in 1972 and even in this area, local capitalists probably export 35-40 per cent of electrical machinery in value terms. 311 Thus, the view that expansion of manufactured exports benefits only multinational investors appears to be grossly exaggerated,3 21 even for Hong Kong - and for most of AsiaPacific. While accurate information about the magnitude of foreign investment is rather difficult to get, owing to conceptual and statistical problems, Table 4 can be used to 31/ A. Hone, World Development, op. cit., p. 117.

W

In addition to the Global Reach people cited earlier, see also G. K. Helleiner, "Manufactured Exports from Less Developed Countries and Multinational Firms," Economic Journal, March 1973, as well as his A World Divided (London: Cambridge University Press, 1976), especially Sections 6 and 7.

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get a rough idea of the orders of magnitude on a country-bycountry basis. It should be pointed out that Hone's 1972 estimate covers DAC countries, while Sherk's 1971 numbers refer to the U.S. The final column calculates the ratio of the stock of foreign investment (Hone) relative to the country's GNP. Sherk has pointed out that Asia has grown in importance in terms of total U.S. direct investment - from 3.4% of the total in 1959 to 5.7% in 1971 -yet remaining behind other areas by a rather large margin. Excluding Japan, the number is even less significant - "developing" Asia's share has risen from 2.5% in 1962 to 3.5%in 1971. Preliminary estimates for 1972 show this percentage being considerably higher, possibly as high as 4 percent. " 3 31 Table 4 shows also the role of foreign investment relative to the GNP of the recipient country. It can be pointed out that Hong Kong, the Philippines, and Taiwan have the largest relative "impact ratios." To some extent, of course, we are comparing apples and oranges here - the cumulative worth of foreign investment to the country's GNP. A better measure would have been the stock of foreign investment relative to the country's wealth or stock of capital, but data on this are unavailable. Data problems arise in connection with the simplest statistics - compare Hone and Sherk on foreign investment in Indonesia. The basic point, brought out by even these imprecise statistics, remains - investment by MNCs is not terribly significant in the export-led economies of Asia. An Asia-Pacific Perspective

Having analyzed the rhetoric and the reality, let us conclude by offering a few general observations about the role that Asia-Pacific might play in developing the "New International Economic Order." It should be evident that the most extreme versions of the radical "underdevelopment" 33/ Cf. Sherk in The New Political Economy of the Pacific, op. cit., p. 117.

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TABLE4 Direct Foreign Investment Data for Selected Asian Countries (in millions of U.S. dollars)

Country Hong Kong Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand

* **

***

Hone* (1972) 400 250 300 300 600 150 500 350

Sherk** (1971) 286 512 277 (150) 719 (157) 133 124

GNP (1972)

Impact Ratio***

4000 10940 9880 4930 8620 2790 7400 8340

10.0% 2.3% 3.0% 6.1% 7.0% 5.4% 6.8% 4.2%

Hone, World Development, op. cit., p. 147. Donald R. Sherk, "Foreign Investment in the Pacific: Trends and Policies," in Bernard K. Gordon and Kenneth J. Rothwell, eds., The New Political Economy of the Pacific (Cambridge, Mass.: Ballinger Publishing Company, 1975), p. 118. Sherk's total for Malaysia and Singapore is commingled as US$307 million; the above figures represent a trade-weighted separation. Calculated by dividing Hone's statistics, representing all DAC countries, by the country's GNP. The data for the latter are from International Bank for Reconstruction and Development, World Bank Atlas, 1974, p. 12 and p. 20.

rhetoric have little relation to reality for the successful developing countries of Asia-Pacific\ and this realization itself is very important. In this regard, the successful developing countries of the region constitute a most interesting case study; their g10wth and development has been based essentially on the mobilization of their own resources, mainly their human capital, and the forces of free enterprise and the profit motive have been important. While serious problems of population pressure on limited resources and income distribution remain, and popular participation in government varies from country to country, these issues can be approached in a dynamic setting; in other words,

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while GNP growth and foreign exchange availability cannot by any means automatically solve these problems, they are probably insoluble in the absence of growth. Since the successful developing countries of Asia-Pacific have generally followed the "capitalist road," some of them may question the wisdom of those aspects of the "New International Economic Order" which involve government or supra-governmental institution interference with the market system. To make this general question more concrete, let us consider the very sensitive issue of commodity price indexation. Table 5 shows the movements of selected commodity prices over the last five years; most of these prices peaked sometime in 1974 and have come down considerably since. Who would have benefited from a freezing of all commodity prices at the 1974 levels? Would all countries in the region want the price of rice to remain about US$500 per metric ton? If so, how would this "pegging" of the price be done? Who would enforce sanctions against illegal, "black market" sales if the official price is set at too low a "frozen" level? Who would allocate the monopoly profit or decide production cut-backs if the price is set too high? All these specific questions need to be addressed; economic theory suggests that it is possible to control either the price or the quantity of some goods, but not both of them. Price changes of the sort shown in Table 5 perform an important economic function; a price increase will encourage increased output and a drawing down of speculators' inventories. Falling or low prices will eliminate unprofitable firms and industries in fact, a cartel agreement or a buffer stock scheme may hurt the member countries in the longer run by discouraging needed diversification)~/ It would seem that other arrange~ It has been pointed out that in "each of the four primary producing countries of ASEAN, more than three-