Governance in Pacific Asia: Political Economy and Development from Japan to Burma 9781501301001, 9781441158758

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List of Tables TABLE 1.1

Population of Pacific Asia states and territories, selected years (in millions)

3

Relative shares of world GDP for Pacific Asia, the United States and Western Europe (in per cent)

6

Average annual compound growth rates of Pacific Asia states’ GDP compared to the United States, Western Europe and the world, 1950–98

7

Estimated per capita GDP in Pacific Asian states, the United Kingdom and the United States in 2010 (in PPP dollars)

8

Freedom House rating of political and civil freedoms in Pacific Asian states, various years

13

Non-parametric correlation of rankings of Pacific Asian states for per capita GDP and Freedom House scores for political and civil liberties, various years

15

Share of intra-regional exports and imports in total world exports and imports of the Pacific Asian states, various years (in per cent)

16

Rankings of Pacific Asian states on the individualism index (IDV)

57

Rankings of Pacific Asian states on the power distance index (PDI)

60

TABLE 3.3

Ranking of various states on the importance of family

69

TABLE 3.4

Ranking of various states on the extent to which most people can be trusted

70

Rankings of Pacific Asian states on ‘Masculinity/Femininity’ Index (MAS)

73

TABLE 1.2 TABLE 1.3

TABLE 1.4

TABLE 1.5 TABLE 1.6

TABLE 1.7

TABLE 3.1 TABLE 3.2

TABLE 3.5 TABLE 4.1

Urbanization rates in Pacific Asian states

104

TABLE 4.2

Gross enrolment ratios in tertiary education in Pacific Asia

106

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viii

List of Tables TABLE 5.1

GDP per capita of Pacific Asian states, various years (PPP in constant $)

117

TABLE 5.2

Gini inequality coefficients for Pacific Asian states

120

TABLE 5.3

Average import tariffs Pacific Asian states, various years (in per cent of goods’ value)

126

Declared foreign exchange reserves of Pacific Asian states (in millions Special Drawing Rights)

131

Relative shares of industry and services in GDP by value added in Hong Kong and Singapore, various years

137

Share of GDP of Pacific Asian states by sector (agriculture, industry and services), various years (by value of output, in per cent)

148

Gross capital formation/GDP ratios of Pacific Asian states, selected years (in per cent)

149

Ratios of exports and imports to GDP in Pacific Asian states, selected years (in per cent)

151

TABLE 6.4

Average hours worked per employee per year.

152

TABLE 6.5

Pacific Asian global shares of vehicle manufacture 2009

158

TABLE 7.1

Proportion of national workforce employed in agriculture in 2008 (in per cent)

170

Gini coefficient for farm size in selected Pacific Asian states

171

TABLE 7.3

Most Favoured Nation applied tariffs 2008 (in per cent)

181

TABLE 7.4

Average nominal rates of assistance for agriculture in selected Pacific Asian states over various periods (in per cent)

182

Proportions of domestic agricultural production that are exported and of domestic consumption of agricultural products that are imported for selected Pacific Asian states (in per cent)

183

Stock market valuation/GDP ratio for selected Pacific Asian states, selected years

191

Concentration of family ownership of commercial assets in Pacific Asian economies, 1996

221

TABLE 5.4 TABLE 5.5 TABLE 6.1

TABLE 6.2 TABLE 6.3

TABLE 7.2

TABLE 7.5

TABLE 8.1 TABLE 9.1

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List of Tables TABLE 9.2

Strengths and weaknesses of business groups

224

TABLE 9.3

Comparison of management and corporate structures in large Asian and Western firms

225

Strengths and weaknesses of the Chinese family business forms of organization

233

TABLE 9.5

Pacific Asian sovereign wealth funds

239

TABLE 9.6

Transparency International corruption perceptions index rankings and scores for Pacific Asian states in 2001, 2010

244

World Economic Forum 2010 rankings of Pacific Asian states for overall global competitiveness and for various dimensions of market efficiency

245

Ranking of Pacific Asian states for ease of doing business

246

TABLE 9.4

TABLE 9.7

TABLE 9.8

TABLE 10.1 Summary typology of welfare regimes

252

TABLE 10.2 Gross savings/GDP ratios for Pacific Asian states, selected years (in per cent)

256

TABLE 10.3 Government expenditure on education for selected states in Pacific Asia (as per cent of GDP)

257

TABLE 10.4 Government expenditure on health for selected Pacific Asian states (as per cent of GDP)

258

TABLE 10.5 Total government expenditure for selected Pacific Asian states (as per cent of GDP)

260

TABLE 10.6 Government expenditure on social security and welfare in selected Pacific Asian states (in per cent of GDP)

261

TABLE 10.7 Total government social spending of selected OECD countries, 2005 (as per cent of GDP)

262

TABLE 10.8 Total fertility rate estimates for Pacific Asian states, 2010

273

TABLE 12.1 Indicators of democratic consolidation

308

TABLE 12.2 Support for democracy in Pacific Asia (per cent of respondents)

309

TABLE 12.3 ‘Hereditary’ representatives (seshu giin) as proportion of total Diet and of total LDP Diet members

316

TABLE 12.4 ‘Hereditary’ politicians as proportion of total House members in the Philippines

316

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List of Tables TABLE 12.5 Proportion of women legislators in the lower house of parliaments in Pacific Asia (in per cent)

322

TABLE 12.6 Press freedom rankings of Pacific Asian states (various years)

326

TABLE 12.7 Broadband Internet and mobile phone penetration in Pacific Asian states mid-2010 (as per cent of population)

327

TABLE 13.1 Intra-Pacific Asian, Chinese and Japanese exports and imports as percentage of their respective total world trade

340

TABLE 14.1 Human Development Index rankings and scores of Pacific Asian states 2010

360

TABLE 14.2 Net foreign direct investment inflows in Pacific Asian states (as per cent of GDP)

368

TABLE 14.3 Long-term orientation index values for selected Pacific Asian states

371

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Preface This book has emerged from years of teaching students at Warwick University. Without the respectful probing from them in seminars it would have been much weaker. I am grateful to them for their curiosity and, at times, their perplexity – now at least. The defects that remain are mine alone. I am also extremely grateful to the librarians at Warwick, particularly those working in the section dealing with Inter-Library Loans. Their efficiency in tracking down books for me around the world made the research for it much more effective than I could have hoped. I wish to record my appreciation for the patience and great skill of my editor, Marie-Claire Antoine. Without her encouragement it would never even have started, and it is not her fault that it took longer than we had agreed. Finally I dedicate this book to my wife Sarah as a small compensation for all the time that I have spent writing it. Peter Ferdinand

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1 Introduction Chapter Outline Why Pacific Asia?

2

This book is an introduction to governance in the states and territories of Pacific Asia. It aims at geographical comprehensiveness, in that it seeks to cover all the states from Japan to Myanmar (formerly Burma). Russia has been omitted – despite the fact that it has a substantial coastline on the Pacific – on the grounds that most of its territory is outside this region. Mongolia has also been omitted, on the grounds that none of its borders abut on the Pacific, nor is it a member of the main regional organizations, APEC and ASEAN. Australia and New Zealand have likewise been omitted, since their political systems and traditions are distinguishably different from those of the rest of the region. Apart from these exclusions, this book will cover all the states in the region. The states that are included can be said to share a fairly similar orientation towards the positive role of the state in guiding economic policymaking – what has been termed the ‘developmental state’. Most of the rest of the book will explore the different dimensions of this phenomenon and its consequences. Thus, the geographical spread will be supported by general theoretical insights from the social sciences. In this way, it should contribute to the integration of Pacific Asia into more general social science theorizing. A frequently used definition of ‘governance’ is: ‘the capacity of government to make and implement policy – in other words to steer society’ (Pierre and Peters, 2001: 1). This definition focuses attention upon the role of government. There is no doubt that government plays a very important role in all the states in Pacific Asia, even though the precise forms of government vary from one to another. However, ‘governance’ can also be used to stress the more general process of ‘steering society’, the second half of the above quotation, to which other, non-state actors

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Governance in Pacific Asia contribute. This book will take the latter position. Though government is undoubtedly important in steering societies in the region, other social groups and organizations play a vital role too. It will attempt to provide an overview of the ways in which states and societies in Pacific Asia are steered and steer themselves. To do this effectively, it needs to discuss both the actors and the context in which they operate. To use general terms of social science, it needs to address both ‘structure’ (the context in which actors operate) and ‘agency’ (the actors or agents themselves). The interplay of these categories of factors will be a basic recurring theme throughout the present work. However, these considerations have also shaped the sequence of the chapters. The next two chapters will focus more intensively on the ‘structure’ or context in which steering and policies are implemented. They will first deal with the historical background to states in the region, particularly dating from the end of WWII. The following chapter will address the issue of political culture – common themes in people’s orientations towards politics and policies, as well as more general social attitudes. Although these structures do not absolutely determine the ways that individual or group actors behave, they do constrain choices and channel behaviour towards certain types of outcomes rather than others. The subsequent chapters will then focus upon the ways in which the various states in the region have attempted to mould and manipulate these structures into patterns that would support economic development, as well as many of the consequences.

Why Pacific Asia? There are six clusters of reasons why this region of the world is important and worth studying. These reasons underlie the selection of topics in the rest of this book. They form six distinct themes.

Population size and complexity The seventeen states and territories that comprise this region represent 10 per cent of the world’s total land mass and 33 per cent of Asia’s. It is only 49 per cent of the total area of Africa, 61 per cent of the area of North America and 83 per cent of the area of South America, but it is equal to 150 per cent of the total area of Europe. It stretches roughly 4,000 miles from northeast China to southern Indonesia and roughly 3,500 miles from western China to

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Introduction

3

the eastern end of Japan or Indonesia. Even today it takes over nine hours to fly from Rangoon, the main city of Myanmar, to Tokyo, because it requires at least one connection. It also takes over seven hours to fly direct from Seoul or Tokyo to Jakarta, about the same as it takes to fly from London to Boston or Bahrain. Within Indonesia, it is impossible to fly from Medan (in Sumatra, in the west) to Jaya Pura (in Irian Jaya, in the east) in the same day because of the distance and all the connections needed. The combined population of Pacific Asia, however, accounts for roughly one-third of the world’s population. In fact, as can be seen from Table 1.1, its share has fallen a little since 1950 and seems likely to continue to do so up to 2030. Of course, even though demography deals with long-term trends where change is slow, there can be quite striking variations in demographic growth over the medium to long term between countries that initially appear to be in similar situations. Take for example the populations of Indonesia and Japan in 1950 (shown in Table 1.1), which were almost identical, and yet now the Indonesian population is twice that of Japan. Or take the examples Table 1.1 Population of Pacific Asia states and territories, selected years (in millions) 1950

2009

2030

Brunei

0.09

0.39

0.53

Cambodia

4.47

14.49

20.18

562.58

1338.61

1461.53

2.24

7.06

7.29

Indonesia

82.98

240.27

288.68

Japan

China Hong Kong

82.81

127.08

113.52

North Korea

9.47

22.67

23.62

South Korea

20.85

48.51

49.00

1.89

6.83

10.25

Malaysia

6.43

25.72

35.34

Myanmar

19.49

48.14

53.91

1.41

6.06

8.61

Philippines

21.13

97.98

138.33

Singapore

1.02

4.66

5.13

Taiwan

7.98

22.97

22.98

Thailand

20.04

65.91

71.14

Vietnam

25.35

86.97

102.80

Total

870.23

2164.32

2412.84

World

2555.96

6790.06

8378.63

34.00

31.87

28.80

Laos

Papua New Guinea

Pacific Asia share of world (%)

Source: US Census Bureau International Data Base (http://www.census.gov/ipc/www/idb/worldpopinfo. html, accessed 4 April 2009).

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Governance in Pacific Asia of the Philippines, Thailand, South Korea and Vietnam which had very similar populations in 1950 and yet now are quite different. It is thus apparent that long-term trends can fluctuate and estimates of future population size are bound to be imprecise. Even though China, the biggest state in the region, now has the largest population in the world, its growth since 1950, at 138 per cent, has been slightly less than that of the total world population, at 166 per cent, and by 2030 it will have been surpassed in size by India. Nevertheless, China’s population will continue to be about 3.5 times that of the United States, as it has been since 1950: in that year it was 3.7 times the size of the US population and in 2030 it is predicted to be around 3.4 times the size. Regional populations can be predicted with greater confidence because they can take into account fluctuations in the populations of particular states. Therefore, the states and the peoples of Pacific Asia will play a big part in the evolution of world affairs. Five states there (China, Indonesia, the Philippines, Japan and Vietnam) already each have populations larger than the largest state in Europe (Germany, with 79 million), and two more (Thailand and the two Koreas combined) are only slightly smaller. That fact alone suggests the region’s potential importance. Yet the importance of this region is not limited to the size of its population. It is also extremely diverse (Mackerras, 2003). East and Southeast Asia contain 32 per cent (cf. the above table) of the total world population. The languages of its peoples belong to at least five major families: Sino–Tibetan, Altaic, Austro–Asiatic, Malay–Polynesian and Thai. In Southeast Asia alone these can be divided into 32 further categories (Steinberg, 1987: 8). In China there are 56 officially recognized nationalities, where language is a prime factor in determining ethnic status. Vietnam has 54. In the Philippines there are over 100 linguistic, racial and cultural groups, speaking over 70 dialects and 11 native languages. Indonesia has over 300 different ethnic groups speaking 250 different languages, although most are Malay-Polynesian. Even one of the smallest states in the region, Papua New Guinea, is also one of the most diverse. It exemplifies the diversity of the region in microcosm. With a population of just over 6 million, it is home to several thousand distinct communities with a combined total of 860 languages. Another indicator of diversity is religion. The three main world religions – Buddhism, Islam and Christianity – are all widely represented in the region. Indonesia contains the world’s largest Islamic society, as well as a significant Hindu community. The Philippines is predominantly Catholic, and Thailand is predominantly Theravadha Buddhist, but both countries contain significant Muslim minorities. Earlier religions still survive too. Forty years ago Pye wrote: ‘Westerners usually find it difficult to appreciate how tangible the spirit

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Introduction

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world is for most Burmese and how seriously their notions about the workings of that world affect their views of the workings of social relationships’ (1962: 196). Today animism is still widespread in Indonesia and yet Indonesia is also the world’s largest Muslim society (Mulder, 1992). Throughout Southeast Asia, Islam, Buddhism and Christianity have been much influenced by older, traditional religious beliefs, meaning that syncretism is widespread. Japan is the home of Shinto, but Buddhism there claims 40 per cent of religious believers. China is, of course, the home of Confucianism, though religious belief was suppressed in the Maoist era, and Taiwan now claims to be its heir. South Korea remains heavily influenced by Confucianism and Buddhism, but it also has an increasing number of Christian believers, often associated with unorthodox sects such as the Moonies. Throughout the region there has been a recent resurgence of religious belief, both orthodox and unorthodox. Or take the example of religious diversity at the macro-regional level. East Asia is the home of Confucianism, Buddhism, Islamism and Christianity. Therefore any social science theorizing that aspires to general validity needs to take account of the wide variety of social, economic and political trends there. However, East and Southeast Asia also contain four of the world’s last five remaining avowedly communist (i.e. atheistic) states.

Economic development A more important reason for studying the region is economic development. Pacific Asia has been the region of the world that has witnessed the greatest transformation in its level of development since the end of WWII. This can be seen in both absolute and relative figures. It is the one region of the world that has reached, or is approaching, the same level of development as Europe and the United States. The extent of this change can be seen from the comparative figures shown in Table 1.2, which indicate the relative shares of world GDP in 1950 and 1998 contributed by this region compared with those of the United States and Europe. It should also be noted that although in 1998 the Asian region was caught in a financial crisis, it had little effect on its share of world GDP. It was only 0.5 per cent less than the 27.5 per cent share it had in 1996. These figures show that Pacific Asian economies had already, by the end of the millennium, supplanted the United States and Western Europe as the largest source of GDP in the world – a major change when compared with 1950. Since then, the Chinese economy alone, which accounts for about 40 per cent

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Governance in Pacific Asia Table 1.2 Relative shares of world GDP for Pacific Asia, the United States and Western Europe (in per cent)

Pacific Asia

a

1950

1998

10.9

27.0

USA

27.3

21.9

Western Europeb

26.2

20.5

Data source: Angus Maddison, The World Economy: A Millennial Perspective (Paris: OECD, 2001; based on nominal levels of GDP converted to standardized 1990 international Geary-Khamis dollars). a

excludes Brunei and Papua New Guinea.

b

the 16 largest economies of Western Europe.

of the region’s GDP, has roughly doubled in size; while the global financial crisis in 2007 has hit the United States and Europe hard, the Pacific Asia share has risen. Of course the performance of individual states in the region has varied considerably, as can be seen from Table 1.3. Taiwan has shown the highest sustained growth, followed by South Korea, Singapore and Hong Kong (often designated the four Newly Industrializing Economies or NIEs), but they have been followed closely by Thailand, China, Japan and Malaysia. The states of Indochina, ravaged by the Vietnam War, have done less well, with only Vietnam slightly outperforming the global average over the entire period, while North Korea has fallen further behind the world average growth rate, despite impressive figures for the first two decades of its existence. Of course within this 48-year period, many states have shown major fluctuations. For example, on average, Japan grew by around 8 per cent per year between the years 1955 and 1970, the era of its high growth. China grew, on average, by 9.6 per cent between the introduction of economic reforms at the end of 1978 and 2005 (Naughton, 2007: 140). Nevertheless, the sustained region-wide performance encourages confidence that it is likely to persist, even if individual states encounter particular difficulties. The overall picture is clear – almost all states in the region have grown faster than the world average. Even Myanmar, which as we shall see has deliberately limited contact with the outside world and is usually considered to suffer from low growth, has kept pace with the world average. Therefore it is not surprising that the region’s share of world economic growth has surpassed that of all other regions. This also suggests that it is likely to remain a major pole of business opportunity for decades to come. Two other findings in Table 1.3 are striking. The first is the very similar rates of growth for both China and Japan over this period; the reason is that each of them suffered a period of low growth as well as one of very high

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Introduction

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Table 1.3 Average annual compound growth rates of Pacific Asia states’ GDP compared to the United States, Western Europe and the world, 1950–98 Cambodia

3.60

China

5.97

Hong Kong

7.10

Indonesia

4.70

Japan

5.95

North Korea

2.61

South Korea

7.70

Laos

3.42

Malaysia

5.78

Myanmar

3.90

Philippines

4.37

Singapore

7.68

Taiwan

8.22

Thailand

6.73

Vietnam

4.33

Pacific Asia

5.90

US

3.40

West Europe (16 states)

3.39

World

3.90

Data Source: Maddison, Angus (2001), The World Economy: A Millennial Perspective (Paris: OECD). Based on nominal levels of GDP converted to standardized 1990 international Geary-Khamis dollars. Brunei and Papua New Guinea are not listed.

growth. In Japan the period of very high growth came between 1955 and 1970, with periods of respectable levels of growth until the 1990s when the economy stagnated. In China the period of relatively low growth came in the period leading up to the death of Mao, especially the years of the Great Leap Forward (1958–1960) and the Cultural Revolution (1966–1976). Since then it has been followed by a period of extremely high growth. The second finding has been the consistently high performance of the Newly Industrializing Economies (NIEs – namely, S.Korea, Taiwan, Singapore and Hong Kong). Their growth over the whole of this period significantly surpassed that of Japan or China. This achievement has also been translated into significant increases in per capita GDP, as can be seen from Table 1.4. Three states or territories – Brunei, Hong Kong and Singapore – have a level of growth that is higher than that of their former colonial ruler (i.e. the United Kingdom). It is still very rare for former colonies to overtake the living standards of their former masters,

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Governance in Pacific Asia Table 1.4 Estimated per capita GDP in Pacific Asian states, the United Kingdom and the United States in 2010 (in PPP dollars) Brunei

50300

Burma

1100

Cambodia

2000

China Hong Kong Indonesia

7400 45600 4300

Japan

34200

North Korea

1800a

South Korea

30200

Laos Malaysia Papua New Guinea

2400 14700 2500

Philippines

3500

Singapore

57200

Thailand

8700

East Timor

2600

Vietnam

3100

UK

35100

USA

47400

Source: CIA World Factbook. Data for Taiwan are not listed. a

2009.

even though in Brunei’s case it is largely the result of oil exploration. Two of these states (Singapore and Brunei) also have standards of living that are higher than those in the United States. In addition, Japan and South Korea are now full members of the OECD, the club of developed economies – the first and only Asian states there, although Taiwan would be entitled to join on the basis of its economy if it enjoyed widespread diplomatic recognition. Adding to their suitability for further study is the fact that some states in the region have also managed to achieve rapid development while preventing income inequality from growing uncontrollably. The traditional experience of developing countries was that development led to greater inequality. In some cases, this was only a temporary phenomenon – following the so-called ‘J’ curve, which saw equality initially falling, only to recover at a later stage of development. In other cases, inequality increased and remained high. Some states in Pacific Asia, however – particularly Taiwan and South Korea – managed to achieve what was described as ‘growth with equity’ (Fei, Ranis and Kuo, 1979), where inequality scarcely increased as the

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Introduction

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economy grew over a period of several decades. This was certainly a feat that attracted the attention of development experts, for it offered the prospect of growth without the social and political polarization and turmoil that had characterized the experience of many developing states. These issues will be addressed in more detail in Chapters 4 and 5. All of these achievements explain why the region has attracted so much academic attention and analysis over the past 20 years, especially in the field of political economy. All of the region’s states, with the exception of Japan, were little industrialized at the end of WWII. They were predominantly poor, agrarian societies. What they have now generally achieved, to varying degrees, could be considered a breakthrough in terms of industrialization and greater prosperity. Development economists often focused on these achievements as they suggested wider lessons that could be ‘learnt’ by other countries in the developing world. This was significant for two reasons. The first was the simple fact of their success. In the words of the title of Haggard’s influential analysis, states offered the prospect of ‘pathways from the periphery’ (Haggard, 1990). If they picked and implemented the right policies, poor and underdeveloped states could reasonably aspire to catch up with the more developed world, to move from the global periphery closer to the centre. The second reason for the potential significance of this change was the fact that the states that had achieved this development lacked many of the prerequisites that development economists had viewed as facilitating development in earlier eras. As Amsden (1989) explained, in the two earlier waves of industrialization in the nineteenth and the beginning of the twentieth centuries, the driving factors were seen to be access to abundant natural resources, for example coal and iron ore, and technological innovation. But many of the states in Pacific Asia, especially the NIEs, lacked both of these initial prerequisites. Japan was also relatively short of raw materials when it began its industrialization at the end of the nineteenth century, and it lacked its own new technologies. Indeed, some of the other states that did possess more abundant natural resources (e.g., the Philippines, Myanmar and Indonesia) were much slower to take off. So, if states that lacked both large amounts of raw materials and technological innovation were able to breakthrough to modernity and development, why should not states elsewhere in the world achieve the same success? As we shall see in subsequent chapters, there has been a wide range of explanations advanced for this success. One cluster focuses upon the role of the state in coordinating the drive for economic development – the so-called ‘developmental state’ phenomenon (Woo-Cumings, 1999; Wade, 1990).

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Governance in Pacific Asia Another cluster highlights the importance of allowing the market the freedom to make a rational allocation of resources. A third cluster of theorists stress the importance of social infrastructural characteristics and policies, whether the influence of traditional social values such as Confucianism, or the impact of state education policies making education and literacy widely available to children at lower levels of development than in states in other parts of the developing world (World Bank, 1993). Others would stress instead the importance of particular forms of company organization, for example the keiretsu networks linking Japanese corporations, and technological sophistication in promoting economic development, for example the ‘just-in-time’ management introduced by Japanese corporations (Gerlach, 1989). What they suggest is that in Pacific Asia there are different patterns of capitalism to be found from those in the United States or Europe. In general, this is connected with the theorizing in international political economy over national varieties of capitalism (Hall and Soskice, 2001). A fifth cluster of analysts challenge the whole notion of ‘miraculous’ economic growth, even if they acknowledge the growth achievements, attributing the success to longer hours worked in industry and state-imposed sacrifices of consumption in favour of investment. From this perspective, any state could achieve similar results if it was willing and able to repress popular consumption (Krugman, 1994). Thus, as is clear, there is plenty of scope for debate over the explanations for these economic achievements in subsequent chapters. The previous paragraphs have emphasized the relevance of Pacific Asian experiences for countries in the developing world that are seeking ways out of underdevelopment. But more recently Pacific Asia has also provided evidence for ways of responding to the international economic crises, which is more relevant to the developed world. The Asian financial crisis of 1997–1998 in some ways prefigured the global credit crunch that began in 2007. Consequently, analysts of the latter crisis have turned to the Pacific Asian experience for insights into the ways in which other countries might overcome their own difficulties. Of course the immediate catalysts for the crises were quite different – excessive short-term borrowing in Pacific Asia, the sub-prime banking crisis in the United States. Apart from the fact that they both started as financial crises, there was little that was similar. However, in trying to solve the crises, the difficulties of using traditional monetary means became more apparent. In particular, the Japanese experience of trying to restart economic growth through effectively reducing interest rates below zero, given inflation, has attracted a lot of attention since other developed economies have been confronted with rather similar predicaments from 2008. The problems of reviving economic growth when interest rates had

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Introduction

11

effectively fallen below zero have offered lessons that policy-makers in other parts of the world have begun to study with greater attention. We will return to the Japanese experience of trying to deal with, and recover from, the ‘lost decade’ of the 1990s in Chapter 9.

Alternatives to Western paths to modernization One of the consequences of the decolonization that took place in Pacific Asia from the end of WWII was scepticism among the rulers of the newly independent states about the appropriateness of Western patterns of modernization. The new rulers felt little reverence for the paths of development that had been imposed upon them by the former colonial masters, even if this had brought some economic benefits – which many contested. Western states had, from the nineteenth century, developed through a combination of urbanization and industrialization. This process had indeed brought increasing national prosperity to states of Western Europe and the United States. Yet it had also been accompanied by increased social and economic inequality, dissatisfaction and unrest, though when the process began, Western rulers had not always known that would be the consequence. Leaders in Pacific Asia did not want to recreate these maladies. They believed that they had achieved national unity with independence and they wished to avoid jeopardizing that achievement with divisive social policies. They hoped to learn lessons from the West’s experience and devise alternative paths to modernity that were more in keeping with their distinctive social traditions and history. To some extent their choices were constrained by the Cold War that brought confrontation between the West and the communist world. This meant that some of their animus against the leaders of either the West or the communist world had to be muted because they needed the military backing of one side or the other. Nevertheless, several of the national leaderships came from rural origins and they felt a widespread antipathy to Western-style urbanization. At the time the majority of the population in almost all the Pacific Asian states still lived in the countryside, so these attitudes could also be presented as the views and interests of the majority. This applied in both the Western and the communist camps. Among the allies of the West, South Korea, under President Park Chung Hee, adopted the Yushin Constitution in 1972 which proclaimed Asian values and envisaged a ‘new village movement’ that would support and promote the rural way of life. The same official rural orientation was also found in Indonesia, where the founders of the new republic had enshrined the principle of village solidarity and (primarily rural) cooperatives as the preferred forms of economic

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Governance in Pacific Asia organization. In communist China, Mao Zedong also outlined a rural path to development, this time communism, based upon the (rural) Yanan model that had served the communists so well in their fight against the Japanese and, later, the Nationalists. This was intended to contrast with the development strategy of the Soviet Union, which had been based upon industrialization that drove increasing numbers of marginally productive peasants to urban areas. Mao was more sceptical about the benefits of large-scale urbanization. He regarded 1920s and 1930s Shanghai as incarnating and exacerbating social vices, such as corruption, prostitution and narcotics abuse. He believed in the moral goodness of peasants and, in the Great Leap Forward (1958–1959) and again in the Cultural Revolution (from 1966 until his death in 1976), he attempted to impose upon China a development strategy that achieved a new synthesis of urban and rural development, but with the emphasis more upon the latter than the former. More recently, however, development in China, South Korea and Indonesia has reverted to gradual urbanization as the norm. We will return in Chapter 4 to a more detailed discussion of the similarities and differences between development processes in Pacific Asia and those in the West. At the same time, despite the undoubted successes of economic development in the region as a whole over the last 50 years, there have been a number of negative consequences. Chapters 10 and 13 will elaborate upon some of these, such as the increasing income inequality from which many of the states in the region are suffering, the problems of gender inequality and the issues of environmental pollution which are becoming prevalent.

Political development and democratization In addition to the variety of population structures, Pacific Asia also hosts a great variety of political systems. It contains, for example, the oldest parliamentary democracy in Asia (Japan), a democratic system with a constitutional monarchy (Thailand), a limited parliamentary democracy with a collective monarchy (Malaysia), an American-style presidential democracy with balance of powers (Philippines), four of the world’s five last nominally communist states (China, Vietnam, North Korea and Laos), an avowedly socialist military regime (Myanmar), a hereditary sultanate (Brunei) and a nominally theist state with the world’s largest Islamic society (Indonesia). Here too general political science would be poorer if it failed to integrate evidence from this variety of regimes into its general theories. Apart from the variety of regimes, one other striking feature of the political systems in Pacific Asia has been the spread of democracy in the last

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Introduction

13

20 years. In 1986 the authoritarian regime of President Marcos in the Philippines was overthrown by ‘people power’. The following year, both South Korea and Taiwan embarked upon democratization. Subsequent years saw the introduction of democracy in Cambodia, Thailand and Indonesia, as well as failed attempts in China and Myanmar. Previously, only Japan could be said to have had a stable, legitimate democratic system, though the ruling Liberal Democratic Party had already been in power for over 30 years. Compared to earlier decades, democracy has definitely become a more common form of rule in Pacific Asia. The region has been part of Huntington’s ‘third wave’ of worldwide democratization from the mid1970s (Huntington, 1991). As can be seen from Table 1.5, there were only two fully free states as defined by Freedom House in the region in 1980 (Japan and Papua New Guinea). By 2000 there were six (Japan, Papua New Guinea, South Korea, the Philippines, Taiwan and Thailand). To some extent this confirmed earlier theories of democratization which hypothesized a Table 1.5 Freedom House rating of political and civil freedoms in Pacific Asian states, various years 1980

1990

2000

2008

PR

CL

R

PR

CL

R

PR

CL

R

PR

CL

R

Brunei

6

5

NF

6

5

NF

7

5

NF

6

5

NF

Cambodia

7

7

NF

7

7

NF

6

6

NF

6

5

NF

China

6

6

NF

7

7

NF

7

6

NF

7

6

NF

Indonesia

5

5

PF

6

5

PF

3

4

PF

2

3

F

Japan

1

1

F

1

1

F

1

2

F

1

2

F

North Korea

7

7

NF

7

7

NF

7

7

NF

7

7

NF

South Korea

5

6

PF

2

3

F

2

2

F

1

2

F

Laos

7

7

NF

6

7

NF

7

6

NF

7

6

NF

Malaysia

3

4

PF

5

4

PF

5

5

PF

4

4

PF

Myanmar

7

6

NF

7

7

NF

7

7

NF

7

7

NF

Papua New Guinea

2

2

F

2

3

F

2

3

F

4

3

PF

Philippines

5

5

PF

3

3

PF

2

3

F

4

3

PF

Singapore

5

5

PF

4

4

PF

5

5

PF

5

4

PF

Taiwan

5

6

PF

3

3

PF

1

2

F

2

1

F

Thailand

4

4

PF

2

3

F

2

3

F

5

4

PF

Vietnam

7

7

NF

7

7

NF

7

6

NF

7

5

NF

Totals

2F 7PF 7NF

4F 5PF 7NF

6F 3PF 7NF

4F 5PF 7NF

Source: www.freedomhouse.org, accessed 4 April 2009. Hong Kong is not listed. PR, political rights; CL, civil liberties; R, overall rating; NF, not free; PF, partly free; F, free The numerical scores run from 1 (fully free) to 7 (not at all free).

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14

Governance in Pacific Asia positive connection between economic development and democratization. According to this approach, as people achieve a higher standard of living and middle classes develop a greater sense of political efficacy and liberal values, rulers are placed under greater pressure to share power. Yet at the same time, seven states have remained ‘not free’ throughout the whole of the period (Brunei, Cambodia, China, North Korea, Laos, Myanmar and Vietnam), despite the great economic successes that some of them have achieved. Indonesia has finally progressed from ‘partially free’ to ‘free’. But among the rest there has been noticeable fluctuation, with Thailand, Papua New Guinea and the Philippines regressing over the past decade from ‘free’ to ‘partially free’. The 2010 political turbulence in Thailand is simply the most striking example of a more general phenomenon. Thus there has been no simple linear relation between economic development and democratization in this region since the breakthrough of the late 1980s and early 1990s. The point can be expressed more formally by comparing the ranking of states in Table 1.4 for levels of per capita GDP and in Table 1.5 for levels of democracy in 1990, 2000 and 2008. After excluding Myanmar, Hong Kong and Papua New Guinea because they figure on only one of the tables, the levels of per capita GDP and the combined political and civil liberties’ scores for all of the remaining states were ranked for these three years, with the highest levels of GDP and the lowest scores for liberties (i.e. the most free) given the lowest rankings. These were then correlated using Kendall’s tau. It was hypothesized that increasing levels of GDP would be accompanied by higher scores for liberties, so a one-tailed test was used. The results can be seen in Table 1.6. What they show first is a high correlation between the rankings for 1990 but a declining correlation since then. Moreover, not only has the correlation declined; so too has the confidence level. Therefore, although there is still a moderately strong connection between economic development and democratization in Pacific Asia, it is far from being a simple one, and it is getting weaker. Chapters 11 and 12 will examine the related issues in more detail.

Welfare arrangements A fifth reason for interest in Pacific Asian states is their distinctive approach towards state welfare arrangements. In 1999, Esping-Andersen, the theorist of welfare regimes, raised the question of whether East Asia, and especially Japan, embodied a different model from the other three basic types that he had earlier identified around the world. In 1990, he distinguished between two types of welfare state that aimed at providing a floor for social

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Introduction

15

Table 1.6 Non-parametric correlation of rankings of Pacific Asian states for per capita GDP and Freedom House scores for political and civil liberties, various years 1990

Per capita GDP Correlation coefficient

Liberties scores correlation coefficient Sig. (1-tailed) N

2008

Per capita GDP

Liberties scores

Per capita GDP

Liberties scores

Per capita GDP

Liberties scores

1.000

0.533a

1.000

0.435b

1.000

0.375b

Sig. (1-tailed) N

2000

0.005 14 0.533a

14 1.000

0.005 14

a

Significant at 0.01 level (1-tailed).

b

Significant at 0.05 level (1-tailed).

0.018 14 0.435b

14 1.000

0.018 14

14

0.034 14 0.375b

14 1.000

0.034 14

14

14

deprivation without achieving significant redistribution of wealth from one section of society to another (Esping-Anderson, 1990). These he called the ‘liberal’, model as in the United States, where benefits are modest and often provided by market institutions, and the ‘conservative corporatist’ model, which is found in a number of continental European states – such as Austria, France, Germany and Italy – where the state played a bigger role in providing benefits while preserving status differentials between different sections of society. By contrast, the third typical welfare state, which he designated the ‘social-democratic’ model most typically found in the Nordic states such as Sweden, sought to distribute benefits irrespective of social status and as a consequence was more expensive, but at the same time did attempt a more systematic redistribution of benefits to compensate for market inequalities. In 1999, however, he returned to this issue and raised the question of whether Pacific Asian states demonstrated a qualitatively different approach. The Pacific Asian model was still ‘conservative’ in that it did not aim at significant redistribution of either material or status values in society, but it was not corporatist in the same way as in Western Europe. Instead it placed particular stress upon the family as the primary source of welfare support for individuals who fell on hard times. Only if the family could not do so would the state become involved. At the end of his enquiry, Esping-Andersen remained ambivalent about whether welfare practices in Pacific Asia, and especially Japan, were so qualitatively different from those in other parts of the world. Nevertheless, it is an unresolved issue to which we shall return in more detail in Chapter 10.

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16

Governance in Pacific Asia

Regionalization and regional organization The sixth reason for interest in Pacific Asia stems from its growing regional importance in world affairs. At the end of WWII there was no distinct regional identity. Until the end of the Vietnam War in 1975 and, in some ways, for years afterwards, states in the region were polarized between the ‘West’ and the communist world. However, the end of the Vietnam War, followed by the introduction of economic reforms and, finally, the collapse of communism in Eastern Europe and the Former Soviet Union put an end to this polarization. Gradually two separate processes have emerged and intertwined to give greater coherence to the region. The first is the gradual strengthening of intra-regional trade links. This began with growing Japanese investment in East Asia in the 1980s as the costs of production increased with a rising Yen. Then, from the 1990s, China increasingly turned itself into an international production centre which relied upon integration into region-wide supply chains. The evolution of the trend can be seen in Table 1.7, which shows the rising share of intra-regional trade in the total exports and imports of all the states in the region as compared with their total exports and imports throughout the world. Some of the statistics on which this table is based are a little incomplete, for official figures for trade for states such as Cambodia, North Korea, Laos and Vietnam were lacking for 1980 and incomplete for 1990, while those for individual trade partners of Taiwan only list the most important. Nevertheless, the general trend in the region is clear and consistent. Over a period of 27 years from 1980, Pacific Asia has seen a process of gradually increasing integration of the economies of its states. The second process contributing to regionalization is political. It is the emergence of region-wide institutions that set themselves the task of Table 1.7 Share of intra-regional exports and imports in total world exports and imports of the Pacific Asian states, various years (in per cent) Exports

Imports

1980

33.3

32.6

1990

37.1

39.0

2000

43.0

48.6

2007

46.0

47.8

Data Sources: IMF, Direction of Trade Statistics (various years); Taiwan Statistical Yearbook 2008.

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Introduction

17

achieving greater integration. The most prominent example of this is the Association of Southeast Asian Nations (ASEAN), which was set up in 1967. It began life as an attempt to organize resistance to the threat of communist expansion in the region and has since established itself as a focus for confidence building, cultural cooperation and, increasingly, economic cooperation. It now includes all the states in Southeast Asia. Since 2005 its annual meetings have been followed by an East Asian Summit with Australia, India and New Zealand. It has attempted to create a forum for discussion of security issues with the ASEAN Regional Forum (ARF) which now has 27 members – all of the 10 members of ASEAN plus states or entities from around the globe, such as the United States, the European Union, India, Russia and Pakistan. It also holds annual ASEAN ⫹ 3 meetings, with three additional states from the region (China, Japan and South Korea). Since 1996 it has also begun to hold annual diplomatic meetings with the European Union and Russia (Beeson, 2007). Apart from security relations, ASEAN has increasingly set itself the task of initiating discussions over the establishment of a regional economic community, patterned after, but certainly not yet intended to be a replica of, the EU. Since 1992 there has been an ASEAN Free Trade Area, and it has signed subsequent free trade agreements with Australia, China, Japan, South Korea and New Zealand which are due to come into force by 2013. As part of the celebrations associated with the fortieth anniversary of ASEAN in 2007, members signed the ASEAN Charter, giving the ties constitutional validity and international legal status. They have also confirmed their intention to complete an East Asian Economic Community by 2015. These and many other initiatives mean that Pacific Asia is developing an institutional structure that will complement, and is intended to reinforce, its increasing economic integration. If the developments proceed as planned, they will make the region and its institutions a force with which states in other parts of the world will have to reckon. Chapter 14 will return to this theme.

Outline of the book The next thee chapters will outline the background to the policies of development pursued by the various states. They will focus on the emergence of these new states, the sense of nationalism and nationhood that they exhibited and the political cultures to which they both responded and which they also attempted to cultivate. Chapter 4 will then set out the general context of development and the types of choices that were open to their leaders.

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18

Governance in Pacific Asia Chapters 5, 6 and 7 will explore the concept of the developmental state and the ways that it intervened to promote economic development in the states of the region. Chapter 5 will deal with the concept in general, and will outline differences in the way that it was operationalized in Northeast Asia as opposed to Southeast Asia. Chapter 6 and 7 will look at the types of industrial and agricultural policies that the various states pursued. Chapters 8 and 9 will focus more upon the roles and patterns of business responses in the region. The first of these chapters will concentrate more upon the role of the financial sector in economic development, and its relatively subordinate role for many years in determining the allocation of macro-economic resources within the developmental state. It will also include a discussion of the different role of Islamic finance in Malaysia and, to some extent, in Indonesia. Chapter 9 will deal with the differing patterns of business across the region, ranging from the large industrial corporations of South Korea (and increasingly, China) through to the more flexible industrial corporations of Japan and to the small and medium-sized businesses more typical of Taiwan. It will also look at the role of the Overseas Chinese companies in the economic development of Southeast Asia. Chapter 10 will deal with the social and welfare underpinnings of the developmental states (i.e. the preference for family rather than state provision of welfare), with the state concentrating more upon promoting welfare by encouraging economic development. This chapter will also look at the burden imposed upon women in supporting economic growth and family welfare. Chapters 11 and 12 will deal with political development and the problems associated with transitions to democracy – the difficulties of establishing viable democratic institutions, widespread political corruption and the impact of new communication technologies upon political behaviour. Chapter 11 will also include a discussion of the People’s Republic of China’s (PRC) intention to devise a different form of democracy from that of the West (i.e. a democracy ‘with Chinese characteristics’). Chapter 13 will look at the increasing regionalization of political and social affairs. Chapter 14 will draw together the threads of the argument into a conclusion that seeks to use the concept of ‘competition state’ as a revised version of the ‘developmental state’. It will identify some of the main challenges that these states will need to confront in the coming years: the social and environmental consequences of rapid economic change. Finally, there will be a discussion of the prospects for an ‘Asian century’ and its implications for global governance.

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2 New States, Old Nations and Nationalism Chapter Outline Introduction: The importance of history in the region The legacy of colonialism State-building and rebuilding Nation-building and nationalism Imposition of a European-style international system Conclusion Further reading

19 24 30 34 40 44 45

This chapter will begin by outlining the importance of history to the peoples and the states of Pacific Asia. Next, it will emphasize the persisting significance of colonialism and the anti-colonial struggle for political attitudes there. It will then discuss the difficulties of establishing viable nation-states, contrasting particularly the experiences of Indonesia and Burma. This will lead to a discussion of the importance of nationalism in solidifying the legitimacy of the new states. Finally, the chapter will widen the perspective to look at the impact of the dissolution of colonial control upon the system of international relations in the region.

Introduction: The importance of history in the region Pacific Asia is a region of relatively new states. Before WWII, only three were independent: China, Japan and Thailand – and after 1931 Japan was in conflict with China, attempting first to establish a puppet state in Manchuria,

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20

Governance in Pacific Asia and then later to conquer the whole of China in the name of pan-Asian solidarity. The overwhelming majority of states there were created in the 20 years following WWII. However, although the states are relatively new, many of the nations have a long history. According to Shintoism, the Japanese emperor is descended from Amaterasu, the Sun goddess. Mythically, the Chinese are descended from the Yellow Emperor, nearly 5,000 years ago. According to Myers (2010: 74), the official encyclopedia of North Korea declares that Koreans became the first Asians to achieve nationhood under Emperor Tangun in the third millennium BC. Many other peoples there have histories that go back millennia, and in various places paleolithic remains have been found which are linked to modern nations. History is fundamental to the identity of the peoples of this region. The length of national history is equated with the depth of civilization. Richness of history is identified with civilizational sophistication. According to Foong, Asians acknowledged Western material abundance and scientific prowess, yet at the same time they ‘kept reminding themselves of their glorious civilization. Not only were they the original inventors of key technologies, they also enjoyed wealth and a far more advanced social, political, and economic system than the Europeans’ (1999: 1). In 2005, the still nominally communist Chinese government’s White Paper on Political Democracy claimed: ‘China has a history of 5,000 years of civilization. Boasting a splendid civilization in the same league as those of ancient Egypt, India and Babylon, China has contributed greatly to the development and progress of mankind’ (White Paper, 2005). Numerous other nations can also point to and draw inspiration from the past achievements of their civilization. As one well-known introduction to the history of East Asia put it: ‘East Asia can best be understood through its history . . . The peoples of East Asia, more than the rest of the world, see themselves in historical perspective. They are strongly aware of their heritage. To approach them through their history is to look at them as they see themselves’ (Fairbank, Reischauer and Craig, 1978: 2–3). The same can be said about Southeast Asia, and indeed Asia more generally. As more Asians lift their lives up from the level of mere survival, they have the economic freedom to think, reflect and rediscover their heritage. There is a growing consciousness that their societies, like those in the West, have a rich social, cultural and philosophical legacy that they can call upon as they develop their own modern and advanced societies (Mahbubani, 2002: 26).

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New States, Old Nations and Nationalism

21

Kim Haboush has emphasized the importance of history for civic discourse in South Korea. According to him ‘there are various ways in which Koreans express their intense and personal engagement with history’ (e.g., historical novels, television dramas, etc.): History [in Korea] is not an impersonal force to be studied but an ethical system of justice, of cause and effect. The present is viewed as a moral confirmation of one’s past. Thus the present state signifies one’s moral worth in its entirety. In this way, it permeates the personal and national psyche in almost the way that religion does. (Kim Haboush, 2001: 191)

There is, however, one difference about the way in which history is understood and presented from the West. In Western accounts, history is presented more in linear terms. Though clearly there are times when events from the past of some community are seen as reminiscent of a similar pattern at a different period, by and large Western historiography tends to focus upon linear progression, with one thing leading to another. Since the eighteenth century, this has been reinforced by the traditions of the Enlightenment and the emphasis upon progress, the rational improvement of mankind. In Asian historiography, there is a much greater emphasis upon cycles which recur, albeit at uneven intervals. This is most evident in Chinese history, where there is an established expectation of dynasties appearing, reaching a phase of maturity, declining and being replaced by another which has acquired the new mandate of heaven. Even though the emperor system of China has disappeared, this notion of the cyclicality of social processes in China has not. For example, relations between the centre and periphery of China are still often presented in Chinese writing as a ceaseless ebbing and flowing of the relative powers of the two sides. The power of the centre gradually increases until it becomes excessive, at which point a counter tendency of power accumulating at the periphery takes over, until it too at some point becomes over-extended, and then the cycle begins again. Similarly, according to Anderson (1990: 34), the Javanese traditionally saw history in terms of recurring cycles, an oscillation between concentration of the power of rulers and its diffusion. This notion of the cyclicality of social change is instinctively counterpoised with that of progress – an issue to which we will return in Chapter 4. History has also been important to the rulers of various Asian states. Rulers used control of the official history-writing process to strengthen their legitimacy. It served to emphasize continuities with the past, where appropriate, and to create a sense of common, harmonious endeavour with the

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22

Governance in Pacific Asia people. In the 1960s, the South Korean dictator Park, Chung Hee (1970: 46–122), Our Nation’s Path, commented extensively on the weaknesses of the Yi dynasty (1392–1910) and the lessons that should be drawn by those who wanted to modernize the country. However, China acts as the paradigm for the use of history as a means of legitimizing the state and its rulers. According to Jenner: Chinese governments have, for at least 2000 years, taken history much too seriously to allow the future to make its own unguided judgements about them . . . Historical myth-making has so far been remarkably effective not just in inventing a single Han Chinese ethnicity but also – and this is a far bigger triumph – in winning acceptance of it . . . The religion of the Chinese ruling classes is the Chinese state, and it is through history that the object of devotion is to be understood. (1992: 3–4)

Schwarc concurs with this view: ‘In traditional China, history took the place of religion. To be more precise, historical mindedness – a scrupulous, textually anchored attachment to the communal past – became a sacred commitment over time. References to history were, and continue to be, a fertile source of moral values, literary allusion, and guidelines for self-cultivation’ (1991: 76–7).

Mao Zedong exemplifies this propensity. On the one hand, as leader of the Chinese Communist Party, he strove to eradicate popular submission to the traditions of imperial China. During the Cultural Revolution (1966–1976) he repeatedly urged the people to reject and forget the ‘four olds’ (i.e. old customs, culture, habits and ideas); yet, as his own writings show, he himself often conceptualized his political and military strategies and tactics in terms of analogies with illustrious figures from Chinese history, and he continued to do so right up to his death. Since then there has been a great revival of interest, both academic and popular, in Chinese history. Now Chinese television screens enormously popular historical drama series which can be understood as commentaries on current events and policies; for example, presenting exemplary rulers who struggled against the corruption of officials (Zhu, 2008). As we shall see in the next chapter, China, since Mao’s death, has also witnessed a remarkable resurgence of Confucian ideas with official approval. In Southeast Asia, too, history is used to legitimize current state rulers and, indeed, the state as a whole. This comes out most strikingly in the

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New States, Old Nations and Nationalism

23

official encouragement by the military rulers of Myanmar, not normally noted for favouring academic research, of archaeological research on paleolithic remains to try to establish that man originated in Myanmar (Steinberg, 2001: 61). Kartodirdjo has written of the project to construct a national history of Indonesia after independence ‘which would symbolize a collective experience in the past. Indeed a national history is nothing other than a narrative about a common past which reveals the process of becoming a nation and concomitantly, its raison d’être’ (1996: 191). Even Brunei, after independence, felt the need for a project to establish the national history. Moreover, there was agreement that it was important for Brunei historians to take the lead in such research rather than let outsiders take control of the locality’s identity, as had happened in colonial times. The major purpose of writing a national history was ‘to create a national identity which can stand proud within the family of nations’ (Davies, 1996: 24). Leaders of newly independent states sought enlightenment from the rulers of earlier centuries and legitimation from the (interrupted) continuity. Indonesian leaders saw parallels between their rule and that of the Javan rulers of the Majapahit Empire in the fourteenth and fifteenth centuries. President Suharto’s style of rule was often compared to the traditions of the Javanese kings, where ‘distance and passivity are regarded as traditional qualities’ (Vatikiotis, 1993: 27; Loveard, 1999). Malays took inspiration and symbols from the fifteenth-century Sultanate of Malacca. Cambodian leaders looked back to the Khmer empire of the ninth to the fifteenth centuries. As for Myanmar: The present military rulers of Burma think and act in terms of the socio-political and cultural images of the traditional Burmese despotism . . . that are deeply rooted in their innermost psyches . . . [T]he first chairman of the SLORC [Supreme Law and Order Restoration Council], the late General Saw Maung . . . spoke, behaved, and thought of himself as one of the legendary Burmese kings from the 11th century Pagan District. (Maung, 1999: 266–7)

Main points History is a vital core element in the consciousness of civilization among the people of Pacific Asia It is used as a source of moral values to guide community life Asian history is often traditionally seen to progress in cycles of change History is often used to legitimize rulers and regimes Asian leaders sometimes model themselves on rulers of earlier ages

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24

Governance in Pacific Asia

The legacy of colonialism From more modern times, the peoples of the region have been marked by the legacy of Western colonialism. This too is a vital element in their thinking about the world, though reactions are quite varied. The ambiguities can be found inside each state. Some resent it and take pride in the success of liberation. In Indonesia, the Philippines and Vietnam the achievement of liberation from colonial rule legitimizes the rule of successors. Though China was never completely colonized, swathes of its territory came under foreign rule in the second half of the nineteenth century, and the Chinese Communist Party regularly celebrates the fact that its victory in the civil war meant that ‘China has stood up’, as Mao put it in his speech announcing the foundation of the People’s Republic in 1949. However, others in the region value the freedom and improved standard of living that contact with the West brought. Japan best exemplifies the ambiguity. Until the arrival of the West, Japan was a relatively poor, closed society living in the shadow of China. The arrival of the West, and the Japanese embrace of Western ways, enabled it to catch up and overtake many West European states – both economically and militarily – by the early twentieth century, and to become the second largest economy in the world from around 1970 almost until 2010. However, in between Japan was plunged into a catastrophic rivalry with the West in the 1930s and conflict in WWII, culminating in the dropping of atomic bombs on Hiroshima and Nagasaki. The region as a whole was transformed by the imposition of Western styles of government, whether they became colonies or not. There were three reasons for this. First, the most important purpose of the state in pre-modern Asian societies was not primarily to improve the standard of people’s living; rather, it was supposed both to symbolize and to realize harmony between human beings and heavenly deities (though if this was achieved, it should also lead to prosperity). In China, the legitimacy of the emperor was summed up in the phrase ‘the mandate of heaven’. This meant that the emperor was entitled to obedience from his subjects, provided that he maintained the confidence of the deity by ruling his people well. If he failed to do this, signs such as natural disasters – earthquakes, famines and so on – would indicate to the people their right to rebel. They would indicate that the emperor had lost, or may have lost, the mandate of heaven. To maintain the trust of the deity, the emperor also had to perform various rites at certain times of the year which would favour agriculture. Even today the Japanese emperor is expected to perform rites which should bring good harvests, especially of rice. As for Southeast Asia, Geertz wrote a very

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New States, Old Nations and Nationalism

25

influential book on the traditional state in Bali, which emphasized the religious theatricality of kingly rituals, such as costumes, sacred rites, and so forth. These were intended to realize a synthesis of human and divine wills, which would bring harmony and prosperity. The role of the king in these rituals was not to initiate action, but rather to project enormous calm in the middle of turmoil. Kingship meant equanimity, inactivity. The equanimity of Buddha was perhaps the clearest ideal to which a ruler could aspire, but it did not matter which was the dominant religion of a region: ‘If a state was constructed by constructing a king, a king was constructed by constructing a god . . . The landscape, not just in Bali, but throughout Southeast Asia, and over the course of at least fifteen hundred years, was dotted with universal monarchs, each represented, in the declamations of his cult, as the core and pivot of the universe, yet each quite aware that he was emphatically not alone in such representations’ (Geertz, 1980: 130,124–5).

Second, and following from this, the state was supposed to realize a moral purpose for society. It was supposed to bring enlightenment and moral improvement to people’s lives. While this was inherent in the religious underpinning of the state, it was also particularly associated in China with the bringing and enhancement of civilization. As Pye expressed it, China is ‘a civilization pretending to be a state’ (1990: 58). Third, pre-colonial Asian societies were, by and large, relatively loosely integrated, certainly compared to the nation-states of the West. They were overwhelmingly rural and their main horizons were limited to the family, the clan and other kinship groups, the village and district or provincial markets. Apart from relatively small ruling groups, they did not often stretch as far as the nation. For example, the Chinese nationalist Sun Yat-sen, like many writers of his generation, famously characterized Chinese society in the 1920s as ‘a tray of loose sand’, by which he meant that the Chinese only recognized the authority of the family and regional groups. They did not feel any great allegiance to the Chinese state. Of course, China was nominally still a very large state, which compounded the problem. A traditional Chinese saying was that the mountains are high and the emperor far away. The same image could be applied to the other traditional societies in the region. The traditional state did not intrude upon village life unless the villagers failed to deliver the taxes in money or kind that the state required of them. The imposition of Western-type states meant, first, a more active state. Calm and inactivity were no longer the most prized traits of rulers. Instead the state became more forceful, more coercive, but it also played a more

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Governance in Pacific Asia active role in integrating society. With this went the development and expansion of state bureaucracy. Given the long Chinese tradition of imperial bureaucracy, this was somewhat ironic. Nevertheless, according to Cheng (1980: 110), the traditional Chinese imperial system, which at its height encompassed 400 million people, was governed by 9,000 civilian and 7,500 military officials. Although Western ways of ruling were far from universally welcomed, reformers recognized the need to imitate the West if they were to emulate it. Thus reformers in Vietnam, for instance, looked for ‘organized groups’ (doan the) that could better integrate scattered communities and eventually force the colonialists to leave and stay away (Woodside, 1976: 5). These groups could be political organizations such as parties, or organs of the state. Even a state such as Thailand (formerly Siam), which never became a colony of the West, felt the threat of potential colonialism and its rulers presented a traditional regional rival, Burma, as a modern equivalent threat. ‘The Burmese thus became Siam’s colonial Other’ (Reynolds, 2005: 29). Danny Unger (1998) has written of the role of the modern Thai state in remedying the traditionally ‘loosely structured systems’ of Thai society, which lacked adequate social capital for economic development. Second, the West brought technology to build up technical infrastructure – roads, railways, canals, and so on – as well as industry. For government this meant a more practical, pragmatic approach to policy-making. With this went an enhanced ability on the part of the colonial state to extract resources from society to support it in the form of taxes. They insisted on monetary taxes, where traditional rulers might have accepted tied labour instead. This hit peasants particularly hard. As Scott put it: To follow the development of the colonial regime is to follow the inexorable progress of cadastral surveys, settlement reports for land revenue, censuses, the issuance of land titles and licences, identity cards, tax rolls and receipts, and a growing body of regulations and procedures . . . Nets of finer and finer official weave caught and recorded the status of each inhabitant, each piece of land, each transaction, each activity that was assessable . . . there is little doubt that, compared to the kingdoms they replaced, they left few places to hide. (Scott, 1976: 94)

Sometimes East Asian states, however venerable, were rendered more efficient by the imposition of Western models of administration. In the second half of the nineteenth century the Chinese Qing Dynasty was becoming increasingly enfeebled, and after the defeat of the Boxer Uprising in 1900, which had attempted to throw foreigners out of China, the Western powers

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imposed punitive damages and required that the British took control of the Chinese customs service so as to ensure payment. This made the administration much less corrupt. It also raised money for the Chinese state. However, the arrival of the West was often imposed by military force, whether through actual warfare or the threat of it. In 1854, Japan was forced to open its harbours to trade by the arrival of the ‘black ships’ of Commodore Perry from the United States. The most egregious example for the Chinese came with the Opium War of 1839–1842 when the British and the French used their more advanced military forces and technology to force the Chinese government to open their markets to foreign trade, and, in particular, to force the import of opium into China. Doing so would reduce the trade deficit that these states were running with China as Western consumers wanted to buy Chinese silk, porcelain and tea, while the Chinese would not buy anything in return, except opium, which the state had banned. This use of military force to corrupt the Chinese with narcotics still rankles in China today. This and the following cession of bits of Chinese territory to various colonial powers in the second half of the nineteenth century nourish an enduring sense of China’s victimhood at the hands of the West. Sun Yat-sen, then formally President of the Republic of China (which was riven by rapacious warlords), articulated the humiliation that the Chinese felt over the earlier dismemberment of their state by various Western powers in the nineteenth century in lectures in 1925: We are the poorest and weakest state in the world, occupying the lowest position in international affairs; the rest of mankind is the carving knife and the serving dish, while we are the fish and the meat. Our position now is extremely perilous; if we do not earnestly promote nationalism and weld together our four hundred millions into a strong nation, we face a tragedy – the loss of our country and the destruction of our race. (Sun, 1928: 12)

Some structures and habits of colonial administration persisted after independence too. In Southeast Asia the Dutch and the British ran their territories of Malaya and Indonesia by treating different ethnic communities separately. Native Malays or Javans were administered through one set of arrangements, while immigrant Chinese and Indians had others. There was a practical logic behind this. It stemmed from the difficulties of administering groups who spoke quite different languages, though no doubt it also corresponded to a strategy of divide and rule. It meant, however, that there was no attempt to consolidate the separate communities into a more integrated nation, not least because it might have threatened colonial rule.

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Governance in Pacific Asia As a result, the political institutions of the independent states reproduced, to some extent, these divisions, especially in Malaysia, where separate political parties were created for each of the major ethnic communities. In a different way, the democracy introduced into the colony of the Philippines by the United States between 1898 (when the United States drove out the Spanish) and 1942 (when Japan invaded) has persisted largely since independence in 1945, though many of the defects in that democracy have persisted too. This meant that a significant proportion of the extra revenues generated by the state were allocated to increased defence and security costs, and not just directed against neighbours. The imposition of colonial rule could also plunge peoples of this region into conflicts whose origins were far distant, and could cause massive loss of life and damage. For example, Burma was traumatized by the experience of WWII. Having been incorporated into the British Empire towards the end of the nineteenth century, it suffered catastrophically in WWII. First, the Japanese attacked in December 1941, forcing the British to retreat almost to the border with India, destroying the infrastructure as they went to deny it to the Japanese. Then, from 1943 the allied forces gradually forced the Japanese back across the country, with even more destruction being wrought as they went. As a result Burma was ravaged by conflict between imperial powers whose capitals were thousands of miles away. According to Andrus (1948: 344, 335), Burma was hit harder by the war than any country in Asia, except for Japan. The transport infrastructure was thrown back a century. For all these reasons it is no surprise that the memory of colonialism should nourish grievance in many of the states. It was an affront to the traditional pride of these peoples. Recollections from this time kept recurring. For former Malaysian Prime Minister Mahathir, a qualified doctor, the memory of the patronizing slights he received from British colonial administrators rankled for decades afterwards. He never missed an opportunity to have a dig at the British and (as he saw it) their henchmen, the Australians. Former Singaporean diplomat Mahbubani also wrote an essay with the provocative title ‘Can Asians Think?’ out of exasperation at condescending treatment by contemporary Western governments, especially American ones, which only compounded the affronts from colonial times: ‘The most painful thing that happened to Asia was not the physical but the mental colonization. Many Asians . . . began to believe that Asians were inferior to Europeans’ (2002: 22). In several Southeast Asian states (e.g., Indonesia and the Philippines), the heroism of the leaders in the struggle against colonialism has been popularized as a source of pride and used as examples in the nationalism that has been fostered to strengthen the sense of legitimacy of the independent states.

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The strength of underlying resentments about colonialism is in a way best exemplified by the Philippines. The establishment of American tutelage in the Philippines after the defeat of the Spanish in 1898 led to a war between Filipinos and Americans in which possibly hundreds of thousands of Filipinos died either in combat or as a result of American attempts to suppress resistance or because a plague of cholera broke out during the fighting. However, after that American rule was relatively benign and it did set up democratic institutions that prepared for independence, which came in 1946. General relations between the United States and the Philippines have therefore remained close. As Sheridan (1999: 34) put it: ‘While the other nations of South East Asia were establishing their independent identities, institutions and habits of regional cooperation, the Philippines’ gaze was firmly and lovingly fixed on California. It was a relationship not of direct colonisation, but de facto colonisation, the same yearning of the distant colony for the metropolitan power, the same sense of mutual proprietorship, special obligation and intimacy.’

Nevertheless, the US retained significant naval and air force bases in the Philippines until pressure from the Filipino government led to their closure at the end of 1992, even though they still brought significant amounts of foreign exchange into the country. According to the New York Times (28 December 1991), this followed an impassioned debate in the Philippine Senate where the American military presence was attacked as a vestige of colonialism and an affront to Philippine sovereignty. This was not the only factor – resentments over the limited amount of extra funds that the United States was prepared to offer for an extension of the lease on the bases, mistreatments of Filipinos by American military personnel and earlier American support for the authoritarian regime of President Marcos also contributed, as did fears that America might intervene militarily elsewhere in the region and involve the Philippines (Ferrer, 1992). Nor was the decision uncontested – far from it. Many Filipinos were in favour of the American bases remaining, for a variety of reasons. Nevertheless, this event was a reminder of the way that anti-colonialist passions can still intrude into policy-making 45 years after the end of colonial rule. Main points The arrival of the West transformed traditional societies and states The legacy of colonialism plays a big part in structuring popular Pacific Asian attitudes towards the world today Post-colonial states have placed great stress on rediscovering and recovering their history

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State-building and rebuilding All of the states in the region were confronted by the enormous challenge of building, or rebuilding, new states after WWII. For newly independent states the challenge was obvious, especially as warfare erupted in Korea and Indochina. In several cases, especially in Southeast Asia, the boundaries of the new states had been imposed by the former colonial rulers. This meant that there was the potential for disputes from inside and outside the borders. Since 1949, China has been confronted by what it regards as the renegade province of Taiwan, which, at least until the 1990s, contested the right to be considered the legitimate government of China. Originally in the early 1960s Fisher (1969) asked whether Southeast Asia was the Balkans of the Orient, with all the implications of regional instability putting the stability of global relations at risk. He emphasized the problems posed by geographical fragmentation, which had only been exacerbated by Western colonial rule and economic development. As he put it: ‘Virtually all of the new units contain a much greater diversity of population than people in the West usually associate with the concept of a nation-state . . . there is hardly a single international boundary in the whole of Southeast Asia which would not have called for “rectification” by the Versailles treaty makers [in 1919]’ (Fisher, 1969: 66, 70). Fortunately, since the end of the Vietnam War in 1975, the region has seen no serious inter-state conflict, though there have been occasional military skirmishes and persisting territorial disputes. The unresolved division of the two Koreas, as well as the continuing confrontation between Taiwan and mainland China, still could engulf the region in conflict, which would draw in powers from other regions of the world. The successful management of potential centrifugal forces in the region can be illustrated by the contrasting evolution of state-building in Burma and Indonesia. When both became independent at the end of the 1940s, it might have seemed that Burma would have greater prospects for state-building. A Burmese state had been built already in the eleventh century. Over subsequent centuries, various peoples had challenged the authority of the rulers, sometimes successfully, which led to secession, but the Burmese state had achieved longevity and the legitimacy of tradition. By contrast, the state of Indonesia was a more recent construct. It had been formed by the Dutch colonial authorities. The term ‘Indonesia’ itself only seems to have entered informal use around the time of WWI (Adam, 1996). Thus, appeals to the legitimacy of the new state based upon history were much more fragile. The centrifugal pressures of regional identities were very

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pronounced in Indonesia (Choy, 1999); a country consisting of around 17,500 islands, now with a population of around 240 million. Once both states had been set up, they both experimented with democracy, but in neither case was this particularly successful. It led to military coups which dominated politics in Indonesia between 1965 and 1997, while in Burma it has lasted to the present. Thus, in both states, the armed forces have sought to play the key role in both nation- and state-building. Yet the outcome has been quite different. When Burma gained independence in 1948 the regime in Rangoon sought to impose national unity, which included suppressing the autonomy of minority tribes (such as the Karen and the Mon) that had been tolerated under colonial rule. According to Callahan (2003), the state was in a parlous state only two and a half years after WWII, which had been so damaging to the country; but what made matters worse was the victory of the communists in China. In 1951, the CIA began trying to organize refugees from the Nationalist army who had fled into Burma so that they could renew the fighting. This intensely worried the Burmese military authorities because, once again, it risked dragging the country into someone else’s conflict. They concentrated on building up defence capabilities in case of attack, and that included trying to suppress internal dissent. They intensified their operations against minority areas, producing new cycles of violence that have persisted more or less up to the present, costing probably hundreds of thousands of lives. By contrast, Indonesia has managed to emerge from violence, although not unscathed. There were challenges to central authority there too, with rebellions in a few provinces in 1957–1958, as well as increasing social unrest. The original, more open democracy was replaced by ‘guided democracy’, but in 1965 the crisis came to a head with the murder of the top six military generals, all Muslims, allegedly by activists from the Indonesian Communist Party (PKI). This unleashed a furious backlash from the army and opponents of the PKI. Massacres multiplied. Possibly half a million people were killed in the next year, though no-one was keeping an accurate count. Overwhelmingly, Overseas Chinese living in Indonesia were targeted because of presumed sympathy for Beijing and the PRC. After that, the military set up the New Order regime under President Suharto, which stayed in power until 1998. There were further occasional challenges to the central authority of Jakarta. The former Portuguese colony of East Timor was annexed by Indonesia in 1975, but remained the scene of sporadic antiIndonesian guerrilla activity until it was finally allowed independence in 2002. The estimated number of deaths from military causes range from between 60 and 200,000 over the 27-year period. More recently, conflict also

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Governance in Pacific Asia broke out in the former Islamic sultanate of Aceh, which wanted independence. But in general, Indonesia has avoided the continuous low-intensity conflict from which Burma has suffered. The reintroduction of democracy in 1998 has not provoked the same turmoil of the 1950s. Though there have been large numbers of victims, nation-building seems to have worked. A key difference between the experiences of military rule in Burma and Indonesia is economy. The Burmese armed forces attempted to cut the country off, as far as possible, from the outside world following the Burmese Way to Socialism (from 1962 to 1988). This made living standards stagnate. Only in 1975 did per capita income in Burma recover to the level of pre-WWII (Steinberg, 2001: 37). By contrast, living standards in Indonesia have gradually improved, aided, admittedly, by the discovery of large deposits of oil and gas. Both countries have experienced major corruption by the military, with President Suharto being declared to have stolen more from his people than any other leader in the world by Transparency International in 2004 – a sum allegedly amounting to US $15–35 billion. Nevertheless, as we shall see in a subsequent chapter, the Indonesian state did manage to transform its earnings from oil and gas into more sustainable economic development. These two examples are typical of the experiences of the states in Pacific Asia in general, almost all of which were engaged in state-building. The communist states were in some ways confronted by the largest challenges. States such as Vietnam, North Korea and, later, Laos – and for a while Kampuchea – were not only engaged in the processes of building states on the basis of former colonial regimes, they were also forced to try establish an international presence when surrounded by hostile capitalist states during the Cold War. North Korea responded to the external challenges 1955 with an ideology of self-reliance (juche). This concentrated on purely national sources of stability and economic development. It shunned foreign models. Even though North Korea relied upon them for defence, it refused military alliances with either the USSR or China, in case such an alliance would foster dependence on them. After 1949, China was faced with most of the same challenges and exhibited some of the same misgivings. It had not been completely colonized, unlike states in Southeast Asia. However, parts of the country had been under foreign rule since the middle of the nineteenth century. The country had then fallen apart as warlords in different regions of the vied for national power, only to be replaced by increasing Japanese encroachments on Chinese territory from the early 1930s. Finally, the bloody conflict with Japan during WWII was followed by an even bloodier civil war with the Nationalists. Thus, the Chinese Communist Party (CCP)

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had an enormous task in rebuilding national unity after victory in 1949, while at the same time facing confrontation with a hostile United States, which was endeavouring to undermine communist rule with support from the Nationalist government on Taiwan. During the Great Leap Forward in the late 1950s, and again in the Cultural Revolution in the late 1960s, Mao also based development upon the principle of self-reliance, leaving the country almost completely diplomatically isolated. It was military – potentially nuclear – confrontation with the Soviet Union after border clashes in 1969 that made China more receptive to offers of diplomatic recognition by the United States. In turn, this initiated the gradual opening of China to the outside world, which has continued to the present. On Taiwan, on the other hand, the Republic of China (ROC) was confronted by an equally demanding challenge with which it has only slowly come to grips. Initially it had to establish itself as the effective government there, uprooting the legacies of Japanese colonial rule; but it also had to establish itself as the legitimate government there, though the official line on this has changed over the years. At first it was an outsider regime, dominated by people who had come from the mainland after 1945 or 1949. For the next 40 years it maintained its claim to be the real government of the whole of China. Gradually, however, it has shifted the basis of its legitimacy as it has incorporated more and more Taiwanese into government, including children of ‘mainlanders’ who were born on Taiwan. Since 1991, the ROC has abandoned its claim to be the government of the whole of China, but it has continued to face difficulties in specifying the basis of its own legitimacy, apart from the fact of effective control of the territory of Taiwan, not least because of the persisting implacable opposition from the PRC to anything that might smack of independence for the island. Although the state of Japan had been established well before 1945, after the calamitous defeat in WWII the government was confronted by the challenge of remaking the state in a more democratic, non-militaristic way, based upon a democratic constitution imposed by the United States. Even Japan has therefore experienced the challenge of major state-rebuilding. The last point to make is that although these challenges were most acute in the 1950s and 1960s, when new states were emerging, the issues of statebuilding and state legitimacy have not disappeared. This is most obviously the case for East Timor, which finally gained independence only relatively recently, in 2002. But challenges to state legitimacy have persisted in others – we have already mentioned the continuing civil war in Burma – and challenges to central state rule have also endured in Mindanao in the Philippines throughout the post-war period. Occasionally, however, new

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Governance in Pacific Asia issues have emerged; for example, the upsurge in Islamic-related opposition in southern Thailand to rule from Bangkok since 2004 . Therefore the issues of state legitimacy and challenges to it are always in the background. Main points All the states in the region were confronted by enormous challenges of statebuilding and rebuilding after WWII Some, such as Indonesia, have been relatively successful A few, such as Burma, have been less so but most have avoided fragmentation

Nation-building and nationalism Accompanying, and often exacerbating, the problems of state-building were the equally intractable ones of nation-building. According to Wang Gungwu (2005: 252), the concept of the nation-state was alien to leaders in Southeast Asia in the 1950s and 1960s. There had been potential nations there in the past – the Vietnamese, the Khmers, the Thais of Siam, the Burmans, the Javanese and the Malays of the peninsula – but they had had no need to define themselves as such until the encounter with European nations. Now, whether it was integrating previously loosely connected ethnic groups into a national community (as in Southeast Asia), or (re)integrating a ‘socialist’ nation in communist states after the end of civil war, or reintegrating the Japanese nation after traumatic defeat in WWII, all the states were confronted by daunting challenges. The new states usually appealed to nationalism as a key factor to mobilize support behind the regimes. In general, the academic literature analysing the drivers of nationalism usually divides into one of three types of approach. The first two search the history of a nation for the factors or events that originally gave rise to nationalism. First, there is the approach that emphasizes the crucial importance of continuity of belief from some ancient time – what is termed the ‘primordial approach’. This school focuses on appeals to distant ancestors and communities as the bearers of values which should guide their descendants in the present. It implies that people alive today recognize obligations to keep faith with both their ancestors and with future generations. Smith (1991: 20–1) is one of the most eloquent exponents of this viewpoint. He stressed the fundamental appeal of what he termed an ethnie (i.e. an ethnic group). According to him an ethnie has six main characteristics: a) a collective proper name; b) a myth of common ancestry; c) shared historical memories; d) one or more differentiating elements of

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common culture; e) an association with a specific homeland; and f) a sense of solidarity with significant sections of the population. In addition, the notion of ‘shared historical memories’ – mentioned in point c) above – can facilitate one other dimension of the study of nationalism. Some commentators have stressed the importance of ‘ethnosymbolism’ in promoting nationalism (Leoussi and Grosby, 2007). By this they mean the use of cultural symbols that acquire especial significance in the forming of national identity. Nations that have long histories are more likely to contain such symbols. Some symbols may perform this function even when they are being condemned. China can provide a good example. During the Cultural Revolution, Mao encouraged all Chinese to shake off superstitious reverence for the past, and the Great Wall was cited as an example of the inhumanity of the ‘feudal’ imperial system, since it was built with slave labour – indeed, tens of thousands of people died in building it. The socialist state wanted to project its concern for the welfare of ordinary people. Since Mao’s death, however, the leaders of the PRC have transformed the message of the Great Wall. Now it is seen as an example of the great feats that the Chinese people can achieve, especially since it was claimed (wrongly) that it is the one man-made object that can be seen from space. Whether as a negative or positive symbol, the state has used the Great Wall as a symbol of national achievement with which the Chinese people can associate themselves (Waldron, 1993). Other states in the region focus on their symbols of past national achievement to do the same thing, especially as they too have long histories. In Cambodia, for instance, the enormous twelfth-century Buddhist temple at Angkor Wat, which is now a UNESCO World Heritage site, has figured in the national flag of five different regimes, ranging from the French colonial administration, through to the monarchy of Prince Sihanouk, the communism of the Khmer Rouge and the Vietnamese-backed regime that overthrew it, to the current, more democratic regime with a nominal monarchy. The second approach to nationalism identifies the modern era (however it is defined) as the crucial moment when previously disparate groups were integrated into a more coherent, larger community by the processes of industrialization and widening education, and by responses to growing international trade, as well as deliberate policies of the state. Thus, nationalism is promoted by, and in turn promotes, socio-economic modernization. This approach has been particularly associated with Gellner (2006), who was primarily concerned with the origins of nationalism in Europe, and so would date the origins of nationalism as a mobilizing force to the era of the industrial revolution.

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Governance in Pacific Asia The third approach looks at the past through the prism of the present and is associated with Anderson (1983: 6–7). He was struck by the way that the peoples of new states, especially in this case Indonesia, ‘imagined’ themselves as members of a larger community (i.e. a nation) when they had never had direct contact with most of the others and indeed never would. Yet they would still endow this ‘imagined’ relationship with greater obligation than they would to relationships with ‘lesser’ groups with whom they shared more direct experience. This approach has been summed up in the phrase ‘imagined communities’. Thus, peoples from this perspective construct their own identity in the form of nationalism that gives overarching meaning to their lives. Of course it is not easy to apply just one of these approaches to the study of nationalism in Pacific Asia. As has already been mentioned, many of the peoples there believe their ancestors go back millennia, and so the primordial approach is likely to be the most relevant. The writing of national histories has bolstered this. At the same time, they have only begun the transition from traditional, predominantly agricultural ways relatively recently. So nationalism based upon modernization also seems relevant. The peoples of Pacific Asia did have to ‘imagine’ themselves into some kind of national communal life, and so that approach too has a lot to contribute. In addition to the processes of the development of nationalism, there is also the question of the content of particular nationalisms. Here a basic distinction is often made between what is termed ‘civic’ nationalism – that is, a set of beliefs that are shared by all the citizens of a given state and who accept one another as legitimate members – and ‘ethnic’ nationalism, which tends instead to stress the purity of core values of a single ethnic group (Ignatieff, 1993). The implication of this distinction is that ‘civic’ nationalism is more liberal, more moderate. It allows for variations between the attitudes of component parts, as well as the evolution of attitudes as circumstances change. By contrast, ‘ethnic’ nationalism tends to insist upon consistency and conformity, and very often conformity to some set of values that were enshrined as orthodoxy in the past, sometimes the distant past. It can become much less tolerant of diversity in the hands of ethnic ‘entrepreneurs’ who insist upon their ‘correct’ interpretation of those values. Generally speaking, ethnic nationalism tends to be more associated with states that are ethnically homogeneous, where the ethnic community precedes the nationstate and determines the values that it espouses. Civic nationalism is more associated with ethnically heterogeneous states, where the state itself lays down the core values, which may resonate more or less strongly with the traditional values of particular sub-sets of the population. We shall return

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to this topic in Chapter 3, when we shall be considering versions of national values that are laid down by states in Pacific Asia through officially approved texts that are part of the official education curricula taught in school classes. Given the earlier sections of this chapter, it might be assumed that ethnic nationalism would be more prevalent in Northeast Asia, where states are more ethnically homogeneous, while civic nationalism would be more common in Southeast Asia, where states are more heterogeneous. To some extent this is true. Though China is officially described as a state composed of 56 ethnic communities, the Han Chinese have pursued assimilation of other minorities for centuries, though still with some regard for their customs, languages and (sometimes) religions. Also, liberals still criticize Japan for discriminatory treatment of foreign guest workers. By contrast, as we shall see in the next chapter and later, some Southeast Asia states, such as the Philippines, have tolerated greater diversity – though even there a dispute over the status of the island of Mindanao has plagued relations between many of the people who live there and Manila for centuries. Indonesia has also been noted for its tolerance of different varieties of Islam, as well as of other religions. Nevertheless, it would be an oversimplification to see ethnic nationalism as predominant in Northeast Asia and civic nationalism in Southeast Asia. Take the example of Cambodia: after being sucked into the Vietnam War the monarchist regime there was swept aside by a violent civil war which led to the victory of the Khmer Rouge in 1975. The Khmer Rouge then subjected the country to a radical populist political programme aimed at eliminating all real or potential opponents and driving all the people from urban areas into the countryside. Up to one and a-half million people (i.e. roughly onefifth of the population) were executed or died in the next few years, before the regime was overthrown in 1979. Subsequently, the Khmer Rouge have been condemned by the UN for genocide because of its suppression of minorities. In many ways the complexity of the issue of nationalism in Pacific Asia is best exemplified when applied to Japan. Today Japan is usually regarded, especially by Japanese, as an ethnically homogeneous nation-state that has survived almost since time immemorial. Oguma characterizes the dominant view as follows: ‘the Japanese nation has consisted, and today still consists, of only the Japanese nation, which shares a single, pure origin and a common culture and lineage’ (2002: xxx). According to him, by the early 1950s it was academic orthodoxy that the Japanese were descended from Neolithic peoples living on those islands and that there had been no

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Governance in Pacific Asia significant racial changes since then. He cites a left-wing writer, Inoue Kyoshi, as summarizing the dominant view: ‘The Japanese nation was created from an almost completely homogeneous race. This homogeneous Japanese race has lived together in the same place for 2000 years’ (Oguma, 2002: 311). Some commentators have challenged this stereotype. Lie (2001: 4), for example, points out that there were 4–6 million ‘non-Japanese’ living in Japan in the 1990s (i.e. about 5 per cent of the population). Of these, there were 2–3 million from the former unclean caste of Burakumin; up to 1 million of Korean descent; 1.6 million Okinawans (the kingdom of Okinawa was only incorporated into Japan at the end of the nineteenth century); 250–300,000 Ainu living in Hokkaido; 200,000 Chinese and several hundred thousand foreign workers from various countries. Nevertheless, Lie (2001: 133–4) argued that the narrative of Japanese homogeneity only became widespread in the 1960s, encouraged by the government, because it both summed up the differences that Japanese people felt between themselves and others, and also because it purported to explain the reasons for Japan’s striking economic success since 1955. Oguma (2002) emphasized also that during the period from the annexation of Taiwan in 1895 up to defeat in WWII, the official Japanese doctrine was one of a multi-ethnic empire, where Taiwanese, Koreans and so on were seen as belonging to the same family of Asian nations, albeit younger siblings of the Japanese. Despite this, the legend of Japanese homogeneity remains tenacious. Yet, Doak has shown that the whole idea of Japanese nationalism resulted from the initial clash with the West. Reminiscent of Wang Gungwu’s comment above about potential, but not actual, nations in Southeast Asia prior to the arrival of the West, he wrote: ‘Prior to 1853 [the date when Commodore Perry’s ships forced the country to open up to foreign trade] there was no Japan’ (2007: 36). By this he means that prior to that date, there was no single agreed understanding of the term. There was an emperor, but he played a symbolic role. Chief power lay with the military leader, the shogun. But effectively, the lands of what is now called Japan were divided between various feudal lords, and the horizons of the inhabitants were limited to these domains. Doak quotes a Japanese historian, Kano: ‘The discovery of the West also produced the discovery of Japan’ (2007: 40). It was the arrival of the Western ships that catalyzed the emergence of a sense of common fate across all these feudal domains. Therefore the first thing to emphasize is that although the Japanese nation had primordial origins, the sense of common identity was only ‘imagined’ or constructed in more modern times. Gradually a consensus emerged that made the emperor the new effective core of the regime and not just its symbol – the shogun was displaced; and

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to strengthen the sense of legitimacy, advocates of the regime stressed the importance of the ‘unbroken’ 2,600-year lineage of the royal family. Gradually too the sense of ‘nation’ emerged, but in Japanese two different terms were devised to convey that meaning, and they had differing implications. On the one hand there was kokumin, which was associated with the state and implied a more civic form of national identity. On the other hand was minzoku, which placed emphasis more upon the popular community and which could notionally be detached from a particular form of state power – and in the 1920s and 1930s was used to undermine the authority of discredited governments. It inclined more towards an ‘ethnic’ form of national identity. Since the 1880s the relative frequency of usage of these two terms has fluctuated. According to Doak (2007: 222–50,210), minzoku became more common from the 1920s to the end of WWII, whereas kokumin overtook it after WWII and especially in the 1980s. The emergence of this complex reality of nationalism in Japan also coincided with increasing industrialization and urbanization. Indeed, according to Gluck (1985: 320), it was only in the 1890s that the concept of ‘society’ as a national community became a commonplace among Japanese writers. These processes, just as Gellner described them in Europe, contributed to the mobilization of new popular attitudes towards national politics. Thus, modernization both galvanized and promoted nationalism across society. So all three approaches to nationalism outlined above can be adduced to explain dimensions of the emergence and spread of nationalism in Japan. There is, however, one other feature of nationalism in Japan that has been given particular attention in recent times and that could be applied to nationalisms in other countries. This is the salience of everyday nationalism. In Japan this focus partly stems from a linguistic peculiarity in rendering ‘nation’ into Japanese. There are two different characters that have been used to render the ‘zoku’ part of minzoku. One, more common, conveys the notion of ‘tribe’ or ‘clan’; but the other conveys more the sense of ‘popular’ or ‘vulgar’. From this reading, ‘nation’ denotes the common people with their distinctive customs and folklore. This is in keeping with Billig’s general notion of ‘banal nationalism’; that is, nationhood is near the surface of contemporary life, so that routinely familiar habits of language will continually act as reminders (1995: 95). We shall return to some examples of this phenomenon in Chapter 3, when dealing with political culture. But McVeigh (2006) partly uses this point to show that in Japan there is no single version of nationalism. Instead there are overlapping nationalisms with differing emphases, some associated with the promotion of the state, others embedded in popular language and customs.

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Governance in Pacific Asia This is a general point that could also be applied to many other states in Pacific Asia. It emerges in Vu’s recent study (2007) of Vietnamese historiography, for example. It is a reminder that nationalism in any country is mutable. It is a space for argument and contestation. Various groups challenge one another for the right to provide an authoritative, or even the authoritative, interpretation of the nation’s values and goals. Orthodoxy fluctuates. Priorities over values change. There is never a final, definitive version of a country’s nationalism. Circumstances change and new generations emerge with different preoccupations. The objective of achieving a fully nationalist society is never completed. In the years before he stepped down as prime minister of Malaysia in 2003, Mahathir Mohamad lamented several times that the country had still not built a Malaysian nation (bangsa Malaysia), even though the United Malay Party (UMNO) had been in power for nearly 50 years. The Malaysian government in 2009 introduced an explicit ‘one Malaysia’ policy. And new challenges keep disturbing previous consensus. In democratic Taiwan the victory of the Democratic Progressive Party in 2000 led to official policies of refashioning Taiwanese identity to take account of its diversity. Where previously the ruling Nationalist Party had stressed Taiwan’s Chineseness ever since 1945, basically adopting an ethnic approach, the new government introduced a new, more indigenous, more multicultural school curriculum which was more ‘civic’ in nature, emphasizing the different communities and cultures that made up the new Taiwan (Mao, 2008). Main points Accompanying the task of state-building was the related one of nation-building This usually involved a heightening of nationalism There are many sources of nationalism: primordial origins, modernization and industrialization, and the (re)imagining of communities Nation-building also involves the identification and manipulation of ethnic symbols Some states in Pacific Asia have pursued a more exclusive ethnic nationalism, while others have favoured a more liberal ‘civic’ nationalism but both approaches can be found at different times in many of them

Imposition of a European-style international system The intrusion of the West also changed the pattern of relations in Pacific Asia in two ways. First, the rivalry between the Western powers led to the breaking of ties between neighbouring peoples, as the British, French,

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Germans, Russians, (earlier) Dutch and the Spanish carved out spheres of territory which were separate from one another. When they insisted upon trade within their respective empires, this disrupted traditional commerce. Later, after they had left, the boundaries that they had created very frequently constituted the boundaries of the successor states, though this did leave a legacy of potential border disputes. Pacific Asia currently has over 20 unresolved disputes over borders or exclusive economic rights to areas of the seabed, as well as a further 9 that involve one state in the region with another state (e.g., India or Russia). Some disputes are tiny, but others cover thousands of square miles, especially at sea. In addition, several states in the region – for example, China, Burma, the Philippines, Thailand and Indonesia – face challenges from minorities who claim the right to self-determination, and sometimes those minorities straddle international borders. Many of these claims stem from the treatment of these groups by colonial powers in the past. Second, the West also imported into the region the European principles of international law. In particular, this applied to what has been called the Westphalian system; that is, the relationship between states that was first established by the Treaty of Westphalia in 1648 which brought an end to the Thirty Years War in Europe. This asserted two things: first, equality between sovereign states; and second, the primacy of boundaries between sovereign states. These were fixed, and delimited the territorial power of the sovereign. It assumed that state power, certainly inter-state power, was more static. In East Asia, by contrast, relations between states were traditionally more fluid. States grew, absorbed rivals, won vassals who paid regular tribute in recognition of the benefits that they obtained from this higher form of civilization, and then they splintered again. The classical version of this pattern of rule came from China – that is, what Fairbank (1968) identified as the tribute system. This assumed a civilizational hierarchy with China at its centre; non-Chinese were generally expected to recognize this by paying tribute for the enlightenment that was accorded to them and which brought social stability and trade. According to Cheng (1980: 17), Chinese historians always believed that China was the cultural centre of the world, while those who lived outside it, or who lived inside but practised different customs, were ‘barbarians’ (yi). Feng (2009) reminds us that this system never completely covered all of China’s relations with her neighbours, and the practice of this system fluctuated over time as the relative military power of the Chinese and their neighbours ebbed and flowed. It was a hierarchical system, but also a dynamic one. Nevertheless, it did recur and persist over centuries. The Chinese reformer Liang Qichao wrote in 1901 that Chinese

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Governance in Pacific Asia could not distinguish between their country and everyone ‘under heaven’ (tianxia) (Sha, 1999: 60). In Southeast Asia Andaya (1999: 98–101) has written of the emergence in the seventeenth century of something rather akin to this, whereby what she calls the ‘exemplary centre’ (i.e. some rulers and states there) acquired the reputation of being morally more worthy of respect, allegiance and tribute from lesser rulers and communities. Political power, like light or a force-field, was thought to radiate outwards from a centre. Radiance was like sunlight: stronger at the centre, weaker further away, until it ran up against another force-field (Suwannathat-Pian, 1988:29). Relations with vassals were dynamic rather than static. So rulers concentrated more on the core of their appeal at the centre and disdained the periphery. According to Tarling, what went with this was the fact that: The concept of frontier was uncommon, if not unknown, in Southeast Asia. The idea that the ambit of a state was geographically fixed was rarely accepted. What counted in Southeast Asia . . . was allegiance. Whom, rather than what, did the state comprise? States might indeed advance or retreat, grow or decline, but in terms of adherents and followers, of a network of familial and supra-familial relationships . . . What concerned a ruler was the people not the place. The sense that the state was a geographical or locational entity was rarely strong. (Tarling, 1998: 47)

Steinberg (1987: 5) give a particularly good illustration of this in the upper Mekong valley in the late seventeenth century. There the monarchs of Vietnam and Laos agreed that those who lived in houses on stilts would owe allegiance to the Lao king, while those whose homes had earth floors owed allegiance to Vietnam. So communities that were geographically intertwined owed allegiance to different rulers based upon their styles of domestic architecture. One consequence of the colonial experience has been that newly independent states have seized the principles of the Westphalian system of national sovereignty, and they defend it passionately. The implicit principle of equality between all states, coupled with the claim to complete sovereignty within the boundaries of legitimate states, is seen as essential to prevent the return of colonialism and imperialism. While traditional systems of relations in the region were more fluid, they also were less robust barriers to external intervention, and at worst, they could not prevent states from disappearing and nations from being colonized. Pacific Asian states are now zealous defenders of their national rights, which slows down the processes of regionalization, as we shall see in Chapter 13.

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Yet it would be wrong to imply that Pacific Asia is a region seething with anti-Western feeling. Resentments do certainly persist beneath the surface, and they can be exploited at times of crisis; but relations between the nations of the region are also complicated by conflicts and rivalries between their peoples which date back centuries. The patterns of rule imposed by the West did not completely erase the layers of experience and rule that had preceded their arrival, as well as interactions with other regions. Large parts of Southeast Asia, for instance, were heavily marked by contact with India before the arrival of Westerners. The same was true of parts of China. Invoking historical precedents also revived grievances over perceived historical injustices done by one community to another. Furthermore, the imposition of the Westphalian international order, with states sovereign within their defined borders, meant that grievances over the control of territory or resources from earlier centuries were now amplified when historians, with presumed modern state backing, reasserted claims to control as if the new system had existed then, whereas in the past the notion of sovereign control of borders was much more fluid. Thus, for example, research in northeastern China into the history of the region led to claims, in 2004, that the early Korean monarchy of Koguryo (37 BC–668 AD), which straddled modern Korea and northeastern China, was really a Chinese vassal state. This caused uproar in both South and North Korea (Gries, 2005). While it may have been intended to rebuff potential claims of a future reunited Korea to parts of Manchuria that are currently inside China, it inflamed anxieties of Koreans that it could lay the basis for a Chinese claim to parts of Korea. Perhaps nowhere was this multilayered historical resentment over various forms of colonial domination more strongly felt than in Vietnam. At various points in its past the peoples who live in present-day Vietnam were subordinated to the Chinese empire, and they assimilated Confucian principles of rule. Periodically they had to pay tribute. Nevertheless, Vietnamese history was also marked by recurring resistance and rebellions against China. As Buttinger (1969: 29) put it: The more they [the Vietnamese] absorbed of the skills, customs, and ideas of the Chinese, the smaller grew the likelihood of their ever becoming part of the Chinese people. In fact, it was during the centuries of intensive efforts to turn them into Chinese that the Vietnamese came into their own as a separate people with political and cultural aspects of their own.

Then, as Chinese power weakened in the nineteenth century, the French arrived as new colonialists. This posed a new challenge. However else they

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Governance in Pacific Asia wanted to modernize Vietnamese society, all radical reformers were united by a sense of nationalism. Most strikingly, even communists interpreted Marxism from a nationalist perspective. Rather than focusing upon the orthodox class basis of social analysis which is associated with Marxism, Vietnamese communists were more attracted by the critique of imperialism developed by Marxists (e.g., Lenin, after Marx’s death). This accounted for the ‘elaborate hybridity of Marxism in Vietnam’ (Pelley, 2002: 66). According to this perspective, late capitalism had imposed a class basis on world politics in the form of imperialism. This meant that there was a capitalist core of nations (the colonizers) and a ‘proletarian’ periphery (the colonies). All those who lived in the colonies were attracted by, and could appreciate, the appeal to anti-imperialist patriotism. All Vietnamese were potentially ‘compatriots’ (d’ôngbào), whatever their social position, relationship to the means of production or the ethnic group to which they belonged. Thus, what the Vietnamese Communist Party preached, after 1940 at any rate, was a kind of radical populism rather than class struggle (Pelley, 2002: 160, 170). Main points Traditional relations between rulers in Pacific Asia were based upon establishing moral superiority, expecting tribute from lesser rulers Traditional rulers were more concerned with the centre of their power rather than the borders of their state The arrival of Western colonial powers radically upset traditional regional relations Western patterns of international relations stressed the importance of sovereign control of borders Pacific Asian states have embraced these principles as a way of preventing the return of colonialism Relations in the region are still embroiled in the conflicting legacies of these alternative fundamental principles of conceptualizing them

Conclusion This chapter has done three things. First, it has explained why history plays such a large part in the identity of the various nations of Pacific Asia. This was partly because of the deliberate employment of history by rulers and regimes to establish their legitimacy, and partly because of popular pride in the civilizational achievements of their ancestors – a pride that was revived after the demise of colonial regimes. Second, it has outlined the twin challenges of state- and nation-building and rebuilding that confronted these

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states after WWII – challenges that are still not completed in some cases. In various ways, states have promoted nationalism both as a goal in itself and as a way of more firmly integrating the previously loosely connected communities living there. Third, this chapter has shown how the arrival of the West, especially from the nineteenth century, transformed the relations between nations in the region. We shall return to the question of more recent regional relations in the penultimate chapter. But before that, the next chapter will expand on the issue of identity – how the peoples of the region see themselves and how they see themselves relating to cultures and systems in other parts of the world, especially the West. Following that we shall go on to look at ways in which these states used economic development to strengthen state power.

Questions for further discussion 1 Are there any significantly different ways in which history is used to legitimize political rule in East Asia as compared with other regions of the world? 2 How far does the cyclical approach to history writing in East Asia differ from professional history writing in the West? 3 Do post-colonial attitudes in Pacific Asia play a different role in political life from those in the United States and the West? 4 Does the experience of nationalism and nation-building in Pacific Asia differ significantly from that of post-colonial regimes in other regions of the world? 5 Has the adoption of the Westphalian principles of international relations made the region of Pacific Asia more or less stable?

Further reading John H. Miller, Modern East Asia: an Introductory History (M. E. Sharpe, 2007) Nicholas Tarling, Nations and States in Southeast Asia (Cambridge UP, 1998) Rhoads Murphey, East Asia: a New History (Pearson Education, 2010, 5th edn)

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3 Political Culture, Social Values: Affinity and Diversity Chapter Outline Introduction Common themes ‘Asian values’, Orientalism and Occidentalism Some intra-regional differences in social attitudes Intra-regional changes over time Conclusion Further reading

47 47 67 71 74 76 77

Introduction This chapter will present some common features of traditional social organization in the various states of Pacific Asia, but will also recognize the significance of their differences. As the title of this chapter implies, there is diversity as well as affinity. It will then go on to emphasize that social cultures change over time, and that social culture certainly structures social behaviour but does not determine it.

Common themes Let us begin by outlining some recurring themes of social and political attitudes that have been associated with Pacific Asian societies. What they have in common is that they all reflect traditional ways in which societies in Pacific Asia achieved social stability and cooperation (what has more recently been termed ‘social capital’) in an era before the state became much

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Governance in Pacific Asia more intrusive and in a region where law traditionally played a much less important role in the management of inter-personal affairs. Under those conditions, societies had to evolve patterns of social behaviour that established the attitudinal capital that made society liveable, with incentives for cooperation and sanctions against transgressions. All of the following sections present traditional dimensions of the responses that evolved. Though in modern times social stability may be buttressed by state activity and increasing prominence for law, the traditional approaches still hold wide appeal and affect the ways that the state and the law operate.

Cardinal importance of the family The first characteristic that commentators on individual societies in the region agree upon is the value which is almost universally attached to the family. It is seen as the key social institution, and, as such, it structures both social values and social organization. All Pacific Asian states can be categorized as familial ones. What does ‘familial’ mean? According to Haney and Pollard (2003: 1), the term ‘family’ has been applied in three ways to statesociety relations: (i) as a metaphor for imagining the state; (ii) as a model for state-building; (iii) as a device or pretext to change state policies or as a vehicle for state goals. We shall see that Pacific Asian states demonstrate all three usages. Some, too, as we shall see, associate the family with a specifically Asian perspective on the good social life, one that is distinctively different from that preached by, and found in, the ‘West’. For many people in Asia, especially thinkers on social and political organization, it has acquired an ideological justification. For example, Lee Kuan Yew, the Minister Mentor of Singapore, argued that people in Asia should evolve a form of government that was different from those found in Europe and the United States, one which would put ethical concerns higher and link it to the fundamental social importance of the family (Zakaria, 1994: 118–9). A large part of the significance ascribed to the family stems from its function as the primary source of identity and solidarity. The anthropologist Margery Wolf evoked the prevailing traditional attitude very well in a book on Taiwan, but it could apply equally well throughout the Chinese world: The interaction of the Taiwanese villager with his friends and neighbors is like the spice in his soup, savory, but of little sustenance. It is with his family, his parents and grandparents, his children and grandchildren, that he takes the measure of his life. His relations with his parents may be strained, with his wife distant, and with his children formal, but without those people he would be an

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object of pity and of no small amount of suspicion. He would be pitied because he had no parents to ‘help’ him and no children to support him in his old age. For the same reasons he would be an object of suspicion. A man not thoroughly imbedded in a network of kinship cannot be completely trusted because he cannot be dealt with in the normal way. If he behaves improperly, one cannot discuss his behavior with his brother or seek redress from his parents. If one wants to approach him about a delicate matter, one cannot use his uncle as a go-between to prepare the way. Wealth cannot make up for this deficiency any more than it can make up for the loss of arms and legs. Money has no past, no future, and no obligations. Relatives do. (Wolf, 1968: 23)

This quotation illustrates the importance of internalized intra- and interfamilial relations in maintaining social order. But Asian rulers have traditionally focused on the family as a key institution in preserving public order, and so the family was made into a support for the state. In China, Confucius made the family the most fundamental social unit; it was the model for all wider social relations. Within society as a whole he identified five key relationships, three of which were derived directly from the family. These five relationships were those between: 1) ruler and ruled; 2) father and son; 3) husband and wife; 4) elder brother and younger brother and 5) friend and friend. Each of these pairs of relationships encompassed a set of appropriate roles on both sides. Confucius taught that social harmony would prevail when all the members of society knew these roles and practised them. All other social relationships should be based on them. Above the family, the ruler or emperor was expected to base his relations with the people on that between the head of the family and its members. Thus the state was conceived as the family writ large. The only non-familial relationship was between friends, and this was the lowest of the five. As Pye put it: ‘The Confucian utopia was a society of perfectly managed families, each governed by ancestor worship and filial piety, over which a state authority composed of morally exemplary rulers could lightly rule’ (1985: 56–7). Thus Confucian principles in state administration made the family the primary agency for maintaining stability in society. This was not merely, or even primarily, a matter of emotional or affective solidarity. There were two other functions. First, the heads of households were expected to ensure that all the members of the family respected and obeyed the commands of the emperor. Officials would punish the heads of households whose members had broken imperial decrees. Second, officials would also reinforce the authority of these family heads by punishing especially severely individuals who flouted the authority of the heads of families. One particularly striking example of this came in the nineteenth century.

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Governance in Pacific Asia “In October 1865, Cheng Han-cheng’s wife had the insolence to beat her mother-in-law. This was regarded as such a heinous crime that the following punishment was meted out. Cheng and his wife were both skinned alive, in front of the mother, their skin was displayed at city gates in various towns and their bones burned to ashes. Cheng’s granduncle, the eldest of his closest relatives, was beheaded; his uncle and two brothers, and the head of the Cheng clan were hanged. The wife’s mother, her face tattooed with the words ‘neglecting the daughter’s education’, was paraded through seven provinces. Her father was beaten 80 strokes and banished to a distance of 3000 li. The heads of family in the houses to the right and the left of the Cheng’s were beaten 80 strokes and banished to Heilung-kiang. The educational officer in the town was beaten 60 strokes and banished to a distance of 1000 li. Cheng’s nine-month-old boy was given a new name and put in the county magistrate’s care. Cheng’s land was to be left in waste ‘forever’. All this was recorded on a stone stele and rubbings of the inscription were distributed throughout the empire. (Hsu, 1970: 31, quoted in Redding, 1993: 45–6)”

On the other hand, according to Benedict (1989: 50), there were limits to what the state could demand. Some clans in China had ancestral laws which forbade them from surrendering family criminals to the state if the clan refused. One consequence of this involvement of families in the maintenance of public order was a blurring of the distinction normally made in Western societies between ‘public’ and ‘private’ spheres. Western political theory has emphasized the analytical and normative distinction that should be drawn between the two, with the implication that the ‘private’ sphere, however difficult it is to identify its precise boundaries, is and should be treated separately and shielded from state interference. Normally the family has been included in the private sphere. This also affects the concept of civil society, since it is usually understood to exist in-between the family or household and the state. In Asian societies, however, where the family has been enlisted as an agent of political control, and where families were understood to contribute to the maintenance of social, including public, stability, this distinction has been much more difficult to maintain, as we shall see in Chapter 12. The second contribution that families were expected to make to social stability concerned welfare. In pre-modern eras, when the resources of the state were extremely limited, it was assumed that the family was responsible for looking after members who fell on hard times. Families, or larger kinship-based groupings such as clans, were expected to provide assistance for the sick and the elderly. One of the key virtues eulogized by Confucianism was filial piety; that is, the respect and material support that younger

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generations were expected to pay to older ones. Just as parents were expected to look after children, so the children, when they later became adults, were expected to look after their parents as they grew old. In all these ways, then, the family was traditionally seen as the cornerstone of society (insofar as there was a conception of such a thing as ‘society’ in general). In Hong Kong, Lau Siu-kai put a more utilitarian slant on the traditional role and position of the family. He explained this by the fact that Hong Kong is a relatively new society – almost everyone living there came from somewhere else after 1842, and social attitudes bore the imprint of Western as well as Chinese values. Nevertheless he identified ‘utilitarianistic familism’ as the dominant cultural code there. By this he meant the tendency to place familial interests, and primarily material ones, above those of other families or the rest of society. But ‘familial groups’ could include individuals based on quasi-kinship ties, though there was no actual blood connection; for example, adopted children (Lau, 1982: 72–81). Other states that were heavily marked by Chinese influence show the same association of family and ruling values, for example the Koreas and Vietnam. In Vietnam, for example, according to Pelley, ‘the tendency to naturalize political power through appeals to the family is a practice of long standing . . . a political ruler is supposed to govern like a parent, with wisdom and benevolence; and subjects, like children, must be filial – they are constrained to obey’ (2002: 159–60). Or as Woodside put it: The endlessly repeated truism about the Vietnamese family is not unjust: the family was the undisputed foundation of traditional Vietnamese society, economically, politically, and judicially. Groups outside the family, ranging from craft guilds to secret societies, were organized on various pseudo familial lines. People derived their personal status from their family status: people were controlled through their families; and people constantly determined their own behavior by assessments of how it would reflect upon their families. (1976: 95)

This was traditional Vietnamese practice, but communist leaders updated it with terms such as ‘uncle’ in the case of Ho Chi Minh, who often referred to the people as fictive nephews and nieces. ‘The DRV [Democratic Republic of Vietnam] . . . nurtured the idea of the family-state.’ And in communist North Korea, the preamble to the Constitution states: ‘Comrade Kim Il Sung regarded “believing in the people as in heaven” as his motto . . . and turned the whole society into one big single-heartedly united family.’ A recent study of North Korean state ideology summed up thus its basic message: ‘The

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Governance in Pacific Asia Korean people are too pure blooded, and therefore too virtuous, to survive in this evil world without a great parental leader’ (Myers, 2010: 15). In traditional Japan, according to Kawashima (1985: 14, 32), there was the widespread belief that order and morality could only be found inside the family. Outside there was only chaos. Thus, in Japan too, the family also became the refuge within which people sought security and stability. Over centuries the family took different forms according to social strata. Peasant families were quite different from those of feudal lords or samurai warriors. After the Meiji Restoration in 1868 the new government gradually established the samurai warrior family as a model for the whole of society. In that sense the state ‘imagined’ a basis for national unity and consolidated a narrative for it based upon a particular type of family, much as Chapter 2 suggested that historians ‘imagined’ and popularized national histories in general. The main organizational principles of this kind of family were loyalty and obedience, both upwards and downwards. Obligations to support public order were placed on the head of the family, who was expected to help with school education, military conscription and collecting taxes. In return, he was endowed by the new Civil Code with authority over all the other members of the family as well as control of the family’s property. In addition, families were conceived as inter-generational entities, with their individual genealogies and with the glorious deeds of ancestors being commemorated annually. As an influential early post-war account of the family in Japan put it: The Japanese family is conceived of as existing continuously from the past and into the future, unceasingly, independent of the birth and death of its members. Ancestors and offspring are linked together by an idea of family genealogy, or keifu, which does not mean relationships based upon mere blood inheritance and succession, but rather a bond of relationship inherent in the maintenance and continuance of the family as an institution. In any given period of history, all family members have been expected to contribute to the perpetuation of the family, which is held to be the highest duty of the member. (Ariga, 1954: 362)

What was also extremely important was that this notion of the family (ie) was not based exclusively on blood ties. Like Lau’s ‘familial groups’ in Hong Kong, it could also include quasi-kin relations – for example, individuals being adopted into a family because it needed a male head where there were no male children. The Japanese state began to link the family principle with the role of the emperor – as had happened in China previously. Gradually, the political

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leadership evolved the doctrine of the ‘family-state’ (kazoku-kokka), synthesizing the principles of rule within both the state and the family. Gluck quotes the founder of the Japanese police, Kawaji Toshiyoshi, in 1876 as saying: ‘The nation is a family, the government the parents, the people the children and the police their nursemaids’ (1985: 187). Gluck also evoked the symbolism that was conferred upon the Emperor: ‘As the patriarch of a family-state he [the Emperor] became the symbolic representation of harmony, and as the descendant of the sun goddess, the deified evidence of the ancestral ethnicity of the Japanese’ (1985: 78). All this was intended as much to shore up the traditional family in the countryside as Japan began to undergo industrialization as it was to exalt the position of the Emperor (Gluck, 1985: 188). Not only did the family serve as the basic unit of social organization of members of real families, it also provided a metaphor for structuring relations between individuals who were isolated from, or on the margins of, society. As Yoshino put it: ‘the Japanese had developed, with a consistency almost unparalleled in any other society, a tradition of structuring nonfamilial social groups on the pattern of the family’ (1968: 79). For example, geishas and travelling actors formed themselves into quasi-familial groups with ‘mothers’, ‘daughters’ and so on. The relationship between leaders and followers of criminal gangs (yakuza) was based on father-child principles (oyabun-kobun). Factories, schools and offices adopted patriarchal and paternalistic patterns of behaviour – issues to which we shall return in Chapters 9 and 10. Thus, Japan was structured through collections of individuals in real or fictive households (ie). Kawashima argued that it was no exaggeration to describe the familistic structure of Japanese society as the backbone of the behavioural patterns of Japanese (1985: 34–5, 43–59, 188). For some commentators this familial pattern of behaviour was what distinguished the Japanese from other peoples – and had done since before the Meiji Restoration (Kumagai, 1996: 3). In more recent decades, the primacy accorded to the family has been attenuated because of social, economic and political changes, but the basic preoccupation has not disappeared. As Kumagai puts it: ‘It is the deep-rooted traditions inherent in Japan’s hierarchical family system that go furthest in explaining the meaning of contemporary Japanese society’ (1996: 13). In Southeast Asia we find the principle of the family equally key to popular understanding of society, identity and the structure of authority. The preamble of the constitution of Papua New Guinea makes an explicit link between the family and national identity as it calls for ‘the family unit to be recognized as the fundamental basis of our society, and for every step to be

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Governance in Pacific Asia taken to promote the moral, cultural, economic and social standing of the Melanesian family.’ Of predominantly Buddhist Thailand, Mulder has remarked: ‘The moral model that is projected into the external world of nation-state-country-people-realm is that of the integral, solidary family that subsumes its members, who are supposed to identify with and serve it . . . the image of the nation-state as family is ubiquitous’ (1996b: 171). Speaking of the predominantly Catholic Philippines, Timberman wrote: ‘Any description of Philippine society and politics must begin with an explanation of the central role of the family. The extended family is the most important social and economic unit in the Philippines . . . the foundation of most political organizations and the building block for local and national politics’ (1991: 16). The Constitution of the Philippines makes a grand claim for the significance of the family in national life. Article 13 specifies in Sections 1 and 2: ‘The State recognises the Filipino family as the foundation of the nation. Accordingly, it shall strengthen its solidarity and actively promote its total development. Marriage, as an inviolable social institution, is the foundation of the family and shall be protected by the State.’ Subsequent sections of the same article go on to specify state protection for the rights of spouses to found a family, of children to assistance and to protection from neglect and abuse, of families to a living wage, and of families and their associations to participate in the planning and implementation of policies that affect them. It also adds the obligation of the family to care for its elderly members, although it does not exclude state assistance either. Muslim Indonesia overwhelmingly exemplifies the principle identified by Bill and Springborg (1999: 73–8) for Muslim societies in general that the family is one of the ‘genes’ of politics there. In Indonesia, the family principle (kekeluargaan) was established as one of the basic ideological principles of the independent state. The Constitution mentions in Article 33 that: ‘The economy shall be organized as a common endeavor based upon the principle of the family system.’ The only mention, then, is of the economic rather than the social function of the family. Nevertheless, the familial principle is regularly invoked by texts that teach the principles of the Pancasila, the moral code underlying the Indonesian state, as embodying the spirit of cooperation and solidarity that should distinguish it from the individualist societies of the West and Dutch colonial rule (Pendidikan, 1990). At least up until the downfall of President Suharto in 1998, units of public administration presented themselves as ‘families’ for their members – schools, military units and so forth (Shiraishi, 1997: 11). President Suharto, during his 32-year period as president, regularly projected himself as the ‘father’

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(bapak) of the nation’s development or was addressed as ‘father-president’ (bapakpresiden). Main points Pacific Asian societies traditionally established norms of social behaviour to encourage order and cooperation and discourage disruptive behaviour which did not rely much upon the state or the law The family or household was traditionally regarded by rulers as a vital institution in maintaining order and providing welfare, and it became a template for other social organizations For ordinary people there the family became the primary basis of their identity These values persist in modern society Most Pacific Asian states invoke analogies with family relations as the basis of political authority Many political leaders there believe that the importance attached to the family distinguishes their societies from those of the West

Anti-individualism, submission to group The second common theme of social behaviour in Pacific Asian states follows from the stress on the family. It is the importance of membership of groups for defining individuals’ identity. Compared to Western societies, people in Asia are less inclined towards individualism. As Yi put it when writing of China: ‘Individuals can only realize themselves through other people and relationships with others’ (1999: 103). This is far from Western individualism. Most importantly, it meant putting families or quasi-families first. At its most extreme it can lead to people putting families and their interests before the rest of society. Lau Siu-kai’s reference to ‘utilitarianisticfamilism’ in Hong Kong has already been mentioned above. As central authority in China crumbled at the end of the nineteenth century and in the first decades of the twentieth century, many commentators lamented the lack of public spirit and the difficulties of many Chinese in seeing beyond the interests of their families. Only for families were they prepared to make great sacrifices. In 1938, for example, the famous Chinese educator Zhuang Zexuan remarked that the Chinese had only the concept of the family and that they lacked consciousness of society. Whereas Westerners accepted that the individual and society are distinct and opposite, the Chinese took the family as the equivalent to all the life of society and sought to subordinate the individual to the pursuit of family renown (Sha, 1999: 205). Mulder notes similar anxieties in the Philippines:

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Governance in Pacific Asia When we say that we Filipinos value close family ties, what we may be saying actually is that we value closed family ties. For many of us are just that – closed to concerns that do not directly involve our own parents, children, brothers, sisters, grandparents, grandchildren, or close kin. We will move mountains to provide our family with only the best. But how many of us are moved by, much less respond to, the plight of our fellow Filipinos? (Mulder,1996a: 103)

It is no coincidence that one of the best-known books on political elites in the Philippines is entitled An Anarchy of Families (McCoy, 1994), where the title is taken from a critical comment by an American adviser in the 1950s on development there. But the tendency to put groups before individuals can also be seen in other societies; nor is the sense of group-belonging restricted to families, although again it may serve as an implicit template. In Indonesia, people treat others differently according to whether they are ‘familiar’ to them or part of their in-group (kenal), or ‘unfamiliar’ (tidakkenal) (Shiraishi, 1997: 32). Pye (1989: 124) mentions the frequent Filipino habit of referring to tayo-tayo (‘our group’) as distinct from others. In Chinese societies, people make a similar distinction between the group(s) where one is an ‘insider’ (nei) and those where one is an ‘outsider’ (wai). The ways of dealing with people are quite different from each other. But the practice is most noted in Japan, where Kyōgoku (1987: 63–4) writes of the ‘collectivity paradigm’. By this he means the fundamental set of roles that social organizations call upon to induce cooperation from individuals. In Japan, for instance, as in Indonesia and China, a basic element of social behaviour is the instinctive distinction that people make between ‘insiders’ (or people ‘in the home’), and ‘others’ outside (uchi to soto). Davies and Ikeno (2002: 217) explain the difference as follows: Uchi can be defined as (1) inside, (2) my house and home, (3) the group that we belong to, and (4) my wife or husband; in contrast soto means (1) the outside, (2) outdoors, (3) other groups, and (4) outside the home. The Japanese clearly distinguish insiders from outsiders in daily life, depending on whether the others belong to an uchi or soto group. Although this distinction can be seen to some degree everywhere in the world, it is fundamental and widespread in Japan, where the dual concept of uchi/soto has had a great influence on Japanese society, especially in terms of human relations. Lebra (1976) generalizes this tendency as ‘belongingness’; that is, the tendency towards collectivism, group cooperation. Traditionally, the Japanese inclined towards group activities rather than the pursuit of individual interests. This included socializing with members of the same group

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(e.g., from work) as a way of building cooperation and solidarity. As Rohlen explained: ‘The outcome of these practices [of encouraging group solidarity] is that “society” is not abstraction, but a very tangible, distinctive, largely face-to-face entity with clear boundaries, norms and customs’ (1989: 28). A negative side of this tendency, however, was a predisposition towards conformism. A wider regional perspective on this phenomenon can be found in the work of Hofstede, who in the 1960s carried out a massive survey of employees of IBM around the world in 50 countries and three territories, attempting to identify different national characteristics as a way of making the management of international corporations more effective. One dimension of the survey was intended to tap individualist/collective inclinations as they were interpreted in the workplace. Greater individualism indicated an inclination to pursue one’s own career goals and also to pursue one’s own lifestyle. The results for those Pacific Asian states where the survey was conducted, as well as a few others for comparison, can be found in Table 3.1. Two things are striking about these figures. First, and most importantly, Pacific Asian states consistently figured among the less individualist countries. Second, there is the relatively high score for individualism in Japan, despite what has just been said about Japanese collectivism. However, IBM employees may not always be a perfect microcosm of the broader society,

Table 3.1 Rankings of Pacific Asian states on the individualism index (IDV) Rank

Country or region

IDV score

1

USA

3

UK

89

22⫽

Japan

46

31

Philippines

32

36

Malaysia

26

37

Hong Kong

25

39⫽

Singapore

20

39⫽

Thailand

20

43

South Korea

18

44

Taiwan

17

47⫽

Indonesia

14

53

Guatemala

91

6

Source: Hofstede, Geert (1994), Cultures and Organizations (London: HarperCollinsBusiness, 53). N ⫽ 53.

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Governance in Pacific Asia so that caveat should always be borne in mind. This applies, for example, in the case of Japan, where there was a greater inclination among Japanese workers and managers to work for large Japanese corporations which offered lifetime employment. Therefore, a foreign corporation such as IBM, which did not have the same paternalistic style of management, was likely to attract more individualistically minded managers and employees. Nevertheless, the figures do confirm the general picture of less individualism in Pacific Asian states. Main points Pacific Asian societies are less individualistic and more disposed to accept the primacy of group identity They tend instinctively to treat people differently according to whether they are ‘insiders’ or ‘outsiders’, and they exploit this distinction to pursue their interests This is also reflected in behaviour inside companies

Respect for hierarchy: Maintaining social control through rituals A third characteristic social orientation that follows from familialism is respect for hierarchy. In general, families are not egalitarian institutions. Parents offer care and the benefit of experience to children, and expect deference or respect in return. The degree of hierarchy implicit in the lives of families may vary between them, and also over time, but the hierarchy itself usually exists. Familial societies are more likely to replicate hierarchy more widely. They find the notion of general social equality more alien. Mulder evokes this in a study of three Southeast Asian states: The model the family provides is the same basic one for Thai, Javanese, and Filipino social organization. Its cardinal elements are hierarchy, moral inequality, debt of gratitude and obligation, and conscience located in concrete social relationships. Hierarchy implies consciousness of status, that is, of one’s relative station vis-à-vis others. Status obliges: the relative superior should provide protection and guidance, the inferior should accept these and render honour and obedience in return. Being the recipient places the beneficiary under a debt of gratitude . . . that cements relationships, and which gives them a moral quality . . . [M]ost relationships have a hierarchical dimension from which it is difficult to escape, and . . . a moral element is inherent in such relationships. Basically hierarchy and its concomitant inequality are moral in themselves. (1996a: 78–9)

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For China, too, one of the fundamental premises of Confucianism was the sense of a natural hierarchical order, which remained harmonious as long as everyone knew their place in it and observed the ritual codes of respect and honour. The traditional emphasis upon the five cardinal relationships mentioned above brings out the hierarchical dimension clearly in one respect. In Western families, relations between siblings are based upon equality: brothers and sisters are regarded as equal, whatever their ages. The term ‘brotherhood’ implies this. In Confucian societies, however, the age difference between individuals is vital. Brothers and sisters are either older or younger than others, and have different names to show this – for example, ‘elder brother’, ‘younger sister’ and so on. The same distinction applies in Japanese families too, certainly since the samurai type of family was established as the model for Japanese families in general. The eldest son had particular obligations in looking after the family’s welfare and aged parents. Even Japanese language usage reflects this sense of intrinsic hierarchy. There is a gradated range of expression in everyday speech which is intended to show respect (keigo). This is partly a function of normal politeness, where one speaker deprecates him or herself in front of someone else, but it is refined so that the self-deprecation is graded according to relative social position, age, gender, employer and so on, or according to whether the person addressed is a member of the speaker’s ‘inside’ group or ‘outside’ it (Niyekawa, 1991). Traditional Thailand was based upon what was called the ‘sakdina’ system, a codified set of ranks to which every member of society had to belong. Relations between each of the ranks were supposed to reflect the worth of the persons, and also their trustworthiness. People from higher ranks were supposedly worthy of greater trust. Thus, greater punishments could be imposed upon people from higher ranks who had been shown to have committed a crime or to have lied. However, this was not simply a form of aristocratic ranking determined by birth. People could move from one rank to another during their lifetime – for example, through wealth or education. So although the fact of the hierarchy was permanent, it could also be flexible as far as individual people were concerned (Cohen, 1991: 23–4). Thus in Pacific Asian societies the hierarchical principle implicit in families has traditionally been replicated in society more generally, with greater respect traditionally expected as one grows older. Tipton (2009: 420, 421) connects this tradition with the legacy of colonial rule in SE Asia too. He stresses the general tendency for colonial regimes to prefer tall hierarchies and rule through intermediaries (i.e. native elites):

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Governance in Pacific Asia Management through intermediaries continues. Both government agencies and private firms tend to be tall structures with multiple layers of administration or management. Both public and private sector governance in Southeast Asia are marked by a tendency to top down, paternalistic management, and those in positions of authority still maintain an exceptional distance between themselves and their subordinates. (Tipton, 2009: 421)

This instinctive sense of hierarchy can also be found reflected in Hofstede’s study of IBM employees in the 1960s. One key dimension of social attitudes which emerged from the analysis was what he called the ‘Power Distance Index’. This was intended to illuminate differing attitudes towards company bosses in different countries. The findings for societies in Pacific Asia can be found in Table 3.2. What can be seen from this table is the fact that Pacific Asian states cluster towards the more unequal end of the table, while the United States and the United Kingdom were more equal. Japan’s position as the one most inclined towards equality is a little surprising, given the repeated emphasis on the importance of status consciousness and ranking among Japanese. Nakane (1984: 26–89), for instance, devotes a whole chapter of a book on Japanese society to the importance of vertical structuring of organizations. However, given that it was unusual for Japanese people to work for Western companies, it might be assumed that those Japanese who attached most importance to status would be more likely to work for Japanese companies than for IBM. Table 3.2 Rankings of Pacific Asian states on the power distance index (PDI) Score rank

Country or region

PDI score

1

Malaysia

4

Philippines

8⫽

Indonesia

78

13

Singapore

74

15⫽

Hong Kong

68

21⫽

Thailand

64

27⫽

South Korea

60

29⫽

Taiwan

58

33

Japan

54

38

USA

40

42⫽

UK

35

53

Austria

11

104 94

Source: Hofstede, Geert (1994), Cultures and Organizations (London: HarperCollinsBusiness, 26). N ⫽ 53.

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Main points Throughout Pacific Asia there is a much greater acceptance of hierarchy in social relations, and less enthusiasm for equality than in the West This consolidates the importance of hierarchy in business management

Avoidance of disorder: Preference for consensus, avoiding confrontation and shame A fourth characteristic theme in social attitudes in Pacific Asia is the high premium that has been placed upon the avoidance of disorder or, worse, chaos. Pye remarked ‘in China there was a universal dread of chaos or luan’ (1985: 69). Kyōgoku (1987: 202) remarks that the fear of chaos and destruction is a constant undercurrent of political thinking in Japan. To some extent this is the mirror image of another attitude in the region upon which people have remarked; namely, the preference for harmony. Of course, to some extent this is unsurprising. No stable society has made disorder a basic principle of self-organization; but Pacific Asia testifies to a more general point made by Menski (2006: 547–9) – namely, that traditional societies in Africa and Asia were inclined to prefer to achieve order through internalized harmony and self-regulation rather than formal legal adjudication. For example, in the seventeenth century the Kangxi Emperor in China laid down that if someone invoked the law in a dispute, one party had to be punished at the end of the process. If the complaint was upheld, then the defendant had to be punished, but if not, then the plaintiff had to be punished. There was no sense of using the law to uphold rights. Rather, order had to be preserved. Going to law disturbed that; it reflected the relative lack of importance of the law and legal consciousness in traditional social self-regulation as compared with Western societies. Instead, individuals and groups were encouraged to promote social order by avoiding confrontation and conflict through internalizing self-restraint; and they deterred excessive pursuit of self-interest by the use of shame rather than legal sanctions. Only if these stratagems broke down would societies resort to law and legal punishments. Alston and Takei (2005: 13–17) describe the maintenance of harmony among group members in Japanese companies as dominating all business decisions. In large Japanese corporations the most important function of senior management is to ensure and preserve harmony between all the units of the company, rather than make key decisions. It tries to achieve consensus before all major decisions are taken, however time consuming. As Rohlen (1974: 47) explains, the notion of ‘harmony’ (wa) goes beyond the

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Governance in Pacific Asia simple avoidance of conflict. It also connotes ‘teamwork’, cooperation. Consulting all potentially interested parties is often called nemawashi, literally ‘binding up the roots of a tree’ before transplanting it. Also, disputes and disagreements are to be hidden from the view of outsiders. In his study of Thailand, Indonesia and the Philippines Mulder has remarked: ‘[D]isorder is a morally decayed condition and . . . order is, in itself, a moral concept expressing that deserving people will be rewarded if they keep to their place. Respect for such order is moral conduct per se’ (1996a: 198). For encouraging social harmony and order, great store is placed on avoiding confrontation and striving for consensus. Bogart for instance, writes of the importance of the avoidance of conflict throughout the region and its importance for business dealings: ‘Even saying no is unacceptable as it could create disharmony, so other ways are found to say no’ (1998: 144). This is particularly marked in Thailand: Thai society is essentially a conflict-avoidance society. Everything is done to maintain harmony. Avoidance of conflict is the governing principle of every aspect of life, including business negotiations. In the face of frustration or anger it is better to stay calm . . . Calm coupled with respect and politeness is appropriate behaviour. (Bogart, 1998: 160)

In the Philippines, Romero (1999: 196) has stressed the importance attached to preserving smooth inter-personal relations (pakikipagkapwa-tao). And in Indonesia the teachings of the main Islamic organization, the Nahdlatul Ulama, stress the importance of consensus and unity (at least among Muslims), avoiding disorder and confrontation (Fealy, 1994: 90). ‘Face’ (i.e. reputation) is extremely important, both ‘saving’ it and avoiding the ‘loss’ of it for individuals and groups. Respect for ‘face’ is fundamental. This is well-known for society in China and Japan. The terms ‘losing face’ and ‘saving face’ come from Chinese. The anthropologist Ruth Benedict (1989: 222–3), for example, in a book initially published just after WWII, made a famous distinction between the United States as what she termed a ‘guilt’ society, and Japan as a ‘shame’ society. In other words, in the United States, undesirable social behaviour is discouraged by the fear of guilt; while in Japan it is the fear of shame. Mulder (1992: 26) explains something similar for Indonesia – the instilling of shame (isin) in children from an early age to control behaviour and to develop respect for others and the desire to avoid conflict and confrontation. But Yi (1999: 125) has given a more positive interpretation of the importance of ‘face’ in China. It is indissolubly linked to ‘human

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feelings’ and the respect that one person should show to another. Thus, although it sounds superficial (i.e. ‘face’ rather than the substance of relations), it is in fact essential for human cooperation. Main points There is a general abhorrence for disorder, as well as confrontational social relations Keeping ‘face’ and losing it is also extremely important in social relations, as well as trying to avoid others losing it

Social relations and gift-giving cultures A fifth characteristic social tendency among the peoples of Pacific Asia is the importance that they attach to the maintenance of social (and sociable) relations. This is often buttressed by the exchange of gifts to show respect and win over good will. Such an attitude is most marked among the Chinese, who attach enormous value to guanxi (i.e. ‘connections’). The practice of such relations is often raised to an art form and a special term has been coined for the study of them (guanxixue). These practices rest upon a view of society and human nature beyond the family as fundamentally antagonistic. While it can be assumed that family members have their own best interests at heart and will willingly cooperate, the rest of society suffers from what the sociologist Banfield (1958) termed ‘amoral familism’, where everyone pursues the interests of their own family to the exclusion of the rest. Banfield was writing in the 1950s about the difficulty of eliciting social cooperation in Sicily, but his analysis could be equally applied to traditional Pacific Asian societies. Under those circumstances, how can people be induced to cooperate beyond their own families? The problem is more acute in societies with weak institutions to enforce agreements; that is, where legal systems are also weak, as was the case in traditional Pacific Asia. The problem is also reminiscent of the one evoked by Keohane in his 1986 article on reciprocity in international relations. In a world of international ‘anarchy’, how can states be persuaded to cooperate for their mutual benefit? Again, there is the lack of an overarching legal order to impose enforcement or effective sanctions. Obviously, one solution is for states to negotiate agreements where each side obtains clear advantages – what Keohane terms ‘specific reciprocity’, but there is always the danger that one of the parties may subsequently renege on an agreement when it thinks that it will profit by doing so. In that case, with no overarching institution to

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Governance in Pacific Asia enforce the agreement and penalize defection, why should states not keep doing this? Keohane’s answer was what he called ‘diffuse reciprocity’. In other words, states would over time recognize the long-term benefit of cooperation and abiding by agreements, because greater stability and predictability would ensue. So even though one state might espy temporary benefits from abandoning a deal, they might be dissuaded by the thought that they would still be able to benefit from cooperation with the same partner in other circumstances in the future. An aggrieved partner would seek retribution and that potential reward would be denied to them. In that case, concluded Keohane, states would get along by creating a ‘society’ from which all would benefit because they would all demonstrate a general willingness to cooperate over the long term. Even if a set of understandings proved more advantageous to one side than the other over time, the ‘loser’ might still be willing to cooperate because they hoped for compensation in some different future deal. Given the analogous general problem of developing mutual trust within a society, the Chinese response has been the exchange of gifts as tokens of goodwill. In this way, social relations were made more ‘human’. Individuals would treat one another with understanding and sympathy, instead of harshly and (potentially) arbitrarily. The basic principle of guanxi relations was ‘humanity’. So one term used for gifts was often the same as ‘human feelings’ (renqing). Moreover, if one person could demonstrate that he or she was trusted by someone else, this could also persuade a third person to trust him or her too. New relationships could therefore be brokered on the basis of other ones. Yang (1994) devoted a whole book to the different dimensions of this phenomenon, the (sometimes implicit) etiquette that can be bound up with guanxi, and the subtle sophistication with which it can be practised. What she also shows is the ambiguity that many people in China feel about such relations, particularly as they were officially discouraged in the Maoist era. On the one hand, they resent the way that such practices can enable individuals to get things done and achieve unjustified benefits through the back door; and as she shows, this is not just the preserve of individual behaviour. Whole organizations may also practise variations of this theme in the pursuit of collective rewards. On the other hand, they can appreciate the grace and subtlety that are sometimes displayed in devising sophisticated favours. It can be a civilized and civilizing experience. It endows otherwise impersonal social relationships with emotion and gratitude (ganqing). Yang also suggests that in modern China it can be used by ordinary people to get

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around impersonal state regulations that would otherwise intrude more harshly into daily life. However, one obvious problem about guanxi, as well as reciprocity in human relations in general, is that the distinction between specific and diffuse reciprocity may become blurred in practice. Individuals may present gifts in the expectation of a specific reward rather than as a way of eliciting general goodwill, particularly if they are sophisticated about it, just as heads of state the world over exchange presents on official visits. Thus, it is always difficult to differentiate guanxi from corruption, particularly when there is a general assumption that social intercourse can only be ‘human’ when gifts have been exchanged. In private and business dealings this can be bad enough, but it can become markedly pernicious where public resources are involved. Normal Western definitions of corruption involve the notion of diverting public funds for private benefit, often involving some notion of bribery; but in societies where the exchange of gifts is generally regarded as normal, this becomes more difficult to pin down. How can one determine that a gift is intended to elicit a specific benefit as opposed to general goodwill? This matters particularly for the legal determination of corruption. In Japan, one solution to which the courts have had recourse is to distinguish between ‘normal’ gifts that one would expect in given circumstances and ‘excessive’ gifts, which would seem more likely to amount to a bribe. In such cases the legal definition of corruption depends upon ‘abnormal’ or ‘excessive’ social practice. It is, however, necessarily vague – something normally avoided where legal punishments are concerned. Yang has also warned against treating guanxi as an ahistorical feature of Chinese society, or Eastern societies in general. She has shown that since the establishment of the PRC in 1949 the practice has fluctuated – and during the 1950s it was particularly repressed. So it would be wrong to assume that it is unchanging. Nevertheless, the significance of gift exchanges (zōtō) and the moral calculus of obligations that supports it (giri) is extremely strong in Japan (Davies and Ikeno, 2002: 233–43, 95–101). It does seem to be a general tendency, even though its strength may vary over time. Main points The traditional value of encouraging cooperation through diffuse reciprocity and gift-giving is a vital element in social intercourse It is associated with being ‘human’ But it may easily lead to ‘corruption’, though clearly determining corruption may be extremely difficult

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Importance of social ritual in maintaining social harmony The last common theme of social relations in Pacific Asia is the traditional importance accorded to social ritual in maintaining order. Since individuals could not know the innermost thoughts of others and therefore would be wary of trusting them, social practices encouraged displays of ritual goodwill. While this might still be deceptive, failure to conform to the rites would at least suggest untrustworthiness. It would destroy the very possibility of social trust – hence the devastating punishments mentioned above that were imposed in China upon anyone associated with Cheng Han-cheng’s wife after her insolent treatment of her mother-in-law. It is hoped that by practising appropriate rites, people would gradually internalize the values that they embodied, so that people would sincerely exemplify the virtuous life. So relations between different categories of people (e.g., the five pairs of key relationships in Confucian doctrine) were identified with different patterns of expected practices. Some were associated with maintaining the bond between the natural and divine order (e.g., at harvest time), some were aimed at maintaining the familial bond between generations (e.g., the sweeping of the graves of ancestors every year), while others were designed to maintain civilized relations between the living (e.g., the respect owed to the elderly). Hashimoto has summed up the importance of filial piety today very well: Filial piety in East Asia today is at once a family practice, an ideology, and a system of regulating power relations. As practised in the family, filial piety defines a hierarchical relationship between generations, particularly that of the parent and the child. In this ordered space, filial piety prescribes the ideology of devotion by the grateful child to the parent, and also places debt and obligation at the heart of the discourse on parent-child relationships. Contemporary filial piety is in this sense not merely a vestige of a past family custom, but an ongoing practice of surveillance and control that unleashes considerable disciplinary power. Using the discourse of gratitude and indebtedness, a hierarchy of power is produced in everyday life, privileging the old over the young and the parent over the child. (Hashimoto, 2004: 182)

Although the term ‘filial piety’ as such is not used outside societies with Confucian traditions, Mulder mentions that in Indonesia ‘a teacher, a parent, and especially one’s father should be an object of reverence . . . revered and honoured because of the protection . . . that he provides . . . Children should honour and respect . . . their parents. This means that they are under

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the obligation to obediently follow their parents and further to attribute honour to them by the use of respectful language. Ritually children demonstrate their honour and dependence on parental blessing at the occasion of Lebaran at the end of the fasting month when everybody is supposed to visit his parents and other superiors’ (1992: 28, 30). Related to this is Rohlen’s account (1989) of the role that the imparting of social routines plays in organizations in Japan that devote a lot of effort to socializing newcomers into the ‘way that things are done here’. He argues that Japanese companies pay for more attention to this type of training than Western ones, which tend to distribute handbooks on procedures and expected behaviour to new employees and expect them to master them. Japanese corporations have much fewer such handbooks, yet achieve greater integration. It is a syndrome developed from teaching practices in Japanese schools, which are intended to develop understanding of the need for social harmony based upon predictable social behaviour. Routines, like rituals, help to realize this if they are accorded enough priority. Main points Traditional societies in Pacific Asia stressed the importance of social ritual as a vital way of teaching the bases of social order This provided predictability in human relations Filial piety is the most basic of these expected rituals, whether or not the practice goes by that name

‘Asian values’, Orientalism and Occidentalism The sense of similarity between social values across Pacific Asia has encouraged some political figures there from the 1990s to claim that this underpins the economic successes of states there and distinguishes them from ‘the West’. To some extent this also rests upon the memory of colonial rule in Southeast Asia and China described in Chapter 2, which nourishes the ambition to do things differently from the former colonial masters. Actually, it took some decades for this to come openly to the fore, in part because of the Cold War, which forced states to choose between the communist world and the ‘West’. But the end of the 1980s saw political leaders in Singapore press for a Code of National Values for young people. This was adopted in 1993 with the following values: (a) nation before community and society

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Governance in Pacific Asia above self; (b) family as the basic unit of society; (c) community support and respect for the individual; (d) consensus, not conflict; and (e) racial and religious harmony. It was intended that this code would help identify the values that distinguished Singaporeans from others. At the same time, Lee Kuan Yew and others also used the opportunity to highlight ‘Asian’ values that were distinctive from those of other regions of the world, especially the West. In particular, it was intended to prevent Asian societies from developing social weaknesses that increasingly plague Western societies. This version of ‘Asian values’ gave them a political and social significance. It became ideological. Singaporean Prime Minister Goh Chok Tong was quoted as saying: Societies can go wrong quickly. US and British societies have changed profoundly in the last 30 years. Up to the early 60s they were disciplined, conservative, with the family very much the pillar of their societies. Since then both the US and Britain have seen a sharp rise in broken families, teenage mothers, illegitimate children, juvenile delinquency, vandalism and violent crime. In Britain one in three children is born to unmarried women. The same is true for the US . . . We [in Singapore] intend to reinforce the strength of the family . . . Above all we must stay away from policies which have brought a plague of social and economic problems to the US and Britain. (Sheridan, 1999: 72–3)

Nor was it limited to Singaporean leaders. Malaysian Prime Minister Mahathir was equally vocal in his criticism of permissive Western societies. One motive underlying such statements was the desire to discourage the West from intervening in the region with recipes and demands for development that were derived from their own experience but which were thought to be inappropriate for Pacific Asia – an issue to which we shall return in Chapter 4. The statements also reflected the burgeoning sense of satisfaction and pride in Pacific Asia over their economic achievements since WWII compared to development in the United States and Europe. So it was not restricted to Singapore. Although political leaders and public opinion in the region more generally varied in their receptivity to such notions of ‘Asian values’, there was a wide consensus that they should try to do things their way. Advocates of ‘Asian values’ tried to focus upon the sources of that success, so that they could be preserved and enhanced. According to Sheridan (1999: 9–10), these economic virtues were said to include: a capitalist economy; a high savings rate; a propensity to defer consumption; a strong work ethic; a bias towards the interests of producers rather than consumers; export-oriented industries; generally weak trade unions or company unions; the maintenance of social and political

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stability and preference for the interests of the group rather than the individual. Of course to some extent this dichotomy between Asia and the West is an oversimplification, on both sides. It assumes a basic homogeneity of values in Asia, and a similar homogeneity of values in the West, as well as qualitative differences between them. For example, it is not the case that everywhere in the ‘West’ individualism is prized over the family. The fact that Banfield’s above-mentioned term ‘amoral familism’ was coined to characterize Sicilian reality but can be equally well applied to many societies in Pacific Asia is but one manifestation of that fact. The reality is far more complex. Goody has examined the history of the family in Asia and Europe and come to a much more nuanced conclusion: ‘The West has tended to misunderstand even itself in drawing too sharp a contrast between our individualism, our rationality, our nuclear family, and their collectivism, their extended families. These differences are matters of degree rather than of kind’ (1996: 246, emphasis in original). Evidence from the World Values surveys confirms this. The most recent one at the turn of the century asked as its first question: ‘How important is the family in your life?’ The results as they applied to states in Pacific Asia, as well as some international comparisons, can be seen in Table 3.3. In all Table 3.3 Ranking of various states on the importance of family Ranking

State

Score

1⫽

Indonesia

1⫽

Philippines

99

17⫽

US

95

27⫽

Japan

93

32⫽

Singapore

92

39⫽

South Korea

90

44⫽

UK

89

66⫽

Vietnam

82

75

Taiwan

78

80

China

61

World average

89

99

Source: Inglehart, Ronald, Basáñez, Miguel, Díez-Medrano, Jaime, Halman, Loek and Luijkx, Ruud (eds) (2004), Human Beliefs and Values: A cross-cultural sourcebook based on the 1999–2002 values surveys (Mexico City: Siglo Veintiuno Editores, Table A001). N ⫽ 80.

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Governance in Pacific Asia states a healthy majority replied that the family was not just ‘important’ but ‘very important’. If both categories of answers were conflated, virtually everyone would have been included. It is true that some states in Pacific Asia still came out at or close to the top. Nevertheless, two things are particularly striking about this. First, Western states, which in Asia are regarded as extremely individualistic (e.g., the United States and the United Kingdom), still placed above the world average. Second, what might be considered the ‘Confucian’ states par excellence – the PRC and Taiwan – came well below them at the bottom of the list. This complexity was also illustrated by the findings of a study by Blondel and Inoguchi (2006: 81, 106) that compared political attitudes in European and Asian states. The study showed that people in almost all Asian states were inclined to put the public interest above family interest (the exceptions were Japan and, marginally, the Philippines), whereas almost all European states would do the reverse (the exceptions were France and Greece). One of the claims made by proponents of ‘Asian values’ is that their societies are more stable than those in the West because people there trust one another more. Yet the findings of the World Values survey again suggest a more complex picture, as can be seen from Table 3.4. Table 3.4 Ranking of various states on the extent to which most people can be trusted Ranking

State

Score

7

China

55

8

Indonesia

51

10

Japan

43

12

Vietnam

41

19⫽

Taiwan

38

25⫽

USA

36

30

UK

30

32⫽

South Korea

27

61⫽

Singapore

17

84

Brazil World average

3 28

Source: Inglehart, Ronald, Basáñez, Miguel, Díez-Medrano, Jaime, Halman, Loek and Luijkx, Ruud (eds) (2004), Human Beliefs and Values: A cross-cultural sourcebook based on the 1999–2002 values surveys (Mexico City: Siglo Veintiuno Editores, Table A165). N ⫽ 84.

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This did indeed confirm high levels of high inter-personal trust in many Pacific Asian states. Respondents were asked: ‘Would you say that most people can be trusted or that you need to be very careful in dealing with people?’ As can be seen from the summary of results, several states in Pacific Asia did come near the top of the list for trust. But South Korea and, most surprisingly, Singapore, given the commendation of Asian values by the political leaders there, came much lower, below the world average. What needs to be avoided, then, are the excesses of a kind of ‘Orientalism’ on one side and ‘Occidentalism’ on the other – that is, the presentation of ‘both an enduring Oriental reality and an opposing but no less enduring Western essence, which observes the Orient from afar and, so to speak, from above. This false position hides historical change. Even more important . . . it hides the interests of the Orientalist’ (Said, 1995: 333–4, emphasis in the original). In these circumstances, recognition of key characteristics in ‘the other’ turns into stereotyping, which, according to Buruma and Margalit (2004: 10), strips their targets of all humanity and which, as Said warned, can be the prelude to attempts at exploitation and domination. Main points ‘Asian values’ are distinctively different in degree from those of the West But they are not exclusive to Asia Understanding these differences is important, but they should not be reified into crude Orientalism or Occidentalism

Some intra-regional differences in social attitudes Having outlined common overlapping themes in social attitudes in Pacific Asia, it is now important to stress three general qualifications to the overall picture that should be borne in mind. The first is that variations in these themes are to be found in different societies. Certain characteristics may be more pronounced in one country than in another. For example, while the family may generally be attributed fundamental significance in all of these societies, there are still significant differences in the forms that families may take. Mackerras (1995: 43–60), for instance, points to four different types of family structures that were traditionally found in the region towards the end of the nineteenth century or in the first half of the twentieth century. First, there was the Javanese family, which was predominantly nuclear, where the wife had an equal or

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Governance in Pacific Asia even dominant voice in decision-making in the household. Second, there was the Minangkabau family in Sumatra, which was organized on the basis of matrilineal clans (i.e. common female ancestors). After marriage the husband and wife continued to live in their traditional house, only visiting at night and separating in the morning, with frequent divorces. Third, there was the household in China, where the essential element is the father-son relationship, based upon the principle of filial piety. Ideally, several generations of family members live together, but the wife goes to live with her husband’s family after marriage, though she would not change her family name. In practice, however, clashes between sons after the death of the father frequently led to the break up of the extended family and the re-creation of the nuclear one. Divorce was strongly discouraged. Fourth, there was the Japanese ie or household. This was a single unbroken family line, including all ancestors as well as unborn generations, with its own grave and altar. At least one member of the family was needed to remain within it to continue the line – preferably a son, but if necessary a daughter. If no children were left, outsiders could be adopted to do so. A second difference across the region can be seen in the position of women. Mackerras’s account of the varying status of women within traditional types of families is paralleled by Hofstede’s analysis of values in management. Where we have previously reported two dimensions of attitudes from his research that suggested similarities between all the Pacific Asian states, there was a third based upon attitudes towards gender that was more varied. He identified a ‘masculinity/femininity’ dimension, where ‘masculinity’ was associated with aggression and competitiveness. The results can be seen in Table 3.5. What this Table shows is the much greater diversity among Pacific Asian states as compared with states in other regions of the world. A third example of the differences in social structure can be seen by comparing, say, Thailand and Japan. An early and extremely influential study of Thai society by Embree, originally published in 1950, highlighted what he termed its ‘loosely structured’ nature, and since Embree had also conducted ethnographic research in Japan, he was keen to emphasize the differences between the behaviour of Thais and those of Japanese or Vietnamese. The first characteristic of Thai culture to strike an observer from the West, or from Japan or Vietnam, is the individualistic behavior of the people. The longer one resides in Thailand the more one is struck by the almost determined lack of regularity, discipline, and regimentation in Thai life. In contrast to Japan, Thailand lacks neatness and discipline; in contrast to Americans, the Thai lack respect for administrative regularity and have or had no industrial time sense. (Embree, 1973: 235–6).

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Table 3.5 Rankings of Pacific Asian states on ‘Masculinity/Femininity’ Index (MAS) Score rank

Country

MAS score

1

Japan

95

9⫽

UK

66

11⫽

Philippines

64

15

USA

62

18⫽

Hong Kong

57

25⫽

Malaysia

50

28

Singapore

48

30⫽

Indonesia

46

32⫽

Taiwan

45

41

South Korea

39

44

Thailand

34

53

Sweden

5

Source: Hofstede, Geert (1994), Cultures and Organizations (London: HarperCollins Business, 84). N ⫽ 53.

Family organization in Thailand was also much looser than in Japan or China, where family obligations were regarded as much less burdensome. Even within the traditionally Confucian region, Pelzel (1970) pointed out significant differences between kinship systems in China and Japan, even when they were using the same characters. A fourth difference across the region is religion – Confucianism, Buddhism (Theravada and Mahayana), Islam, Christianity – also leave their mark in day-to-day social practices that vary significantly and reinforce the sense of national identity, as differentiating them from the practices and identities of neighbours. The former Malaysian Deputy Prime Minister Anwar Ibrahim explains: ‘Unlike the West, Asia does not have its defining moments in history, and a common stock of ideas that moulds a shared outlook and conscious identification with a common civilization. There was no Hellenic Age, no Dark Ages, and no French Revolution. Unlike the West, which has Christianity, Asia has no single religion. There was no Enlightenment, as seen in Europe in the eighteenth century, to spawn a cluster of ideas and common attitudes towards life, the individual and society’ (1996: 177–8). He adds: ‘Asia has no settled identity as yet. It is in the process of coming into being. The long and intense

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Governance in Pacific Asia process of self-definition and self-understanding is just beginning’ (Anwar, 1996: 129). Main points Regions of Pacific Asia differ in the intensity with which they hold the same social values Sometimes they are manifested in different ways

Intra-regional changes over time What also needs to be remembered is that social cultures change over time, and this is no less true of Pacific Asia than other regions of the world. Even though the state in many of these countries has incorporated desired national social values into the curriculum of their schools and had them taught as if they were permanent, major changes have taken place. Social attitudes there are now significantly different from those prevalent at the end of WWII. North Korea proves the exception that proves the rule. As Myers (2010) has recently shown, the ideology of the regime there is still heavily influenced by Japanese fascist thought of the 1930s, as it was in 1945. It has changed little. By contrast the ideology of another still nominally communist regime, the People’s Republic in China, has changed enormously since the time of liberation in 1949 and the Maoist era. Social and political attitudes in South Korea have also changed enormously since the nationalist regime of the founder of the republic, Rhee Syngman. In general, it is important to bear in mind many of the factors that have contributed to the evolution of social attitudes across the region over time. First, there is the obvious effect of generational change, especially among elites. This applies to political attitudes, but also to social ones. Take, for instance, attitudes towards the family. Backman (2008: 97–102) has remarked on the general erosion of family norms in Asia over recent decades. In Japan there is a great literature on this. The family system established before WWII was very authoritarian and paternalistic. It placed enormous power in the hands of the head of each household (ie). The re-imposition of democracy after WWII undermined that authority. It was regarded as incompatible with democracy. The result has been a less hierarchical relationship between fathers and children, graphically encapsulated in the phrase: ‘From thunder father to Sunday friend’. In general, the Japanese family has changed considerably over the last 60 years, summed up in the title of a 1997 paper by Hamada: ‘Absent Fathers, Feminized Sons, Selfish

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Mothers and Disobedient Daughters: Revisiting the Japanese ie Household’. According to White (2002: 11), the ie today is only important to Japanese where property, political position and social status are concerned. Some of the changes in attitudes are the result of domestic changes – for example, the declining significance of paternalism in company management. Life has become increasingly commercialized. Even religions are feeling the impact (Kitiarsa, 2008). The social hierarchies mentioned earlier have been eroded, although they have not disappeared. The most striking change has been in the attitudes towards Confucianism in China. For the first 30 years of the PRC, the regime attempted to eradicate all old superstitions, with Confucianism the most prominent manifestation. Over the last 20 years, however, Confucianism has been making a striking comeback, with the state even establishing a network of Confucius institutes around the world to promote the image of China and Chinese-language teaching. But the new Confucianism is more ‘democratic’ than in earlier decades and centuries. Yu (2009), in a best-seller popularization of Confucius’ thought, encourages the idea that anyone can aspire to become the model ‘scholar gentleman’ (junzi) extolled by Confucius. It is no longer the case that only mandarins or small groups of disciples can understand and emulate him; and, as we shall see in subsequent chapters, the increasing importance of the state in individuals’ lives changed the traditional reliance upon nonstate practices in maintaining public order. In fact, as we shall see, rather than the state relying upon the family to maintain order, it sometimes occurred that the state was invoked to shore up traditional institutions such as the family. All of these changes, as well as many others, have affected the patterns of social attitudes and behaviour across the region. But many of the changes were caused by the increasing exposure of these societies to the outside world. As the economies became more outwardoriented, companies adapted their practices to international norms and standards. The impact of the media in changing attitudes also increased: people in Pacific Asia could see how people in other parts of the world lived, especially the United States, by watching TV and movies. Many were influenced by this. This also, for example, initiated a change in traditional attitudes towards gender roles, as women began to aspire to a wider range of ways to live their lives than being housewives and mothers. As economies became more interconnected, individuals and groups became more mobile. Diasporas and immigrant workers made communities more complex. Nevertheless, while many things about social attitudes have changed, not everything has. Kumagai concludes that ‘the Japanese family today is best termed “externally modern, but internally traditional” ’ (2008: 26, 18). While

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Governance in Pacific Asia it is not nearly as hierarchical as in the traditional ie system, it still maintains a distinctly vertical rather than horizontal organization. Traditional features still persist. Main points Social values can also mutate over time, even if the state continues to promote them in educational programmes Change between generations, changes in political systems, commercialization, opening of economies to foreign trade, migration of workers, the role of the media – all these are factors that contribute to the mutations

Conclusion The first thing to stress is that patterns of social, business and political organization in the states of Pacific Asia differ in various significant respects from equivalent ones in the United States or Europe. It is important to be aware of this, to recognize and respect them. Second, however, there are also numerous overlaps in values of Pacific Asian states as compared with Western ones. It is not the case that either is completely distinct from the other. Third, and finally, it is important to remember that social and political cultures are not destiny, even though the title of the article by Zakaria mentioned at the beginning of this chapter suggests that they are. It is vital to bear in mind the effects of agency as well as structure. Cultures structure behaviour but they do not determine it. They operate in and through institutions as well as individuals and groups. In the process events and interests may sometimes lead social actors to behave in ways that conflict with established values. For example, we have highlighted above the preference for harmony and avoidance of conflict in inter-personal relations across the region, including Thailand. Yet politics in Thailand since 2005 has been marked by increasingly violent and open confrontations between supporters of ousted Prime Minister Thaksin Shinawatra (the red shirts) and their opponents (the yellow shirts). This is entirely incompatible with traditional values, and yet the dispute has been pursued with passion and venom. So values may slow down change, but they do not always prevent it. They themselves are subject to change, although not very quickly. It is for that reason that successful policies and institutions in one region can attract attention and emulation in another. The next chapter will look at the implication of this for strategies of development in Pacific Asia, as well as for lessons that could be derived for practice in the West.

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Questions for further discussion 1 How different is the status of the family in your society from that in Pacific Asian states? What are the major differences? What are the similarities? 2 How far do non-Confucian societies practise guanxi-like networks of social relations? 3 Can you think of ways in which people in your country are concerned about saving and losing ‘face’? 4 Can you think of rituals in social behaviour in your country? How important are they for maintaining social order? Are they formally recommended by public authorities, or do they remain informal? 5 Is there anything akin to filial piety practised in your country?

Further reading Han Sung-joo (ed.), Changing Values in Asia: Their Impact on Governance and Development (Tokyo: JCIE, 1999) – a more recent collection of articles that deal with different national versions of ‘Asian values’ and how they affect governance. Lucian W. Pye, Asian Power and Politics: The Cultural Dimensions of Authority (Cambridge, MA: Belknap Press of Harvard UP, 1985) – an authoritative account of how values traditionally structured political behaviour in the region. Mayfair Mei-hui Yang, Gifts, Favors and Banquets: the Art of Social Relationships in China (Ithaca, NY: Cornell UP, 1994) – a book-length study of a key element of Chinese social behaviour. Niels Mulder, Inside Southeast Asia: Religion, Everyday Life, Cultural Change (Chiang Mai: Silkworm Books, 1996) – a comparative analysis of social values in three Southeast Asian states based on decades of anthropological research. Takiye Sugiyama Lebra, Japanese Patterns of Behavior (Honolulu: Univ. of Hawaii Press, 1976) – a classic account of Japanese social behaviour.

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4 Modernization Strategies and Multiple Modernities Chapter Outline Introduction Searching for non-Western paths Modernization: Persisting commonalities Conclusion Further reading

79 81 103 107 108

Introduction This chapter will illustrate the recurring attempts in Pacific Asia to forge its own alternative non-Western paths for development since the 1950s. The intellectual starting point is the recent literature on multiple modernities. According to Tambiah: The classical theories of modernization developed in the 1950s tended to view the following components of Western civilization experience as constituting a single interrelated package of universal relevance: industrialization, urbanization, and technically advanced communications media; capitalist market economy; the formation of modern nation-states and national collectivities; and an accompanying cultural program and patterning. It was assumed that these institutional and value constellations would ‘naturally’ and inevitably take root in all modernizing societies. (Tambiah, 2002: 179)

This reflected a tendency to equate modernity and the path to it with Western experience of development. At that time, modernity was associated with the countries of Western Europe and the United States. They had higher levels of development and their impact, as well as their image, spread around the

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Governance in Pacific Asia world. Only the communist world could challenge their supremacy, and states there still had lower levels of development. Many of the states in Pacific Asia today are unquestionably developed and modern. This could not have been said to be the case in 1945. In that sense, the region exemplifies the reality of multiple modernities, both within itself and at the global level. According to Sachsenmaier (2002: 42), modern societies have many central features in common, but at the same time they retain persistent differences in mentalities, institutions and so forth. Mazlish concurs: ‘Multiple modernities means that different societies may pursue their own paths to modernity, retaining their own cultures, rather than merely becoming pale imitations of the West and its modernization’ (2002: 68). The achievements of the states in this region have both justified the expectations of their leaders and have also provided a precedent for greater pluralism in other regions of the world. As Tu Wei-ming puts it: East Asia is likely to re-emerge as the single most important reference and perhaps as a counterpoint to Western Europe and North America again . . . East Asia has been deeply influenced by Western Europe and North America and its accelerating modernity is mainly the result of the Western impact. Yet the shape of East Asian peoples’ lives is significantly different from that of Westerners. The possibility of being modern without being Western suggests that, under the influence of East Asia as well as Western Europe and North America, Southeast Asian societies, notably Malaysia and Indonesia, may become modern without necessarily being European, American, or East Asian. By implication, Latin American, South Asian, and African forms of modernity are, in principle, realizable. (Tu Wei-ming, 2002: 131–2)

Because of their distinctively different historical roots and the self-confidence that came from earlier civilizational achievements which dated back to before the rise of the West and its intrusion into the region, as well as in many cases the experience of colonial domination, the societies of Pacific Asia did not assume that they had to follow in the footsteps of the West. In fact, they actively wished to avoid doing so. Once the sense of the automatic supremacy of the West had receded in the aftermath of WWII, punctured by the initial defeats inflicted upon the European colonial powers and the United States, minds began to turn to projects for national regeneration. From the 1950s onwards, they and their leaders explored the possibilities of development paths that were more appropriate to their circumstances and would (at least they hoped) also prove morally more appealing. Chapter 3 has already indicated some of the persisting differences in attitudes. Chapter 5 will focus

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upon the different strategies that states in the region pursued to achieve economic development. This chapter will focus more upon their broader attempts to formulate strategies for social modernization. The main recurring theme is the iteration of attempts to explore development paths that do not necessarily conform to Western precedents and that are better suited to local circumstances and traditions. Some have proved more successful while others have been catastrophic, yet the search has continued.

Searching for non-Western paths Communism The most prominent manifestation of this striving for an alternative path to modernity was the rise of communist movements. Pacific Asia had not appeared particularly appropriate for a Marxist-type revolution in earlier decades of the twentieth century. It was too dominated by the traditional rural way of life, with relatively few proletarian industrial workers. However, the failure of attempts to spark revolution in Western Europe after WWI led the Comintern in Moscow to pin greater hopes on Asia as an alternative catalyst for revolution, especially in colonies that resented imperialist rule. World War II gave added impetus to their efforts. The victory of the Chinese Communist Party (CCP) in 1949 inspired anti-colonialism throughout Asia. Leaders of other newly independent countries, such as President Sukarno in Indonesia, saw opportunities to make common cause with the People’s Republic of China in the NonAligned Movement, even though they did not attempt the same kind of radical political transformation that Mao launched in China. One of the ‘package’ of elements of the conventional concept of modernity mentioned by Tambiah above was capitalist economy. Communist regimes were the most hostile to this. The CCP sought to eradicate capitalism, and indeed all traditional ways of thinking, replacing them with a radical interpretation of Marxist doctrine. As Mao had put it during the Great Leap Forward in 1958 (though in a way that Marx would probably not have approved because it implied a very simplistic version of proletarian class consciousness): China’s 600 million people have two remarkable peculiarities; they are, first of all, poor, and secondly, blank. That may seem like a bad thing, but it is really a good thing. Poor people want change, want to do things, want revolution. A

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Governance in Pacific Asia clean sheet of paper has no blotches, and so the newest and most beautiful words can be written on it, the newest and most beautiful pictures can be painted on it. (Schram, 1963: 352)

Actually, the victory of the CCP in 1949 in itself represented a break with European communist orthodoxy as well as European capitalism, in that it took place in an overwhelmingly peasant society. There were very few industrial workers of the sort that would have been expected to constitute the core of a communist movement. But in China Mao fashioned a communist movement that relied mainly on the peasants. And where orthodox communists would appeal to ‘the proletariat’ and mean industrial labourers, the term that was devised as an equivalent in Chinese for proletariat – wuchan jieji – literally meant ‘property-less class’. Mao justified his rural strategy on the basis that the peasants – especially the poor peasants – were so poor that they were effectively a ‘property-less class’. So even from the beginning, the PRC represented an alternative path to a communist modernity. In the mid-1950s, after the initial consolidation of political rule, the CCP carried through a programme of revolutionary transformation that was modeled upon Soviet experience. The party monopolized political power. It carried out collectivization of agriculture in 1955–1956, in part so as to introduce socialist forms of farming, and in part to enforce savings in agriculture so that they could be transferred to industrialization. It also introduced the system of national Five Year Plans to allocate resources administratively so as to speed up development. And, as had been the case in the Soviet Union in the 1930s, the primary sector to benefit from state resources was heavy industry, since this was considered the commanding height of the national economy and the essential foundation for subsequent national development. In all these ways, the CCP followed the path previously devised by the USSR. It was an alternative approach to modernization from that of the West, but it could still be characterized as ‘Western’ in that it was following the Soviet model, and it had not been devised specifically for Chinese conditions. All of this began to change from 1957 onwards when Mao launched a new programme to speed up the pace of transformation and to catch up with the developed capitalist world even more rapidly than the Soviet Union had done – the Great Leap Forward. Mao set China on a course that was intended to be more directly adapted to Chinese circumstances. Since the PRC leaders believed that the peasants were more enthusiastic supporters than their counterparts had been in the USSR, the Great Leap Forward introduced more advanced forms of rural life from the point of view of

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ideology. In place of collective farms it established communes where not only farming, but all forms of living arrangements were collective. Peasants were supposed to cook and eat together rather than in separate homes. Since Western societies (and also places in China such as pre-war Shanghai) suffered, or had suffered, from dysfunctional urbanization with excessive inequality, great poverty and poor living conditions, the Great Leap Forward essayed a different approach to the urban/rural divide. It established mixed urban/rural communes, with some forms of industry in the countryside and some forms of farming in cities; and since the network of communications in China was more primitive than in the Soviet Union, the Great Leap Forward encouraged greater decentralization of administrative control, as far as possible turning individual provinces of China into self-reliant economic and political units that could continue to operate in the event of a foreign invasion, as communist base areas had been able to do during the Japanese occupation in WWII. In fact, the Great Leap Forward proved a disaster, culminating in famine that, according to Dikotter (2010), took the lives of at least 45 million people. The failure was so catastrophic that Mao’s comrades in the leadership pushed him aside from day-to-day running of the internal life of the country. Nevertheless, Mao was unrepentant, believing that the failure was the result of betrayal by subordinates who were secretly more wedded to the Soviet path of socialist development, or were even secretly working for the USSR. This provoked the Sino-Soviet dispute which flared into the open in 1961, and then the Cultural Revolution that Mao launched at the end of 1965, which was aimed at defeating all those who allegedly wanted to take the Soviet road. In some ways, this was an attempt at an even more radical version of modernization. It was directed against all the bureaucratic obstacles that, Mao believed, had prevented the realization of his ideas for dramatic progress before. To achieve the changes this time, Mao now turned to young people – a profoundly radical move in a country that was still marked by filial piety and veneration for the elderly. Mao incited young people to dare to rise up and assert themselves, as he and others had done in the early stages of the communist movement. Their revolutionary vigour and optimism were hailed as being far more valuable than the experience and skills of their elders. He reviewed mass parades of young people on Tiananmen Square in Beijing. They held self-criticism sessions that humiliated even senior officials. Meanwhile, Mao was raised almost to the level of a deity. The educational system was particularly badly hit. School teachers and university professors were forced to wear dunce’s caps at public meetings

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Governance in Pacific Asia and confess their alleged opposition. Experts – and technical expertise – were denigrated. Experienced doctors were forced to defer to medical students in their diagnosis of illnesses. Intellectuals were ‘sent down’ – for example, to the villages (xiafang xiaxiang) – to learn the virtues of peasant life and to be instructed by the peasants. Theory was out, except for revolutionary theory. The only exception concerned military technology, for example nuclear weapons. Practicality was what mattered – making a tangible and immediate difference to the everyday lives of working people. This was accompanied by a profound suspicion of all things foreign, especially foreign ideas. Because they had not arisen out of Chinese soil, they were suspected of being inappropriate for the Chinese Revolution or, worse, of undermining it. Western art, in particular, was vilified. A pianist had his fingers broken so that he could never play Beethoven again. While exalting nativism, the Cultural Revolution became xenophobic. In Tibet, almost all Buddhist temples were destroyed. While aiming for a modernization that would rapidly surpass that of the West, China turned its back on the achievements of other civilizations, and on many of its own as well. Rationality – often cited by Western historical sociologists as one of the most important features of modern societies – was supplanted by revolutionary belief and voluntarism. Only willpower, mobilized by revolutionary dynamism, was thought necessary to achieve modernity. One consequence of the Cultural Revolution was the almost complete abandonment of the collection of accurate statistics by the state, so it is difficult to accurately quantify the damage that the Cultural Revolution caused to China’s development. What prevented any serious progress was the anarchy into which the Cultural Revolution descended in 1966–1967, with pitched battles between different groups of Red Guards, each claiming to be Mao’s ‘truest’ disciples. Casualties ran into tens, if not hundreds, of thousands. The army had to restore order, but from then until Mao’s death in 1976 China was crippled by rivalries and enmities between various factions. Once Mao died, his most senior successors in the party leadership mostly concluded that nothing like the Cultural Revolution should ever be allowed to happen again. Even if they did not share a consensus about the alternative strategy, they did launch the programme for reform under the title of – significantly – the ‘Four Modernizations’. These identified the four priorities for modernization as agriculture, industry, science and technology and national defence. Although the understanding of what modernization in each of these sectors might entail was not clear, the overall change marked a reorientation towards priorities and approaches that resonated with similar processes in other parts of the world. It certainly marked a

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gradual restoration in the prestige of education by professional educators rather than Red Guard students. Of course other communist states in the region also aimed at alternative paths of modernization from those of the West, though they did not always imitate or even seek to learn from the Chinese experience. North Korea is a case in point. As was mentioned in Chapter 2, North Korea evolved its own road to socialist modernity based upon the principle of juche (i.e. selfreliance). There were many features of the North Korean system that resembled those of the Soviet Union, which was not surprising given the prestige that the USSR enjoyed in the communist world. However, already from the 1950s, Kim Il Sung encouraged the formation of an ideology that stressed native achievements and potential, rather than relying upon foreign models. In that respect, it was as inward-obsessed as Maoist China. Kim II Sung is credited with initiating the concept of juche in the 1950s, and it became the official ideology of the regime in 1972 in the aftermath of the Sino-Soviet dispute, no doubt partly as an attempt to avoid being forced formally to choose between the two great communist powers as patrons. Its essential meaning is usually interpreted as ‘mastery’ by the people; that is, the people (in North Korea, as elsewhere in the communist world) are the masters of their destiny and development. It has been elaborated at great length by his son, Kim Jong Il (1982). It is supposed to mean that North Korea practises self-reliance in development, as well as defence – even though the regime has been heavily dependent upon both the Soviet Union and China for conventional weapons to defend itself, and for economic assistance. In many ways the North Korean strategy for development was typical for a communist regime, with a ruling communist party directing a socialist economic strategy based upon heavy industry and collectivized agriculture. But according to Myers (2010: 49), the economic strategy has been based upon isolationism as far as possible, which makes it different from most other communist regimes. Even where other countries have given ‘fraternal assistance’ to the regime, this is usually only grudgingly acknowledged (at best) in propaganda directed at North Korea’s own people. Thus, this strategy of modernization is very Korea-centric. Main points When in power, Mao gradually pushed China towards its own path to socialism and communism, one that was more appropriate to China’s conditions The Great Leap Forward and the Cultural Revolution caused catastrophic losses, including China, and they isolated China from the global economy North Korea has pursued its own version of communist self-reliance through juche, and this too has held back development

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Socialism Though there is at least one important difference from North Korea, in that it is a multi-ethnic state that has still failed to unite the whole country whereas North Korea is an ethnically homogeneous society, Burma has manifested many of the same features of development as North Korea, at least since 1962 when the military regime introduced its version of ‘Burmese socialism’. This too was predicated upon the principle of seclusion from the outside world – for reasons that have been partly explained in Chapter 2. Here, too, the main thinking was that if the rest of the world would leave Burma alone, it would work out its own problems of integration and modernization in a cooperative spirit. This path also reflected a common socialist orientation among peoples in the developing world who were newly liberated from colonial rule in the 1950s and 1960s, since the colonialists were associated with capitalism. It is true that socialism as a doctrine emerged in Europe rather than Pacific Asia. Nevertheless, according to Tin (2007: 31), socialism in Burma originally emerged before independence, more through the revitalization of Burmese tradition and rising Burmese nationalism rather than from positive foreign influence. Socialism was attractive because it offered the prospect of popular national control over the country’s resources instead of colonial exploitation. It promised self-reliance. After a military coup in 1962, General Ne Win became the leader of the regime. He pushed through a policy of nationalization, creating a large number of state-owned enterprises and running the economy through a series of national plans. In practice, the state pursued a policy of importsubstitution, which deliberately reduced trade with the outside world. In many respects the political economy of Burma at this time was reminiscent of communist states. It was the military that ruled and directed for the first decade – a job for which they were ill-prepared or trained, but they refused to delegate authority to professional civil servants. Then 1974 saw the establishment of the Socialist Republic of the Union of Burma, with political leadership from the newly created Burma Socialist Programme Party. A broader theoretical treatise – The System of Correlation of Man and His Environment – was made the basis of the official ideology, which attempted to provide a theosophical synthesis of animate and inanimate matter with society (Burma Socialist Programme Party, 1964). The regime introduced a 20-year planning horizon which was intended to transform the economy on the basis of increasing public ownership of the means of production. It

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envisaged an annual average GDP growth rate of 5.9 per cent in gross terms and 3.5 per cent in per capita terms. By 1993, the state’s share of GDP output was expected to rise from 35 to 48 per cent. Yet it all went wrong. By 1986/7 the state’s share of GDP had only risen to 37.4 per cent, and the economy was struggling. In the end, in 1988, the economy collapsed and the regime was forced to embark upon cautious liberalization, while refusing to cede any significant political control to other groups. Tin sums up the whole experience as follows: Myanmar had followed a self-defeating resource-based ISI [import substitution industrialization] strategy riding on the back of a state-led developmental approach, which in turn was severely constrained by the denial of private participation and neglect of market forces. As a result, the overextended weak state was driven to the point of bankruptcy. The Burmese experience has been extremely unhappy and the country is still languishing as a result. Yet in the 1950s and 1960s other states in the region also pursued socialist-like development strategies, as a way of differentiating themselves from the colonial regimes that they had only recently replaced. (Tin, 2007: 302)

In Indonesia, too, independence was accompanied by an inclination towards socialism. As a prominent historian and later Indonesian Ambassador Soedjatmoko wrote in 1954 of the path of economic development in Indonesia: There is, for example, the attitude – encountered not infrequently among high officials, political leaders, and even professors – conveyed in voicing doubts as to the need for economic development, in asking whether it is desirable that the Indonesian people should be recast in a Western mold, whether we must lead the people toward an existence dominated by unrestrained competition where each is the prey of the other, and the individual no longer has any personal relationship to his work or his fellow workers . . . This attitude, in fact, embraces two elements. First, there is the rejection of Western capitalism – no new stand this, for in Asia rejection of Western capitalism is general. But more important in relation to our basic problem is the second element, the rejection of the pattern of existence that will evolve with industrialism. It is in this rejection of Industrialism in all its consequences that the source lies of the varying degrees of opposition in official circles to the carrying out of economic development in Indonesia. (Feith and Castles, 1970:389–90)

Former Indonesian Prime Minister Wilopo asserted in 1955 that economic development in Indonesia would be opposed to liberalism and be based

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Governance in Pacific Asia upon cooperative-type enterprises. Article 33 of the 1945 Indonesian constitution provided for ‘joint endeavour on the basis of the family system’ (Feith and Castles, 1970: 380–1). In fact, as Nitisastro pointed out, the notion of ‘cooperative’ was metaphorical. It did not specifically enjoin society to form economic cooperatives, though they were certainly to be encouraged. Rather, what was needed was for all members of society to work together for the common good. He also mentioned the role of the state in ensuring an equitable distribution of resources (Wilopo and Nitisastro, 1959: 17). But what is interesting is the association of the notion of cooperatives with the ‘family relationship’ (kekeluargaan). In an Islamic country, where socialism was associated with atheism, the family principle was used as an alternative to legitimate principles of altruism and solidarity. Admittedly, some cooperatives were based upon families, but the main point was broader. The desirable form of social organization and solidarity was supposed to be inspired by the altruism and self-sacrifice typically found in family life. It represented an attempt to establish a more Asian version of modernization that was distinct from the path of the West. It was explicitly ‘anti-liberal’, because liberalism and individualism were associated with colonialism and exploitation. And, at least in the early years, the regime attempted to build state power upon the specific social circumstances found in Indonesia rather than by imitating the political doctrines of the West. Thus, the early years after independence saw great debate about the ways of establishing forms of political rule that were more in keeping with the practices of Indonesia’s traditional rural society; for example, gotong-royong, that is, community self-help. Indonesia did not experience the same rural radicalism of China or Kampuchea, but it did share some of their assumptions –, namely, the enduring validity of the moral values of rural society. Finding ways of basing modern societies upon adaptations of these values was one of the most important objectives of Indonesia’s rulers. It still remains a strand of thinking in Indonesian politics (Swasono, 2005). For example, Suharto’s successor as president, Habibie, launched a programme of assistance for rural cooperatives as part of a vision of a ‘people’s economy’ (ekonomi rakyat). Main points Burma has also pursued self-reliance under military dictatorship in the name of socialism The regime has still not found a way of generating significant economic growth In the early years of independence Indonesia pursued policies akin to socialism, but aimed more at exploiting its rural, family-based traditions

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Anti-industrialism, pro-rural life: Kampuchea Socialist and communist parties are normally most closely linked with urban areas and industrial workers, and they seek to promote their interests. In revolutionary Kampuchea, however, between 1975 and 1979, the Khmer Rouge communists attempted to transform Cambodia by driving the inhabitants of all cities, but especially the three million inhabitants of the capital Phnom Penh, into the countryside so as to create a new society that would make a radical break with the recent past. In this they went even further than the anti-urban preferences of Mao as they were manifested in the Cultural Revolution, because in Kampuchea the regime tried to shut down cities entirely, stigmatizing them as centres of foreign domination. To an extraordinary degree, the Khmer Rouge sought to replace the slack ways of traditional Cambodia with iron discipline; corruption in high places with unswerving devotion to the interests of the lowly; a hierarchical society with an egalitarian one and a remote bureaucratic regime with an intrusive, omnipresent but anti-bureaucratic revolutionary organization. To accomplish a permanent revolution they instituted a new moral code, disestablished Buddhism, romanticized revolutionary struggle and violence, and emphasized ideological militancy and heroic labour as crucial values for Cambodia. In doing so, the revolutionaries sought to fundamentally alter the Khmer value system and way of life (Jackson, 1989: 66). All of this demonstrated the most extreme anti-urban bias and prejudice among people who had lived in the more isolated regions of the country and had resented what they took to be the corruption, decadence and exploitation to which urban dwellers were prey. Vickery has termed the ideology of the regime ‘peasant populism’ (1999: 304). Foreigners had congregated in cities – colonial, Chinese, Vietnamese and so on. Under colonialism, peasant carts were forbidden from the capital except at night. ‘Foreign bred, the cities were akin to the cankerous growths that the revolutionaries held as their duty to expunge in order to regain ancestral purity . . . Driving the urban population back into the forests and later into the rice fields was probably inspired as much by a desire to regenerate them, by plunging them back into a kind of universe from which they should never have strayed as by vengeance’ (Ponchaud, 1989: 153, 160–1). The Khmer Rouge wanted to ‘purify’ the country with a kind of revolutionary Puritanism. They tried to mobilize the whole population into enormous irrigation works so as to dramatically raise agricultural output, but they only relied upon ideology and coercion, since they had abolished money. The country quickly became what Kiernan termed ‘a gigantic workshop of indentured agrarian labour’

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Governance in Pacific Asia (1996: 164), where everyone worked long hours, lived in thatch huts or barrack-style houses, where families were broken up, and where individuals ate their meals along with work teams in separate shifts. The only property that anyone could possess was a bowl and spoon. The core of the regime was the mysterious party or ‘organization’ (angkar), which framed its appeals for support in terms of kinship: just as Khmers traditionally addressed one another as ‘child’, ‘father’, ‘mother’, ‘daughter’, ‘uncle’, ‘elder brother’ and so forth, the ‘angkar’ came to be addressed as the ‘father–mother’ (pouk-me). It demanded the respect and obligations previously owed to parents (Ponchaud, 1989: 164–5). However, it quickly disintegrated into rival groups and an orgy of paranoid violence, though it was ultimately confrontation with Vietnam that caused its collapse. ‘Whenever the Khmer Rouge were faced with lack of comprehension or passive resistance, they chose to exterminate rather than re-educate. Formal schools were closed immediately after liberation, newspapers were nearly nonexistent, and radio listening was restricted largely to Khmer Rouge cadres’ (Jackson, 1989: 78). It was a time of horrific violence. ‘Enemies’ or opponents, real or presumed, were killed in the most brutal way with spades, clubs and iron bars. There are no accurate statistics on the casualties of state-sponsored violence over this four-year period and there never will be. Quinn (1989: 208) estimates that out of a population that was estimated at around 7.1 million in 1975, anywhere between several hundred thousand and three million people died from all causes. Even today, Cambodia struggles to come to terms with that past. Main points Cambodia under the Khmer Rouge pursued the most extreme version of antiindustrialism, emptying cities of most of their inhabitants This ended in primitive mass killings

Islamic development Pacific Asia is also home to two important Islamic societies: Indonesia (the world’s largest Muslim society) and Malaysia. Both were also Western colonies until after WWII. These two factors have combined to incline people there to seek alternative development paths from those of the West. In the first decades after independence it was the anti-colonial legacy that was more prominent. The last three decades, however, have seen a revival of self-confidence among Muslims there, as in other regions of the world, and they have begun to explore distinctively Muslim paths for development.

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In Indonesia this remains somewhat more muted, despite the fact that Muslims represent nearly 90 per cent of the population. The official doctrine of the Indonesian state remains based on the Pancasila, which proclaims, among other things, the acceptance of divine existence, but refuses to specify whether the Islamic, Buddhist, Christian or animist version is superior to the rest. The Malaysian regime, however, has, over the last 30 years, sought to establish an explicitly Islamic identity and a model for development that could be imitated by other Islamic states, despite the fact that only 60 per cent of the Malaysian population are actually Muslim. In the Islamic world Malaysia is regarded as a pioneer whose experience is studied more widely (Metzger, 1996). In terms of economic development, as Nomani and Rahnema (1994) have explained, there have been many different varieties of Islamic theories of economics. All take as their starting point the fact that economic life must be compatible with the principles of the righteous life as outlined in the basic texts of Islam: the Koran, the Sunna, the shari’ah legal code and the hadith (sayings) attributed to the prophet Mohammed. In practice, according to Venardos (2006: 42–3), there are four basic characteristics of an Islamic economic system: (a) everyone should have the minimum resources for subsistence; (b) there should be no concentration of wealth in a few hands; (c) wealth should be used productively and not hoarded; (d) reward should only go to those who work, except in the case of the naturally handicapped and the involuntarily unemployed. There are three fundamental differences between standard Western economic theory and Islamic economic theory. The first is that Muslim economics needs to reconcile principles of economic behaviour with ethical behaviour. Thus, although Western microeconomic thought as applied to market economics is based upon the principle of self-interest and the provision and structuring of incentives to elicit the most efficient use of resources, Islamic economic theory looks wider: it seeks to elaborate a framework that promotes moral and altruistic behaviour. Islamic writers contest Adam Smith’s basic insight that self-interest can and should serve as the basis of economic theorizing. As Nomani and Rashema put it: ‘From an Islamic perspective, “the economic problem” cannot . . . be attributed to nature, but to the predominance of the greedy, selfish and acquisitive aspect of man’s nature, reflected in the syndrome of unlimited wants’ (1994: 83). Second, Islamic economists reject the principle that economics is fundamentally concerned with the maximization of scarce resources. Certainly, most Muslim societies are relatively poor, so maximizing development is a key objective; but the basic assumption of Islamic economists is that God

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Governance in Pacific Asia has provided an abundance of resources that can potentially be exploited to benefit all mankind. So, rather than focusing on the maximization of scarce resources, Islamic economics focuses on issues of distribution, trying to remove injustice and maldistribution (Nomani and Rashemi, 1994: 83). Third, the time horizon of Islamic economists is different. Where Western economics focuses on the exploitation of resources in and for this life, Islamic economics is concerned with their use both for life on earth and in the hereafter. Thus, insofar as self-interest does guide the behaviour of individuals in an Islamic economy, it is assumed to be directed as much towards benefits in the afterlife as with those in the present one. This reinforces the moral and spiritual concern with ensuring that resources in this world are used to promote righteousness and welfare in this world and the next. Within Islamic economics two institutions receive special attention for theorizing about the practicalities of an Islamic economy in the twenty-first century. The first is the explicit ban on ‘usury’ (riba), which prohibits the payment of interest on loans, since it can allow people with money to profit from the labour of others and it discourages productive labour by the usurer. In practice, this means that financial institutions such as banks are expected to share in the risks of business enterprises, both the profits and the losses. Gradually over the last 30 years, this has generated alternative and increasingly sophisticated schemes of financing business in the Islamic world which are compatible with shari’ah law, and Malaysia has sought to position itself as one of the pioneers in this respect. In 2006, Malaysia established the Malaysian Islamic Financial Centre to promote the country as the global hub for Islamic finance. Second, there is the requirement that Muslims should pay a proportion of their assets (zakat) every year to charitable institutions that can distribute them among the poor. An early alternative to income tax, this can be potentially more onerous in that, in theory at least, it should amount to 2.5 per cent of the total wealth that should be paid every year, not just of income. However, the original sources specify forms of wealth which are liable to zakat – precious metals and livestock; for example, camels and horses (but not mules or elephants), and also specific forms of income that are also liable – mining attracts 20 per cent, while agriculture attracts 5–10 per cent, depending on who irrigates the land. Islamic writers have displayed considerable ingenuity in extending, by analogy, the supposed principles underlying the original specifications of wealth and income that are (and are not) liable to zakat to all the other commodities and forms of wealth and income to be found in a modern society. But most Islamic states now impose taxes on their people as well.

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In these ways, as in others, attempts to establish an Islamic path to modernity necessarily differ from those in the West and will continue to do so. Haneef (2001) has lamented the fact that the approach to economics in Malaysia has lacked a consistent Islamic philosophical and religious basis, instead focusing on particular institutions and techniques. For him, Islam itself has played a small role in Malaysia’s economic development. Nevertheless, an example of attempts by Islamic economists to establish both the principles and basic institutions of a functioning Islamic economy can be found in the Malaysian Ghazali (1990), based upon the principles of the core texts of the Islamic religion. More generally, however, Nomani and Rahnema (1994) have shown how Islamic economists have adopted different approaches to the possible ways of running an Islamic economy: some are more inclined to rely upon the equivalent of market forces to integrate and drive the economy, while others are more inclined to rely upon a more prominent role for public institutions, such as the state, which can include planning. In that sense there is significant potential overlap between Islamic and Western economists over the ways in which a modern economy can be run. Nevertheless, Kuran (1992a, 1992b) has provided a serious critique of attempts to derive viable basic principles and institutions of a complex large economy in the twentieth century based upon writings that emerged from smaller, tribal societies over a thousand years previously. Thus, establishing a functioning and complete Islamic economy is still a work in progress, including in Malaysia. Although the majority of the Malaysian population are Muslims, the Malaysian economy is still only partly organized along Islamic lines. Nevertheless, the intended trajectory of the Muslim leaders of Malaysia is, in the long run, to establish a modern Islamic state and economy. In 2001, the then Malaysian Prime Minister, Mahathir Mohamad, claimed that Malaysia already was an Islamic state, even though this is contradicted by the Malaysian constitution, which states that Islam is the religion of the state (though people may practise other religions freely), but not that the state is Islamic. His assertion provoked a storm of criticism. However, Malaysian courts have gradually moved towards an increasing integration of shar’iah law and state law – and the Court of Appeal has noted that the nature of the state is left indeterminate under the constitution, in that it neither specifies that it is Islamic nor that it is secular. This then allows the courts to gradually move towards a more Islamic interpretation of the law. For example, in a famous case in the Malaysian courts from 1999, a woman formerly registered as a Muslim, Lina Joy, converted to Christianity

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Governance in Pacific Asia and then tried to get her civil status changed to that of Christian so that she could marry a Christian man, but the Court of Appeal refused this in 2007 on the grounds that this could only be done by a shar’iah court, which happens extremely rarely (Lee, 2010: 62–73). Part of the reasoning behind the judgement was that the constitution specifically authorizes the rights to freedom of belief and freedom to practise religion, but not specifically the right to change religion – and shar’iah law specifically bans apostasy. The ruling coalition, led by the United Malays National Organization competes for power with the smaller PAS Islamic party, with the effect that they try to outdo each other as being more genuinely ‘Islamic’. Since the UMNO has been in power since independence, and since it seems unwilling to give up power, the trend of increasing Islamization also seems likely to continue, even if the general tenor of Malaysian Islam is relatively moderate. Main points Muslims in Malaysia and Indonesia have gradually rediscovered the selfconfidence to assert alternative Islamic ways of structuring a market economy Malaysia has tried to position itself as a pioneer in international Islamic finance In the long run, Malaysia’s rulers are attracted to the idea of an Islamic state

Preserving the ‘uniqueness’ of Japan, challenging the ‘Washington Consensus’ In a way, it is Japan that best exemplifies the persisting exploration of nonWestern paths to modernity, even though to a superficial eye it sometime seems the most Western of the states in the region. Since WWII, it has become again a democracy with a developed capitalist economy and an industrial base that is as technologically advanced as the United States. For decades its cities were the most prominent faces of ‘modernity’ in Asia. The kaleidoscopic night-time advertising displays on the Ginza in Tokyo epitomized modern sophistication. Yet all this development has been accompanied by an ambiguity about the extent to which it has repressed or destroyed Japan’s ‘unique’ values. An extreme expression of this discontent came in 1970 with the suicide, by ritual disembowelling, of the novelist Mishima Yukio after he failed in his attempt to incite the Self-Defence Forces to rise up against materialist and corrupt political leadership so as to restore the powers of the Emperor and the purity of Japanese spiritual traditions. But this ambiguity has persisted since the opening to the outside world. In the nineteenth century the country enthusiastically embraced the objective of

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catching up on the West and becoming a ‘modern’ nation. Fukuzawa Yukichi formulated the phrase ‘leaving Asia and joining Europe’ to encapsulate this goal in the late nineteenth century. However, this has always coexisted with nostalgia for the purity and validity of Japanese ‘national essence’ (kokutai). This was used to justify the Asian Co-Prosperity Sphere in WWII, which was allegedly intended to free ‘Asians’ from Western domination. The disastrous defeat obviously weakened this tradition and strengthened the appeal of the West. At the same time, soon after the end of the war, Japan saw a gradually swelling tide of books and articles devoted to the general theme of ‘being Japanese’ (nihonjiron). In their different ways they were all elaborations on the principle of ‘uniqueness’; that is, discussing the ways in which Japanese people were different from all others. Although some of these works contrasted being Japanese with being Chinese, the most common tendency was to counterpose ‘Japan’ to an alternative Western (implicitly American) modernity, which was viewed as a polar opposite. As analyzed by Dale (1986: 38–55), there were many variations on this theme. Where the West was continental, Japan was an island. Where in the West man dominated nature, in Japan nature prevailed. Where the West had mixed races, the Japanese were homogeneous. Where the West favoured individualism and was inner-directed, Japan favoured groupism and dependence. Where Westerners stressed rights, Japanese stressed duties. Where Westerners behaved in aggressive, masculine ways, Japanese behaved in feminine, peaceful ways. Where the West was materialist, Japan was spiritual. Where Westerners were logical, rational and objective, Japanese were ambivalent, emotional and subjective. Where Westerners were talkative, Japanese were often silent. Obviously these dichotomies were abstractions and simplifications. They were often reminiscent of the type of ‘Orientalism/Occidentalism’ polarity mentioned in Chapter 3. Dale was quite scathing about their validity. Yet they continued to be extremely popular in Japan, even as the Liberal Democratic Party (LDP) government encouraged people to become more ‘international’. The dichotomies reflected the enduring feeling that Japan was unique, even if only the Japanese could identify exactly where. A different version of Japanese uniqueness was drawn from distinctive features of Japanese society in the past. Murakami (1984), for instance, produced a work with two collaborators that claimed Japan as a special kind of ‘civilization’, one that was based upon the traditional household and village. Most of the analysis consisted of an interpretation of the history of Japan, which until the nineteenth century was presented as uniquely self-contained

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Governance in Pacific Asia and cut off from the rest of the world. The core of this account identified evolution from a clan-based society in the second-century BC to one based on households (ie) or ‘corporations’ from the thirteenth to fourteenth centuries AD. What was distinctive about the ie was that it was not based exclusively upon kinship or a blood line. Even though the household might trace itself back to a common ancestor, this would only go back a few centuries at most. Individuals could also join one household or another. Similarly, people could be adopted into membership. Society was divided vertically between such households. The problem was that Japanese society had little horizontal integration. So in modern society consciousness of classes was relatively weak. The only strong horizontal ties were local ones – the equivalent of what in earlier centuries had been village communities that tried to divide resources on a fairly egalitarian basis. Murakami presented this problem of vertical division as a recurrent theme over recent centuries, with history continuing to play a great role in the Japanese type of modernity. For him (1981: 340), this exemplified the fact of ‘multilineal’ modernization around the world, since all societies have different histories. This sense of a different modernity permeated ideas of the structure of Japanese society and the Japanese economy. According to Eisenstadt for example, Japan has ‘a distinctive mode of operation radically different from that of other – especially Western – societies’ (1996: 81, 84). As he put it, Japanese state and society are differentiated by having: a highly regulated, closed system and modernizing very successfully in a very distinctive way, under the direction of the center, especially the bureaucracy . . . Behind the façade is a basically authoritarian system, which succeeds in its operation through the manipulation of consensus – through the creation, that is, of an image of social harmony that belies its scant responsiveness to the demands of various groups or movements of protest.

Eisenstadt summed it up as ‘a dynamic, controlled but not totalitarian society’ (1996: 141). What is striking is an apparent contradiction between Murakami and Eisenstadt: Murakami emphasized the vertical divisions in Japanese society which have consistently made the achievement of public unity extremely difficult, whereas Eisenstadt emphasized the integration of society, albeit one imposed by the government bureaucracy. Both, however, argued for the unique nature of Japanese society. In practice, their accounts can also be reconciled by factoring in the role of the state. Even though Japan is a very homogeneous society, which in other countries is often

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interpreted as a factor facilitating unity, it suggests that it is only the (semi-) autonomous activity of the Japanese state that ensures this; it testifies to Japan’s subtle complexity and fascination. As for the Japanese economy, it has been capitalist ever since industrial capitalism was introduced from the West after the Meiji Restoration. Yet the fact that it was introduced at the state’s behest made it different from many other industrializing economies. Some Japanese Marxists, according to Barshay (2004), argued in the 1930s – a time when the only critical social science analysis in Japan was effectively Marxian – that the resulting system was ‘doubly cruel’, in that factory owners not only exploited workers as in other capitalist systems, but also took advantage of the surviving traditional serf-like social relations to intensify the exploitation with state backing. From this perspective the economy was capitalist, but it was the state rather than indigenous capitalists that had created it. In that sense it was capitalism without capitalists. Curiously, in the 1980s this notion of the Japanese economy being ‘capitalist without capitalists’ was revived not as a problem, but as an explanation for its post-war success. This time, however, what was meant was that it was a gentler, kinder capitalism. Sakakibara (1993), a former top official in the Ministry of Finance, cited with approval the comment of Japanese economist Itami that the modern Japanese economy was ‘people-centred’ – that is, it put the interests of employees above those of holders of capital and therefore of capitalists. Ozaki derived from this a theory of ‘human capitalism’, where management was almost completely free of capitalists as a social group. Instead, there was what he termed ‘joint management-worker sovereignty’ (1991: 16). Companies – the large ones at least – practised lifetime employment for their workers, refraining from dismissing them in recessions. There was also less inequality in Japan. Sakakibara therefore anticipated that Japan would, in the future, preserve the fundamental noncapitalist nature of its economy while adapting to international markets. There would be no Western (i.e. American-style) ‘big-bang’ reform. A more widely shared consensus among policy-makers in Japan formed as economic policy-making in the United States evolved in favour of neoliberalism from the 1980s. As the American government increasingly promoted market-first policies both at home and in international financial institutions, Japanese officials and academics became more sceptical about the undifferentiated nature of American policy advice and its relevance to other states at widely different levels of development and in widely different circumstances. Ohno and Ohno (1998) present a good collection of the

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Governance in Pacific Asia range of Japanese criticisms. As Lee put it: ‘Japan has been the only developed system in the entire Post-Cold War era that has directly and officially questioned the universal validity of the so-called Washington Consensus (neoclassical economic orthodoxy or neoliberal doctrine) . . . The Japanese challenge is aimed at undermining US-led neoliberal attempts to delegitimize the role of the state in economic development through promulgation of the universal validity of the magic of the marketplace’ (Lee, 2008: 2, 3). According to him, Japanese writers looked at their own experience of development since WWII, as well as the growing economic success of other Asian economies, and they tended to conclude that there was such a thing as an Asian ‘model’ of economic development which allowed for a greater role for its promotion by the state than the ‘Washington Consensus’ admitted. Worse, some saw the blanket advocacy of the Washington Consensus as the prelude to another ‘colonization’ of Asia – so remarked Sakakibara in May 1997, an extraordinary comment for a top government official to make (Lee, 2008: 118). According to Lee, the sense of a US being unwilling to listen to this alternative perspective came to a head later, in the Asian financial crisis of 1997, where the Japanese government was sufficiently provoked by what was taken to be US attempts to sabotage the notion of an Asian development model by getting the International Monetary Fund (IMF) to impose conditions on Thailand for a bailout that it made the extraordinary proposal for an Asian Monetary Fund which would have excluded the United States from membership. Even though this idea ultimately had to be abandoned, the underlying discontent led to other, more partial schemes for economic cooperation between Asian states in the event of another international economic crisis. This kept alive the notion of alternative economic strategies to those associated with ‘the West’, and in particular the United States (Hara, 2000). With Japan being, until recently, the largest economy in Asia and still the most developed, the Japanese perspective remains a crucial factor in the viability of such schemes. The issue of the role of the state in economic development is one to which we shall return in Chapter 5. Main points Japan has been ambivalent about the benefits of its embrace of the West since WWII Though many have benefited from the nation’s economic achievements, a recurring theme in Japanese writing has been the need to preserve the uniqueness of its civilization, which could be jeopardized by excessive Westernization The Japanese government has become more wary of the ‘Washington Consensus’ as a template for successful economic development

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The China ‘model’ today The enormous economic progress made by China since reforms began at the end of 1978, and especially since the mid-1990s, has inspired a veritable torrent of books that seek to explain it. More recently this has been followed by a growing tide of books that reflect on the implications of the ‘model’ of its success for other states in the developing world and the challenges that it poses for international governance. This first appeared in the United States, but has also spread to China itself. In their different ways they all present China’s successes as exemplifying the possibility for other states in the developing world to achieve breakthroughs without simply copying the West. In the latter category, the first book explicitly trying to formulate an explicit Chinese model was Joshua Cooper Ramo’s The Beijing Consensus. His main point is that the rise of China is changing the ‘physics’ of international relations and international development: China is marking a new path for other nations around the world who are trying to figure out not simply how to develop their countries, but also how to fit into the international order in a way that allows them to be truly independent, to protect their way of life and political choices in a world with a single massively powerful centre of gravity. I call this new physics of power and development the Beijing Consensus. It replaces the widely discredited Washington Consensus, an economic theory made popular in the 1990s for its prescriptive, Washington-knows-best approach to telling other nations how to run themselves. (Ramo, 2004: 3–4)

According to him, it is both pragmatic and ideological, rejecting stereotypical solutions to the problems of development. Insofar as there is an actual Beijing Consensus, it can be reduced to three principles. First, there is the recognition of the importance of sophisticated innovation. Second, the Chinese regime is concerned not just with development, but with quality of life and sustainability issues as well. Third, China adopts a new approach to self-determination, trying to leverage support from other countries to frustrate potential aggressors. More recently, Stefan Halper (2010) has produced a book – also titled The Beijing Consensus – which again highlights the differences from the Washington Consensus. Halper also focuses primarily upon the challenge that the rise of China poses to American leadership. As he puts it, ‘China poses the most serious challenge to the US since the half-century Cold War struggle with the Soviet Union . . . As growing numbers of states in Africa and Latin America embrace relationships with China, China is shrinking the

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Governance in Pacific Asia West.’ (2010: x–xi, emphasis in the original). He too highlights the contrast between the Washington Consensus as a set of norms for development and the practice underlying China’s rapid economic success. Even though he emphasizes the fact that there is no homogeneous community of developing states who share common orientations towards development and the world order, he nonetheless mentions a number of ‘pivot’ states that might be attracted to some kind of Chinese model, as opposed to a ‘Western’ model; for example, Indonesia, Vietnam, Turkey, Nigeria, Saudi Arabia, Brazil, South Africa and Egypt. Jacques (2010) raises similar concerns, the subtitle of his book apocalyptically raising the possibility of ‘the end of the Western world’. What he means by this is the end of Western domination of the global system and the emergence of competing global modernities, highlighting that of China: ‘the emergence of Chinese modernity immediately decentres and relativizes the position of the West’ (2010: 145). His main point is an elaboration of the implications of Pye’s comment, mentioned in Chapter 2, about China being a civilization-state rather than a ‘typical’ nation-state. Jacques identifies eight fundamental differences that define China today and differentiate it from other states. These are: 1 China is a civilization-state rather than a nation-state 2 China is likely to conceive of its relationship with East Asia in terms of a system of tributary states rather than nation-states 3 China has a distinctive attitude towards race and ethnicity, emphasizing internal homogeneity rather than pluralism and difference 4 China’s size means that it will continue to operate on a different-sized, continental canvas 5 China’s rulers have traditionally not had to share power and this is unlikely to change 6 The speed of China’s transformation since 1978 sets apart its experience of development from that of most of the rest of the world, though it shows similarities with the rest of East Asia 7 The fact of the rule of the Chinese Communist Party since 1949 also sets apart its political experience and political culture from the rest of the world 8 China will exhibit characteristics of both a developing and a developed country for decades to come (2010: 418–29)

Like Ramo and Halpern, Jacques discusses the implications of China’s rise for global order, but rather than focusing upon relations with the United States as the existing superpower, he is more concerned with the implications for the system as a whole. Arguing implicitly along the lines of ‘hegemonic stability’ theory, he suggests that the Westphalian system in general is likely to be

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superseded in time by something more akin to the tributary system, and not just in East Asia (2020: 430–1), though this seems to underplay the concern of other modernizing as well as modernized states to preserve the legal sovereignty inherent in the Westphalian system. It seems unlikely that states which have thrown off the shackles of colonialism will be easily persuaded to swap the existing system for a subordinated, tributary relationship with China, however attractive and profitable economic cooperation with China might be. Peerenboom (2007) analyzes the core elements of China’s transformation from the perspective of a lawyer. He emphasizes the similarities between many of the features of China’s recent development and what he terms the ‘East Asian model’ of development; that is, the features common to the success of Japan and the four ‘Little Tigers’ (South Korea, Taiwan, Hong Kong and Singapore). According to him, there are six such characteristics: 1 The emphasis upon economic growth rather than civil and human rights during the initial and rapid phase of economic growth 2 A pragmatic approach to reform, selecting parts of the Washington Consensus to follow while rejecting others 3 An increasing investment in human capital and its institutions, including the legal system, as development proceeds 4 The postponement of democratization until a high level of development 5 Constitutionalism begins to emerge during authoritarian rule, as does civil society, with increasing protection for human rights 6 There is greater protection for civil and political rights after democratization, although even then the orientation is based more on communitarian or collectivist rather than liberal principles (Peerenboom, 2007: 31–2)

What will be noticed from this is the stress upon a more limited divergence from the Washington Consensus than was claimed by Ramo and Halpern. He points out, for example, the common emphasis upon fiscal discipline, broadening the tax base, and increasing public expenditure on health care, education and infrastructure (2007: 287). For Peerenboom, the Chinese ‘challenge’ to the West is less stark because the model itself is evolving with development. Inside China too there has been a growth industry in books debating the ’China model’ or the ‘Beijing Consensus’. Some of these also focus primarily upon the challenge to Western concepts of modernization. A common theme is that Chinese success combining economic liberalization with political authoritarianism is a challenge to Western advocacy of democratization. The

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Governance in Pacific Asia Taiwanese political scientist Zhu Yunhan remarks that the implication of Chinese successes is that, in future, Western states will have to demonstrate not only that representative democracy can achieve more by way of guaranteeing rights and freedoms, political participation and fair competition, but also that it is more effective in ensuring people’s security, increasing development, defending social justice and the mutual development of the nation and the state (Zhu, 2009: 630). Not surprisingly, though, commentators on this issue inside China also focus upon other dimensions of a putative China ‘model’. Pan, for example, stresses that any such model is held together by a fundamentally different theme in Chinese thinking from that of the West. He stresses that Western political and social thought has been characterized by issues that originated with the reaction against feudalism, with the consequence that their main preoccupation has been with rights as a protection against oppression. By contrast, he argues, Chinese thought, which never had the same feudalism to react against, continues to be preoccupied with the responsibilities of officials and the welfare of the people as the basis of public policy (Pan, 2009: 82–3). On the other hand, precisely at the level of public policy, Harvard professor Suisheng Zhao stresses the pragmatism of the reformers. As far as he was concerned, the reforms since 1978 are a triumph of pragmatism. The driving principle was summed up in the commonly cited phrase of ‘crossing the river by feeling for stones one after another’. Anything could be acceptable if it worked. Thus, for example, Zhao agrees with Peerenboom about the PRC implementing quite a lot of the Washington Consensus (e.g., fiscal balance) and opening to the outside world, including globalization. On the other hand, the PRC has been much more cautious about microeconomic deregulation, preserving a significant role for the government in guiding development and protecting key sectors. According to Zhao, this pragmatism contrasted with Western advice to ex-communist regimes which advocated radical neoliberal restructuring, generally preferring radical ‘shock therapy’, as in Russia. The West showed itself to be ideological, while the Chinese Communist Party proved much more pragmatic (Zhao, 2009: 286–8). Nevertheless, as far as Zhao is concerned, it is still too early to tell whether the Chinese ‘model’ will prove superior to that of the West in the long run, not least because China still lags behind the developed world in many dimensions. Jiang (2007) gives some more precise grounds for uncertainty about the long-term attractiveness when he concentrates on more specifically economic dimensions of the current Chinese ‘model’. He accepts that it is

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basically an integrated whole that has evolved deliberately in phases, but he also accepts that it is incomplete. There are imperfections that require attention, and the model will need further modification. For example, the market mechanism is still incomplete, the economy is still too dependent upon high inputs of natural resources rather than greater efficiency, there is inadequate R & D embodied in industrial output, environmental pollution needs to be stopped and reversed, the economy needs to do more to stimulate domestic consumption rather than be excessively dependent upon exports and imports, and the rewards of development need to be distributed more evenly and fairly. For all of these reasons the nature of the Chinese model, let alone its putative superiority in the long term, is still debatable. Main points China’s economic successes since 1978 have provoked waves of books analyzing its main features and the challenges that they pose for the hitherto Westerndominated world order As yet there is no consensus on all the essential elements of a Chinese ‘model’, which in any case is still evolving One key element is pragmatism The fact that such a ‘model’ has not replicated the Western experience of, and prescriptions for, development is an encouragement for peoples in other parts of the world to experiment with what best suits their circumstances

Modernization: Persisting commonalities So far this chapter has outlined various attempts within Pacific Asia to elaborate alternative paths to modernity from those of the West since the 1960s. Some have been more successful than others. Nevertheless, it should not be forgotten that not all the core features of modernization theory based on Western historical experience have been controverted by Pacific Asian experience. Let us outline two areas where Pacific Asian experience has replicated, in general terms, Western experience. These are urbanization and education. First, a core feature of Western modernization theory was the gradual transition from rural to urban society. We have seen attempts to formulate a more rural-based development strategy in at least some of the states in Pacific Asia, especially in China, Cambodia and Indonesia. How has this been reflected in current levels of urbanization in the various states in the region?

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Governance in Pacific Asia Table 4.1 presents up-to-date statistics from the UN on the levels of urbanization there. This shows that the trend of urbanization has continued throughout the region with development. The whole region is projected to show significant further urban development over the next 20 years. In both Northeast and Southeast Asia the figures should go up from approximately 40 to just over 60 per cent. The states with the lowest levels of development are also the ones with the lowest levels of urbanization, but even they have seen gradually increasing urbanization since 1950, and this trend is projected to continue over the next 20 years. Cambodia shows one of the lowest levels of urbanization, but this can be attributed to the legacy of the devastation caused by the Vietnam War and the Khmer Rouge, rather than to persisting policies reflecting the anti-urbanization bias of the Khmer Rouge. Table 4.1 Urbanization rates in Pacific Asian states 1950

2000

2030

Brunei Darussalam

26.8

71.1

82.3

Cambodia

10.2

16.9

37.0

China

13.0

35.8

60.3

Hong Kong

85.2

100.0

100.0

Indonesia

12.4

42.0

68.9

Japan

34.9

65.2

73.7

North Korea

31.0

60.2

72.4

South Korea

21.4

79.6

86.3

7.2

18.9

34.0

Malaysia

20.4

61.8

81.9

Myanmar

16.2

28.0

48.4 18.2

Laos

Papua New Guinea

1.7

13.2

Philippines

27.1

58.5

78.7

Singapore

100.0

100.0

100.0

16.5

31.1

45.8

9.9

24.5

40.8

11.6

24.3

41.8

Thailand East Timor Vietnam Africa

14.7

36.2

50.7

Asia

16.8

37.1

54.1

US

64.2

79.1

87.0

UK

79.0

89.4

92.2

World

29.0

46.7

59.9

Source: UN, World Urbanization Prospects: The 2005 Revision (http://www.un.org/esa/ population/publications/WUP2005/2005wup.htm).

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It is China which best exemplifies the surge of urbanization in Pacific Asia. As was explained earlier in the chapter, the CCP, under Mao, did try to restrain urbanization. According to the figures of the UN, by 1980 urbanization in China had only reached 19.6 per cent. Since then, urbanization there has gathered momentum, with the pace expected to quicken in the next 20 years. According to a more recent detailed study by the McKinsey Global Institute (2008), which uses different criteria for urbanization from those of the UN, China should reach a 60 per cent urbanization rate by 2025 rather than 2030. In the process over 350 million people will move to Chinese cities – more than the entire population of the United States. By 2025, 219 cities in China will have more than 1 million inhabitants, whereas in Europe today there are only 35 cities of that size. Also, between now and then China will build, per year, as many skyscrapers with 30 floors or more as there currently are in Chicago. The second core element of modernization theory was the increasing importance that was attached to the provision of education, usually by the state. Traditional societies throughout the region placed great store by learning and respect for teachers. However, education as such was largely carried out privately or through charities. The arrival of the West led to the state beginning to play the dominant role in education, and the structure of educational systems throughout the region continues to reflect frameworks originally constructed in the West. For example, school education in Northeast Asia and the Philippines is still primarily divided into six years of primary education, three years in junior college and three years in senior college, as found in Germany and the United States (Cheng, 2001: 4334). However, although the educational systems may have come from abroad, traditional enthusiasm for learning persisted, so that many of the states in the region expanded access to the system faster than in many other countries at similar levels of development (Cheng, 2001: 4335). In turn, this made a significant contribution to economic development, generating a virtuous circle that provided resources for more secondary and then higher education, which in turn facilitated technically more sophisticated output. In particular, the development of technical and vocational education in Singapore and Vietnam has recently been presented by the World Bank as a model for states in sub-Saharan Africa (Fredriksen and Tan, 2008). Indeed, various commentators agree on the extent to which development success in Pacific Asia can be attributed to the relatively early focus on mass education and technical skills in the New Industrializing Economies (NIE)s. Also, the World Bank study ‘East Asian Miracle’

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Governance in Pacific Asia (1993: 203) concluded that public investments in school education were both greater and better directed than in other regions in the world. Table 4.2 presents figures on the gross enrolment ratios in tertiary education for states in the region. These figures are surrogate indicators for the growth of education at all levels in society in general, since higher education is the last stage to be expanded. What this shows is that the region is going through the higher education revolution that the United States and Western Europe have already experienced. Higher education is becoming more accessible for non-elites, which has been the case in South Korea and Japan for some time now. However, Suehiro (2008) has refined the argument about the importance of education for modernization in the region by pointing out that the resources devoted to education there, as proportions of GDP, are actually relatively smaller than in Africa and Latin America. However, he argued that a key benefit that education there brings is that it sucks individuals into permanent competition, first at school and then at work. In this sense education both endows individuals with the skills needed for a modern industrial economy and also socializes them into the competition that is needed to maintain their societies’ competitiveness in the world economy. Table 4.2 Gross enrolment ratios in tertiary education in Pacific Asia

Brunei Darussalam

1999

2002

2008

12

14

16

Cambodia China

7

3

7

12

23

Hong Kong

–

–

–

Indonesia

–

15

21

Japan

45

51

58

North Korea

–

–

–

South Korea

73

87

98 13

Laos

2

4

Malaysia

23

28

–

Myanmar

–

–

–

Papua New Guinea Philippines

2

–

–

28

30

29

Singapore

–

–

–

Thailand

34

42

45

East Timor

–

10

–

Vietnam

–

11

–

Source: UNESCO Institute for Statistics

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Main points Pacific Asian states do still share some common elements of modernization with Western experience Two of these shared common elements are increasing urbanization and the importance of national state education systems Both promote, and are further promoted by, development

Conclusion This chapter has illustrated the restless tendency for states across Pacific Asia to determine their own routes to development and modernization. Not all of them have been successful by any means, and some – for example, the Great Leap Forward in China and the rule of the Khmer Rouge in Cambodia – have been spectacular failures, leading to millions of deaths. The most developed states in the region have usually achieved their success in economic and strategic cooperation with the West. Nevertheless, they have all displayed scepticism about the intrinsic superiority of Western experiences of modernization. They have also displayed scepticism about the transferability of models of success from elsewhere in Pacific Asia too, thereby contributing to an underlying pluralism. Islamic societies will feel that they have little that is positive to learn from the experience of communist or former communist regimes, and vice versa. But insofar as individual states have discovered their own paths to modernization, they encourage similar attempts in other parts of the world, as expressed by Tu Wei-ming at the beginning of this chapter. It is not clear that other states and other peoples can transplant Pacific Asian models to their own societies or even the main principles underlying them. Much speculation now surrounds the ‘Beijing Consensus’ or the ‘China model’, with most of its key elements being unique to China. It would be very difficult, if not counter-productive, to attempt to transplant them to another society. However, what it does exemplify is that there are alternative possibilities for successful development, and so it encourages experimentation in other parts of the world with principles and practices that are appropriate to the particular circumstances and traditions there. One field where this divergence from Western prescriptions is particular marked is the role allocated to the state in bringing about economic development. As Pempel (1999: 141) pointed out, this notion of a ‘developmental state’ suggested the possibility of more than one historical path to economic development. It is to this that we shall turn in Chapter 5.

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Questions for further discussion 1 What are the main common features of the experience of development in the US and Western Europe? 2 Are there any significant differences from the experience in Pacific Asia? 3 What about commonalities apart from urbanization and state education systems? 4 How salient are the differences between states in the region?

Further reading Jung Chang, Wild Swans: Three Daughters of China, from Warlords to Mao (London: HarperCollins, 1991) – a bestseller that presents the transformation of China by the communists as seen through the eyes of several generations of one family. Karl D. Jackson (ed.), Cambodia 1975–1978: Rendezvous with Death (Princeton: Princeton UP) – a vivid collection of articles about life under the Khmer Rouge regime. Kenichi Ohno and Izumi Ohno (eds), Japanese Views on Economic Development: Diverse Paths to Market (London: Routledge, 1998) – a collection of Japanese articles on alternatives to Western approaches to development and economic policy-making. Martin Jacques, When China Rules the World: the Rise of the Middle Kingdom and the End of the Western World (London: Allen Lane, 2010) – a wide-ranging analysis of China’s recent economic success and of its implications for the international system. Patrick Smith, Somebody Else’s Century: East and West in a Post-Western World (NY: Pantheon, 2010) – a collection of perceptive essays by a journalist reflecting on history and alternative non-Western modernities in Japan, China and India. Peter Dale, The Myth of Japanese Uniqueness (London: Routledge, 1986) – a controversial and highly critical analysis of the nihonjinron literature that also gives a good idea of the range of its themes. E. L. Wheelwright and Bruce McFarlane, The Chinese Road to Socialism (NY: Monthly Review Press, 1970) – a contemporaneous account of the Maoist model of development as it was understood in the West.

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5 Developmental States and Beyond Chapter Outline Introduction The ‘classical’ developmental state Developmental states in Southeast Asia Developmental states restructured A new domain for the developmental state? Foreign exchange accumulation The developmental state in still formally communist regimes How much does the institutional form of political economy matter? – Hong Kong and Singapore Conclusion Further reading

109 110 118 124 130 132 134 140 141

Introduction This chapter will begin by outlining the model of the ‘classical’ developmental state, inspired chiefly by the development successes of Japan, South Korea and Taiwan. It will then describe the key differences between the experiences and policies of these Northeastern Asian states and those in Southeast Asia. After that will follow a discussion of the problems that emerged once development had taken off, which make the maintenance of such a model increasingly problematic. This will lead on to the more recent role that most of the states of the region have taken on of maintaining the exchange value of their currency, which has led to rapidly escalating foreign exchange reserves. This will be followed by a brief discussion on the persisting developmental state syndrome in the remaining nominally

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Governance in Pacific Asia communist regimes in the region. The final substantive section will raise the question of the relative importance of types of institutions in realizing economic development over the long term, illustrating the point by comparing the different trajectories of Hong Kong and Singapore.

The ‘classical’ developmental state The relative contribution that states and markets have made and should make to economic development has been one of the most persistent debates in political economy. On the one side there is a school of thought going back to Adam Smith in the eighteenth century that regards markets as the most effective way of coordinating an economy and ensuring durable development success. On the other side is a school of thought stemming from Alexander Hamilton at the end of the eighteenth century and Friedrich List in the mid-nineteenth century that regards the role of the state as crucial if a country wishes to catch up with the development successes of earlier rivals – the state can speed up development for late-developing countries. The economic achievements of states in Pacific Asia since WWII mean that advocates of both sides have sought vindication of their approach by interpreting these successes in their favour. It has been one of the most hotly debated fields in studies of Pacific Asia over the last 30 years. The centrepiece has been the concept of the ‘developmental state’. It was a book on Japan – Johnson’s MITI and the Japanese Miracle, originally published in 1982 – that sparked a new round of debates that have continued up to the present. The basic argument was that the Japanese Ministry of International Trade and Industry (MITI) had coordinated Japanese economic development since the 1950s and, by doing so, allowed Japan to become the most powerful rival to the United States outside the communist world. He used the term ‘developmental state’ to characterize the different relationship that the state had with business in Japan from the ‘regulatory’ state in the United States. As far as Johnson was concerned, its fundamental characteristic was that it was ‘plan rational’, rather than ‘market rational’, as in the United States. In other words, the state had a set of economic objectives which framed all its key operations. It still relied upon market methods to match supply and demand, but it manipulated the market for macroeconomic coordination to achieve those objectives. It established a dense network of sectoral government-industry councils to identify the most promising lines of development and coordinate their realization. It used its authority to direct key investment funds through the state-owned Postal Savings Bank and through

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policy banks such as the Long Term Credit Bank (LTCB), which offered loans at preferential rates. It used ‘administrative guidance’ in the form of a dense undergrowth of advice and instructions to sectors of the economy – even individual firms – on what the state would ‘prefer’ to see done in the national interest. It also practised what was known as the ‘convoy system’ in particular sectors of the economy. This meant that it tried to limit the number of companies that were active in particular sectors so as to prevent excessive competition from thwarting the benefits of economies of scale and also the ‘waste’ of resources resulting from the closure of failed facilities. According to Murakami (1987: 52) there were at least several hundred cartels operating with recognition from MITI or other economic ministries at any one time. Within the ‘convoy’ of companies active in that sector, the government tried to ensure that they all progressed at roughly the same pace by wielding sticks and carrots. In an era of much greater regulation and licensing of economic activity, it was easier for the state to intervene in favour of things that its officials ‘preferred’ and against those of which they disapproved. Famously, MITI once tried to prevent the then motorcycle manufacturer Honda from expanding into manufacturing cars and thus from competing with Toyota and Nissan, who were MITI’s preferred national champions for that sector. Honda ultimately ignored the MITI pressure, but it certainly slowed the company’s profitability. This Japanese ‘model’ had evolved out of methods used to organize the economy before and during WWII, and for a long time it continued to rest upon habits and attitudes that had been formed in that era, when the people, and not just businessmen, had been socialized into deference towards the state and its officials. There had been no blueprint that had underpinned its establishment. A lot of the features were initially merely ad hoc innovations. It was only in the 1960s and 1970s that the Japanese government itself began to systematize its procedures into a more formal framework. However, Murakami (1987) argued that it reflected a much deeper set of attitudes that dated back beyond WWII to the traditional mura, or village community, mentioned in Chapter 4. It typified a collective ethos sometimes summed up as ‘Japan Inc.’ Johnson’s book proved enormously influential in refocusing attention upon the actual and potential role of the state in speeding up national development. It inspired similar works on other states in the region, particularly the NIEs, which were just rising to prominence – for example, Amsden’s Asia’s Next Giant on South Korea and Wade’s Governing the Market on Taiwan. Both of these works concentrated on one state, but they also extended their argument to the significance for developing countries in general. Amsden emphasized the way that the Korean regime achieved

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Governance in Pacific Asia development by getting prices ‘wrong’; in other words, manipulating prices so as to create incentives for economic agents to structure their behaviour in ways that promoted the government’s development goals – for example, by subsidies of various kinds, by making credit available to preferred partners at various lower rates of interest (this included obtaining loans from abroad and then allocating them to particular companies at lower rates of interest, with the state making up the difference), by protecting domestic industry from competition from imports and so forth. This was not the only reason for the Korean state’s development success – Amsden also stressed the importance that it attached to education and technical training – but it certainly played a big part in determining the structure and pace of industrial development. Wade (1990: 26–7) argued along similar lines in outlining what he called the ‘governed market’ theory of political economy in Northeast Asia, whereby states had led development, as in Taiwan. This had three elements: a) very high levels of investment, enabling the rapid transfer of new techniques into production; b) greater investment in certain key industries than would have otherwise occurred; c) exposure of many industries to international competition abroad to ensure high efficiency. Wade also stressed the importance of authoritarian corporatism in ensuring that the professional judgement of the state bureaucracy was not diverted from fixing on the long-term national interest. Evans (1995) later elaborated this latter point into the concept of ‘embedded autonomy’. According to this, a key element in the success of developing economies was the autonomy of national policy- and decision-makers from outside pressures that might deflect them. Of course, it was important that policy-makers did not become completely divorced from the economic and social reality of their state, for in that case they would miscalculate what needed to be done. But they did need to be insulated from excessive shortterm considerations. They needed to have autonomy and it needed to be embedded. These works were typical of a wider range of works written at that time which attempted to distil lessons from the economic successes of East Asia for the developing world in general, and they led to various attempts to formulate the concept of the developmental state. Leftwich (1995: 405) summarized them as containing six components: a determined, relatively small and relatively uncorrupt elite with a clear vision of development relative autonomy

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a powerful, competent and insulated economic bureaucracy a weak and subordinated civil society the effective management of non-state economic interests repression of social pressures, thus basing legitimacy upon economic performance

One other important dimension of the developmental state was identified by Woo (1991), among others; namely, the role that state control of finance played in inducing private companies to comply with state recommendations over the direction of industrial and technological development. In both South Korea and Taiwan the state had nationalized banking, which meant that it had paramount control over lending priorities. The justification usually given for a developmental state was that it was able to start and speed up the process of economic development in societies that had been poor, just as Hamilton and List had done in earlier centuries. The main reasons for this were the following. First, the state could have a more sophisticated, and therefore more profound, understanding of what development entailed. Its officials could study the experiences of earlier developing countries and derive lessons on what was likely to work on the national scale and what was unlikely to do so. In less developed societies, private actors would be less likely to understand the big picture and how their efforts could fit into it. In this sense, the state would have greater wisdom. The state could also, at least ideally, lay out a sequence of steps that would cumulatively lead to more rapid and more sustained development than would otherwise be possible if each society had to rediscover for itself the most effective programme. In many cases, the most fundamental way in which a state transmitted, sought to establish, operationalize and sequence these measures was in the form of a multi-year national development plan, though the forms that such plans took and the detail built into them varied considerably. Second, in a pre-industrial society where the capital for development was scattered, the state could play a role in aggregating capital so that it was invested with greater effect. Whether the state used its own institutions to allocate capital to the most essential projects or found other ways of inducing capital-holders to join with others in financing them was less important. Either way, the state played a crucial role in that coordination. A third reason is that the state would protect its infant industries from destructive competition from possibly more advanced manufacturers abroad with tariffs and other restrictions. Sometimes this also led to subsidized imports of key technologies and raw materials that could not be found

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Governance in Pacific Asia at home. But states often encouraged import substitution, where domestic businesses tried to replace foreign goods with their own. However, there was an obvious danger that domestic manufacturers that were shielded from tough external competition would fail to produce and upgrade their output efficiently. Because the market was restricted, efficiency savings would also be more limited. In practice, Japan and the NIEs tried to overcome this through two means. The first was for the state to impose very demanding performance targets upon companies that benefited from state largesse in the forms of credit and subsidies. The state behaved like a sergeant-major haranguing the troops – indeed, the fact that military leaders were presidents in South Korea and Taiwan helped. The second way was for states to encourage their manufacturers to focus upon exports. By so doing they would run into competition from foreign producers, especially in the developed world, and this would force them to focus upon innovations of their own. The main thrust of these pressures was to speed up development. Critics of such an approach from the viewpoint of more orthodox, liberal Western economics pointed to the many potential flaws. By restricting the market, political decision-makers were encouraging rent-seeking and, sometimes, corruption. They were protecting favoured businesses from the pressures of competition, and therefore were encouraging less efficient uses of resources, which was ironic in societies where shortage of capital was one of the fundamental weaknesses. Another complaint was that state officials were no more perspicacious in picking winners than businessmen and, worse, they might actually cause greater losses from their mistakes because they had concentrated greater efforts and capital upon them. For example, the South Korean government embarked on a large and expensive heavy and chemical industry expansion in the early 1970s, and was almost immediately plunged into crisis because of the unexpected and unprecedented rise in world oil prices in 1973, for which Korea was ill-prepared since it had to import almost all the key raw materials. It was estimated that that rise in oil prices cost Korea about 7 per cent of GDP (Krause, 1997: 117). Although they were, in general, following paths that had been trodden by earlier developing states, they might oversimplify alternatives and overlook new paths of development that were more appropriate to their own local circumstances. Thus, at least hypothetically, they were risking greater inefficiencies and waste. All of these criticisms were cogent and valid. They echoed what Adam Smith would have recommended. But what they overlooked was the impatience of the political leaders. These leaders wanted to achieve growth

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and spread its prosperity more rapidly than other countries had done previously. In Japan in 1960, for example, Prime Minister Ikeda famously made the commitment to double national income in ten years – at that time a wildly ambitious target given earlier experiences of development elsewhere in the world. For example, it had taken the United Kingdom 60 years to achieve this in the nineteenth century. The leaders’ objectives were not solely economic, and they were not trained economists. They shared no ingrained belief in the superiority of the ‘invisible hand’ of the market, even if in general they supported markets. They could not afford to do so. In South Korea and Taiwan, the national leaders were confronted by serious military threats from powerful communist adversaries against whom they had only recently fought bloody conflicts. For Woo (1991: 147) the South Korean industrial push of the 1970s was ‘unthinkable’ apart from the threat from the North, especially as they felt they could not count upon American support forever. They therefore needed to build up their defence capabilities and industries as rapidly as possible. Waiting for a more perfect economic blueprint to be devised could be fatal. In Southeast Asia rulers of states that had gained independence from colonial rule wanted to achieve rapid economic growth as a way of regaining national pride, building national identity and cohesion, and also rebuffing communist infiltration. The projects were thus broader than the purely economic. In 1970s South Korea, for example, President Park Chung Hee launched his Yushin Constitution, which was intended as the centrepiece of a project aimed at the total regeneration of the Korean people. It justified authoritarian rule, but the term ‘Yushin’ meant ‘restoration’, and it deliberately aimed at replicating the achievements of the Meiji Restoration in Japan – when written in Chinese characters, these were the same as in the Japanese version of Meiji Restoration. So, although the primary objective of developmental states was economic development, the ultimate objective was much broader: it was national regeneration. In fact, the Japan of the 1950s and 1960s was not the perfect exemplar of a developmental state. For one thing, even then, despite the devastation of WWII, Japan was more developed than other countries in the region. For another, its economy was more complex than in most developing states, so the problem confronting it was not so much launching economic take-off but rather maintaining it. Despite the deference towards the state that was still prevalent in Japan, officials had to persuade companies to comply with its advice. They could not issue directives that insisted upon compliance as much as their counterparts in South Korea or Taiwan. They had to incentivize companies’ compliance. In Korea, on the other

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Governance in Pacific Asia hand, President Park Chung Hee, in particular, had deliberately favoured a relatively small group of owners of conglomerate companies (chaebol) with state favours in the 1960s and 1970s. As a former general, he wanted key business leaders to perform the same sorts of functions in the economy that the command staff of the military performed in national defence. He also wanted the number of such key actors to be limited so that they could all meet around the table in the Blue House, the presidential palace, whenever Park wanted. He therefore deliberately favoured a cartel-like approach towards the structure of business. And while the Korean regime also used incentives to obtain company compliance, it was not averse to issuing more direct instructions either. Thus the Korean government had a much more commanding relationship with business. The Japanese government did not have the direct control over national financing priorities that was available in the other two, where all major banks were nationalized. In fact, the system of industrialization in both South Korea and Taiwan owed a lot to practices that had been imposed during colonial rule up to 1945. Methods and forms of industrial organization were reapplied, even though the new regimes were virulently hostile to Japanese colonialism or neo-colonialism (Kohli, 2004). Thus, it was never the case that all the states in Northeast Asia displayed identical characteristics. Even there the ‘developmental state’ was more of a syndrome of features from which any particular state would select what it regarded as most appropriate than it was a template that all reproduced. Nevertheless, it was a syndrome that attracted great attention because of the potential that it seemed to offer for states in other parts of the world to escape from poverty. The significance was exemplified in Haggard’s Pathways from the Periphery (1990), which explicitly contrasted the successes of Northeast Asia with the failures of Latin America. And in 1993, the World Bank produced its much-debated work The East Asian Miracle, which conceded muted approval for state support for industrial development, even though it still came down more on the side of the market as a superior form of economic coordination. The achievements of the East Asian developmental state model attracted widespread attention and analysis in the 1990s among academics and in international economic institutions such as the World Bank. They are reflected in the figures in Table 5.1 which show that Japan and the NIEs have all attained a level of development that is on a par with, or even better than, many countries in the developed world. There were four reasons for the appeal. The first was the simple fact of the speed of sustained economic growth. This was unprecedented in modern

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Table 5.1 GDP per capita of Pacific Asian states, various years (PPP in constant $) 1960

1970

1980

1990

2000

2007

58050

97721

53337

48210

50575

1893

970

1273

1763

2823

508

562

917

1812

4075

8511

Hong Kong

3849

8062

15604

26917

32549

43121

Indonesia

1027

1235

2204

3216

4151

5185

Japan

5471

13856

18819

26384

28341

30585

South Korea

1764

3057

5467

11908

18595

23849

714

885

1261

1777

2282

2195

3041

5960

8418

14177

17890

875

1365

2092

1842

2193

2206

Brunei Cambodia China

Laos Malaysia Papua New Guinea Philippines

2197

2620

3535

3385

3955

4790

Singapore

4148

6314

13398

21429

35423

44618

Taiwan

1591

3123

6657

12432

21512

27004

Thailand

1187

1920

2987

5405

7058

9405

912

1051

1484

2407

3742

Vietnam UK

11256

13989

16680

21742

27031

32181

USA

14766

19749

24537

30993

39241

42886

Source: Penn World Tables. North Korea, Myanmar and East Timor are not listed.

world history. Second, the fact that this experience was reproduced among several states in the same region suggested that there were common features that could serve as lessons for developing states in other parts of the world. Third, the fact that the main ‘models’ were South Korea and Taiwan, as well as Japan, offered a further encouragement for other states in the world. All three lacked most of the raw materials that were needed for industrial manufacturing, especially heavy industry. Thus, in terms of initial comparative advantage, none of them could be said to have had obvious head-starts, unlike, for example, the United States. That made their achievements all the more impressive. They suggested that if South Korea and Taiwan could achieve sustained industrial take-off, then there was no reason why other states should not be capable of the same. One of the much-repeated slogans in South Korea in the 1960s (ironically paralleling North Korea’s doctrine of juche) was ‘self-reliant economy’ (Kim, 1997: 103). Other states could emulate that success. Fourth, all three of these states had achieved economic success and at the same time had maintained a relatively high degree of national income equality. There had been no significant trade-off between growth and equity, as had certainly occurred in other now developed states,

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Governance in Pacific Asia at least for a while. This suggested that the development was likely to be sustainable as well, since it would be less likely to produce social unrest that could put all the gains at risk. Nevertheless, replicating the achievements of Northeast Asian states has not proved easy in any part of the world. The experience of Southeast Asia shows some of the problems associated with it. Main points The catalyst for the concept of the developmental state was the economic successes of Japan, South Korea and Taiwan It offered the possibility of state authorities speeding up economic development to catch up with the developed world According to the concept, the state both provided both the vision of the path for development as well as mobilized resources for preferred private sector businesses to achieve it A key feature was a professional, uncorrupt state bureaucracy whose autonomy from social pressures was ‘embedded’ The developmental state was a syndrome rather than a single model, and particular leaders selected features of it

Developmental states in Southeast Asia The economic achievements of the Northeast Asian NIEs attracted the attention of their neighbours in Southeast Asia. From the 1970s they began to devise ways of emulating them. Amsden (1995), for example, extended her argument about the role of the state in Korean industrialization to the much broader category of all ‘late-industrializing’ economies, which included all of Southeast Asia along with others such as India and Brazil. She made two basic points. The first contention was that all these states were industrializing on the basis of, as she put it, ‘pure learning’ – that is, ‘borrowing and becoming proficient in technologies that had already been commercialized by firms in other countries’. (p. 793). Their industrialization was not based upon innovative products and processes, as had occurred in earlier phases of industrialization. Her second point was that states in East Asia in general had been much more demanding of their businessmen when granting government support. The state had imposed strict targets for outputs and improvements upon companies that were granted government loans or protection. Although she did not examine the issue of

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sanctions that government imposed on companies that failed to deliver, she argued that this practice had ensured that the use of such funds had been more effective. However, Table 5.1 shows that in the region as a whole performance has been uneven. Some states in Southeast Asia have certainly achieved significant success by world standards. Yet only Singapore and Brunei have emulated, and indeed surpassed, the achievements of the Northeast Asian NIEs – and Brunei’s prosperity is entirely due to the presence of large quantities of oil and gas. Booth (1999) accepted some similarities between the regions. Many of the states in Southeast Asia achieved high levels of investment as a proportion of GDP, and in most cases these came from domestic sources rather than Foreign Direct Investment (FDI). Most of the states developed strong export growth and profited from it, though Myanmar was a significant exception. Some of the states attempted to establish embedded autonomy for their economic bureaucracy (e.g., Thailand, Indonesia and Malaysia) so that they could prioritize the national interest, although they were still prey to greater pressure from business actors. However, Booth also pointed out what she regarded as major differences from Northeast Asia. First, most of the states had different resource endowments: where Taiwan, South Korea and, to some extent, Japan had achieved industrial success despite the lack of significant raw materials, most states in Southeast Asia were better provided. Indonesian oil and gas wealth, Malaysian tin, rubber and oil, Vietnamese oil, not to mention more advantageous conditions for agriculture, certainly created a different relationship between the state and business actors. They both encouraged development to maximize national comparative advantage. They also made it easier for the state to collect taxes which were based upon mineral production, though they also created greater difficulties for exports of manufacturing goods because of the risks of ‘Dutch disease’; that is, the international value of the currency is boosted because of exports of raw materials, thus eroding the potential advantage of low prices for cheap manufactures. This may have hindered their industrial success, but they have also been more affected over the long term by fluctuations in world prices for key commodities. Second, as can be seen from the Gini statistics in Table 5.2, they have suffered from greater inequality. The third difference is that they were slower to develop mass education than Korea or Taiwan – except, ironically, the Philippines, which had a higher level of mass education in the 1960s, but this was not translated into more rapid economic development. Fourth, government intervention in some of the Southeast Asian states was aimed at different objectives. Instead of striving for national development, some of the governments in Southeast Asia

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Governance in Pacific Asia Table 5.2 Gini inequality coefficients for Pacific Asian states Cambodia

43.0

China

41.5

Hong Kong

53.3

Indonesia

39.5

Japan

38.1

South Korea

31.3

Laos

34.6

Malaysia

46.1

Papua New Guinea

50.9

Philippines

45.6

Singapore

48.1

Thailand

43.0

East Timor

38.0

Vietnam

37.0

UK

34.0

USA

45.0

Source: CIA World Factbook 2010. Figures for Brunei, North Korea and Taiwan are not listed.

were more preoccupied with favouring some sections of society rather than others. In Malaysia, for example, the government was more concerned to redress what they regarded as the unjust preferential treatment of Overseas Chinese over native Malays under colonialism, so the main objective of economic development was prosperity for the Malays rather than for the nation as a whole. Indeed, this sense of discrimination against Overseas Chinese could be found in policies of several states of Southeast Asia – Indonesia, Thailand and, later, Vietnam. The fifth difference is that the states in Southeast Asia were more prey to corruption in the form of ‘crony capitalism’. In 2009, according to the Corruption Perceptions Index of Transparency International (TI), all of them (with the exception of Singapore) were ranked below the Northeast Asian states, with Myanmar 178 and Laos ranked 158 out of 180. Yoshihara (1994) added to this list of differences with his suggestion that capitalism in Southeast Asia was somehow less authentic, because development there was largely generated by capital from outside the region rather than from local entrepreneurs. All of this has meant that there are significant differences from the cases of Japan, South Korea and Taiwan. Tipton (2009) has also emphasized the enduring legacy of colonial rule in most states in the region. Colonial rulers did not generally encourage local entrepreneurship (apart from Overseas Chinese), and they established

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government bureaucracies that tried to rule through other social groups rather than initiating change themselves. Moreover, several states established bureaucracies that were weak on coordination and effectiveness. This does not mean that the developmental state model was uniformly less effective in Southeast Asia. The New Order regime of President Suharto of Indonesia from the late 1960s until the 1980s was at the time generally credited with restoring economic stability and substantial economic growth after the chaos of the Sukarno years. During this time Indonesia coped quite well with the challenges brought on by the discovery of oil and gas and making the best use of the money that flowed into the country to stimulate industrialization. It developed and implemented a series of quite effective plans to industrialize the country. Various World Bank studies in later years showed Indonesia in a positive light compared to other developing economies – Little et al. (1993), for example, ranked Indonesian achievements as in the same league as those of Korea and Thailand, and significantly better than most of the other 17 countries covered in the study. Another World Bank study compared Indonesian achievements very favourably with those of Nigeria, concluding: ‘The comparison of Nigeria and Indonesia provides dramatic evidence that policies matter. Over the space of only two decades Indonesia transformed itself though equitable growth’ (Bevan, Collier and Gunning, 1999: 424). There was no doubt that the Indonesian government had a small team of economic advisers – many of them trained at UC Berkeley – to devise overall economic policy-making (Prawiro, 1998: 81–4). In many ways they resembled the small, professional bureaucratic elite associated with the developmental state. And for many years they were relatively immune to social pressures. Later, as development took off, business came to be much more dominated by corruption, and especially nepotism associated with Suharto’s own family. Thus, by the 1990s, business was increasingly skewed towards rent-seeking by them – and the collapse of the regime in 1998 led to major national economic losses. Nevertheless, quite a lot of the development successes of earlier years helped to subsequently re-launch development. However, in general, states in Southeast Asia have been more susceptible to pressures from business communities to divert resources and rents in their direction. They have also been more prone to extensive corruption. In Thailand, for example, Laothamatas (1992) argued that by the 1970s there had emerged a form of ‘liberal corporatism’, which allowed business organizations and groups of various kinds much greater opportunities to press demands upon the state; and since most banks in Thailand were owned privately, this meant that the state had much less capacity to direct national economic development.

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Governance in Pacific Asia In Malaysia, Gomez and Jomo (1999) emphasized the importance of the national policy of redistributing greater commercial resources away from the traditionally economically dominant Overseas Chinese and towards the ethnic Malay bumiputra (‘sons of the soil’) from 1970 onwards. Initially this New Economic Policy meant building up the role of the state in economic management, so as to limit the commercial opportunities for the expansion of the Overseas Chinese business. Then, from the end of the 1980s, the state moved on to privatizing businesses so that the bumiputra acquired control. The primary objective of both phases was to favour one group over another, rather than to employ the most efficient use of resources. It was aimed at redressing what was perceived by Malays as the greatest injustice of the colonial era, when immigrants were allowed to take over Malay resources. Prime Minister Mahathir (1970: 69) expressed this view colourfully when he likened the position of the Malays in Malaysia to that of the Red Indians in the United States. Two states in Southeast Asia exemplify the difficulties of adopting a Northeast Asian-type developmental state as a recipe for economic success: the Philippines under Marcos, and Myanmar. In 1972, President Marcos of the Philippines, coming to the end of the maximum two terms allowed by the constitution for an elected president, imposed martial law so as to continue in office. To win popular support, and to counter the rising communist insurgency in the country as the Vietnam War was reaching its end, he launched the project of building ‘a new society’. This was presented as a movement of the people to assert their interests against the landowning class that still dominated the Philippine economy from colonial times. It was intended as a project for national rebirth akin to that associated with the Yushin (restoration) Constitution of President Park Chung Hee in South Korea at the same period. The economic project was to strengthen the role of the state in policymaking so that it could break out of the cycle of low growth with which the Philippines had been afflicted. This meant greater intrusion by the state into directing economic development – effectively trying to establish a developmental state. In practice, this meant that the state should become more autonomous of landowning interests, and it should promote more exportoriented growth – though unlike Taiwan and South Korea, it aspired to increase agricultural as well as industrial exports. But at the same time the state at various levels increased its bureaucratic interference in economic activities. For example, the number of licenses needed for businesses went up. Marcos also tried to expand his network of supporters by allocating these licenses in exchange for political commitments. Thus, while the state

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was being made more autonomous from one section of society, it was becoming more dependent upon another. This was particularly pronounced in the banking sector (Hutchcroft, 1998). All this showed the difficulty of achieving the appropriate degree of ‘embedded autonomy’ that Evans advocated as a vital element in a successful developmental state. The principle is clear, but calibrating the relative capacities of different social and state actors, as well as the appropriate ways for them to interact, is enormously complex in practice. While Northeast Asian states had been able to achieve this, to a significant extent their success can be attributed to a fortuitous combination of circumstances. In Japan, Taiwan and South Korea in the early 50s, social actors, including business, were all quite weak. In Japan there had been the catastrophic defeat in WWII which had undermined the power of previously influential business families. In Taiwan the retreat of the Nationalists to Taiwan had brought a government that was suspicious of Taiwanese elites. The Nationalists believed that the local people had been prone to collaborate with the Japanese colonialists, so they were much less inclined to listen to them. And in South Korea the devastation wrought by the civil war had completely destroyed the assets of businessmen. Thus, in each of the three countries the state was de facto autonomous of society. It was, in part, because of this greater freedom of manoeuvre that all three governments had felt able to carry out land reform at this time, effectively weakening the power of traditional rural elites, while also establishing one of the essential preconditions that enabled national resources to be redirected away from traditional activities and towards industrialization. None of the states in Southeast Asia were able to entrench equivalent power over economic decision-making. The Philippines under Marcos makes this point especially clearly. Despite the fact that the landed class there owned much more land than had been the case in the Northeast Asian states, and that they were no allies of Marcos, the regime never challenged them by carrying out the land reform that has been regularly advocated as a precondition for developing a modern industrial economy and establishing greater equality. Instead, Marcos chose to use control over the allocation of the Philippines’ quota of sugar exports to the United States as a device to control oligarchical elites and favour cronies. The martial law regime also increased state control of enterprises such as airlines, telecommunications and so forth, distributing rewards to its cronies (Hawes, 1987). It also raised capital investments in the 1970s to the highest level since WWII. However what it did not do, unlike developmental states in Northeast Asia, was dramatically promote industrialization. In this respect the regime was no better or worse than any other Philippine

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Governance in Pacific Asia government. It still remained weak vis-à-vis society. So the appropriate degree of ‘embedded autonomy’ – a prerequisite for genuinely national policy-making – coupled with the necessary national vision, proved an unattainable goal. Indeed, the regime rather erred in the direction of patrimonial politics of its own. The second state to demonstrate the difficulty of establishing a developmental state is Myanmar. Here, by contrast, the problem has been the reverse of the Philippines – the state has proved too strong, and society, especially business, too weak. According to Tin (2004), since 1962 the military regime in Myanmar has been ‘mimicking’ a development state. By this he means that the state certainly has the autonomy from social pressures, and it has had a group of central government planners to provide plans for national economic development, but these were mainly trained in the former Soviet Union and Eastern Europe. They were poorly prepared for planning a market economy. In any case, they were sometimes overruled by the political leaders. The regime has thus been too isolated to be able to effectively mobilize potential entrepreneurs to drive economic growth. The military has continued to be suspicious of capitalist businessmen, and the businessmen have been too uncertain of political support to be willing to risk efforts to develop enterprises. The relative isolation from the world economy has also meant that international competition has not been used to stimulate innovation and technological upgrading. The result has been an economy that is still dominated by primary production rather than industry. Indeed, for a while in the 1980s and 1990s it was the only state in the region where the agricultural share of GDP grew and that of industry declined. Main points Different resource endowments and historical experiences made the application of the developmental state syndrome more difficult in Southeast Asia Governments enjoyed less ‘embedded autonomy’ This opened the way for ‘crony capitalism’

Developmental states restructured The theoretical rationale for the developmental state was that it was most appropriate for countries at a relatively low level of development, though it never specified a level beyond which it was no longer needed. In practice, the experience of Japan, South Korea and Taiwan showed that it became increasingly difficult to run in the old way. Some of the factors were

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endogenous to these states, while others were connected with changes in the external environment in which they had to operate. Among the endogenous factors were: a) the increasing difficulty for the state to see clearly the most desirable new economic activities that were going to maintain high overall growth and towards which the economy should be steered; b) the increasing complexity of the developing economies, which made central coordination more problematic; c) the increasing self-confidence of business leaders who came to believe that they knew at least as much as any bureaucrat did about how best to make their business prosper; d) the proliferation of alternative sources of potential finance that could be tapped by manufacturing companies, some of them abroad, which reduced the leverage of the state to induce ‘its’ domestic industries to follow its ‘advice’. According to Noble (1998), in some sectors of the Japanese economy in the 1960s, government agencies dispensed 30–40 per cent of all the investment money available. By the 1980s that was no longer the case. Wu (2007) demonstrates all of these issues in Taiwanese political economy since the Asian financial crisis. And Doner (2009: 130–9) illustrates the limited success of the Thaksin government in Thailand in introducing what he terms an ‘ersatz’ developmental state in the very limited period 2001–2006. As for the international factors, these stem from the gradual rise of neoliberal ideas on economic management that spread around the world from the 1980s. This led to the reduction in barriers to international trade, which gradually took place from the 1980s through international negotiations. According to Cimoli et al. (2009: 550), average industrial tariffs in the developing world have fallen from 35 per cent in the early 1980s to 12 per cent around 2000. Pacific Asian states gradually reduced average tariff levels, as well as other forms of non-tariff barriers, as can be seen from Table 5.3. The reduction in China has been particularly marked, in part linked to membership of the WTO, but Thailand’s reduction has been almost as great, while Indonesia and the Philippines have also implemented significant cuts. Akyuz (2009: 150) points out that the tariffs of developing countries today are lower than they were in the United States and Western Europe at comparable levels of development – and for the latter, transport and other costs were also higher, magnifying the barriers to trade before WWII. States also lost much of their control over the international value of their currency as they moved from fixed to floating exchange rates. Even though governments sometimes attempted to reduce the unpredictability implicit in a totally floating exchange rate system (a potentially serious problem for small states facing large international financial institutions and currency speculators

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Governance in Pacific Asia Table 5.3 Average import tariffs Pacific Asian states, various years (in per cent of goods’ value) 1990

Brunei

2000

Simple mean

Weighted mean

2.72a

4.37a

Cambodia

Simple mean

2008

Weighted mean

Simple mean

Weighted mean

3.3b

9.51b

3.05c

6.12c

16.74b

16.43b

12.45c

9.99c

China

39.71a

32.17a

16.38

14.62

8.57

3.92

Indonesia

16.83

13.32

7.78

5.16

5.84c

3.55C

3.69

3.37

3.03

2.81

2.61

1.31

12.98

9.54

9.45d

9.95d

8.33c

7.1c

5.81c

8.3c

Japan South Korea Laos Malaysia

9.28 13.62e

9.41e

Myanmar PNG Philippines

7.54b

4.31b

5.91c

3.13c

4.63b

4.8b

4.12c

3.87c

7.67

d

19.54

14.79

7.19

37.8e

31.36e

16.86

d

0.04b

Singapore Thailand

13.39

15.17b

Vietnam

3.02

4.46

2.29

4.13

5c

3.6c

0.04c

0.01c

9.46

0.03b

10.81f

4.56f

17.4b

11.68c

10.57c

UK

6.12

5.05

2.97

2.14

1.59

1.15

USA

5.68

4.25

3.73

1.97

3.11

1.9

Source: EconStats (http://www.econstats.com/wdi/wdic, accessed 24 April 2011). North Korea and East Timor not listed, Hong Kong has no tariffs. a

1992 b2001 c2007 d2002 e1991 f2006.

with large funds at their disposal) by pegging their currency against another stronger one (e.g., the US dollar), it still reduced state control and raised the cost in protecting domestic manufacturers and subsidizing exports. Multinational corporations also came to play much more significant parts in international trade and financial investment flows, to the extent that they could neutralize or amplify governments’ ability to support national companies. Companies such as Sony and Honda, which were very successful internationally, were much more inclined to stand up to government. National companies found that, as they expanded exports abroad, they could sometimes tap foreign banks for credit on better terms than their own government would make available. All of this made it much more difficult for any state to direct national economic development. In addition, the various GATT/WTO trade rounds established agreements that limited the ability of developing states to protect their own industries by strengthening the protection of international property rights, of investment freedoms and of trade in services (Wade 2004). It was also

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becoming more difficult to maintain ‘embedded autonomy’ in economic policy-making. The theory implied that state decision-makers could maintain their semi-insulated relationship with business circles more or less indefinitely. In practice, this proved increasingly problematic. In Korea, for example, as the economy grew and the conglomerate chaebols grew in size and experience, their owners became much more self-confident. They became less subservient towards the state. By the 1980s, according to Kang (2002), the chaebols had become potential veto players, vis-à-vis the state, because of their size and economic importance. By then, the state and big business had become equals. And, from the late 1980s, democratic leaders became dependent upon increasing prosperity to win elections, so they had to listen more to what business leaders said and wanted. In Japan, while the state had not practised the authoritarian leadership of Korea, the embedded autonomy came to be undermined for a different reason. The practice developed of top bureaucrats taking senior positions in major corporations after retiring from government service – what came to be called amakudari (‘descent from heaven’). Since officials could foresee the benefits of cooperating with companies, this necessarily undermined the arm’s-length relationship that they should ideally have continued to maintain with big business before they retired; and, since they were senior to officials still working for the government, they could play upon the cultural habits of deference to seniors to promote the interests of their new employers. So the old ways of the developmental state became more difficult to sustain. Suehiro (2008: 146–7) mentions that several states promoted key sectors of industry for state support. South Korea identified 10 Great Strategic Industries in 1973. The Philippines introduced its 11 Priority Industries project in the late 1970s. Thailand launched an Eastern Seaboard Industrial Development Plan in 1981, and Indonesia set up an Agency of Strategic Industries that focused on 10 branches of industry. Yet all except Korea gradually abandoned these plans in favour of economic liberalization. Japan was the first to display the problem. What came to be known as the ‘bubble economy’ emerged in the late 1980s and burst in late 1990. Japan had experienced crises previously and had surmounted them, so the state attempted to use traditional methods and policies to restore growth. However, this no longer worked, for reasons that have been listed above. This showed that the state had no better idea for the way forward than anyone else, and Japan sank first into depression and then into stagnation from which it has still not recovered. In Korea and Taiwan, too, economic growth slowed and the old methods of economic management proved less effective in restoring the high growth to which people had become accustomed. In

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Governance in Pacific Asia part this was because the old authoritarian systems there were replaced by democracies at the end of the1980s (a subject to which we shall return in more detail in Chapters 11 and 12), so the parameters of governmental economic policy-making changed. ‘Embedded autonomy’ was no longer so achievable, because in a democracy governments are supposed to be responsive to the people. Wu (2007) emphasizes precisely this impact of democratization upon the developmental state in Taiwan. But although some blamed democracy for all the woes, the causes were more complex. Kim (1997) introduced the distinction between the ‘comprehensive’ and the ‘limited’ developmental state. During the 1990s, various states had experimented with financial liberalization as a way of increasing market methods of economic management because the more administrative methods were losing effectiveness, and also because Western governments were encouraging them to liberalize. However, they had tended to liberalize before putting all the necessary regulatory powers in place. The Asian financial crisis that broke in the summer of 1997 – and which then engulfed almost all the states in the region – revealed the lack of careful sequencing in the reforms that had taken place. It proved to be the catalyst for more radical efforts at reform. The initial cause of the crisis was a sudden run on the Thai baht, caused by excessive short-term foreign borrowing, but it quickly spread as foreign investors realized that they often had a very shaky understanding of where their money had actually gone because of the opaque nature of business governance across the region. It also brought to the fore more fundamental weaknesses, since export success, on which the prosperity of the region had been based, was slowing down (Suehiro, 2008: 88). In several countries the IMF had to become involved in restructuring packages, although the structural adjustment conditions that were imposed left lasting resentments. They were thought to have caused more pain by demanding the sort of cuts in government spending that would have been more appropriate in resolving the previous crisis that the IMF had had to settle in Latin America, since governments in Pacific Asia took fewer resources out of the economy, although the IMF did lend more to those countries in difficulty than their rules would normally have allowed. At the same time, the crisis revealed enormous corruption in governmentbusiness relations, at which governments had connived because business practices had rested so much on relationships and connections. The most dramatic change took place in Indonesia where President Suharto was finally forced to step down after 32 years in power. Subsequently, Transparency International declared that his family had looted the largest amount of money in history – the equivalent of US $15–35 billion. In Korea, 13 of the

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30 largest chaebol were forced to close or to undergo radical restructuring. Only China, Taiwan and the Philippines were spared serious economic difficulties, although Hong Kong and Malaysia recovered quickly. In the aftermath, states began to move towards further liberalization of their economic management and improvements in the transparency of corporate governance. The general trend was in the direction of economic liberalization, and many analysts of the problems in individual countries converged in presenting the trend of reform as being one of neoliberalism, where the state scaled down its economic activities (see, for example, Jwa [2001] and Pirie [2008] on Korea). If that was the case, then the developmental state paradigm was out as far as Pacific Asia was concerned. It seemed to be one of the main trends associated with globalization. Weiss et al. (2003) challenged this consensus. She and her collaborators pointed to the new roles that the state had to assume in restoring stability to various economies and reforming them. In Korea, for example, the state became heavily involved in directing the restructuring of the chaebols, issuing detailed plans for mergers and swaps of individual divisions between chaebols and requiring that they be implemented. From that perspective it did not look as though the state was withdrawing from economic management – far from it. Rather it was refocusing its efforts. Weiss was certainly right in one respect. While political leaders across the region tended to accept the need to reposition the state vis-à-vis economic actors, to concentrate more on regulation than direction, this meant that in relative terms they accepted the need for liberalization. But that did not mean that they had become converted to Western-style economic liberalism as an ideal. They tended to remain wedded to the idea of the state playing a more significant role in the economy than would be expected in Anglo-American capitalism. Thus, the kind of capitalism that they envisaged was closer to the coordinated market economies of Western Europe – an idea to which we shall return in Chapter 9. Main points Developmental states can only maintain ‘embedded autonomy’ of top decisionmakers for a limited period of time. After that they have to adapt to changed and new interests and social forces, and they become the bearers of their own interests as well. Changes in both the internal and external environments reduced the leverage that governments could exercise over business. Governments tended to adapt by favouring more market-friendly methods, though they had a key role in establishing the regulatory framework and making it work.

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A new domain for the developmental state? Foreign exchange accumulation One new way in which Pacific Asian states showed continuing divergence from American thinking on macroeconomic management can be seen in Table 5.4. This concerned the type of foreign exchange regime that they maintained. The traditional version of the developmental state theory focused primarily upon domestic policies. The external economic environment was only factored into the theory when considering import restraint and export promotion. However, the external behaviour of the state has become more important in promoting national prosperity even as globalization has eroded the ability of states to dominate their domestic economies. One example of this is the accumulation of foreign exchange reserves. Table 5.4 shows the growing share of world foreign exchange reserves that are concentrated in Pacific Asia. To some extent this reflects their success in export-oriented industrialization (EOI) over the last 40 years. Nevertheless, it also reflects a nervousness about vulnerability to foreign exchange speculation since the world moved predominantly to a system of floating instead of fixed exchange rates – what Calvo and Reinhart (2002) have called the ‘fear of floating’ among a broad spread of developing countries, not just those in Pacific Asia. In practice, many of the states in the region have adopted a ‘soft peg’, aligning the value for their currency at a specific level against another, more robust currency (i.e. usually the US dollar), and allowing it to increase or fall in value only slowly. In that way they try to maintain the competitiveness of their manufacturers in export markets – above all the United States – and Table 5.4 suggests they have been very successful. Calvo and Reinhart also noted that many of the states may manipulate their domestic interest rates so as to stabilize the foreign exchange value of their currency. To that extent, the state has been adopting a view on the desirable parameters of a key dimension of economic policy and making the domestic economy and businesses adapt. The export successes have then been translated into rapidly growing foreign exchange reserves. The contrast is with the practice of developed economies such as the United States and the United Kingdom, whose foreign exchange reserves have remained much more constant over the whole period. However, there is another aspect to this behaviour. Having been scarred by the experience of the Asian financial crisis and the lack of sympathy that they had received from the IMF, Pacific Asian states became determined to

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Table 5.4 Declared foreign exchange reserves of Pacific Asian states (in millions Special Drawing Rights) 1980

1990

1995

2000 313

866

129

399

1833

Brunei Cambodia China

2444

21241

51152

129600

1542335

17277

37270

82542

163152

4311

5352

9330

21984

40628

20164

56027

124125

273251

652926

2304

10409

21995

73797

172201

1

62

107

Hong Kong Indonesia Japan

2009

North Korea South Korea Laos Malaysia

3521

6938

16077

22700

Myanmar

199

219

377

171

60915

Papua New Guinea

334

286

176

239

Philippines

2299

751

4412

10270

24913

Singapore

5149

19505

46213

61502

119796

Taiwan

1839

51393

61229

82400

222586

Thailand

1310

9439

24293

24655

86516

888

2622

10224

1636

East Timor

159

Vietnam Total

43874

198838

397728

786452

3101134

World

354715

688293

1020143

1578467

5481981

Pacific Asian percentage of world

12.37

28.89

38.99

49.82

56.57

USA

21479

59958

59467

52598

85519

UK

16851

25865

28910

34236

35881

Source: IMF International Financial Statistics Yearbook 2002, IMF Financial Statistics July 2010.

ensure that they would never be in that position again. So they pursued policies aimed at building up healthy foreign exchange reserves, so that they could repel all speculators. The key figures are for the 1990s, when reserves in the region continued to grow rapidly after 1997, despite the enormous losses that some of the states suffered in the short term. The changes are particularly striking in the case of South Korea, where the reserves grew by 235 per cent between 1995 and 2000, despite all the economic pain that the country went through in between. What this shows is the dramatic speed with which many of the Pacific Asian states have built up their reserves over the last decade, so that now they hold over half of the world’s declared foreign exchange reserves.

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Governance in Pacific Asia While they may be forgoing some opportunity costs by holding such large reserves in super-safe deposits earning low rates of return, the reserves certainly insulate them against sudden shocks in the international financial system – as the global crisis of 2007–2009 demonstrated. Pacific Asian states were hit by dramatic reductions in orders for exports, but they were not forced into anything like the savage restructuring that they had to introduce after 1997. Indeed, while the level of foreign exchange reserves there may have been higher than had previously been thought necessary to withstand ‘normal’ shocks, they also meant that the region was better able to withstand the extraordinary shocks of 2007–2008 (Park and Estrada, 2009). Therefore, while the states across the region may have reduced their direction of the national economy, they have not abandoned it by any means. The connection between the domestic and external dimensions can be seen most clearly in the experience of the evolution of the developmental state in China. Main points Since 1997, Pacific Asian states have rapidly increased their foreign exchange reserves to protect themselves from speculators, while at the same time shielding their exporters

The developmental state in still formally communist regimes In the more market-oriented states, the state has retreated from the leadership role that it previously had in allocating resources between different sectors of the economy, though it has imposed itself to strengthen its regulatory functions. However, in the still nominally communist states – China, Vietnam, Laos and North Korea – the state, under the leadership of the communist party, has continued to play a more powerful role, even if it too has promoted liberalization. Even in North Korea, between about 2002 and 2008, the state embarked upon a cautious economic liberalization, experimentally allowing individuals, including peasants, to sell a certain amount of goods at market-determined prices, though more recently it seems as though the state has turned its back on further reforms. Indeed, in late 2009 it forced through an exchange of banknotes apparently aimed at wiping out individual savings of more than US $30. Since the economy has been stagnating for decades, there is a certain irony about applying the term ‘developmental

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state’ to North Korea, since there has been very little development. And, as we shall see in more detail in Chapter 8, both China and Vietnam have opened up the domestic banking sector, allowing foreign banks to take minority shares in them. This has made it more difficult for the state to encourage preferential lending to priority projects. Both countries have also abandoned price-setting as a regular feature of economic management to create incentives for economic actors to behave in ways that will promote the state’s preferred objectives, though they still occasionally indulge in it as a way of controlling short-term problems (e.g., to rein in excessive spending on real estate). So there is no longer the sense of them deliberately ‘getting prices wrong’, as Amsden has characterized Korean development. Nevertheless, both states still involve themselves actively in restructuring industry, not just in the form of privatization, which has been the neoliberal practice in other parts of Pacific Asia since the 1990s, but also so as to encourage the industrial consolidation that state officials believe will promote international competitiveness. Both want to create national champions that will be able to compete internationally with multinational corporations (Nolan, 2001; Fforde, 2007). Thus, for example, at the end of the 1990s the PRC embarked upon what it termed the ‘systemic transformation’ of industry. In part this was intended to encourage significant privatization, but it also intended to concentrate leadership over industries that it regarded as the most important for future national development. It pursued a policy of ‘grasping the big and letting go the small’ (zhua da, fang xiao). In other words, confronted by enormous, and continually growing, coordination problems as more and more industrial enterprises were established within a growing economy, the state decided to focus its attention more upon those it regarded as being truly vital. Instead of having to deal with thousands of industrial enterprises, it would focus on one or two hundred (Nolan, 2001). In fact, it was a policy that was much influenced by the earlier experiences of the Korean chaebols, which had turned into national champions. China too believed that the basis of its international competitiveness lay in creating powerful industrial groups – what it termed ‘pillar industries’ – that had the muscle to compete with Western multinational corporations. It also wanted national champions and it carried through a lot of reforms in preparation for joining the WTO in 2001. China’s enormous foreign trade successes since then are partly a testament to the effectiveness of these reforms. China still identifies some industrial sectors as national priorities where foreign ownership of companies is either completely barred, or has to be limited to minority holdings. Some of the sectors are linked to national defence, but the net is much wider than that. It includes arms

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Governance in Pacific Asia production, power generation and distribution, oil and petrochemicals, telecommunications, coal, aviation and shipping. Here, the state should hold either an exclusive or controlling share in enterprises. The state also plans to develop strong national corporations in machinery, car production, IT, construction, iron, steel and non-ferrous metals – but here non-state and foreign investors could be minority shareholders (China Daily, 2006). To coordinate its leadership, the state established the State AssetsSupervision and Administration Corporation (SASAC) in 2003, which, by the end of 2010, was supposed to act as a holding company for 80–100 key enterprises. According to Vu (2009: 218–220), Vietnam has gone less far down the road of privatization. It has privatized a smaller proportion of industry, it has been less radical in restructuring state-owned enterprises into effective conglomerate corporations, and employment has been growing in the public sector in Vietnam whereas it has been falling in China. This means that Vietnam is still closer to a state-centric model of a developmental state, and in general he argues that Vietnam’s economic growth, while impressive, has consistently lagged behind that of China. Main points Ruling communist parties still exercise greater control over the directions of industrial development China and Vietnam have embraced gradual liberalization with greater determination than North Korea

How much does the institutional form of political economy matter? – Hong Kong and Singapore The issue of the attraction of the developmental state model for economic growth in late-industrializing economies has attracted a great deal of debate over the last 20 years. Table 1.3 showed the successes over almost 50 years from 1950. It shows that in general Northeast Asian states grew faster than those in Southeast Asia. Yet Northeast Asian performances have been affected by the near stagnation from which Japan has suffered in the 1990s. The overall growth rate of Pacific Asia as a whole, over almost 50 years, has, however, been significantly higher than that of the United States, Western Europe or the world as a whole.

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Nevertheless, it is worth considering how far this kind of state formation can in itself be credited with the main responsibility for success. Haggard, for instance, has written more recently that there does indeed seem to be a limit beyond which the search for a single common theoretical explanation for economic growth which primarily relies upon particular institutions loses explanatory power.. ‘Asia proves that a variety of institutional arrangements can contribute to high growth’ (Haggard, 2004: 74). Other factors also need to be integrated into the assessment – for example, the contribution of various types of capitalist actors. We should, therefore, at least keep an open mind to the question: how far does the adoption of a ‘developmental state’ matter? This issue can be illustrated by contrasting the developmental experiences of two other NIEs – Hong Kong and Singapore. The two share a great many similarities, as can be seen from basic data in Tables 1.1, 5.1 and 5.2. This makes them almost ideal for a systemic social science comparison. Both places are city-states, or territories with a similar-size population. They are both primarily Chinese cities, so they share many similarities of political culture through traditional patterns of Confucian attitudes towards authority and society. They were both British colonies for over a century, so they also share similar experiences of modern bureaucratic administration, and also traditions of laissez-faire trade. Perhaps in part because of this, they have both established robust anti-corruption regimes that resist the temptations associated with guanxi patterns of relations elsewhere in China and Southeast Asia (though in the case of Hong Kong it was only the establishment of the Independent Anti-Corruption Commission in 1974 that brought this about). According to the Corruption Perceptions Index of TI, in 2009 Singapore and Hong Kong were ranked, respectively, as the third and twelfth least-corrupt territories out of the 180 that were assessed. Historically, they were both established primarily as entrepôt ports to serve trade between the hinterland – China in the case of Hong Kong, Malaya in the case of Singapore – and the rest of the world. Yet in the post-war period they both found themselves cut off from their traditional regional roles which forced upon them existential choices of how to adapt when confronted with imminent catastrophe. They were forced to rethink their regional roles and the possible bases of their future prosperity. In the case of Hong Kong, this came from the victory of the CCP on the Chinese mainland in 1949. Because the PRC turned its back on trade with the non-communist world, this almost completely destroyed Hong Kong’s raison d’être. In the case of Singapore, this came in 1965 when it was effectively forced to leave the Malay Federation, which meant that exports of raw materials from the rest of Malaysia were more likely to be rerouted through other Malaysian ports. Yet both

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Governance in Pacific Asia have survived and prospered. They have both become regional financial centres oriented towards global investors; and, as can be seen from Table 5.1, they began with fairly high levels of per capita income (by Asian standards) in the 1950s and have today become prosperous modern cities. Yet their political economies have been quite different. Singapore has pursued policies that are associated with the developmental state (Huff, 1995). When its leadership was confronted with the challenge of restructuring their whole system after they had been forced out of the Malay Federation, a challenge that was deepened only a few years later when the British government decided to withdraw its overseas deployment of armed forces east of Suez, which meant that the Singapore naval base, the city’s largest employer, was going to close, the response was to use the state to consolidate the economy and provide new direction. It deliberately reversed the laissez-faire orientation that had been bequeathed by the British. In part, this involved the creation and expansion of a number of state-owned enterprises (e.g., Singapore Telecom, Singapore Airlines, etc). But the government also deliberately set out to attract multinational corporations to Singapore – partly because they had capital for large-scale investments which Singapore lacked, partly because they could introduce advanced skills and technologies that would help Singapore to upgrade its own technological base and compete with the rest of the world, and partly so that Multinational Corporations (MNCs) with headquarters in the developed world could get their own governments to commit to Singapore’s longterm survival. In that respect Singapore was different from Japan, Taiwan and, above all, South Korea, which had all been much more circumspect about inviting in MNCs, in case they stifled their own domestic industries. Singapore was more relaxed about that, and it quickly developed into a regional petrochemical hub, relying upon its natural advantage of possessing a large port. In the 1960s and the 1970s the Singapore authorities attempted to attract foreign capital by pressuring employers to restrain pay rises for workers. By the late 1970s, however, when the economy had reached full employment, the government actively encouraged wage rises as a way of speeding Singapore’s progression up the ladder of technological sophistication. The government also attempted to retain employers’ cooperation by helping to reduce costs in other ways – for example, by building business parks and by increasing training in technical skills. (Rodan, 1989) Over time, Singapore has diversified its economy away from reliance upon industry, and has gradually built up service industries. For example, it developed into the main Asian dollar market with government support. Thus, the government has facilitated a sequencing of development – from light industrial manufacturing, to more sophisticated manufacturing, and

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then more services. Yet, as we can see from Table 5.5, Singapore has managed a much slower transition from an industrial economy to a serviceoriented one than Hong Kong has. In that respect it has maintained a more balanced economy. By contrast, Hong Kong has persisted with the laissez-faire ideology of British colonial rule, even though there have been times when the territory was confronted with apparently overwhelming challenges that seemed to demand government intervention. In the aftermath of the communist victory on the mainland, for example, Hong Kong was flooded with refugees. The population grew by several hundred thousand around 1949, and between 1950 and 1960 it continued to grow by almost 50 per cent to 2.97 million. This massive influx of people posed an immense challenge: the infrastructure was seriously inadequate and the United Kingdom was unable to provide significant assistance as it was only slowly recovering from WWII. There was no welfare state and not enough jobs. Nevertheless, the administration resolutely avoided intervention in the economy. In the early 1970s the colony’s Financial Secretary, John Cowperthwaite, coined the phrase ‘positive noninterventionism’ to characterize the colony’s basic attitude towards the economy. This term was actually meant to allow the authorities a little more latitude to consider whether, and how, to intervene in a particular situation or crisis, so it was more pragmatic than it sounded. Nevertheless, its main thrust was that the role of the government should be preserving a robust, fair regulatory framework within which business could be conducted. The colony also maintained its openness to foreign trade, despite all the challenges. A key element of this is the currency board system that is used to establish the international value of its currency and determine the amount of money in circulation in the domestic economy. Where in most countries, including Singapore, the value of the currency is controlled against one or more foreign currencies by a central monetary authority or central bank Table 5.5 Relative shares of industry and services in GDP by value added in Hong Kong and Singapore, various years

Hong Kong

Singapore

1980

1990

2000

2007

Industry

30.9

24.35

13.4

7.7

Services

68.29

75.4

86.52

92.24

Industry

38.08

34.71

35.62

30.51

Services

60.3

64.92

64.27

69.41

Source: World Bank Online Data Bank (accessed 25 Aug. 2010).

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Governance in Pacific Asia that attempts to manage upward and downward surges, in part to try to manage the business cycle and prevent undue booms and busts, in Hong Kong the value of the HK dollar is fixed by the value of foreign currency in the territory’s financial system on any one day. Because the financial system is extremely open, and therefore vulnerable to sudden changes of mind (not to say speculation) by foreign investors, this means that the Hong Kong economy is potentially much more prey to buffeting from outside financial forces, especially as the economy is small by world standards and therefore less able to withstand tidal pressures that sweep across the world economy from the bigger players. To try to introduce greater predictability, Hong Kong has tied the value of its currency to the US dollar since 1983. When more foreign currency flows into Hong Kong, the authorities reduce the amount of money in circulation to avoid inflation, and when foreign currency flows out, they increase the amount in circulation. Since the early 1990s, the Hong Kong authorities have leant slightly more in the direction of intervention in the economy. According to Chu (2004: 149), the new motto was ‘minimum intervention and maximum support’. This was used to support efforts to improve technical innovation. In 1998 the authorities responded to the Asian financial crisis by buying up large quantities of blue-chip shares to prevent foreign speculators profiting by buying up large quantities of shares cheaply. The government has invested in a science park to increase the technical upgrading of what is left of the manufacturing industry in Hong Kong, where before 1997 it refused to build either business or science parks. It has also intervened to help with large projects, such as Disneyworld, that promise to strengthen the vital service sector of the economy. Thus, at the margins, Hong Kong has retreated from the purist version of laissez-faire. Nevertheless, by world standards it remains one of the most open and liberal economies in the world. Of course one of the things that enabled Hong Kong to persist in laissezfaire policies in the 1950s was the fact that significant numbers of entrepreneurs fled there from the communists on the mainland. Even if they could not bring equipment from factories on the mainland, they could bring capital and ideas. Therefore, as early as the 1950s they were able to turn Hong Kong into a hub of the light industrial manufacturing of products such as textiles, with the result that, by the end of the 1950s, the United States was already complaining to Britain about unfair competition from there. In Hong Kong the state did not have to concentrate otherwise scattered capital so as to maximize its effectiveness in early industrialization. Later, as the costs of manufacturing rose and businessmen failed to upgrade the quality of their production to compensate – as happened in Singapore – Hong Kong’s

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economy was saved as it turned into a regional and then global financial centre, profiting from its location to link up New York and London to provide around-the-clock trading in financial products and shares. Then, during the 1980s, as the PRC began to liberalize its economy, Hong Kong rediscovered its original role as an entrepôt for trade between China and the rest of the world. Even though this meant that HK entrepreneurs often abandoned their manufacturing base there for cheaper facilities and workers in Guangdong province, which further exacerbated the hollowing out of HK industry, it also consolidated Hong Kong’s role of supplier of business services to China (Chiu, Ho and Lui, 1997). Thus, Hong Kong has gone through three cycles of transformation since 1950, and in many ways this parallels similar developments in Singapore. Yet, unlike Singapore, each of these cycles was accomplished without significant government assistance. As can be seen from the figures in Table 5.5, despite the major differences in patterns of political economy, Hong Kong and Singapore have achieved very similar results in terms of per capita GDP. Certainly, one thing they had in common was an orientation towards openness in international trade. They both sought to integrate themselves into the international economy and maximize their comparative advantage. They relied upon foreign trade in goods and services to bring prosperity. They also worked on making themselves business-friendly and attractive to potential foreign investors. According to the World Bank’s rankings of states for ease of doing business, in 2010 Singapore again came top and Hong Kong came third (New Zealand, the United States and the United Kingdom were second, fourth and fifth respectively). Also, the government in both places has provided long-term macroeconomic stability, which has encouraged business confidence. Both have also been able to control immigration, with the notable exception of Hong Kong around 1949. After that the HK authorities and the PRC worked out a modus vivendi which involved cooperation in policing the border. This was extremely important since the prosperity of both cities could be destabilized by unregulated large-scale immigration. Yet another factor that contributed to their success was the long-term economic development across Pacific Asia, with both cities contributing to, and benefiting from, those processes. Apart from that, what the comparison of the experience of Hong Kong and Singapore shows is that the presence of a developmental state can certainly affect the structure of the economy. The pattern of business that it creates, once established, lays down a path that solidifies into a robust network of business relations and interests that can be difficult to change. In the case of Singapore, this has been translated into a much more determined preservation of industry as a source of employment. But at the same time,

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Governance in Pacific Asia states or territories may achieve a high degree of prosperity, whether or not they establish a developmental state-type political economy. Main point The different experiences of Hong Kong and Singapore serves to illustrate that states may follow different paths to development and still achieve high degrees of success

Conclusion This chapter has outlined the main issues involved in the concept of the developmental state. It has shown that the issue of the relationship between the state and economic development continues to permeate discussion of the reasons for the extraordinary economic success of Pacific Asia over the past 50 years. It has argued that the role of the developmental state is crucial in understanding the achievements of Northeast Asia and some of those of Southeast Asia. It is also the case that the structures, institutions and patterns of relationships that the developmental state established still cast a long shadow over the current forms of political economy. This is most evident in the persisting domination of the South Korean economy by the chaebols. There is a sense of a path dependency having been created, from which even determined governments find it difficult to escape. At the same time, for a combination of the reasons that have been mentioned, the old, more comprehensive form of the developmental state is no longer so relevant or appropriate. There is a need to go beyond the state and look at the roles of various forms of business organizations too – which will be the focus of Chapter 9. There, it will be suggested that it may be appropriate to examine the Pacific Asian political economies from an alternative perspective, that of the comparative capitalisms literature which has hitherto been more associated with the analysis of developed economies. In Chapter 14, we shall also introduce a different concept of the state – the competition state – as a possible alternative model for conceptualizing the Pacific Asian state in the twenty-first century.

Questions for further discussion 1 Compare the development strategies of one Northeast Asian and one Southeast Asian developmental state: what are the key similarities and differences? 2 How can developmental states ensure the requisite degree of ‘embedded autonomy’ for their key economic policy-makers?

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3 Is the term ‘developmental state’ no longer applicable? What are the key reasons? 4 Compare the role of the reforming state in China or Vietnam with that in one other developmental state in Pacific Asia. Can the term ‘developmental state’ be applied equally to both? 5 Does the amassing of foreign exchange reserves by Pacific Asian states since 1990 revive the validity of the developmental state concept?

Further reading Akira Suehiro, Catch-Up Industrialization: the Trajectory and Prospects of East Asian Economies (Singapore: NUS Press 2008) – Chapter 5 gives an excellent Japanese account of the emergence of ‘developmentalism’ in post-WWII Pacific Asia. Anis Chowdhury and Iyanatul Islam (eds), Handbook on the Northeast and Southeast Asian Economies (Cheltenham: Elgar, 2007) – a comprehensive collection of articles on the economies of almost all the states in Pacific Asia. Joseph E. Stiglitz and Shahid Yusuf (eds), Rethinking the East Asian Miracle (Washington, DC: World Bank and OUP, 2001) – a collection of articles rethinking the World Bank analysis of East Asian success in the light of the 1997 Asian financial crisis. Meredith Woo-Cumings (ed), The Developmental State (Ithaca: Cornell UP, 1999) – a good collection of articles on various aspects of the developmental state. Stephan Haggard, The Political Economy of the Asian Financial Crisis (Washington, DC: Institute for International Economics) – a good account of the crisis and its resolution, linking it to underlying structural domestic causes as well. Stephan Haggard, ‘Institutions and Growth in East Asia’, Studies in Comparative International Development 38:4, 2004, 53–81 – an excellent survey of the whole developmental state literature. Yun-shan Wu, ‘ Taiwan’s Developmental State: After the Economic and Political Turmoil’, Asian Survey 47:6, 2007, 977–1001 – a clear exposition of the various challenges to the traditional Taiwanese developmental state since the Asian financial crisis.

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6 Industrial Policies Chapter Outline Introduction Is industrial policy needed? Has industrial policy been important in Pacific Asia? Varieties of industrial policy there Strengths and weaknesses Conclusion: A return to industrial policy? Further reading

143 143 148 152 160 162 163

Introduction This chapter begins with an outline of arguments about the desirability of state industrial policies – a debate that has been running for the last 30 years in discussing the economic achievements of Pacific Asia, but it has acquired new significance in an era when alternative, more liberal methods for running market economies have come under strain because of international financial crises. After this, there will follow an outline of three basic strategies of industrial policy-making in the region, distinguishing between the experiences of the Northeast Asian NIEs, the more agriculturally oriented states of Southeast Asia, and the mineral- and energy-rich states in Southeast Asia. The consequences will be illustrated by a comparison of the experiences of states across the region in trying to develop their own car industries. This will be followed by an assessment of the successes and failures of a strategy of industrial policy.

Is industrial policy needed? Industrial policy and the institutions that make it work are an integral part of the developmental state. Just as the concept of the developmental state

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Governance in Pacific Asia has proved extremely contentious in the field of political economy, so too has the industrial policy. But does it work? Should it? If it is accepted, who should run it? How should they run it? These are the fundamental questions involved in the debates. And because of the economic success of states in Pacific Asia, and because almost all of them have implemented what they regarded as industrial policies during the periods of growth, the experiences of the region are often cited by analysts both in support of the concept and against it in general. Often, for example, the achievements are contrasted with the failures of Latin America, Africa or South Asia. So the experience of development in Pacific Asia is crucial to debates over development economics and modernization in general. And since no absolutely definitive conclusions have been reached, the debates still go on. Overall, it is possible to identify three phases with respect to debates over industrial policy in Pacific Asia. The first phase was inspired by the dramatic successes in international trade of Japan, followed by the NIEs, and the challenges that they posed to Western economies, especially the United States. This was around the time of the late 1980s and the first half of the 1990s when the rise of the region seemed unstoppable. This led siren voices to highlight the ‘unfair practices’ of these states, which allegedly abused the rules of international trade to promote waves of exports of goods that were extremely attractive to Western consumers because their low prices undercut those of Western competitors, even though their quality was also important. So critics alleged that the successes resulted from government interventions that prevented ‘level playing fields’ of competition. An example of this is Prestowitz’s Trading Places, which originally appeared in 1988. While seeking to explain why Japan had been so successful in its manufacturing exports, he also sought to explain the Japanese business system. One key ingredient in the success, he claimed, was Japan’s industrial policy. ‘The result of all these policies and programs has been the strongest sustained economic performance of all time – along with a rising tide of resentment among Japan’s trading partners who have increasingly complained of unfairness.’ It all stemmed, he argued, from the fact that Japan failed to accept Western economic theory, because they abused the free trade system (Prestowitz, 1991: 279, 285). The second phase of the debate followed. A series of further academic studies sought to examine in more detail the mechanisms that had led to Japan’s success. In particular, this attracted more sustained Western academic economic analysis of industrial policy. But their main conclusion was usually that Japan had not discovered any dramatically new and more

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efficient way of using resources to achieve economic success. Using Total Factor Productivity (TFP) analysis, economists found it difficult to establish that industrial policy had contributed much to Japan’s economic development. Later, Smith (2000), among others, came to the same conclusion about the role of industrial policy in the economic success of South Korea and Taiwan in the 1980s. This line of analysis led Krugman, in 1994, to argue that the main reason for Japanese economic success was the fact that the Japanese made greater inputs into industrial production, in terms both of investments and the number of hours worked, so it was not surprising that they also got greater output. As he put it: ‘If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain’ (1994: 78). So there were no long-term lessons to be learnt by other countries. The dramatic economic growth would gradually subside to more normal levels. The conclusion drawn from this kind of analysis was that states would be wasting their time if they pursued industrial policies. There were too many downsides and not enough advantages. It was argued that governments are no better than private economic actors in picking winners. Often they make matters worse because they frustrate what would have been sound business decisions and, because they concentrate even larger quantities of capital, they may embark upon grandiose projects whose scale ensures that basically good ideas are turned into disasters. Conversely, once money is allocated for support to businesses in general, governments may actually be diverted into spending more on trying to keep alive sunset industries that are permanently losing competitiveness rather than on encouraging sunrise industries of the future – the fallacy of inadequate governmental embedded autonomy. Worse, corruption may transmute state support into economically unjustifiable projects for cronies. And if analysis shows that the benefits are trivial, then the conclusion would be that it would be better to let private businesses make their own decisions on how best spend their own money. This was the advice offered by Noland and Pack (2003), for example, after analysis of the East Asian experience. It was a view that chimed with the trend for neoliberal encouragement of free trade that was reflected in the ‘Washington Consensus’ which emanated from the international financial institutions from the 1990s. More recently, however, such views have come under renewed challenge. This is the third phase. Chang (2002) and Cimoli et al. (2009), for instance, have argued that all successful newly industrializing economies in history have practised forms of protection and that their governments have often

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Governance in Pacific Asia singled out particular industries or sectors for special support. Lall analysed the evidence from Taiwan, South Korea and Singapore and concluded: ‘Selective as well as functional interventions played vital roles in the industrial and technological development of the most dynamic economies in the developing world’ (2006: 92). Certainly, governments had made some miscalculations and had missed some opportunities, but then so too did businesses. What was important was that governments practised selective rather than indiscriminate interventions. When they did so, they needed to have an eye to the broader dissemination of technological capabilities across the economy, not just within a particular company or sector. They would also be well advised to focus on encouraging exports, which would provide discipline and benchmarks for success. Above all, they needed to focus on developing new capabilities in companies and transferable skills among workers. As we can see, the differences between assessments of industrial policies have been fundamental and contradictory. To some extent, however, they can be reconciled if we see that a lot of the differences depend upon different understandings of the term ‘industrial policy’. The neoliberal rejection of industrial policies was linked to their understanding of them as choices between specific projects or technologies to back – choices that could arguably be equally well made by public or private economic actors. From that perspective the main concern was indeed with ‘just’ picking ‘winners’, specific projects that would repay all the public support with profits for years afterwards. To be fair, that was also how they were understood in Japan and the NIEs when such policies were at their height. The more recent advocates of industrial policy, however, have a broader view of it. They include in the term all the contextual factors that have an impact upon the success of a particular project or sector of the economy, not just specific technological choices. This encompasses not just specific forms of assistance such as subsidies, tariff and non-tariff barriers and so on – things that are increasingly problematic under the WTO rules – it also includes the provision of physical infrastructure, of technological infrastructure, such as assistance in researching the potential viability of new technologies, and of educational infrastructure (such as training in new skills). For Di Malo (2009: 107), among others, it includes: a) policies for innovation and technology; b) policies for education and skills; c) trade policies; d) support for specific industries; e) support for sectors of the economy; and f) competition policies. The core of the new concept is the development of new capabilities of various kinds to facilitate the assimilation and exploitation of technological progress. Seen from that

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perspective, government-organized educational policies, investment in physical infrastructure and so forth, have all contributed to the success of industrialization and its upgrading in large parts of Pacific Asia. Indeed for Khan and Blankenburg (2009), what was key was not only the fact of government support for particular sectors of the economy and companies, but also their insistence upon rapid mastery and dissemination of more advanced technologies. According to them, speed is of the essence for ‘catch-up’ economies. Because they are trying to master technologies that have already been developed and applied in more advanced countries that themselves have greater resources to upgrade such technologies, catch-up economies are always in danger of being perpetually left behind and never making the leap into production at the technological frontier. So, even though President Park in Korea and President Chiang in Taiwan pressured their industries to develop rapidly as much for defence reasons, it proved extremely prescient and beneficial for economic development too. An indication of the new acceptability of industrial policies even in the World Bank can be seen in the 2010 research paper by the Bank’s Chief Economist, the Taiwan-born Justin Yifu Lin. He accepted the general argument in favour: ‘There is ample historical evidence that today’s most advanced economies heavily relied on government intervention to ignite and facilitate their take-off and catch-up process.’ From this evidence, which explicitly included the East Asian experience, he drew two main lessons. First, governments should facilitate the development of new industries consistent with their country’s latent comparative advantage as determined by its endowment structure. And second, they should target mature industries in countries that had, on average, a per capita income about 100 per cent higher than their own. So South Korea and Taiwan targeted Japan rather than the United States in the 1960s and 1970s because their per capita GDP was about 35 per cent of Japan’s, but only 10 per cent of that of the United States at that time. In the 1980s, China chose Korea, Taiwan and Hong Kong for the same reasons (Lin and Monga, 2010: 8, 12–13). Main points Debates about industrial policy have gone in cycles of approval and disapproval, but in the process the parameters of the concept of industrial policy have become wider Earlier general rejection of industrial policy-making in international financial institutions has now become more nuanced, with acceptance in the World Bank of potential suitability

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Governance in Pacific Asia

Has industrial policy been important in Pacific Asia? Let us begin with some comparative figures that set the context for industrial policy and its evolution across Pacific Asian states. Table 6.1 shows the gradual evolution that has taken place across the region away from the traditional reliance upon agriculture as the mainstay of economic life and into, first, industrialization, and then later, services. Development has meant primarily industrialization. Clearly the rate at which this has taken place has varied. Japan has already passed through the period when industry was at its height and evolved into a more postindustrial service-oriented economy, as has Taiwan. Singapore and Hong Kong have done the same and South Korea appears to be beginning that process. For some others (e.g., China, Malaysia, Indonesia, Thailand and Vietnam), industrialization at the moment seems to be almost at its height, and the same is true for Papua New Guinea and Brunei, although in their cases most of the value added by industry in practice comes from mining Table 6.1 Share of GDP of Pacific Asian states by sector (agriculture, industry and services), various years (by value of output, in per cent) 1980 A

I

1990 S

Brunei Cambodia China

2000

A

I

S

2007

A

I

S

A

I

S 28.0

1.0

61.6

47.0

1.0

63.7

28.3

0.7

71.3

55.6

11.2

33.2

37.1

23.7

39.3

31.9

26.8

41.3

27.0

41.8

31.3

15.9

50.9

33.2

10.8

47.3

41.9

30.1

48.5

21.4

0.8

31.7

67.5

0.3

25.3

74.5

0.1

14.6

85.3

0.1

7.7

92.3

24.8

43.4

31.8

19.4

39.1

41.5

16.9

47.3

35.8

13.7

46.8

39.5

1.8

37.9

59.8

1.4

28.5

70.1

1.4

28.5

70.1

8.5

43.1

48.4

4.6

42.7

52.7

2.9

37.1

60.0

Laos

61.2

14.5

24.3

53.2

23.0

23.8

33.4

28.3

38.3

Malaysia

15.2

42.2

42.6

8.6

51.7

39.7

9.9

46.6

43.5

Hong Kong Indonesia Japan South Korea

14.9

41.3

43.7

Myanmar

46.5

12.7

40.8

57.3

10.5

32.2

59.9

9.0

31.1

43.3

20.4

36.3

PNG

33.1

26.8

40.0

29.0

30.4

40.6

28.7

38.1

33.2

32.2

47.0

20.8

Philippines

25.1

38.8

36.1

21.9

34.5

43.6

15.9

31.1

52.9

14.2

31.6

54.2

Singapore

1.3

38.1

60.6

0.4

34.4

65.3

0.1

34.3

65.6

0.0

29.0

71.0

7.7

45.7

46.6

4.2

41.2

54.6

2.1

32.4

65.6

1.5

32.3

66.2

23.2

26.7

48.1

12.5

37.2

50.3

9.1

41.7

49.2

10.7

44.7

44.6

25.8

18.5

55.7

35.7a

13.9a 50.4a

24.3

36.6

39.1

20.3

41.5

Taiwan Thailand East Timor Vietnam

50.0

23.1

26.9

38.7

22.7

38.6

38.2

Source: Asian Development Bank Key Economic Indicators 2001, 2010. North Korea is not listed

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or the exploitation of oil and gas rather than manufacturing. In the Philippines, industry seems to be declining relative to services, but if this proves a long-term trend, it will have occurred without the Philippines having achieved the same degree of industrialization as many of its neighbours. Laos, Cambodia and East Timor still await intensified industrialization, as does Myanmar. Indeed, Myanmar is the only state on this list that has seen periods of greater development from agriculture than industry, though it looks as though that trend is now being reversed. Now let us turn to Table 6.2. This table illustrates two key themes. The first is the fact that almost all the states in the region have significantly and continually increased their investments with greater development. Almost all of them now invest considerably more than developed world comparators, such as the United States and the United Kingdom, whose own investment shares have remained remarkably stable throughout this period. The only exceptions for which Table 6.2 Gross capital formation/GDP ratios of Pacific Asian states, selected years (in per cent) 1960

1970

1980

Cambodia

20.18

12.53

China

35.54

29.02

35.19

Hong Kong

27.69

20.49

34.85

9.22

15.83

33.42 11.43

Brunei

Indonesia Japan

1990 18.68

2000

2007

13.06

12.95

17.53

20.79

36.14

35.12

43.11

27.03

27.46

20.93

24.07

30.67

22.25

24.95

39.69

32.81

33.13

25.44

24.10

25.36

31.81

37.51

North Korea South Korea Laos

30.56

29.43

28.26

38.32

Malaysia

13.77

20.19

27.40

32.36

26.87

21.94

Myanmar

11.99

14.17

21.48

13.38

12.45

13.80a

Papua New Guinea

13.41

41.60

25.21

24.44

21.89

19.67

Philippines

18.06

21.34

29.09

24.15

21.17

15.38

Singapore

9.74

38.67

46.41

37.10

33.30

20.74

33.80

23.10

23.30

21.50

29.14

41.35

22.84

26.43

Taiwan Thailand

15.41

25.58

East Timor

25.59

28.10

12.57

29.61

43.13

17.60

20.18

17.66

18.25

20.26

17.66

20.49

18.34

Vietnam UK

19.00

USA

18.76

18.01

Source: World Bank database, ADB Key Indicators 2002, 2009. a

2006.

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Governance in Pacific Asia data are available are Brunei, the Philippines and Myanmar – and Brunei has needed less investment for its prosperity because it is heavily dependent upon oil and gas to generate employment. This supports the general argument that high economic growth for catch-up economies is impossible without significant regular investments. Second, many of these states are now investing a lower share of their GDP than they did in the pre-Asian financial crisis period. This is partly explained by the bursting of real estate bubbles since 1997, but also partly by greater emphasis upon the efficiency of investments, as opposed to their absolute magnitudes, which has been demanded by lenders – an issue to which we shall return in Chapter 8. The only apparent exceptions to this general trend are the countries still ruled by communist parties – China, Vietnam and Laos (figures for North Korea are not available). The figures for China and Vietnam are extremely high by world standards – and much higher than the figures for Japan at the height of its high growth period in the 1960s (Ma and Yi, 2010). It has sometimes been alleged that these levels of investment may be excessive and wasteful. However, it is difficult not to expect that they will maintain economic growth for the foreseeable future. One feature of the industrialization effort in the region, which has already been highlighted, has been its orientation towards exports. This is illustrated in Table 6.3. What this table shows is the apparently inexorable growth of the exports of almost all countries in the region since the 1960s. In fact the trend has been even more widely spread geographically. According to the WTO, between 1948 and 1997, international merchandise trade expanded 17 times, while GDP output globally expanded only 6 times (WTO, 1998: 33). This means that trade has grown nearly three times as fast, and Pacific Asian states have made a very important contribution to that process. Industrialization has generally contributed to that rise. Now they all export a larger equivalent share of their GDP than states that are normally regarded as major pillars of international trade, such as the United States and the United Kingdom. Of course, in absolute terms, the latter still export more than Pacific Asian states, though China has now become the world’s second-largest exporter; but in relative terms the trend has been clear. Pacific Asian states are also major importers, even if several of them do maintain a foreign trade surplus. The only major exception is, again, Myanmar, though it is noticeable that the ratio of Japan’s exports and imports to GDP is surprisingly low and closest to that of the United States, despite the fact that it too is an enormous exporter and importer. Nevertheless, the trend for Japan too has been growing since 2000.

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Table 6.3 Ratios of exports and imports to GDP in Pacific Asian states, selected years (in per cent) 1960

1970

1980

E

I

13.90

21.97

5.76

7.77

Hong Kong

83.05

92.66 93.49

85.81 88.90 89.38 130.62 121.98 143.26 138.82 207.97 197.15

Indonesia

15.04

11.89 13.45

14.97 34.18 20.21

25.33

23.73

40.98

30.46

Japan

10.72

10.29 10.82

9.56 13.72 14.64

10.49

9.54

10.99

9.53

17.61 15.94

3.16

12.60 13.63

23.82 32.06 39.97

27.95

29.03

38.56

35.71

41.92 40.41

11.33

24.52

29.99

44.06

35.70 50.92

Malaysia

50.60

38.44 41.41

37.31 56.69 54.27

74.54

72.47 119.81 100.60 110.17 89.91

Myanmar

19.69

20.68

93.36 11.66

China

South Korea

2.61

2.70 10.65 11.01

Laos

Philippines

11.95

8.74

I

61.81

37.27

19.04

15.58

E

I

E

I

67.35

35.82

67.66 27.82

49.85

61.76

65.33 72.95

23.33

20.92

39.68 30.59

9.10 12.94

1.94

3.63

0.49

0.59

18.48

53.94 43.18 53.32

40.62

48.95

66.18

49.24

11.48 21.58

21.04 23.57 28.47

27.52

33.28

55.40

53.50

PNG

5.21

E

2007

I

Cambodia

I

2000

E Brunei

E

1990

Singapore

29.45 25.40

81.30 68.43 42.52 42.28 230.17 198.49

Taiwan

47.04 46.90

40.82

33.27

46.42

43.10

62.65 55.86

15.68

17.01 14.99

19.40 24.11 30.37

34.13

41.65

66.78

58.14

72.67 65.00

36.04

45.28

55.03

57.50

76.90 92.75

UK

20.21

21.59 22.33

21.29 27.14 24.68

23.95

26.07

27.63

29.47

26.42 29.80

USA

5.19

5.44 10.14 10.61

9.59

10.95

11.23

15.11

12.10 17.25

Thailand Vietnam

4.38

5.82

Sources: World Bank database, Taiwan National Statistics database. North Korea and East Timor not listed.

Finally, some evidence to support Krugman’s claim about the achievements of East Asia owing more to perspiration than to inspiration can be found in figures on the average number of hours worked by employees in two countries of the region – Japan and South Korea – compared to equivalent figures for the United States and the United Kingdom. These are presented in Table 6.4. As can be seen in 1970, employees in Japan worked, on average, roughly 18 per cent more hours per year than employees in the United States. While the figures for Korea are not available, it seems reasonable to assume that they were even higher. The ratio has gradually gone down for both. By 2000, employees in Japan were working almost an identical number of hours to the United States. In Korea, however, the figure was 47 per cent more; and although by 2008 this figure had dropped, it was still 26 per cent more. This means that workers in South Korea continue to work more hours now than Japanese workers did at the end of the era of rapid growth in 1970, let alone American workers at that time. Figures are not available for other countries in the region. Nevertheless, it seems reasonable to assume that at least some of them are still working more hours than in the developed world. This obviously has a significant impact upon output.

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Governance in Pacific Asia Table 6.4 Average hours worked per employee per year. 1970

1990

2000

2008

Japan

2243 (1.18)

2031 (1.11)

1821 (0.99)

1772 (0.99)

South Korea

–

2688 (1.47)

2520 (1.37)

2256 (1.26)

UK

1943 (1.02)

1771 (0.97)

1712 (0.93)

1653 (0.92)

USA

1902

1831

1836

1792

Source: OECD Factbook 2010. Figures in brackets represent the ratio of hours worked per year compared to those worked in the USA.

Main points Industrialization has proceeded across the region, although at differing speeds Most states, and certainly the most successful, have increased their investments with development Almost all the states in Pacific Asia have practised export-oriented industrialization and have much more open economies, with the exception of Myanmar Partial evidence suggests that workers worked longer hours in the region than in the developed world during the catch-up phase, and for many countries that phase is still continuing

Varieties of industrial policy there Now let us turn to the strategies that states used to bring about industrialization. Basically, it is possible to distinguish three different paths. First, there were the states that were not well endowed with raw materials (e.g., South Korea and Taiwan). They tended to move quite quickly from early textile manufacturing and food processing to more heavy industrial production. This may have required more imports as a preliminary to manufacturing output, but these tended to be minerals and energy rather than more perishable products. Japan still had a heavy industrial manufacturing base at the end of WWII, but as their costs increased, both South Korea and Taiwan deliberately expanded their heavy and chemical industries in the 1970s to compete first on price and then later on quality. The second strategy was devised in states that had different factor endowments, and this was especially true of Southeast Asia. Suehiro (2008) referred to them as ‘newly agro-industrializing countries’, and they focused more on diversifying exports of agricultural and marine products as well as processing them. Obviously, this was more appropriate for states that had a greater traditional

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availability of land and water to increase production than did Taiwan and South Korea. The Philippines and Thailand were typical states of this type, exporting rice, sugar and tropical fruit. Their opportunities were magnified with the ‘green revolution’ in the Philippines in the 1960s; that is, the development of new strains of rice that produced greater yields. But some entrepreneurs, with government support, also developed new industries for export, for example, Thailand’s success in exporting large quantities of cooked chickens, especially to the United States. The third path was followed by states, again primarily in Southeast Asia, that were better endowed with minerals and energy (e.g., Malaysia and Indonesia). They used exports of these products to generate the capital for further industrialization, especially after the leaps in world oil prices in the 1970s. But oil production was, above all, a field where the state usually played the dominant role, protecting national resources for the nation to exploit, even if it was sometimes in collaboration with multinational energy corporations. The income from exports of natural resources, especially energy, has for some periods been extremely profitable, but it has also fluctuated considerably. Therefore, experience has taught such states that they need to encourage other forms of industrial activity in the long term, rather than simply relying upon oil rents. ‘Manufacturing offer better growth prospects not only because they allow for a more rapid productivity growth and expansion of production, but also because they avoid the declining terms of trade that have frustrated the growth prospects of many commoditydependent economies. Countries rich in natural resources can delay industrialization, but in general they cannot reach high income levels without a strong industrial base’ (Akyuz, 2009: 153–4). However, the income available from such exports has meant that they have been forced to adopt rather different industrial strategies from those countries that lack them entirely. Of course no state followed any one of these paths exclusively. Taiwan and South Korea still retain significant textile manufacturing; Thailand and the Philippines moved on from processing agricultural products to electronics; and the energy-rich countries, such as Malaysia and Indonesia, moved on to develop their own heavy industrial programmes in the 1980s. So each country tried both to exploit existing comparative advantages and also to create new ones. To crystallize the variety of approaches that different countries have taken towards similar challenges in developing particular sectors of the economy, let us consider the experiences of vehicle manufacture. There are multiple reasons why states in the developing world would focus upon this industry. At the level of the national economy, imports of cars are extremely expensive for developing countries, so they are attracted by the

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Governance in Pacific Asia need to find ways of reducing the drains upon their foreign exchange reserves. But more modern transport can also increase the efficiency of the economy. At the symbolic level, cars have come to represent modernity and prosperity. They offer greater freedom to consumers who were previously much more restricted in their travel choices, and the aspiration to own a car can serve as an incentive for people to work harder and earn the money to buy it. Thus, there is pressure from consumer demand. At the level of technology, vehicle manufacturing involves an enormous bundle of technologies whose mastery imposes demands on technical skills and training. Many of them overlap with skills needed in other industries, such as electrical, metals and, increasingly, electronics. Some of them may overlap with vital technologies for national defence; and as new vehicles are introduced into the market with more sophisticated technologies, demand for replacement parts for older vehicles can be met by widening circles of companies that use this opportunity to get on the ladder of technological upgrading. Vehicles also require a physical infrastructure of roads (and so forth) that will allow them to move more freely and will thus widen economic activity. For all of these reasons, then, vehicle manufacture represents a potential core link in industrialization. Several Pacific Asian states have been tempted by the attraction of largescale vehicle manufacture, with China being the most recent convert. In the 1950s and 1960s it was Japan that led the way, but it was then emulated by South Korea and Taiwan, while in the 1980s Malaysia, Indonesia and Thailand developed national programmes, and in the 1990s so too did China – though they went about it in quite different ways. Japan benefited from an era when car manufacturing was booming and MITI attempted, with some success, to restrict entry to the market to companies that already had significant manufacturing capabilities in analogous industries. So it focused its efforts on companies like Toyota and Nissan, while for a certain period discouraging Honda. In fact, Honda was later able to break into car manufacturing, but the ‘convoy’ of companies engaging in vehicle manufacture has remained remarkably stable over the years. But in the 1950s and 1960s, Japan used high tariff barriers to protect its car manufacturers in the domestic market until the designated companies had become large enough to compete internationally (Nester, 1991). And Toyota, in particular, developed its own innovative approach to manufacturing – what came to be called the ‘just in time’ system – and an emphasis on total quality control that reset the standards of production worldwide. Then South Korea and Taiwan decided to develop their own vehicle manufacturing-related efforts, but they did so in quite different ways. The

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Korean government built upon its existing support for large chaebols and sought to move their own conglomerates into that manufacture, but limiting access to a few companies, as Japan had done. In order to avoid becoming dependent upon Japanese corporations for assembly operations, they imposed barriers that allowed Japanese companies access only to import components. Until the 1980s the government only allowed Hyundai and Daewoo to manufacture cars, but the field was then expanded for others such as Kia and Ssangyong. The head of another chaebol, Samsung, was also determined to break into this field. He set up its own car manufacturing plant despite government opposition, which he managed to circumvent by building the plant in Pusan, the base of then President Kim Yong Sam. Cumulatively, all these newcomers expanded Korean car manufacturing capacity far beyond the needs of the home market, making exports essential. The Asian financial crisis of 1997, however, forced the Korean government to take drastic action in restructuring the whole business world including vehicle manufacture. Daewoo cars were taken over by GM, and Samsung by Renault, while Kia was folded into Hyundai, making it by far the largest Korean manufacturer, but together they have progressed to become the fifth-largest vehicle manufacturer in the world. By contrast, Taiwan made repeated attempts to coalesce an equivalent car manufacturing industry, but these have been relatively unsuccessful. Local companies that acted as assemblers for foreign manufacturers, especially Japanese ones, failed to agree on domestic cooperation in producing indigenous vehicles, and the Taiwanese government lacked adequate levers to pressure them into agreements. In addition, foreign manufacturers that were initially tempted to set up large operations on Taiwan were deterred by appreciations in the value of the NT dollar, and by increasing pressure from the American government to cut imports from Taiwan. Instead, Taiwanese vehicle engineering companies opted for roles as niche suppliers of components for multinational corporations, especially Japanese. This is quite lucrative, but not as profitable as full-scale manufacturing (Chu, 1994). However, as we shall see, Taiwan’s position was complicated by the mushrooming attractiveness of the mainland market for multinational corporations, and it was overshadowed from the mid-1990s by car production in the PRC. In Southeast Asia, Malaysia, Thailand and Indonesia became interested in establishing their own car industries from the end of the 1970s as the levels of development grew and as the costs of imports escalated. Both Malaysia and Thailand drew up plans for their own national cars, but they had to turn to multinational corporations (MNCs) – principally Japanese – for

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Governance in Pacific Asia the technology. In both cases, they began producing cars but found themselves constrained by the reluctance of their Japanese partners to agree to the expansion of factories for exports to third countries. Their operations were therefore limited to supplying the domestic markets, which, though quite large, were still limited. The Malaysian company Proton broke off its agreements with Mitsubishi and tried to go it alone. Despite state protection through tariffs, it failed to develop popular cars of its own. It later tried and failed to achieve a technology agreement with VW. The opportunity was also constrained by the relative failure of the country’s Heavy and Chemical Industry Corporation (HICOM), which was set up in the mid-1980s to develop these industries by emulating earlier programmes of this kind in Korea and Taiwan in the 1970s. It proved very expensive, at a time of heavy international trade challenges, and so was largely aborted. One consequence of this was the failure to achieve the spillover into other sectors of industry which could have come from a successful car manufacturing programme. It has now become a conglomerate whose car operation assembles cars from a number of foreign MNCs, which graphically symbolizes the failure. According to Doner (2009), Thailand has managed to become the largest manufacturer of vehicles in Southeast Asia – sometimes nicknamed ‘the Detroit of Asia’– specializing in the manufacture of small pick-up trucks; but it has had to rely upon foreign MNCs to achieve this, and it has not been able to develop a substantial, competitive auto components industry. Domestic component manufacturers have been mainly restricted to supplying generic components to the MNCs operating in Thailand. They have not been able to move so easily into supplying more technologically sophisticated parts. For many years, Indonesia, despite having many of the attributes of a developmental state, was prepared to allow foreign manufacturers to set up joint ventures with Indonesian partners for car assembly. This changed in 1996 when the government announced a plan for a national car, but this proved a particularly egregious manifestation of neo-patrimonialism because the designated Indonesian company belonged to one of President Suharto’s sons and had only been incorporated the day before the contract with the Korean company Kia was signed. This company was one of the first casualties of the collapse of the Suharto regime in 1998 (Abbott, 2003). Since then, Indonesia has reverted to a more liberal encouragement of joint ventures with various foreign partners to supply vehicles for the potentially large Indonesian market. These examples from Southeast Asia show the difficulty that various states in the region have found in building up their own car industries from scratch, even when they have developmental state policies and potentially substantial markets for their products. Abbott (2003) emphasizes the

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difficulty of acquiring the technological capability of their own to compete with already established MNCs. They have not yet succeeded in breaking out of their dependency on foreign technology in the way that Japan and Korea have done. This shows that successful developmental states need to do more than just remedy a lack of investment coordination if there are to succeed. They also need to devise ways of assimilating and improving upon advanced technology – a problem when MNCs are the chief owners of such technology. Nevertheless, both Japan and Korea have shown that this can be done. Toyota was responsible for innovations in manufacturing supply – ‘just in time’ manufacture and the upgrading of the skills of all its workers – that have spread around the world (Womack, 2007). More recently, Hyundai has come up with innovation that relies less upon a large skilled workforce (because industrial relations in Korea have been far more confrontational, manufacturers have tried to reduce their reliance upon labour) and more upon greater automation to achieve superior results. This has also been translated into a strength when opening new plants overseas: because they need proportionately fewer workers, they also need to spend less time overall on training workers in company ways (Hyung, 2010). This shows that even where companies have been protected by the state from intense competition at an early stage of development, they may still turn into worldcompetitive corporations later with their own proprietary technology. It also shows that (pace Krugman) not all industrial success in Pacific Asia is chiefly attributable to longer working hours. However, China appears to have had more success in establishing its own car industry. As can be seen from Table 6.5, China already accounts for one-fifth of global car manufacturing, whereas in the 1980s it was effectively zero. In addition, Gallagher (2006) notes the sophistication of Chinese auto-part manufacturers, who have learnt how to upgrade their output by supplying Western manufacturers’ plants inside China – indeed, they seem more sophisticated than Chinese vehicle manufacturers, thus overcoming the problem still confronting Thailand. Meier (2009) argues on the basis of her analysis of the car industry that China has applied the basic developmental state model to its strategy for development since reforms began in 1979, albeit with variations. She notes the messiness of relations between the centre and the provinces, which has both complicated and stimulated the industry, since it has been provincial authorities such as Shanghai that have developed strategies for car manufacturing in their area rather than the central government, and these have sometimes collided with strategies of other regional manufacturers. This makes it difficult to describe China as having a single industrial policy in the automotive industry.

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Governance in Pacific Asia Table 6.5 Pacific Asian global shares of vehicle manufacture 2009

China Indonesia Japan Malaysia

Total output

Per cent share

10383831

21.65

352172

0.73

6862161

14.31

447002

0.93

3158417

6.59

Taiwan

183986

0.38

Thailand

313442

0.65

Total

21701011

45.25

World

47952995

100.00

South Korea

Source: http://oica.net/category/production-statistics/ (accessed 6 September 2010).

Shanghai has been more effective than the city of Beijing in promoting a local car industry. But, as of 2005, there were still 117 Original Equipment Manufacturers in the car industry across China, but of these 104 produced less than 100,000 units per years, so reliance on local initiatives has hindered nationwide economies of scale (Meier, 2009: 257). Also, unlike earlier East Asian developmental states, China has made much greater use of FDI to promote new industries. Nevertheless, it is possible to discern an overall national strategy, even if implementation has been less coherent than Beijing would have wished. One other difference from Japanese and Korean companies, and more like Western MNCs, has been the enthusiasm of Chinese car companies to buy up foreign car factories and brands – for example, Nanjing Auto’s purchase of the remnants of the Rover Group in the United Kingdom, or Geely’s purchase of Volvo. While Japanese and Korean companies have expanded overseas, this has usually been done on the basis of green field sites, making their own models. This has helped develop the brand reputation for quality, but it has slowed the process of building brand recognition and loyalty. However, by buying up foreign plants, Chinese companies have hastened the acquisition of foreign technology and brand recognition, both of which should help them develop their international presence. Finally, let us look at the outcomes of these policies, as shown in the most recent figures on shares of global car production that these various countries have achieved, as shown in Table 6.5. First of all, these figures show, of course, the meteoric rise of car manufacture in China over the last 20 years. From the 1990s, the country embarked upon a programme of dramatic expansion, inviting foreign multinationals in to provide technology and competition. The state used its

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leverage over access to impose conditions that would lead to the transfer of technology. Companies attracted by the appeal of the potential Chinese market responded enthusiastically. In 1997, China produced 1.58 million vehicles. In 2009, it was 10.3 million; therefore the market has grown roughly 550 per cent in 12 years. This trend has certainly provoked alarm in some quarters abroad. Baker (2007) predicts catastrophe for Western car manufacturers or, at any rate, their Australian operations, as they struggle to cope with the twin problems of high pension and welfare legacy costs, and the low prices of Chinese-made cars – a problem exacerbated by the low renminbi exchange rate. Meier (2009) is more cautious, noting the persisting problems of Chinese companies meeting Western safety standards, as well as the fact that most Chinese output will continue to be targeted at the domestic market. Also, the overwhelming bulk of the cars manufactured in China come from joint ventures with MNC partners, so the challenge for MNCs may not be so great. Rather, it is a problem for countries (e.g., Australia) with longer car-making traditions that can no longer compete in making them on a large enough scale. A second point is that the overall Japanese production of vehicles has fallen from almost 11 million in 1997 to under 7 million in 2009; that is, a fall of almost 40 per cent, as Japanese companies have produced increasing numbers of vehicles in other countries where costs are significantly lower. In 1997 it was Japan that accounted for 21 per cent of global vehicle manufacture. But apart from those two dramatic changes, what is also striking is the fact that the relative shares of global output that come from other states in the region have remained very similar. In 1997, South Korea produced 2.81 million vehicles – that is, 5.3 per cent of global output – while the figures for the Southeast Asian states (Indonesia, Malaysia, Thailand) are almost exactly the same now as they were then. Main points Natural-resource poor economies in Northeast Asia adopted one strategy of industrial development In Southeast Asia, some states began industrialization through various forms of processing abundant agricultural resources, while others exploited their energy and mineral endowments to generate initial capital for industrial development Success in building up domestic car manufacturing has varied across the region despite consistent state support. Japan and South Korea have been the winners, while Taiwan and Southeast Asia have failed to make major breakthroughs China is now exploiting its massive market and financial resources to develop its own powerful car industry

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Strengths and weaknesses This varied experience of trying to build up indigenous car manufacturing with state support in Pacific Asia shows both the weaknesses and strengths of industrial policy in general. There certainly have been failures, and examples of failure could be found in other industrial sectors too. Indonesia, for example, lavished large amounts of money on a project to develop its own aircraft industry under the leadership of the mercurial Minister of Technology B. J. Habibie, who later became Vice-President under Suharto and then became his short-lived successor. Being a trained aeronautical engineer himself, he had the ambition of modernizing Indonesia through developing its own aircraft industry, which would inspire further technological innovation. He became a protégé of Suharto. However, although a prototype regional airliner was produced, this was on the eve of the Asian financial crisis, and the country’s economic woes led to the project being cancelled, having already cost around $2 billion over a 20-year period (Eriksson, 2003), In Taiwan, which has in the past had great success with government-encouraged industrial projects, the government has attempted to generate further development by mobilizing resources for a life sciences industry, but Wu (2007) is sceptical about the benefits that this has brought for the economy as a whole so far. So there have clearly been problems with governments wasting large sums of money – and probably more than companies would have done on their own – on prestige projects. Even in Japan, Aoki (1997) has suggested that the country has so far failed to extract all the interrelated benefits that might have been expected from the IT revolution in terms of increasing manufacturing efficiency, because IT regulation was shared between the Ministry of Posts and Telecommunications and the then Ministry of International Trade and Industry. It has proved extremely difficult to get these two ministries to cooperate, and this has constrained maximization of the potential rewards that have accrued in the United States, despite the fact that Japan was an early and successful manufacturer of computers. So, although defenders of state leadership in economic management may emphasize the state’s theoretical ability to integrate an overall view of policy and policy-making, sometimes institutional divisions within government may fragment coherent policy-making. ‘Bureau pluralism’, as Aoki (1997) termed the rivalries between government departments in Japan, has also hindered commercial economic efficiency. Indeed, the stagnation from which Japan has been suffering since the early 1990s reinforces concern over the limitations of industrial

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policy. Whatever the past successes, neither the government nor business have been able to devise a new programme that would restore economic growth. The old practices of state support for designated sectors, especially the construction industry – an issue to which we shall return in Chapter 10 – have failed to lift the country. It is therefore understandable that radical critics have called for a thorough liberalization of economic management. And yet there have also been major achievements in Pacific Asia. The achievements of Korea’s vehicle manufacturers have been much greater than their counterparts in Malaysia, Thailand and Indonesia, despite the facts that the Korean market is smaller than the latter two and they all began efforts to develop their own industries around the same time. It shows the importance of institutional capacity of both government and business (Doner, 2009: 273). There is also the success of South Korea’s shipbuilding industry. President Park ordered it to be established in the 1970s, despite the lack of indigenous raw materials, and despite the strong opposition of Hyundai, which was then, as it is now, one of the largest chaebols. At the time, Japan was the dominant shipbuilding nation. By 2008, however, South Korea had become by far the world’s largest shipbuilding nation with 50 per cent of the world market by tonnage, while Japan had less than 4 per cent. Hyundai has become the world’s largest shipbuilder, with 15 per cent of the global market. Government support for computer chip manufacturing in Korea has also paid off, with Samsung now the world’s largest manufacturer, and with companies from Taiwan and Japan – which also received various forms of state support – showing very well too; while in consumer electronics Samsung and LG have become global premium brands. So, as argued above for the car industry, previously state-protected companies in various countries have become global successes with their own reputations for technological sophistication. They have become pillars of national economies, as well as a source of potential inspiration for Chinese leaders. Main points Some industrial policies have certainly wasted large amounts of money for their respective countries Some industries that only began because of government support have become global leaders Some companies that survived because of early state protection have become internationally recognized technological innovators

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Conclusion: A return to industrial policy? This chapter has argued that Pacific Asian states have engaged in significant industrial policy-making over the past decades. Their achievements have been mixed. Some have wasted huge sums of money. Others have laid the basis for increasing national prosperity. This varied set of experiences is a further manifestation of the multiple modernities discussed in Chapter 4. Yet almost all of them have pursued industrialization to some extent, so there is also a commonality. Interest in industrial policy is now growing again. Even in Japan there is renewed interest because of the difficulties of managing efficient investments in an era of virtually zero interest rates. Since this removes a key element in the calculation of which investments are more deserving and capable of support, other ways have to be found of rationing capital. A kind of industrial policy then becomes more attractive, primarily to try to prevent waste rather than promote efficiency. Under those circumstances the neoliberal critiques of the potential inefficiency of industrial policy become less persuasive because failure to adopt some kind of industrial targeting could be even more wasteful. One of the key features of successful industrial policy is consistent focus on increasing competitiveness. Without that there is always the danger of established interests in sunset industries mobilizing stronger voices for protection than the much smaller voices of innovators in potentially lucrative, but unproven, future businesses who want support for the commercialization of new technologies. According to Aoki, Murdoch and Okuni-Fujiwara (1997: 31), even Japan, despite all its fame for promoting export industries of the future, has lavished far more resources on the unproductive segment of the economy. This concern with competitiveness will be addressed again in a different context in Chapter 14, which will suggest that an alternative paradigm for conceptualizing the role of the state in economic development in Pacific Asia today is that of the ‘competition state’. One crucial point made by Rodrik (2007) is the importance of getting the process of industrial policy-making right. If government is to play a constructive role in promoting industrial development in more advanced economies, it needs to overcome the problem of information asymmetry, where businesses have a better and more detailed knowledge of the full range of available technologies and their potential exploitation. Otherwise there is always the danger

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that governments will follow behind the most vocal defenders of one technology versus another. There is therefore a need for a framework that will enable both government and businesses to acquire and share that knowledge. This theoretical concern takes us back to one of the factors in Japanese economic success in the era of high growth; namely, the dense network of deliberation councils linking government and sectors of industry, as described by Johnson (1986). This played a key role then, and it seems something similar could do so now. Interest in industrial policy has completed a cycle. Where the successes of such policies in the NIEs in the 1980s and 1990s encouraged interest in the topic, their legacies now do the same. Thus the achievements of Pacific Asian states continue to hold lessons for the management of industrial development today, not just across the region, but more widely. The general enduring sympathy for industrial policy-making across Pacific Asia suggests a reluctance to rely excessively on pure market coordination to maintain economic development and prosperity. Thus, even though the developmental state model, as traditionally understood, is in general decline, it suggests that the desire for a strong coordinating role for the state still persists. This will be the focus of the analysis in Chapter 9, which will discuss the role of business within the context of a different paradigm of capitalism from that of Anglo-American neoliberalism; namely, the coordinated market economy.

Questions for further discussion 1 If they are going to support particular industrial sectors, how should governments choose which are most deserving? 2 Does external criticism of industrial policies in Pacific Asian states come chiefly from the West? How far do states in the region raise complaints against one another about unfair industrial support? 3 How far do Pacific Asian states implement policies to upgrade the technological sophistication of older industries such as textiles? How successful are they? 4 How far are industrial policies compatible with membership of the WTO? How do states try to reconcile the two?

Further reading Marcus Noland and Howard Pack (2003), Industrial Policy in an Era of Globalization: Lessons From Asia (Washington, DC: Institute for International Economics, 2003) – a clear neoliberal critique of the experience of industrial policy in East Asia.

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7 Agriculture Chapter Outline Introduction Agriculture and tradition Contribution of agriculture to economic development State protection of agriculture and the issue of rice Role of MAFF in agricultural policy-making Conclusion Further reading

165 167 171 180 185 186 187

Introduction This chapter will begin by sketching the relationship between agriculture and development. It will then recall the traditional significance of agriculture for national traditions and identity and, in Pacific Asia, the importance attached to rice. Next, it will sketch the relationship between agriculture and economic development in Pacific Asia, highlighting the different interrelationships in Northeast Asia, in Southeast Asia and in communist states. It will then consider in more detail the reasons for state support for agriculture, and particularly for rice farming. Finally, it will highlight in more detail the extensive role played by the Ministry of Agriculture in Japan. Agricultural policy has also been an integral part of the developmental state. Indeed, we shall see towards the end of this chapter that, at least in Japan, state direction of agriculture has been more wide-ranging and longer-lasting than in industry. There, according to Mulgan: ‘[a]griculture . . . is a state-directed enterprise. The farm sector is extensively guided, controlled, promoted and assisted by the government using multiple and diverse modes of intervention’ (2005: 1). Although the degree of agricultural

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Governance in Pacific Asia intervention in Japan may be unusually high for Pacific Asia as a whole, the fact of it is the norm across the region. Indeed, paradoxically, while state intervention in industry has been declining, as described in Chapter 6, it has generally been increasing in agriculture. In part, this is because agriculture has been largely exempted from the various international round trade negotiations since the 1960s, and so government intervention and protection has remained internationally more legitimate than in industry and services. Using government services to increase harvests has been normal. But there have been four other major justifications. The first has been the underlying challenge for industrializing nations of managing the transition from a predominantly rural to an urban society without turning it into an alienating experience. Uprooting large numbers of peasants from their traditional way of life, placing them in poor accommodation in towns and forcing them to adapt to the different rhythms of work in industry led to widespread unrest in Europe in the nineteenth and twentieth centuries. This was, in part, blamed for the rise of fascism between the world wars, but governments in the region were also sensitive to longestablished traditions of peasants resisting demands from rulers (Scott, 1976). Second, there was the recurring objective of governments in the region to try to ensure food security, at least in basic staple foods, so as to avoid both famine and dependency on foreign suppliers. In that respect, agricultural policy was a form of security. Third, government could provide insurance against natural disasters – for example, holding reserve stocks to guard against harvest failures and also to mitigate price gouging. And fourth, there was the association of agriculture with the traditional way of life, social values and national identity. Thus, government intervention to protect it also overlapped with the promotion of national culture. These were factors that were common to all governments in Pacific Asia. But Mulgan suggests a fifth factor, which may be more specific to Japan. This is the operating culture of officials in the Ministry of Agriculture, Forestry and Fisheries (MAFF), which is interventionist by nature. ‘Not only is there a vast interventionist infrastructure, both public and quasi-public, fanning out from the MAFF, but numerous mechanisms exist for eliciting the cooperation of targeted actors with interventionist policies’ (2005: 212). Those officials therefore intervene because ‘it serves their collective institutional interests as well as their personal, private interests.’ Thus, although the MAFF is an agent of the democratic government, it is also an actor in its own right. We will return to this dimension later on.

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According to Timmer (2005, originally 1988), there are three possible state approaches to agricultural policy. One is simply to rely upon the market, accepting the consequences of increasing differentiation in the size of landholdings, with a relatively small group of increasingly large and prosperous landowners profiting at the expense of the immiseration of the majority of smallholders. This has never been official policy in Pacific Asia. The second possible state approach is to construct a national governmentled programme for agricultural development that takes account of the complexity and scale of all development issues in agriculture as well as their interconnections with the rest of the economy. This would rely upon government leadership to identify all desirable elements for developing agriculture and its social implications for welfare in the countryside, and would organize actors to achieve them. This ‘big government’ version of agricultural policy would still accept the need for private enterprise in farming, but we shall see that the closest that Pacific Asian states came to this was in the states which were led by communist parties who imposed collectivization, though all of these states – with the exception of North Korea – have now abandoned collective farming. The third version is a more marketfriendly approach that recognizes the dangers of overweening government intervention and possible large-scale government failures, but at the same time seeks to design strategies for the development of agriculture which assumes the economic survival of multitudinous smallholders and mobilizes their active contribution through carefully designed microeconomic incentives. This requires large-scale, usually government-led, research and support services to identify technical solutions to local, as well as general problems. We shall see that agriculture in most of Pacific Asia has followed the third path and has, by and large, prospered.

Agriculture and Tradition According to the Food and Agriculture Organization (FAO, 2001) there are, altogether, eleven different types of agricultural system to be found in Pacific Asia. They are: a) lowland rice farming (found more or less across the whole region); b) tree-crop mixed farming (mainly across Southeast Asia); c) root-tuber farming (mainly in Papua New Guinea and Pacific islands); d) upland intensive mixed farming (across most of the region); e) highland extensive mixed farming (in Southeast Asia, Indonesia and the Philippines); f) temperate mixed farming (central and northern China); g) pastoral

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Governance in Pacific Asia farming (western China); h) sparse forest farming (mainly western China and parts of Southeast Asia); i) sparse arid farming (again, western China); j) coastal artisanal fishing and farming (coastal parts of China and of Southeast Asia); k) urban-based farming (producing perishable foods for urban dwellers). Some of these are more extensive than others. In terms of numbers, the most commonly practised are a) and d), but they all reflect local geographical conditions as well as the needs of the people who live there. Although communities have sometimes reworked natural conditions to make them more suitable for farming, fundamental differences based upon geography have persisted for millennia and are associated with the distinct identities and traditions of separate communities. Chapter 2 indicated the importance of history and tradition to the identity of the peoples of Pacific Asia. Agriculture has left an indelible mark on their identities. For centuries the overwhelming majority of the people lived on and farmed the land. That experience created a profusion of traditions and rituals that still frame life today, even though many of the societies have become much more urban. The Indonesian development economist Prawiro eloquently expressed the significance when setting the context for Indonesia’s drive for self-sufficiency in rice in the 1970s. The soul of Indonesia is its land. Indonesians have been cultivating their land for millennia. The country’s farm communities have not only provided the nation with food and a host of export crops, they have been caretakers of many of the nation’s traditions and customs. Above all, however, Indonesia’s farms have supplied the people with rice, which since time immemorial has been the country’s prime staple, its ‘staff of life.’ (Prawiro,1998: 127)

He went on to evoke the association of rice with human sociability: Rice has always had the undisputed pride of place in the Indonesian diet. So central is rice that it is conceptually interchangeable with the idea of ‘food’. Rice is more than the basis of Indonesian agriculture, it is the centre of most important social intercourse. It is eaten for breakfast, lunch, and dinner. Typically, when people work together, it is over rice. When a serious communal conflict is resolved, reconciliation is frequently over rice. When they celebrate together, mourn together, or simply come together as family and friends, rice is the constant that is at the centre of many daily human interactions, rituals, and rites of passage in Indonesia’s traditional life. (Prawiro 1998: 131– 2)

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Ohnuki-Tierney writes similarly about the Japanese: ‘The collective self of the family – the most basic unit of Japanese society – is constructed through the sharing of rice during daily meals’ (1993: 95, 97–8). She also emphasizes a broader symbolic significance that goes beyond sociability. ‘Rice paddies stand for Japanese space, time, and ultimately “our land” . . . Ultimately, rice paddies also stand for the Japanese nation itself with its quintessential beauty and changing colors marking “the Japanese nation.” ’ The fact that all the communities around Pacific Asia cultivated rice as a staple food set them apart from people elsewhere in the world. It was a common signifier. In the nineteenth century, Japanese talked of ‘rice’ as opposed to ‘meat’, which supposedly summed up Western food, to differentiate themselves from Westerners (Ohnuki-Tierney, 1993: 106). At the same time it also differentiated communities within the region because different peoples cultivated different kinds of rice: broken rice in Vietnam, short-grain rice in Japan and Northeast Asia, longer grain rice in Southeast Asia. China cultivates both longer-grain variants in the south and shorter-grain ones in the north. Japanese would talk about ‘domestic rice’ and ‘foreign rice’, to distinguish between themselves and Asian foreigners (Ohnuki-Tierney, 1993: 104). The different types of rice in turn served as the basis for different national cuisines – and throughout the region food and cooking were recognized as core elements of local culture. Thus rice was perceived as fundamental to national identity, as well as the most important element of food security for any nation. Rice cultivation was often associated with forces of nature and the goodwill of god or the gods. Emperors or monarchs of China, Japan and Thailand, for example, were expected to perform annual rites during the growing season to keep heaven’s goodwill. In Japan, pure rice from a specially selected district plays a key part in the Shinto enthronement ceremony of a new emperor. Through consuming this rice the new emperor exchanges his old soul for the positive force of divine purity (Ohnuki-Tierney, 1993: 55–8). Even though societies in the region have generally become more urban, the traditional way of life for many still represents a positive standard against which modern life is assessed. Although Table 6.1 showed the extent to which industry and services have replaced agriculture as the main elements of GDP across almost the entire region, the picture is different where employment is concerned, as can be seen from Table 7.1. This shows that while in Northeast Asian states relatively small numbers of people depend on agriculture for a living, in the rest they still represent

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Governance in Pacific Asia Table 7.1 Proportion of national workforce employed in agriculture in 2008 (in per cent) Cambodia

59.09

China

39.56

Hong Kong Indonesia

0.00 40.30

Japan

4.20

South Korea

7.15

Laos

78.50a

Malaysia

13.96

Myanmar

62.66b

Philippines

35.29

Taiwan

5.17

Thailand

38.97

Vietnam

52.47

Source: Asian Development Bank, Key Indicators for Asia and the Pacific 2010 (Manila, 2010). a

2005,

b

1997.

substantial numbers. The rural way of life still structures a lot of people’s attitudes and expectations. Of course, for some people living on the land is much less attractive than living in cities. Even the relatively small numbers of people still living in the countryside in Northeast Asian states are likely to decline further because few young people wish to farm. Nevertheless, for some, rural traditions can be seen as more wholesome and decent than the newer customs and habits of urban areas. Governments in at least some states in the region have been inclined to intervene as a way of protecting the institutions associated with the traditional way of life, just as European governments have done. One other dimension of such intervention that has developed more recently has been to protect the ‘traditional’ countryside and the way it is managed as a public good. Since agriculture is the most common economic activity of the countryside, this has also meant protection for agriculture, especially rice production. Main points Pacific Asia has a great diversity of systems of agriculture Significant numbers of people are still employed in agriculture in most states of the region Agriculture played a big part in cultural traditions of all the countries Rice has a special status within those traditions, and this has contributed to policies to protect rice cultivation

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171

Contribution of agriculture to economic development According to Boothroyd and Pham (2000), agriculture can make five contributions to industrialization: supplying cheap foodstuffs and raw materials for the industrial sector providing exports that will pay for the necessary imports of machinery, raw materials and technology releasing labour to work in industry expanding the domestic market for industrial goods increasing domestic savings to pay for industrial investment

We shall see all of these factors at work across the region. Nevertheless, we need to bear in mind a general point about the relatively equal land distribution that is to be found across Pacific Asia, as compared with other regions of the world. This is illustrated by Table 7.2. This shows the enduring greater level of equality of landholdings across the region as compared with other countries or regions. In Latin America the median Gini coefficient for landholdings is around 0.7. As can be seen from Table 7.2, the figures for the United States are higher still. It is almost as high for the United Kingdom and France. Thus landholdings are less equal in Europe than in Pacific Asia. On the other hand, the experience of earlier industrialization in other parts of the world has tended to be one of sacrifice or exploitation of

Table 7.2 Gini coefficient for farm size in selected Pacific Asian states China

0.41

Indonesia

0.46

Japan

0.59

South Korea

0.34

Laos

0.41

Philippines

0.57

Thailand

0.47

UK

0.66

USA

0.78

Source: World Bank, World Development Report 2008, 324–325.

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Governance in Pacific Asia agriculture for the sake of aggregating capital for industrialization, what was sometimes termed ‘primitive capitalist accumulation’. Since agriculture traditionally provided the most national income in Pacific Asia, it is interesting to examine the extent to which similar processes have played out there. It is one further dimension of the fundamental question whether the path to modernity in Pacific Asia has been different from that of the West. There is a puzzle here: on the one hand, the rapid rate of industrial development, especially in Northeast Asia, would suggest the hypothesis that agriculture had been more exploited than in Europe or the United States. On the other hand, the literature stressing the achievement of ‘growth with equity’ would imply that something quite different had happened. Main point Landholdings in Pacific Asia tend to be more even than in the US, Latin America and Europe

Northeast Asia If we begin with the Northeast Asian states, what seems to be clear is that agriculture did indeed contribute to industrialization in Japan, South Korea and Taiwan both before and after WWII. It did so by two means. The first was through taxes, and the second was through gradual migration of labour from family farms to urban areas for employment in industry and services. This meant that in the early stages of industrial development after WWII, agriculture had to become more efficient. It did so through increased use of fertilizers and, from the 1960s, through the introduction of higher-yielding strains of crops, especially rice – the so-called ‘green revolution’. However, this increased efficiency did not lead to either oppressive exploitation of agriculture as a sector of the economy, or to dramatically increased polarization of landholdings. For one thing, the state reinvested resources in rural infrastructure through improved irrigation, transport and communications, the supply of electricity, as well as education – all of which helped to maintain rural incomes. And as for landholdings, all three governments carried out land reform after WWII under American advice, which had the effect of weakening traditional rural elites and encouraging a more egalitarian structure. What is striking is that, according to Francks (1999), landholdings remained small in all three states. The majority amounted to one hectare or less. There was relatively little selling out of land by smallholders. This contributed to a general shortage of land for sale and in turn pushed prices

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of available land even higher, which further discouraged people from disposing of it. So farmers tended to hang on to their land as much as an asset or a resource, so that if they found it difficult to make a living from agriculture, they would choose to supplement their income from other types of work, especially as the cycle of rice-growing alternated between periods of intense activity and lulls. During the latter, farmers could find other ways to supplement their income; but it meant that it was difficult to maintain increasing efficiency savings through larger-scale cultivation. This was at least in part the explanation for the trend towards agricultural protection that developed from the 1970s. Francks (1999) points out the paradox: the fewer people were employed in agriculture, the greater the apparent readiness of the state to protect it against foreign competition. An explanation offered by Anderson and Hayami (1988: 14–16) is that at lower levels of development states need to raise taxes from agriculture because there are few adequate alternatives. Industrial lobbies are smaller, but more concentrated in urban areas and better able to promote their interests. Peasants are more dispersed and less familiar with government procedures, and so they are less effective at lobbying. Governments and employers want cheap food so as to keep down the pressure for raises in industrial wages when industrial competitiveness is very sensitive to prices. Later, however, as industrial development takes off, governments become more sensitive to the claims of those left on the land, especially in democracies where rural voters command disproportionate influence over electoral outcomes, as was true of Japan. We shall see later on that this trend has extended to other states than Japan. But as Table 7.2 also shows, land inequality in Japan has also proceeded to a point where it is marginally the highest in Pacific Asia. Main points In Northeast Asia the state redirected resources from agriculture to industry in early stages of development But the state also invested heavily in rural infrastructure, facilitating more efficient use of resources and, in practice, limiting consolidation of landholdings

Southeast Asia States in Southeast Asia generally enjoy more favourable conditions for agriculture through climate and soil quality. Southeast Asian agriculture therefore had the potential to make a bigger contribution to industrial development by providing cheap food and cheaper raw materials for

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Governance in Pacific Asia processing, as well as more exports, which could generate profits that could be turned into capital for industry. Nevertheless, in the 1950s and 1960s there were serious problems of over-population on the land in many of the countries of the region. Some regarded the rural impoverishment there as endemic and insuperable (Prawiro, 1998: 129). It is certainly true that Southeast Asian states generate more exports from agricultural products, but what they also show is the effect, though limited, of having no land reform. The difference is most obvious when comparing the Northeast Asian states with the Philippines. There, extremely unequal landholdings have existed since the time of the Spanish Empire, when conquistadors were allowed to seize as much land as they wanted. Of course, geographical conditions have also contributed to the differentiation. Subsequently, upland rain forests were converted into agricultural land, which further profited large landholders with the resources to assert control over them. The intervening period of the Philippines being a colony of the United States saw no change. Lowland farming saw more small-scale farming. Nevertheless, unlike Northeast Asia, Philippine landholdings have tended to be concentrated. According to Hayami (2000: 7) about 14 per cent of land under cultivation was held in plantations of 50 hectares or more. And according to Hara (1994, cited in Hayami, 2000), the oligarchical landowners had less incentives to transfer their capital into industrialization, because they could make substantial profits from agriculture and from exports of commodities such as sugar and tropical cash crops to protected markets in the United States. So although capital existed in the Philippines that could have speeded up industrialization if it had been concentrated in the right places, the specific conditions of landownership there precluded it. There were two attempts to carry out land reform – in the late 1960s, and again in the late 1980s – but neither was implemented seriously. However, the fact of the attempts may have reinforced landowners’ disinclination to invest seriously in improvements in large plantations in case of a third attempt at land reform. David (2003) suggests that it was not land ownership patterns alone that caused the poor performance of Philippine agriculture. The currency was significantly overvalued, which undermined the competitiveness of exports, as did a relatively high inflation rate. All of this combined to depress the profitability of Philippine agriculture. In the 1960s, agriculture accounted for nearly two-thirds of Philippine exports, but by 2000 this figure had fallen to 5 per cent. Since the early 1990s, agricultural imports have exceeded exports, and by 2000 the deficit in agricultural trade was 68 per cent (David, 2003: 180).

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By contrast, agricultural development in Thailand has been more successful, though that may not be primarily attributable to active government intervention. As Doner (2009) puts it, agriculture in Thailand has largely been left to its own devices. Government funds were chiefly targeted at the urban sector. The relative neglect of agriculture there can partly be attributed to more favourable environmental conditions for agriculture in Thailand than in Japan. Until the late 1980s it was possible to expand production by bringing more land under cultivation; for example, by cutting down forests – the per capita area of land under cultivation grew 60 per cent between the mid-1960s and the mid-1990s, though this still failed to keep pace with population growth (Hayami, 2000). Since then it has had to rely upon innovation and diversification of its overwhelmingly small-scale farms for improvements. By 2000, Thailand had become Asia’s most successful agricultural exporter. Average agricultural export growth was around 12 per cent per year from the 1970s until the mid-1990s, which put it higher than the growth rate for the economy as a whole by around 7 per cent. Thus, compared to Northeast Asia, Thailand has relied more heavily upon income from agricultural surpluses to fuel its development, but it did not need to squeeze agriculture or living standards to raise capital as it was generating a significant surplus anyway. Over that period Thailand quadrupled its rice output and became the world’s largest rice exporter, supplying about one-third of world exports. It also greatly expanded its natural rubber production, outstripping Indonesia. In addition, it diversified the range of its agricultural products, became a major sugar producer (while Philippine sugar output declined) and expanded its maize, palm oil and canned pineapple output. And it did so while maintaining a basically smallholder system of landholdings. Indeed, according to Hayami (2000: 25–6), the growing prosperity of Thai agriculture can basically be attributed to sophisticated management of the smallholder system. He argues that size matters, but that small can be good. He identifies several problems with plantation farming: It tends to prioritize capital- rather than labour-intensive farming (a problem when there is abundant labour). It favours monoculture, when different parts of a plantation might be better suited to a variety of crops. Monoculture limits the possible intensity of farming. The specialization of workers on plantations inhibits their managerial and entrepreneurial capabilities. Plantation farms also suffer from clashes of interests between owners and workers. This makes monitoring labour both more important and more expensive.

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Governance in Pacific Asia We shall see in the next section that collective farming also suffers from these disadvantages. In fact, it would be an over-simplification to assume that all Thai farmers have prospered at the same rate as the rest of the country. Table 5.2 showed quite a high level of inequality in Thailand, and the disparity between rural and urban areas is one of the main factors in this. Discontent in the countryside over the prosperity of cities, especially Bangkok, is one of the main causes of the political turmoil from which the country has been suffering over the last decade. We shall return to this in Chapter 12. Nevertheless, there is no doubting Thailand’s agricultural achievements compared to its neighbours over recent decades. Main points In Southeast Asia, the greater availability of land and other natural resources meant agriculture could play a more direct part in early industrial development The government was less involved in transferring resources to other sectors, but it also made a smaller contribution to infrastructural development

Communist agriculture Communist states applied a fundamentally different approach to agriculture. Inspired by analogies with industrial policy-making and the efficiencies that flow from economies of scale, as well as by the model of the Soviet Union, all the communist states in Pacific Asia moved to establish collective farms soon after they were set up. The logic was a mixture of politics and economics. Economically, collective farms were expected to achieve higher levels of production than small-scale plots. This would allow peasants to leave the land and go to work in the new industries. Collective farming would benefit from greater mechanization and would create demand for agricultural machinery that would stimulate industrialization. But since the state needed capital to start industrialization, and since capitalists had been expropriated so that they could not contribute anything more, and since there was no prospect of significant external financial support, not even from the Soviet Union, the only potential source was rents from agriculture. Collectivization was also intended to control agricultural incomes so that they could be made to serve the state. For example, the state would keep the prices of basic foodstuffs low so that workers could afford them without having to be paid high wages. Thus, collectivization also had a political control function – and not just over rents. Since the communist regimes were still young when they introduced collectivization, they were also concerned about the political loyalty of peasants. While the leaders of China, Vietnam,

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North Korea and Laos did not share the obsession of Stalin about the possible alienation of peasants from a regime based on collective ownership of the means of production, they did have anxieties. Collectivization was a way of flushing out potential opponents and, once achieved, would allow greater state control over the countryside. But it was not intended just to extract resources from the countryside. Collective farms were also intended to provide welfare benefits and public services that had previously been beyond peasants’ reach – for example, health care, rudimentary pensions, education for children and so forth. Even though peasant entitlements were never as great as those of state employees living in urban areas, they were nevertheless greater than before and they had the prospect of growing further. All of these carrots and sticks meant that collectivization in China was completed with less peasant opposition than had taken place in the Soviet Union. Up to a million people died during collectivization in 1955–1956 – an enormous figure, but proportionately much less than in the Soviet Union in the 1930s. In fact, collectivization took place at roughly the same time as the launching of industrialization – a time of nationwide radical upheaval – so it was difficult to accurately identify the benefits and costs that came to the agricultural sector, especially as the state was also in the process of constructing its national statistical service on the model of the USSR where the prices of commodities were based not on supply and demand, but on the amount of labour that was supposedly embodied in them. In agriculture, only the contribution of labour to output was used to factor in the cost and set prices. Nature’s contributions through processes such as germination and growth, or relative fertility of soil, were not factored in. This all meant that the statistical system understated agriculture’s relative contribution to the national economy, while overstating that from industry. In China the situation was further complicated when the state moved beyond the type of collective farms found in the Soviet Union to communes which supposedly embodied a higher form of social consciousness – as was outlined in Chapter 4. Even so, there seems no doubt that agriculture did make a major contribution to what has been termed ‘primitive socialist accumulation’; that is, the buildup of the foundations of the communist system. Table 7.4 includes a basic estimate of the amount. Over the next two decades communal farming grew just fast enough to feed a rapidly growing population. Per capita grain production grew 0.2 per cent per year faster than the population between 1955 and 1957 and between 1977 and 1979, but cotton and oilseed output – the two next most important agricultural products – grew more slowly (Naughton, 2007: 240). China avoided famine (except in the aftermath of the Great Leap Forward), but it failed to provide an abundance of food, let alone a great variety. Basic food-

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Governance in Pacific Asia stuffs were all rationed and ration cards were issued on the basis of residence. People could not obtain food except in the places where they were registered as living – the so-called hukou system. They could only obtain food in other areas if they were travelling on officially approved business. This served as a major control over the population and their movement. Exemplifying the disadvantages of plantation farming listed above, but now extended to the national scale, the state imposed targets for grain across the country as the basic obligation for communes, whether or not the land was best suited to grow it. Methods of increasing grain output in one region were then popularized to inspire others, but they could easily have perverse effects. While building terraces on mountainsides to increase available acreage made sense in some regions, they were propagandized throughout the country, even though, for example, it made no sense on the broad, flat grasslands of Inner Mongolia. Nevertheless, hills were made there out of mounds of earth so that terraces for growing grain could be built on them. Local comparative advantage was ignored. Fruit orchards, specialized vegetable production and fishponds were all neglected for the sake of increasing grain output. And although the regime behaved as though the problem of conflicts of interest between owners and workers in plantations had been resolved by communist rule, the commune system did demotivate peasants. The practice of rotating work teams within communes meant that no single team had responsibility for the whole growing cycle of a crop on any single patch of land, so the apathy of some could nullify the extra efforts of others. The effect was to depress enthusiasm. Overall, the failure to improve the general standard of living intensified the underlying and popular sense of disaffection. It was only after Mao died in 1976 that communal farming was challenged, but it became the first major reform of the new leadership and its success generated the momentum for further reforms. By 1984 the communal system had effectively returned to private household farming, though there still has not been a return to private land ownership. Instead, peasants were granted leases to farm particular patches of land for 15 years at first, and then later for 30 years, with some experiments of 50 years. However, it has still not been converted into permanent rights, and some villages have failed to honour the agreements (Lichtenberg and Ding, 2008). The immediate effect of the rural reforms was a dramatic increase in output and a gradual restoration of the traditional variety of crops to suit local conditions, as peasants became able to sell their produce on open markets. It led to a dramatic increase in peasant incomes during the 1980s. Since then, however, agricultural growth has fallen off and rural incomes have failed to keep pace with those in urban areas, contributing to the increasing

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inequality that is reflected in the figures in Table 5.2. In practice, the explosive growth of industry in China has provided an opportunity for ambitious peasants working marginal tracts of land to find more productive employment elsewhere. China has dramatically increased both its agricultural output since 1978 and its variety. For a while it became a rice exporter, but now it has become a net importer of grain and a major importer of soya beans as demand for animal feed has soared, reflecting the demand for a better standard of living. This has kept alive governmental concerns about the need for food security to avoid becoming over-dependent upon foreign suppliers. The state still imposes targets for grain production across the country, even though some regions could profit from their comparative advantage by producing other high-value products that could be exported. Laos only underwent its communist transformation after the end of the Vietnam War in 1975. It was even less prepared for it than China had been. It was extremely poor – according to one of the leaders its agriculture was ‘pre-feudal’ (Evans, 1995: 41) – and conditions had been made much worse by intensive American bombing. The requirements for a planned economy were even more deficient in Laos than they had been in China in 1949. There was virtually no effective state and there certainly could be no effective planning system. Furthermore, it was far from clear how a system of collective farming that had been originally designed for settled communities on the vast open steppes in Russia and Ukraine could be applied in a country like Laos with a lot of highland agriculture, where peasants cultivated swidden rice; that is, they cut down patches of forest, burnt the wood, grew rice for a few years until the soil nutrients were exhausted and then they moved on. In 1978–1979 the People’s Democratic Regime (PDR) tried introducing various forms of cooperatives, but they never became universal. According to Evans (1995: 57), from 1979 the regime aimed at establishing market socialism, relying upon market mechanisms to coordinate the economy since the administratively demanding planning systems of the rest of the communist world were out of the question. The result was that as planning lost its appeal with the collapse of communism in the USSR and the market reforms in China, Laos introduced its New Economic Mechanism in 1996, which restored the legitimacy of all market mechanisms, including capitalist ones. Agriculture went back to household-based farming. Vietnam went through a similar process to China. After gaining independence from France, North Vietnam began its collectivization in 1959–1960 and at its peak achieved 90 per cent coverage of all households. The North Vietnamese government mobilized resources for the country throughout the war with the United States, though output never regained the levels of

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Governance in Pacific Asia 1958–1959. After the end of the war and reunification with the South, collectives were spread throughout the country as an expression of political and socialist unity, but most collapsed within a year. What did not help was the fact that farmers in the South had been more prosperous than those in the North at the time of collectivization, and so they were much more critical of the changes (Masina, 2006: 54). Output remained disappointing and the country had to import large amounts of food. Official minds were concentrated by the ending, for various reasons, of subsidies they had previously obtained from the USSR, China and Western aid agencies. The state decided to remedy this by enlarging the size of collectives to larger communes, as in China, but this only brought short-term improvements. In response, from 1986, the party began to introduce radical reforms known as doi moi (‘renovation’). The centrepiece was the abandonment of collective farming and the return of land to households. Henceforth, peasants were able to decide on the crops that they would grow and to retain the profits that they earned from selling on the open market. This was a defeat for the regime, but the leadership adjusted to it rather than persisting with top-down policies that had clearly failed to appeal to the peasants. They did not attempt to use more coercion to save face. The result has been a transformation of the rural economy. Instead of importing large amounts of food, Vietnam has now become the world’s second-largest rice exporter. Nevertheless, because of difficulties that had accumulated over decades, Vietnamese agriculture and rural society lagged well behind most other societies in Southeast Asia (Boothroyd and Pham, 2000). Main points Communist states aimed at large-scale collective farming to achieve greater economies of scale, greater efficiency and greater political control of the peasantry Focus on national plans led to neglect of local comparative advantage and less food variety Collective farming undermined peasants’ motivation to work hard and made supervision more difficult

State protection of agriculture and the issue of rice The issue of security of food supplies is a recurring major political theme in Pacific Asia. Partly it reflects the general lack of agricultural land in many of

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the states, which has only gotten worse as the populations have grown rapidly over the last 60 years. Industrialization and urbanization have obviously exacerbated the problem further. China is usually presented as the prototypical example, since the country has less than 7 per cent of the world’s arable land, but 20 per cent of its population. However, other states in the region suffer from similar pressures, especially in Northeast Asia (e.g., Japan). Also, as mentioned above, even relatively land-rich countries such as Thailand can no longer bring more land into cultivation and farm more extensively. All are confronted with the challenge of more intensive farming. Of course, as countries have become more prosperous, there is also demand for greater variety of food. But governments in the region mostly equate food security with the provision of basic staple foods, especially rice, and so they protect domestic producers. Table 7.3 provides data on one of the main elements in state protection for agriculture; namely, import tariffs on agricultural products. The data shows that all of the Pacific Asian states impose higher duties on agricultural than they do on non-agricultural imports, with the exception of Hong Kong and Brunei, though these are significantly lower than they were 20 years ago. South Korea practises by far the greatest import protection for agriculture, followed at some distance by Thailand, Vietnam and Japan. Table 7.3 Most Favoured Nation applied tariffs 2008 (in per cent) Simple average for all products

Simple average for agricultural products

Simple average nonagricultural products

Brunei

2.5

0.1

2.9

China

9.6

15.6

8.7

Hong Kong

0.0

0.0

0.0

Indonesia

6.9a

8.6a

6.7a

Japan

5.4

23.6

2.6

12.2

49.0

6.6

Malaysia

8.8

14.7

8.0

Papua New Guinea

4.9

13.9

3.6

South Korea

Philippines

6.3

9.7

5.7

Singapore

0.0

0.2

0.0 4.5

Taiwan

6.1

16.9

Thailand

10.5a

25.2a

8.2a

Vietnam

16.8a

24.2a

15.7a

3.5

5.3

3.3

USA Source: StatsAPEC. a

2007.

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Governance in Pacific Asia However, import tariffs are only part of the support mechanisms for agriculture. There are many other elements of government support for prices as well. Anderson and Martin (2009) have attempted to systematize all of these elements over the period since the 1950s, and they argue that support has grown in most states as development has proceeded. A summary of their calculations is presented in Table 7.4. These figures suggest that almost all of these states extracted resources from agriculture for the benefit of the rest of the economy in earlier periods – only Taiwan and South Korea were exceptions. Now all practise assistance for agriculture, with the very marginal exception of Thailand. According to the OECD (2009: 155,157,162), South Korea and Japan are, respectively, the second and fifth greatest supporters of agriculture in the OECD, with Norway first, Switzerland third and Iceland fourth. Estimates of Korean agricultural price support amount to around 55 per cent of producer prices, while for Japan they amount to around 52 per cent. To a certain extent, governments have sought to promote exports of niche agricultural products where profits are greater. Wu (2007), for instance, has the example of the Taiwanese government actively promoting the cultivation of orchids as a cash crop, largely for export. Farmers in various countries have diversified into growing more lucrative crops, such as tropical fruit, instead of rice. Despite all of these efforts, agricultural products have continued to decline over the years as a proportion of the total value of nations’ exports, as can be seen from Table 7.5. To some extent, this relative decline in the importance of agricultural trade for individual countries helps to explain why it has not become such Table 7.4 Average nominal rates of assistance for agriculture in selected Pacific Asian states over various periods (in per cent)

China Indonesia South Korea

1960–1964

1980–1984

–45.2

2000–2004

–45.2

5.9

–

9.2

12.0 137.3

4.0

89.4

Malaysia

–7.2

–1.0

2.2

Philippines

–5.3

–1.0

22.0

Taiwan

3.6

14.9

6.3

Thailand

–

–2.0

–0.2

Vietnam

–

–

21.2

Source: Kym Anderson and Will Martin (eds) (2009), Distortions to Agricultural Incentives in Asia (Washington, DC: World Bank), 27). Negative figures represent extraction of resources from agriculture for the benefit of other sectors.

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Table 7.5 Proportions of domestic agricultural production that are exported and of domestic consumption of agricultural products that are imported for selected Pacific Asian states (in per cent) Export Share

Import Share

1961–1964

2000–2004

China

2

7

2

7

Indonesia

–

4

–

2

South Korea

1961–1964

2000–2004

0

1

4

13

Malaysia

70

9

13

6

Philippines

13

1

0

1

Taiwan

5

6

24

93

Thailand

–

30

–

5

Vietnam

–

11

–

0

Source: Kym Anderson and Will Martin (eds) (2009), Distortions to Agricultural Incentives in Asia (Washington, DC: World Bank), 19–20.

a big issue in negotiations over the liberalization of global trade. It is relatively less salient. However, another reason for this is the importance that all the states continue to attach to food security – as far as possible minimizing their dependence on world commodity markets for food, or at least the basic staples. Evidence for this can also be seen in Table 7.5 which shows the extent to which states in the region are still self-sufficient in agricultural products. It also shows the proportion of agricultural output that is exported and the proportion of consumption of agricultural products that is imported. As can be seen, the only state that has become really open to food imports among those analyzed is Taiwan – although it should be noted that South Korea is now also a serious food importer, its own domestic support for agriculture notwithstanding. Nevertheless, Japan has a policy to raise the proportion of the average calorific content of the nation’s diet sourced from inside Japan from the current figure of around 40 per cent to 45 per cent by 2014. It demonstrates a continuing will to maintain and even strengthen reliance upon domestic suppliers. And to supplement domestic producers, the more prosperous states, such as Japan, South Korea and China, have begun to seek assured supplies from abroad, either by signing long-term contracts with foreign farming organizations or by buying up tracts of land that will be tied to supplying the ‘home’ market. Rice supplies are most emblematic of the challenges faced. Here the problem is compounded by the relatively small size of the amount of rice traded internationally compared to global rice production. Approximately

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Governance in Pacific Asia only 5–6 per cent of rice produced is traded internationally. The total is only about one-eighth of China’s annual harvest. This makes governments more nervous about possible alternative supplies in case of harvest failures. It is not just a product of political pressure from farmers and lingering nostalgia for the traditional rural way of life, though these contribute too. The consequences of such failures would be both shortages and much higher prices, hitting the poor hard. Unfortunately, unless the amount of rice available on international markets can be significantly increased – and this seems impossible – the pressure on governments to preserve domestic market supplies seems unlikely to diminish. China is the world’s largest rice producer and, according to the US Department of Agriculture, it has increased output from 60 million tonnes of rough rice in 1960 to 193 million in 2008. However, the largest harvest ever was in 1997 when it reached 200 million tonnes. It has never achieved that figure again, and in some years it has fallen to 160 million. Even though China is heavily engaged in trying to develop strains of rice with greater yields, it seems unlikely that this will bring a major improvement to the food/population balance, as ever more land is lost to urbanization and the population continues to grow. At the very least, it means that governments will want to maintain relatively high reserve stocks, which implies that the market will always be carefully managed. Nevertheless, the amount available on international markets is three times what could be procured in the 1970s, in large part because of the increased harvests from Thailand, Vietnam and China. It is therefore possible to have greater confidence in the international market for rice, especially as this could reduce the direct and opportunity costs of individual countries holding substantial reserves of rice (Dawe, 2008). China, like other countries in the region, is somewhat more relaxed about importing other crops. It has become the fourth-largest agricultural importer in the world. For example, the country has seen a great increase in soya bean imports over the last decade in order to help sustain its growing livestock sector. Agricultural trade in other commodities is therefore likely to grow, even if rice lags behind. Main points States continue to intervene to maintain strong control over supplies of staple foodstuffs, especially rice They maintain significant tariffs on agricultural products, though these are lower than 20 years ago They also encourage limited diversification of crops to take advantage of local comparative advantage and niche export markets Agricultural trade across the region is increasing

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Role of MAFF in agricultural policy-making Mulgan (2005) has suggested that in the case of Japan a further explanation for the role of government in this sector that also needs to be factored in is the activism of the Ministry of Agriculture, Forestry and Fisheries. Her basic argument is that over the last 60 years MAFF has expanded its basic orientation towards administrative intervention from just agriculture to all aspects of rural life that impinge on it. According to her, in the 1950s MAFF was a ‘Ministry of Food Production’. In the 1960s it became a ‘Ministry of Farm Incomes’ as well. In the 1970s it expanded into a ‘Ministry of Agriculture and Rural Public Works’. In the 1980s it grew into a ‘Ministry of Rural Development’. In the 1990s it morphed into a hybrid ‘Ministry of Consumers and Food’, which aimed at maintaining food self-sufficiency as far as possible, as well as a ‘Ministry of the Rural Environment’. And, after 2000, it became a ‘Ministry of Food Safety’ too. It has retained all the old functions along with the new ones it has acquired (Mulgan, 2005: 164–8). One of its chief administrative practices has been to distribute subsidies – not just for the production or use of fertilizers, but also to support environmental and transport improvements, create shopping chains, develop residential land, develop marketing, maintain food safety for consumers and so on – so that it has been called ‘an organ for distributing subsidies’ (Mulgan, 2005: 67). Indeed, one farmer is quoted to the effect that farmers find they have to accept subsidies even when they did not really need them, because they would otherwise embarrass the Ministry (Mulgan, 2005: 188–9). The Ministry has substantial staff of its own at the central and local levels – much greater than that of MITI (now METI) for example – and it sponsors a wide number of advisory bodies and trading and wholesale agencies, many presided over by retired MAFF officials who have practised the ‘descent from heaven’ (amakudari). So one of the main motivations of its officials has been to preserve staff numbers by finding things for them to do. This has meant that they instinctively tend to incline towards administrative intervention rather than relying upon the market allocation of resources to guide the development of their sector. A former MAFF official, Yamashita (2010), argues that the government needs to abandon the policy of long-term support for rice growers because per capita demand for rice has fallen over the last 50 years, both as a result of changing tastes and, more recently, stagnating population. Instead, the country needs to reduce the price of rice paid to farmers so that it undercuts

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Governance in Pacific Asia potential imports whose own prices are rising, and the way to do that is to reduce much of the intervention carried out by MAFF. For Yamashita, free trade is the solution to the problem of food security. However, achieving this will be difficult. Mulgan (2010) points out that there is still considerable popular support for rice protection. The current Democratic Party government has rejected the Liberal Democratic Party’s (LDP) previous plan for a phased reduction in agricultural support and reverted to much more comprehensive support for farmers. This case-study from Japan demonstrates the difficulty of ensuring that a government ministry in a developmental state responsible for supervising a sector of the economy continues to focus upon the national interest and promotes national prosperity through competition. It supports the scepticism of critics of state-led sectoral policies, whether in industry or agriculture. The picture that Mulgan paints of MAFF is a ministry that is still far more interventionist than MITI was even at the height of its powers in the 1960s and 1970s. It shows that a ministry can itself acquire interests that conflict with the national interest and result in increased expenditure, waste and opportunity costs. At the same time, the government has achieved the overall objective of limiting rural discontent over the costs of industrialization, and voters have continued to support the LDP party. To that extent, the government and the LDP would no doubt regard the costs as having been worthwhile. Main points The Japanese Ministry of Agriculture, Forestry and Fisheries has refined and expanded its capacity for intervention in agriculture over several decades It is now as concerned with the rural environment and with food safety as it is with promoting food production It has developed its own interests which it seeks to promote through intervention

Conclusion This chapter has examined the economic and cultural importance of agriculture in the development of societies in Pacific Asia. It has shown the paradox of increasing government support for agriculture as development has proceeded across the region, although the extent of that support has varied from one country to another. Many factors have contributed to this – social as well as political. But in general, development has been accomplished with less rural inequality than has appeared in other regions of the world. The chapter has also shown that though the developmental state paradigm may be declining in industry, it is still active in agriculture. Even

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though managing the countryside has become more complex with development, just as managing industry has become more complex, the response of MAFF has not been to move towards less direct forms of intervention – as has happened in industry – but to assume a wider range of responsibilities. Ministries of agriculture in Southeast Asian states are possibly less interventionist, though the trend of growing state support for agriculture can be seen there as well as in Northeast Asia. Nevertheless, increasing prosperity is also leading to greater agricultural trade based on local comparative advantage, apart from staple crops such as rice. To that extent, the quality of life in most countries is becoming more linked to the variety of agricultural products available across the region.

Questions for further discussion 1 Think of ways in which food and cooking play a fundamental role in particular ethnic cultures in Pacific Asia. 2 Compare and contrast the experience of agricultural development in one Northeast Asian and one Southeast Asian state. 3 Was large-scale collective farming in communist states ahead of its time? 4 Are ministries of agriculture in other Pacific Asian states as interventionist as the MAFF in Japan? 5 Can small-scale farming survive further development in Pacific Asia? What are the main factors forcing change?

Further reading Aurelia George Mulgan, Japan’s Interventionist State: The Role of the MAFF (London: Routledge Curzon, 2005) – a very detailed analysis of the operation of the Japanese Ministry of Agriculture, Forestry and Fisheries and the ways that it intervenes in farming and rural life. Emiko Ohnuki-Tierney, Rice as Self: Japanese Identities Through Time (Princeton UP, 1993) – a fascinating anthropological analysis of the layers of meaning of rice for Japanese identity. FAO (2001), ‘East Asia and Pacific’, in FAO, Improving Farmers’ Livelihoods in a Changing World (http://www.fao.org/DOCREP/003/Y1860E/y1860e08.htm) – an excellent overview of the agricultural and rural diversity across the region, as well as many of the social problems confronting them. James C. Scott, The Moral Economy of the Peasant: Rebellion and Subsistence in Southeast Asia (Yale: Yale UP, 1976) – a classic of political science that focuses on traditional strategies of peasants to evade the demands of their rulers. Kym Anderson and Will Martin (eds), Distortions to Agricultural Incentives in Asia (Washington, DC: World Bank, 2009) – the most up-to-date comparative survey of agricultural policy in several Pacific Asian states, though the argument is based upon complex econometric analysis. Penelope Francks, Agriculture and Economic Development in East Asia: From Growth to Protectionism in Japan, Korea and Taiwan (London: Routledge, 1999) – a good comparative overview of the contribution of agriculture to development in Northeast Asia.

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8 Financial Sector Chapter Outline Introduction Developmental state and repressed finance Banking and ‘crony’ capitalism in Southeast Asia Finance in Malaysia Japan’s woes The Asian financial crisis and liberalization responses: Increasing sophistication and autonomy of the banking sector Conclusion Further reading

189 190 197 199 201 205 213 215

Introduction This chapter will look at the evolution of the financial sector in the states of Pacific Asia. It will first raise the general problematic of financial ‘repression’ under the developmental state, especially in the states of Northeast Asia and in the communist states, and will then go on to the less-insulated banking systems of Southeast Asia. The chapter will then look at the travails of the financial system in Japan and the special challenges that economic stagnation there has posed for macroeconomic management. After that will follow an account of the attempts to reform the financial sector and increase its ability to assess risk in the aftermath of the Asian financial crisis. A brief survey of Islamic banking in Southeast Asia, especially Malaysia, will lead on to the Conclusion.

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Developmental state and repressed finance According to Choi and Hiraki (2003) the Japanese financial system differs fundamentally from those in the West. They illustrate this by pointing to the relatively limited role played by financial markets in financing companies. In Japan, bank loans have provided the bulk of long-term corporate finance rather than capital markets, and this has meant that the latter have served primarily as a vehicle for investments rather than as an instrument for assessing and disciplining managerial performance – a point to which we shall return in Chapter 9. There are features of the Japanese corporate system that are unique compared to Asia as well, but the general fact of the much greater importance of bank credit in financing companies has applied throughout Pacific Asia. First of all, let us present a brief overview of the importance of different channels for finance for companies in Pacific Asia over most of the period. Companies at relatively low levels of development tended to attract finance through credit of various kinds rather than raising money from capital markets. Gradually, however, this picture changes, with capital markets assuming greater significance in both relative and absolute terms. This is illustrated by Table 8.1. This Table shows that in 1980 the value of shares traded on the stock markets of most states in the region represented a much lower proportion of GDP than was found in the West. By 1990 the figures for Japan, Taiwan, Hong Kong, Singapore and Malaysia were surpassing those of the United States. Today, capital markets in most Pacific Asian states have reached at least an equivalent level of importance to those in the West. One obvious problem with these figures is that they are subject to more fluctuations because the prices of shares can go down as well as up – this explains the fall in the ratio for Japan after the collapse of the stock market bubble in 1990. Establishing a general trend is therefore more difficult. Nevertheless, Table 8.1 does suggest a general increase in the importance of domestic capital markets in the economic life of most countries in the region. Figures for France and Germany were included because capital markets there are typically considered less important in the allocation of financial resources than in the more liberal United States. What is striking is that stock market quotations in countries such as the Philippines and Thailand now equate to a higher proportion of GDP than in Germany, while South Korea is at about the same level as France,

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Table 8.1 Stock market valuation/GDP ratio for selected Pacific Asian states, selected years 1980 China Hong Kong

1990 a

2000

2008

–

0.0241

0.3810

0.3189b 6.0348

–

1.0519

2.2343

0.0006

0.0447

0.2791

0.5534

–

1.2259

0.9331

1.0230

South Korea

0.0740

0.4824

0.5615

1.1842

Malaysia

0.3972

1.0074

1.4644

1.8029

–

–

0.5346c

0.8845d

Indonesia Japan

Papua New Guinea Philippines

0.0913

0.2056

0.4532

0.7626

Singapore

–

0.9594

1.9103

1.7254

Taiwan

0.1317

1.0462

0.9803

2.0273

Thailand

0.0401

0.2921

0.3622

0.7327

Vietnam

–

–

–

0.2012e

France

–

0.2752

1.1074

1.1232

Germany

–

0.2114

0.7163

0.6498

USA

–

0.5754

1.6368

1.4776

Source: World Bank Financial Structure Database. a

1992

b

2005

c

2003

d

2006

e

2007.

and Taiwan and Malaysia much higher still. Thus, relatively speaking, credit and banks are now somewhat less important factors in the financing of commercial companies, though that is a relatively recent development. The fact that companies were, for a long time, largely dependent upon bank credit for expansion meant that it was easier for the state to direct those companies to expand in areas that the government regarded as more desirable for the national interest. The more funds that were raised from capital markets, the more difficult it would be for the government to assert direction, since it could no longer simply direct companies to do what they were told. Companies could find alternative sources of funds themselves. The financial sector of the economy was another key element of the developmental state, though it was sometimes regarded as a less important priority than either industry or agriculture. The reason was that the main policy focus was to promote industrialization and mobilize resources to realize it. As Andersson and Gunnersson put it: ‘a developmental state is a vehicle of industrialisation that uses control over the financial system to direct national savings into productive investments’ (2003: 38). There was less concern with how financial institutions would assess the most suitable projects for support and the risks that they might face. Implicitly, the state

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Governance in Pacific Asia took upon itself that task. Private financial institutions had less incentive to assess the viability and risks of projects for themselves, since if they went wrong, implicitly the state would provide some kind of insurance against losses, or at least excessive losses – what is termed ‘moral hazard’. The connection between the state and the banking sector was particularly evident in South Korea and Taiwan where banks were state-owned. This made it easier for the state to direct funds towards projects that it regarded as most important for the national interest, even though banks provided normal banking services for companies and individuals as well. In Taiwan, the state controlled around 90 per cent of the banking assets until privatization began in the late 1990s (Shea and Yang, 1994: 220). Tipton (2009) suggests an additional benefit. Private banks in developing countries (e.g., Southeast Asia) are extremely cautious about lending to new business clients with no track record, because they are nervous about potential defaults. State banks can ‘afford’ greater risks because they are backed by the state. Paradoxically, state banking can therefore be more favourable to private entrepreneurs, especially new ones. In South Korea, Woo stresses the importance of the 1970s in forming its model of political economy: ‘Through its mediation of enormous amounts of finance capital, the state achieved its autonomy and its capacity to shape the market, firms, and society at large . . . A credit-based financial system, mediated by an interventionist authoritarian state, became the basis of Korea Inc.’ (1991: 148–9). The objective was the Heavy and Chemical Industry Programme, and one of the chief means was the state’s mobilization of financial resources. There were special policy banks whose objective was to finance development projects in selected sectors of the economy, and which offered preferential interest rates, but state domination of banking practices spread much wider than that. All major banks were owned by the state. Effectively, therefore, according to Woo (1991: 149), for most of the 1970s bank loans became subsidies for companies chosen by the state for special treatment based upon their past performance, especially in expanding exports. Cho and Hellmann (1993) explain that Korean banks competed for domestic deposits so that they could be redeployed for industrialization, rather than used to increase the banks’ profits. Loans were not just based upon deposits from bank customers. In the 1970s, Korea was able to attract many large loans from abroad, especially the United States, and these too were offered to selected companies at preferential rates of interest. All in all, given the relatively high inflation rate in the country at the time, commercial loans, and especially these preferential loans, earned negative rates of interest. It was consumers and depositors that made up the difference.

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Woo describes the consequences for the banking system as follows: Every bank in the nation was owned and controlled by the state; bankers were bureaucrats and not entrepreneurs, they thought in terms of GNP and not profit, and they loaned to those favoured by the state. The monetary authority – the Bank of Korea – forfeited what little autonomy it had during the days of reform (1965–1972); in its stead the Ministry of Finance came to direct monetary policies, the Economic Planning Board to oversee bank budgets, and the Ministry of Commerce to influence the flow of export and other policy loans. (1991: 159)

As a consequence, according to Amsden and Euh: ‘The government used the banking sector as a buffer to absorb shocks in the real sector such as industrial restructuring and the world recession caused by the oil crisis’ (1993: 388). In the early 1980s, economic problems and inflation came to a head, and the state began a slow process of liberalization. However, the after-effects for the financial sector lasted for many years afterwards, as banks only very slowly began to develop the sophistication that was necessary for accurately assessing the risks posed by business customers and the best way of pricing to minimize them. By comparison, the relationship between the state, commercial companies and banks in Japan was more flexible. Certainly, there were four policy banks: the privately funded Industrial Bank of Japan, the Long Term Credit Bank and the Nippon Credit Bank, and the state-funded Japan Development Bank (JDB). These were intended to finance big projects that would increase the competitiveness of Japan and its companies. In practice, they were heavily involved in funding electricity generation, coal mining and transport projects. They obtained funds and offered loans at preferential interest rates. Until the end of the 1970s, they accounted for between a quarter and a half of all loans to business. But they could not take private deposits other than from companies to which they loaned money. This kept them focused on long-term business. For these commercial banks the state did not issue instructions on lending, as happened in Korea. State leadership was less direct. Instead, it sought to persuade banks and companies to cooperate in determining the projects that would be nationally beneficial and in finding the means to realize them. There were also proportionately smaller government subsidies and directed credit than there were in Korea. Nevertheless, the incentive environment of banks was still influenced by the government. Private banks were given incentives to support the government initiatives, such as lending to the same firms or sectors as the

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Governance in Pacific Asia government financial institutions by participating in syndicated loans organized by the JDB. The private banks also played close attention to the administrative guidance of the MOF (Ministry of Finance) and BOJ (Bank of Japan) because they depended upon discretionary decisions of the government, such as branch licensing and overloans (Cho and Hellmann, 1993: 14). One characteristic of the financial system at that time was its segmentation into various separate types of business. There were the ordinary commercial banks, both national (‘city’) banks and regional ones, including local mutual ones. There were trust banks which took deposits and managed trusts and pension funds. There were various kinds of cooperative banks: for small- and medium-sized enterprises, farmers, fishermen, forestry, labour organizations and credit cooperatives – most of them operating in individual prefectures (Hoshi and Kashnyap, 2001: 131–5). This proliferation of types of financial institutions helped to catch and mobilize spare resources; however, it was unwieldy, it did not facilitate efficient allocation of resources and it was costly to regulate. As Cargill and Yoshino put it: ‘In 1975, Japan possessed one of the most rigidly regulated and administratively controlled financial systems in the world’ (2003: 74). In addition, there was the enormous Postal Savings System (PSS), which played a vital role in forwarding savings – especially from the countryside – to the state, which then allocated them to priority projects through the FILP (Fiscal Investment and Loan Programme) scheme. These were primarily infrastructural projects, but the state also contributed to governmentsponsored funds such as the JDB and aid for small business (Cargill and Yoshino, 2003: 10–11). The PSS benefited from the fact that there were far more post offices than bank branches, so it was often more convenient for small depositors to use. Although the interest on PSS deposits was low, it was tax-free until 1986, and although there were limits on the maximum that could be held in any one account, there was, in practice, no limit on the number of such accounts that anyone could hold. Also, the PSS offered life insurance, so it competed with the private insurance sector as well. The proportion of total bank deposits represented by PSS savings deposits grew inexorably from around 12 per cent in 1950 to nearly 34 per cent in 1999 (Cargill and Yoshino: 2003: 39–40). However, over time the original PSS objective of mobilizing all available savings for development came to be diluted by political pressures and diverted to other things. For example, the government sometimes used the backing of PSS funds to intervene to

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support the stock market and land prices. And the effect of the FILP upon the economy remained significant, since it distributed the equivalent of roughly 10.9 per cent of GNP in 1999, the highest proportion since 1950 (Cargill and Yoshino, 2003: 144). In addition, the main bank system, especially in its heyday (1950–1975), involved the largest banks in detailed monitoring of their clients among commercial organizations – stretching all the way from the assessment of requests for new funds to the supervision of the way that the funds were used as they were being disbursed and the checking on the accounting for their use afterwards. This was a much wider range of responsibilities than banks take on in the United States, where a lot of the monitoring of company use of funds is done by independent auditors, financial analysts and other agencies. Hashimoto (1997: 32) compares the relationship between the main banks and companies to that between a family doctor and patient; the doctor monitors the health of the patient and intervenes when things start going wrong. But for successful companies that did not need long-term loans, such as Toyota, the monitoring role of main banks was largely ritualistic. Still, main banks were able to extract higher rents from these activities because they were the beneficiaries of information asymmetry – they knew better than other outsiders the real performance of companies (Aoki, 1994: 113). At the same time, the main bank system diffused the danger of statebacked moral hazard, because the banks were responsible for ensuring that companies were not running up unsustainable deficits in the expectation that the government would bail them out. It was the responsibility of the main bank, rather than the state, to rescue companies that were in difficulties. The association of state and banks in the allocation of and accounting for credit reduced the need for risk premiums on loans for investment and enabled companies to focus more easily on long-term rather than shortterm returns (Cho and Hellmann, 1993: 15–16, 19). Cho and Hellmann (1993) stress the role that the government played in facilitating credit for industry at the early stages of development in both Korea and Japan, but they particularly stress the importance of the mechanisms of implementation and detailed government involvement that both Japan and Korea adopted to reinforce the effectiveness of the credit that was made available. At the same time, they also emphasize the declining importance of these kinds of state-finance arrangements with further growth over time, even though bureaucrats resisted pressures to relax their controls. The economies became more complex. Governments could no longer monopolize solutions

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Governance in Pacific Asia to information asymmetries in determining how best to allocate credit. General (‘city’) banks began to compete with long-term credit banks for business. Entrepreneurs became more important in identifying new market opportunities and exploiting them. So pressures built up to liberalize economic management, especially in industry and finance; and, from the 1980s, international pressure for liberalization also began to grow. From that period the banks found that they had to adapt to changing circumstances – in particular, market liberalization – within Japan. The segmentation of different kinds of financial service providers was eroded. Banks were forced to compete more with other institutions as potential suppliers of funds for companies. In Japan, for example, the deregulation and internationalization of bond markets in 1975 opened the way for companies to seek investors abroad as well as from non-banking institutions such as insurance companies. Banks also began to compete more over the interest rates that they charged to clients, which reduced profits from them. This weakened the ability of the banks to monitor and control what their company clients did with funds. Then, from the 1980s, the opening to sources of finance outside the country reinforced the liberalizing effect, which further weakened the power of Japanese banks. This particularly hit the long-term credit banks as companies found that they could finance their needs equally or more cheaply abroad. So, for example, the Long Term Credit Bank, awash with funds that it could not loan out profitably to industry, reinterpreted its mission for long-term economic projects to include much more investment in land development instead of primarily long-term investments in industry. It became much more involved in real estate mortgages, which intensified the inflation in land prices throughout that decade (Tett, 2003). Indeed, banks in general sought to replace the substantial profits that they had enjoyed from privileged relationships with their clients by diversifying into real estate and benefiting from the increasing values of land, all of which contributed to the ‘bubble’ in property prices that overtook Japan in the late 1980s – the consequences of which the country is still trying to recover from (Aoki, 1994: 136). Key points Banks were much more important than financial markets in financing business in Pacific Asia until recently Developmental states in Northeast Asia ‘repressed’ finance, subordinating it to the primary goal of directed industrialization Increasing economic complexity and external pressures for liberalization gradually eroded the administrative controls

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Banking and ‘crony’ capitalism in Southeast Asia As was explained in Chapter 5, the relationship between the state and the economy was different in Southeast Asia than it was in Northeast Asia. There was a looser relationship between state leadership and economic development. The same applied to the financial sector. This was partly because of the greater opportunities for attracting FDI to finance industrialization in Southeast Asia instead of having to rely upon domestic savings, as in Northeast Asia (Andersson and Gunnersson, 2003: 140). However, it was also because of the fact that in most Southeast Asian states, banks were, and are, less dependent on the state. Instead, they are closer to and sometimes owned by private business groups. The most obvious example was the Philippines. As Hutchcroft put it: ‘In Philippine-style oligarchic patrimonialism, dominant social forces have an independent economic base outside the state but nonetheless rely upon access to the state as the major source of accumulation’ (1998: 65). In the 1960s, the state made no effort to guide the allocation of credit to particular sectors. ‘Unlike their counterparts in South Korea and Taiwan, Philippine entrepreneurs could quite easily take the money and run’ (Hutchcroft, 1998: 86). Moreover, conglomerates, usually dominated by oligarchic families, could quite easily obtain permission for banking licenses and this was attractive both because it would help the companies’ own financing needs, and also because banking was very lucrative. Then, in 1969, Marcos raided the central bank to ensure re-election, and after the declaration of martial law in 1972 the regime squandered the opportunity to introduce effective regulation to clean up the banking sector. Instead, banks that got into difficulties were often forced to sell out to Marcos cronies – 12 banks in total did this (Hutchcroft, 1998: 110–42). After his fall, introducing effective regulation of the banking sector was not a high priority, and central bank supervision continued to be noted for inconsistency in the way that it treated errant banks. In Thailand, Hewison (1989) describes the emergence over 30 years of six large banks controlling, by the early 1980s, roughly two-thirds of all commercial banking assets. Of these only one was state-owned. Moreover, although the Thai state had earlier sought to direct industrialization, it generally gave up the attempt to mobilize national savings itself. Instead it relied more upon a combination of national planning and the commercial self-interest of banks. So banks created a much wider web of contacts with companies to develop their businesses based on their own interest, but they

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Governance in Pacific Asia have been less inclined to prioritize industry at the expense of agriculture and commerce (Noble and Ravenhill, 2000: 10). The state was less effective in regulating banks’ activities and restricting insider dealing, which led to greater collusion and corruption. In 1996, for example, the Thai government spent US $7 billion in bailing out the Bangkok Bank of Commerce (Haggard, 2000: 25). Indonesia’s financial system has been more of a hybrid. It began as a much more state-dominated system, but has evolved into one where the private sector has overtaken it. During the office of the first president, Sukarno, the state took increasing control of the financial sector. Sukarno had earlier nationalized all former Dutch-owned banks, and, in 1965, he amalgamated all state banks with the central bank into a single Bank Negara Indonesia. This amounted to a level of state control that was similar to that of Korea or Taiwan, but even more centralized. However, his overthrow and replacement by President Suharto in 1966 led to a reversal in policies towards the financial sector. The central bank was separated from other state banks again in 1967–1968, and state banks were re-established with defined responsibilities for financing particular sectors of the economy. It did, however, attempt to introduce some competition by dividing the economy into a number of sectors and assigning responsibility for providing finance for each key sector to two banks. The state banks’ share of the credit market rose from 49 per cent in 1968 to 72 per cent in 1974 (Rosser, 2002: 52–5). However, Suharto also abolished capital controls by 1970, which meant that Indonesians and Indonesian companies could send money abroad and gain foreign credit if they wanted (Cole and Slade, 1996: 3). This increased competition for the state banks, even though the state used administrative means to try to keep control over the amount of credit that was available. As long as oil wealth flowed into the country through the state-owned oil company Pertamina in the 1970s, state agencies would siphon off portions of it to fund national priority projects. So the state banks’ role in determining which funds should go to which projects was circumscribed. But Pertamina itself collapsed in 1975 and had to be rescued by the state after losing US $10.5 billion, roughly equivalent to 40 per cent of Indonesia’s GDP at that time. It had spread its interests and commitments far too widely. The dramatic fall in the international oil price from 1983 put great pressure on state finance and banking. Indonesia needed more support from the international financial institutions (IFIs) and became more amenable to arguments for financial liberalization. The government introduced measures for greater use of market methods to regulate the economy. This meant deregulation of financial services, allowing more new (private) entrants into

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the market, while the state (at least in theory) paid more attention to the prudential regulation of banks. In practice, this allowed commercial conglomerates to set up their own banks, both to attract new business and also to finance their own operations more cheaply. Gradually, the state attempted to stiffen regulations on the amounts that banks could lend to individual clients, especially those associated with the banks. However, during the first half of the 1990s there was a series of financial scandals where private banks ran into difficulties because of large lending to their associates. Although the Bank of Indonesia identified 70 out of 240 banks as breaching the regulations on the proportions of their assets that they could loan to particular types of clients, the central bank had not taken any action against them because of the political connections of the debtors (Rosser, 2002). Thus, by 1997, Indonesia’s banking system still fell far short of a marketbased system. ‘Rather than improving the efficiency of the economy, the banking system’s main functions were to provide funds for state-sponsored development projects, underwrite populist programmes and protect large and well-connected conglomerates’ (Rosser, 2002: 83). The banking system had the worst of both worlds. Not only did it suffer from the persisting defects of excessive domination by state agencies, but it was also excessively vulnerable to exploitation by politically well-connected businesses that used their privileges to extract greater loans and then default on repayment. Key points The state in Southeast Asia has played a less prominent role in finance, with greater connections between the owners of banks and commercial conglomerates The state has also been fairly ineffective in regulating banks, with numerous deals between ‘cronies’

Finance in Malaysia In Malaysia, regulation of the banking industry has been complicated by two factors. First, there has been cronyism as elsewhere in Southeast Asia, but in this case the problem has been compounded by government policy. Between 1971 and 1990 the Malaysian government implemented its New Economic Policy (NEP), which was aimed at increasing the share of national assets owned by native Malays (or ‘sons of the soil’, bumiputra). The objective was that by the target date Malays should own 30 per cent of all publicly quoted companies instead of the 1.5 per cent in 1969. This would weaken the economic dominance that Overseas Chinese and foreigners had

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Governance in Pacific Asia inherited from colonial times. Among the measures introduced was the requirement that 30 per cent of all future Initial Public Offerings (IPOs) of shares in public companies had to go to bumiputras. Between 1970 and 1990 bumiputra or government companies took over eight of the top ten banking institutions, which had been controlled by Chinese or foreign interests (Gomez and Jomo, 1997: 60–6). The NEP did improve the economic position of Malays and, even though the target was not achieved, the policy was effectively continued for several years afterwards. By 1997, Malay ownership of national economic assets had reached nearly 20 per cent. However, the consequence for the banking industry was detrimental. Banks were supposed to provide the finance for this transfer, but they found that the Malay businessmen to whom they had given loans did not always repay them. Occasionally, banks made spectacularly bad investments. For example, the Bank Bumiputra, which had been primarily intended to finance the acquisition of assets by Malays and whose first chairman was a senior Malay politician, had to be recapitalized three times after massive losses. The first time alone it lost an estimated US $600 million on a huge property investment in Hong Kong by a single entrepreneur, George Tan, and a further $400 million on two others (Milne, 1987), and by 1998 the bank had to be bailed out again twice more. In the end, in 1999, the bank was absorbed into the CIMB Group. Nor was this the only bank to suffer corruption and bad debts. However, these losses were dwarfed by the losses of the central bank, the Bank Negara Malaysia, which lost anywhere between US $6.23 and $7.78 billion in foreign exchange speculation in 1993 – an activity that, in addition, seems un-Islamic. The second factor was that, in Malaysia, the development of sophisticated expertise in financing was further complicated by the emergence of Islamic banks dedicated to different principles of lending from those of the West. There were no established models that these societies could follow. They had to innovate as they went along. Islamic banking was introduced by law in Malaysia in 1983, which led to the establishment of the Bank Islam Malaysia Berhad (BIMB). This was dedicated to serving the needs of Islamic clients on the basis of shari’ah principles. There is now a second Islamic bank, the Bank Muamalat Malaysia Berhad. Gradually, other banks began to offer shar’iah-compliant services to clients. Then a network of investment banks, bond-issuing institutions and insurance companies emerged. At the end of 2009, the Islamic banking sector accounted for 19.6 per cent of the total banking assets of Malaysia, which was almost exactly the target that the state set itself for 2010, where in 2002 the figure was 10.2 per cent (Bank Negara Malaysia, 2009: 60). The BIMB has also suffered from

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bad debts, and in one year – 2005 – it made a loss of US $184 million, but this was much less than those at Bank Bumiputra. Malaysia is now the largest Islamic banking market in the world. The most obvious difference from banking practice elsewhere was the ban on usury, which means no interest should be paid on loans. Instead, the bank would be paid in a share of the profits from business activities. Over and above that, as Venardos puts it: ‘Ultimately, the aim of the Islamic economic system is to allow people to earn their living in a fair and profitable way, without exploiting others, so that the whole of society may benefit’ (2006: 42). He mentions two other activities that are banned: gambling and risk-taking, though the Malaysian state runs lotteries, and risk-taking has been interpreted as acceptable if the financial risk lies solely with the lenders and not with the managers and agents. However, Islamic banking practice rejects the use of options, futures and derivatives to hedge possible risks to assets (Venardos, 2006: 43–4, 57). In theory, the refusal to charge interest on loans could greatly complicate the state’s management of the country’s money supply, since manipulation of interest rates on deposits with the central bank is the key tool normally used by governments to regulate money supply and, thus, the whole economy. If Islamic financial institutions do not charge interest, then their lending policies might get out of step with the central bank’s priorities. However, a study by the Malaysian central bank in 2006 showed that the amount lent by Islamic banks was very similar to that of other banks (Bank Negara Malaysia, 2006: 70). One of the innovations that has contributed to this has been the practice of paying variable instead of fixed rates of profit on loans for property and on term financing, which has made the credit system more flexible (Bank Negara Malaysia, 2003: 187–9). Key points Banking in Malaysia was bedevilled by government policies aimed at increasing the economic clout of ethnic Malays Malaysian banking has also become more complex with the increasing importance of Islamic banking

Japan’s woes No country in Pacific Asia has suffered greater woe from deficiencies in its financial system over the past 20 years than Japan. The problems surfaced in 1990 with the bursting of what was termed the ‘bubble’ economy. Over

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Governance in Pacific Asia previous years, Japan’s economic success had flooded the country with cash. With the financial market relatively repressed, the range of products available for savers and investors had been fairly limited. With interest rates on savings relatively low, savers and investors turned in large numbers to real estate as a store of value and a hedge against inflation. Companies, too, went for property so that it could serve as collateral for loans from their bankers. This ramped up demand. Then, as property prices rose, so too did the value of the collateral, which in turn unlocked further loans that could be used to buy more real estate. It seemed a virtuous circle – and much less onerous for companies than raising capital on the stock exchange. As exports continued to surge and the economy prospered, there seemed to be no problem. In 1990, the Tokyo Stock Exchange index was almost 600 per cent higher than it had been in 1980, and the urban land price index was 400 per cent higher, while GDP was 200 per cent higher (Fujii and Kawai, 2010: 2). However, by the end of 1990 the ‘bubble’ burst. Finally, the Bank of Japan raised interest rates to cool the economy, but it spooked bankers. Once confidence in the value of real estate was called into question the virtuous circle mutated into a vicious one. Banks started calling in loans. This affected the cash flow of companies, which had to start liquidating more property assets. Banks had put the value of the property-backed loans on their balance sheets as assets, but now their shrinking value affected their own creditworthiness, since it reduced their capital. So they started calling in more loans. Also, banks had been allowed to put shares on their books that they held in other companies as assets at the price that they had paid for them; but once share prices started tumbling, this further weakened their capital position (Fujii and Kawai, 2010: 2–3). They resisted pressures to admit to the falls as they realized that this would affect their ratings. However, it hit confidence anyway as no-one knew the true picture and the tendency was to fear the worst. All of this undermined the supposed strengths of the main bank system – namely, the greater familiarity of lending banks with the real conditions of the business of their main clients and therefore their greater capacity to discipline company finances. It seemed that banks were as much in the dark as other outsiders were; or worse yet, that they had an interest in closing their eyes to weaknesses. Economic growth ended until 2003, with only anaemic growth since then. The crisis was exacerbated by governmental delay and mistakes in tackling the problems. For a few years the government complacently assumed that economic growth would soon return, as it had in previous crises, but the Ministry of Finance (MOF) was also eager to avoid deficit spending.

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This was partly a matter of principle – the MOF believed in balanced budgets – and partly a concern about the future prospect of an aging population that would put ever greater pressure upon national resources. The MOF also hoped that the problems could be resolved discreetly without forcing banks to openly admit their losses in case it undermined confidence (Hoshi and Kashyap, 2008: 12). However, when no improvement came, it had a rethink and attempted to re-stimulate the economy as it had done in the past by pouring money through the FILP into public works, infrastructural projects that would increase employment and also economic efficiency. More bridges and bullet train lines were built to ever more distant outlying areas, though few would ever use them. Still this brought no serious improvement. According to Sakakibara (2003: 36), by the 1990s the marginal productivity of infrastructural construction had fallen to almost zero. Then, in 1997, Prime Minister Hashimoto put together a radical plan for a ‘big bang’ liberalization of financial services. This would have put an end to the ‘convoy’ system of the BOJ shepherding all the banks in the same direction and at roughly the same pace – as it used to do in other sectors of the economy – and, it was hoped, would inject greater competition and transparency. However, Hashimoto’s party lost seats in the 1998 Upper House elections and he resigned before the plan could be implemented. His successors reverted to traditional public works spending on an even more heroic scale, but this still failed to restore growth. It did, however, dramatically increase Japan’s national debt, which soared from roughly 50 per cent of GDP in 1990 to roughly 190 per cent of GDP in 2009, which put it second only to Zimbabwe. But at least from 1998 the government finally attempted to get to grips with the problem of Non-Performing Loans (NPLs) in the banking sector, although it became clear that no-one, not even the government, really knew the full extent of the losses in the banks. Then, in 2001, Prime Minister Koizumi proposed the privatization of the Postal Savings Bank, which would eliminate the bank’s preferential treatment by the state and establish a more level playing field for all banks. It was a pale version of ‘big bang’, but at least it was an attempt to restructure the financial system and raise the effective use of the nation’s savings. He managed to get this proposal approved by parliament in 2007, but bitter opposition still persists in rural areas, and especially in parliament. and in any case full implementation is due to take ten years, so the proposal has not led to any kind of dramatic improvement. It is the banking sector in Japan that has suffered the greatest pain. According to Fujii and Kawai (2010: 8) the government had to inject ¥96 trillion into the banks between 1992 and 2004, although a lot had been

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Governance in Pacific Asia repaid by banks by 2008, following a series of mergers. This represented roughly 19 per cent of GDP. However, the costs to the economy went beyond that, since they also affected other sectors. One estimate put the fall in GDP that could be attributed to the continuing banking crisis between 1997 and 2000 alone at 18 per cent (Fujii and Kawai, 2010: 8). And though the banking crisis has by now been largely resolved as banks have been adequately recapitalized, the Japanese economy still languishes. The average growth rate throughout the 1990s was 1.5 per cent, which was raised to 1.72 per cent between 2000 and 2007, until it fell by 1.2 per cent in 2008 and by 5 per cent in 2009. Thus, whereas in earlier decades banking in Japan had been subordinated to the demands of industrial development, since the ‘bubble’ burst, industry has been handicapped by the persisting problems of the banking sector. The government, too, has been perplexed by the inability to restore growth through conventional economic means, and it has not been for lack of detailed analysis (Muramatsu and Okuno, 2002). The BOJ has been forced to cut interest rates to zero in the hope of stimulating demand and prices have fallen, but in part because of the caution of aging savers who are afraid of increasing costs for future medical care and old age – an issue to which we shall return in Chapter 10 – this has still not worked. To make matters even more complicated, it has allowed savers and companies to try to make profits abroad by borrowing at home for free and then trying to use what they have borrowed for profit overseas instead of spending it at home – the famous ‘carry trade’. By 2007 there was speculation that up to US $1 trillion had been frittered away like this (The Economist, 2007). The Japanese problem of formulating policy to stimulate growth in an era of zero interest rates and price deflation (i.e. falling prices) has attracted increasing attention elsewhere, especially since the global financial crisis started in 2008. Other countries have begun to find themselves in a similar predicament. Analyses of the problems and proposed solutions have diverged radically. Werner (2005) has sketched out a new ‘paradigm’ for macroeconomics based upon the Japanese experience. For him, the key objective of macroeconomic management for governments should be control of credit rather than money supply. This means the solution is in supply side control. Koo (2008), on the other hand, agreed that monetary policy is of little help in a depression, but identified the main problem as the fact that overleveraged Japanese companies kept trying to reduce their debt rather than increase their profits, as classical macroeconomic theory would predict. Because there was inadequate demand for funds, the solution, for him, has to lie in demand-side remedies. He is more confident about

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the Japanese economy returning to growth when businesses have reduced their debt. In the interim, as was mentioned in Chapter 6, the Japanese government has recently been tempted not merely to control overall credit, but also to try to direct it once again towards economic activities that it regards as more beneficial for the nation, as it did until the 1980s, since it cannot rely upon interest rates to ration credit efficiently. Otherwise, too much credit will continue to chase profits abroad and property at home. Ineffectiveness of financial management has led to a return in Japan, albeit to a limited degree, of a sort of targeted industrial policy. Key points The bursting of the property bubble in 1990 caused great damage to the banking sector and the economy as a whole, since it undermined the basic credit relations between banks and their business customers Since then, Japan has only enjoyed very limited economic growth, despite various increasingly desperate government remedies The reasons for the ineffectiveness of monetary policy in an era of price deflation and zero interest rates have attracted wide theoretical analysis, as the experience becomes much more relevant to other countries after the global financial crisis of 2008

The Asian financial crisis and liberalization responses: Increasing sophistication and autonomy of the banking sector In the middle of 1997, the Asian financial crisis broke out – the biggest region-wide reverse after the economic successes of the previous decades. It soured relations between Asian states and the International Financial Institutions (the IFIs), especially the IMF but also the World Bank, as well as the West, especially the United States. It caused drastic reforms of the political economies of almost all states in the region, and sharp increases in poverty. It also brought down the New Order regime in Indonesia and nearly brought down Prime Minister Mahathir in Malaysia. It was called the Asian financial crisis and many elements emerged from the financial systems of various states, but it challenged national economic systems as a whole. The reforms that

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Governance in Pacific Asia ensued went wider than finance sectors alone. The crisis also changed the perspective of decision-makers and economists in the region about the significance of banking in the economy. According to a former governor of the Indonesian central bank: [I]n general, macroeconomists did not include the state of the banking sector as an important item in economic fundamentals. Banking issues have traditionally been treated as microeconomics. This was even true for most academic definitions of economics. In other words, in a macroeconomic analysis, the workings and soundness of the banking sector had been assumed to be present, or taken for granted. Only after the Asian crisis did economists explicitly acknowledge that the soundness of the banking sector should be included in the analysis of a national economy. (Djiwandono, 2005: 28)

The crisis started in Thailand, but its effects rippled around the region, with only a few states relatively untouched by it. The causes remain a matter for heated dispute, with some putting more stress upon factors internal to individual countries, and others placing more stress upon international factors. Among the internal factors, we can mention the relatively unsophisticated banking systems, the opaque ownership structures of many companies, corruption and collusion between businessmen, political figures and state regulators, as well as bad luck. Among the external factors were the much greater inflows of foreign funds in the region compared with earlier periods: in 1996 inflows in Asia amounted to US $110 billion, compared with an annual average of under $17 billion in the period 1983–1989 (Noble and Ravenhill, 2000: 3). This was then aggravated by concerted, and at times aggressive, speculation by international financial institutions, especially hedge funds, and nervousness among foreign investors about just where their money was and how they could recover it. The problems were compounded by the rather brutal remedies imposed by the IMF which seemed ill adapted to the specific features of the Asian crisis. As the preceding sections have suggested, in 1997 the financial systems of most states in the region were still rather inexperienced in risk-management. This was a consequence of decades of financial repression. Although many states had suffered from costly financial and banking crises of one kind or another, they had been resolved through state bailouts. Whether because of their great dependence upon the state or upon other business owners, banks had not become very independent-minded, robustly concerned about ensuring their own viability. However, when they had failed, these had been basically domestic affairs.

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In the 1990s, however, this picture changed as financial globalization gathered momentum across the region. This was driven by pressure from outside the region, as the IFIs recommended greater financial deregulation and liberalization, and as international financiers became more attracted to the region by its prolonged economic achievements. But it was also driven from inside the region as companies sought to attract funds from outside, often at rates that were more advantageous than domestic ones, and sometimes for purposes on which their own governments frowned. In particular, foreign capital greatly amplified what was available for real estate development and speculation. And while governments in many states were weary of bailing out their own banks and bedazzled by the tides of money that rolled towards them, as well as the prevailing neoliberal orthodoxy of the IFIs, they were not so quick to establish robust regulatory institutions and practices to monitor their behaviour. Moreover, both governments and businesses believed that if their currencies were pegged to the dollar, and if they continued to enjoy great export success, there was little danger of financial overstretching. In an era when international interest rates had remained low, it did not seem to matter whether companies took out short-term or longterm loans from abroad because the rates would not fluctuate much and there would always be enough to keep up repayments. So several countries took on a large amount of short-term debt in the mid-1990s to finance longterm investments – for example, in real estate. Indeed, some states removed restrictions on short-term borrowing while retaining them for long-term or ‘strategic’ borrowing, thereby intensifying the mismatch. The crisis broke in July 1997. Over previous months the Thai authorities had been struggling with a growing number of non-performing loans in the banking sector. Rumours of financial problems there had been circulating for weeks and the Thai central bank was forced to keep intervening in an attempt to maintain the value of the baht, especially as exports had fallen by 23 per cent in 1996 (Krongkaew, 2003: 100). In part this was a consequence of tying the baht to the US dollar, which had started rising in value. Speculators had also become involved, adding to the pressure. By mid-1997 the country’s foreign exchange reserves were almost exhausted and the government collapsed. The new government had to admit defeat and let the currency fall against the dollar. Once this happened, it opened the floodgates. Speculators began to look for alternative targets, trying to uncover other weaknesses from which they could profit. They realized that if they speculated against a currency and also against shares on a country’s stock market, then they could make large profits because either the value of the currency or the stock market index would fall. On the other hand, foreign

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Governance in Pacific Asia investors worried about the possibility of getting their investments back, especially when they had relied upon connections with and assurances from leading figures in the state as the ultimate guarantee for those investments. What exacerbated the pressure was the opacity of cross-shareholdings and accounts in many public companies and the uncertainty of bankruptcy procedures. Suddenly, investors realized that they knew far less about who owned what and who was responsible for what than they had thought. The whole region seemed to suffer from the same weaknesses and uncertainties as Thailand. The most vulnerable seemed to be those with an explicit peg between their currency and the US dollar. An obvious immediate target was Hong Kong, which had only just returned to China and where the implications of the return for the currency peg against the US dollar were uncertain. In fact the Hong Kong authorities were able to fend off the speculators, though this involved them in buying shares on the stock market for the first time to prevent a stock exchange collapse. Taiwan was also able to resist pressures because it had substantial foreign exchange reserves and because it still imposed serious limits on the amounts that foreign investors could liquidate and send abroad on any one day. China and Vietnam were largely immune because they still had much greater administrative controls over capital flowing into and out of the country. In any case, China had allowed its currency to fall against the dollar in 1994. Japan was in the doldrums but had large foreign exchange reserves to defend the currency. Its currency, too, had fallen against the dollar. Internationally, it was a creditor rather than a debtor. The Philippines was less exposed because it was still cooperating in a restructuring programme with the IMF from earlier crises, so it quickly received IMF support. South Korea, Malaysia and, a little later, Indonesia all found the pressures much more difficult to resist. South Korea was forced into a major restructuring of the chaebols, and the Indonesian regime collapsed, as already mentioned. Malaysia, in the end, responded differently, standing up to the external pressures by preventing foreign investors from being able to recover their money for a year, but this antagonized the IFIs for a while and closed off the possibility of IMF support. Once countries got into difficulties, they tried to get help from the IMF, but the latter insisted upon further liberalization of the economy in return for its support. And, applying the lessons of recent financial crises in Latin America, it insisted upon cuts in government expenditure. However, this caused great anger in East Asia, because their governments, unlike those in Latin America, had not been especially profligate. South Korea, for example, had a national debt to GDP ratio of just 7 per cent on the eve of the crisis,

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one of the lowest figures in the world, and yet it was one of the worst hit (Kim and Whang, 1997: 288). The crisis in East Asia was more one of private than public insolvency. By insisting upon government cuts, the IMF was preventing governments from mitigating the pressures of increasing unemployment, thereby depressing domestic demand even further. Worse still, it looked as though the IMF was imposing policies that would bail out private lenders in the United States and elsewhere, who should have been more cautious, at the expense of the peoples of Pacific Asia. The impact upon the economies in the short run was catastrophic and worse than the IMF predicted. Most suffered steep falls in GDP in 1998. The Indonesian economy fell 13.6 per cent, the Thai economy fell 10.2 per cent and the Korean economy fell 5.8 per cent. In the case of Thailand the IMF’s worst-case expectation about the impact of the measures had been zero growth (Blustein, 2001: 76). The former deputy prime minister of Thailand vented the sense of victimhood that was felt across the region in a speech to a conference on globalization in Beijing in the summer of 2000: In the 1990s capital flowed into the emerging economies like water into the lower basin after the floodgates are lifted. After a while, the whole basin becomes heavily flooded. All the farms, buildings and cattle are submerged under water. When everything is destroyed, the water is quickly drained out, and the whole area dries up completely. Then we are blamed that we are cronies, imprudent, inefficient, over-investors, have weak financial institutions, a poor supervision system, the wrong exchange rate regime, and a poor auditing system. After accepting the IMF’s bailout funds, we were forced to accept a ready-made formula prescription that forced our economies to contract drastically, so that the lenders could recover their money as rapidly as possible . . . There has been a demand from the emerging countries that the world order should be reviewed. Globalization of capital movements can be destructive and destabilize the world economy. In the long run it may not benefit anyone except the speculators, financial brokers, investment bankers and fund managers . . . The credibility of the IMF has completely gone, at least in East Asia. They listen but they never hear. (Nolan, 2001: 927)

Actually, at the national level, countries in the region recovered quite quickly, although society suffered the consequences for years. But the crisis concentrated minds on reforming the financial systems to make them more robust and internationally competitive. Banks were recapitalized. They were also encouraged to learn lessons for improving their procedures, especially in risk-management, from Western banks. In some places, for example, South Korea, popular resentment over takeovers of Korean banks by foreign ones (principally American ones) sparked protests, despite the fact that the

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Governance in Pacific Asia US administration had been extremely accommodating to the Korean plight (Martinez-Diaz, 2009: 158). Nevertheless, governments generally tended to take a benign view of the entry into their markets by foreign banks, even though it would undoubtedly complicate the tasks of regulation for them. Foreign banks would not necessarily operate according to traditional national codes of behaviour, and they would infuse capital and credit whose impact on domestic money supply would be less predictable and potentially more disruptive. They might promote (neo) liberal economic reforms. They might also facilitate capital flight out of the country in a future crisis. Still, governments tended to accept that this was now necessary, at least in part because of the scale of the recapitalization that was deemed necessary. In Indonesia, for example, the total cost was put at the equivalent of 32 per cent of GDP in 1999. In Korea it amounted to 25 per cent of the GDP in 2002 (Martinez-Diaz, 2009: 130, 163). The losses caused by the Asian financial crisis aggravated the earlier crises that many states had suffered sporadically. This had now become unacceptable. The cycle had to be broken. But the carrot that attracted governments was the need to make their banking systems internationally competitive. Without foreign involvement, that was unlikely to happen. The World Bank encouraged the opening of banking markets to outsiders. A subsequent study of theirs argued that, in general, the entry of foreign banks benefited the development and efficiency of domestic banks and banking systems. This was partly because the foreign banks that sought this kind of expansion tended to be the most successful back home, and so were the most likely to export best practices in management and IT, which in turn stimulated existing banks in the new host country to achieve greater efficiency and competitiveness. ‘ The result can be better risk management, more competitive pricing, and in general, over the medium run, a more efficient allocation of credit in the financial sector as a whole’ (Ghosh, 2006: 87). Most of Indonesia’s private banks are now in foreign hands, as are about one-third in Korea and Thailand (Walter, 2008: 172). But this new favourable government disposition towards Western banks was nowhere better exemplified than in China and Vietnam. Of course both had almost escaped the Asian financial crisis and they already had both a strong foreign trade balance and quite healthy foreign exchange reserves. Their currencies were not convertible for capital account transactions. They were under no overwhelming external pressure to change their financial sector, except for what was required for potential WTO membership. But both had also suffered from recurring banking crises as they liberalized their economies and both

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were facing major banking challenges of their own. China had already embarked upon major banking reform in 1995. By creating three policy banks – the Import-Export Bank, the Agriculture Development Bank and the China Development Bank – the state aimed at separating out policy lending so that the rest of the banking sector could concentrate on ‘normal’ commercial operations (Brandt and Zhu, 2006: 104). Even more than in the ‘little tiger’ economies, their original communist financial systems had suffered severe repression before liberalization took place. Both had had a single state bank. They had been divorced from major decisions over the national allocation of credit and resources. Their managers had had no need to develop techniques for assessing risks from clients. Enterprises and banks had operated with ‘soft’ budget constraints, so that they could usually get additional funds if they complied with planning directives and ran into financial difficulties. Then, as the economy had liberalized, the monobanks were divided into a few very large state banks, but they remained under the control of central and local communist party officials. They were pressured into making loans for political rather than economic reasons, or at any rate, not purely financial reasons. According to Article 34 of the Commercial Banking Law of 1995, ‘a commercial bank [i.e. a state-owned bank] shall conduct its loan business in accordance with the need for the development of the national economy and social progress and under the guidance of the state industrial policy’ (Laurenceson and Chai, 2003: 50). The state, in effect, practised a policy of ‘reforms without losers’, trying to prevent a coalition of opposition to reforms from taking shape. Bank funds were used to lubricate unexpected blockages in economic flows and to keep afloat unviable state-owned enterprises, rather than see large increases in unemployment (Naughton, 2007: 460). Effectively, they still operated within soft budget constraints. The prime minister at the time, Zhu Rongji, colourfully described the banks as virtual ‘ATMs for officials and official businessmen’ (McGregor, 2010: 45). Consequently, banks on several occasions suffered from high rates of NPLs. By the end of the 1990s, Lardy (1998: 119) estimated that the four main banks were all insolvent. In Vietnam, there was a similar problem, although possibly not as acute. The ratio of NPLs to total loans was estimated at 12–13 per cent in 1998–1999, though the figure went down to 7 per cent in 2002. According to IMF estimates, this amounted to the equivalent of roughly 4 per cent of GDP in 2001, but it had risen to 7 per cent in 2003, partly because of more detailed information (Kovsted, Rand and Tarp, 2004: 48–9). According to Naughton (2007: 461), an accepted level for NPLs in normal market economies is around 5 per cent. In China, a senior banking regulator stated in 2003 that

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Governance in Pacific Asia the non-performing ratio of loans by the banking system as a whole amounted to 18.7 per cent of GDP (Luo, 2003: 3). The state had repeatedly been forced to bail the banks out. Again according to Naughton (2007: 464), the total combined cost of the bailouts in just the four major banks had been around US $300 billion. Now, the PRC, too, became convinced that things had to change. On the one hand, the central party leadership took back control of the banking system from the provinces. They created an ‘entire parallel policy universe’ of party officials responsible to centre for monitoring financial institutions and ensuring reform was implemented. This lasted until 2003 (McGregor, 2010: 46). On the other hand, they decided to involve foreign banks in the running of Chinese ones. No major banks were going to be sold off to foreigners – the PRC imposed a limit of 25 per cent on the size of the combined stake that foreign banks could take in major Chinese ones, with no individual investor holding more than 20 per cent – but foreigners would have seats on the boards of directors. This would strengthen the ability of such banks to resist political pressures for soft lending; and once the initial agreements had been made, the state then encouraged the four main banks to seek listings on international stock markets, which would have the effect of imposing the same international investor disciplines on the management of these banks as apply to all listed companies. The aim was to ensure that Chinese banks behaved more like major banks around the world and could, in time, compete with them. However, it is still the case that banks dominate the distribution of funds that are loaned to companies. In 2003, only 4 per cent of new loans to companies were raised through capital markets. The rest came from bank credit, over half still from the four main national banks (Branstetter, 2006: 27; Brandt and Zhu, 2006: 114). Also, outside observers still worry that banks are put under too much political pressure to provide loans when the economy is in difficulties, despite the fact that they seem more robust in resisting it. Key points Even though some of its causes lay outside the region, the Asian financial crisis persuaded several governments to introduce liberal reforms in their banking systems Even states like China and Vietnam, which were relatively unaffected by the crisis, accepted the need to put an end to banking losses Governments accepted the desirability of introducing banking practices from abroad and greater foreign ownership of banks Governments also sought to increase regional cooperation and their own foreign exchange reserves to guard against similar crises in the future

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Conclusion This chapter has outlined the changing role of finance and banks in the economies of the region. Despite specific national differences, economies throughout the region suffered from financial repression. Other sectors of the economy – initially industry, but later agriculture – enjoyed a higher priority. As long as the economies grew rapidly, the weaknesses of the banking systems could be overlooked. However, the losses that could be attributed to those weaknesses became more onerous. The Asian financial crisis of 1997– 1998 and its aftermath concentrated minds around the region on the need for reform. Most of the states initiated banking reforms to bring their systems more into line with practice in the United States and Europe, not to mention what was recommended by the Bank for International Settlements and the IMF. This has also led to major changes in the way that businesses in the region operate – one example being the increasing significance of financial markets instead of bank credit in funding companies, as shown in Table 8.1. Financial markets have both widened and deepened – for example, as the segmentation of different groups of financial actors has eroded. Probably no sector in Pacific Asia has been more transformed by the neoliberal version of globalization over the past decade than has the financial sector. That does not mean, however, that policies and practices have become indistinguishable from those of Anglo-American capitalism. Two things should be noted. The first concerns the degree of actual implementation of neoliberal economic regulation. There remains a significant gap between the principles and the actual practice. ‘Banking crises are better at changing rules than altering practices’ (Martinez-Diaz, 2009: 177). Walter (2008) similarly argues that the key domestic actors that dominate business across Pacific Asia, for example, large family-owned conglomerates, have successfully obstructed attempts by governments to apply neoliberal international principles and standards of economic regulation, and sometimes government has been reluctant to press the issue. This is a legacy of decades of close connections between government and business in these states, an issue to which we shall return in Chapter 9. Also, the restoration of strong economic growth has weakened the pressure for regulatory reform. ‘Indeed, as the memories of the crisis have receded and Asian economies have regained confidence, there are as many signs of retreat from the rhetoric of neoliberalism as of relentless progression towards it’ (Walter, 2008: 178). In Japan, fears of a neoliberal ‘big bang’ have failed to materialize. Indeed, when the Democratic Party replaced the Liberal Democratic Party in government in 2009, it seemed inclined to reverse many of the reforms. The legacies of

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Governance in Pacific Asia banking practices in earlier decades can still be felt. The old ways still have their adherents. The second difference concerns government attitudes towards the international financial system. While Pacific Asian authorities accepted the need for major financial reform after the crisis of 1997–1998, they also drew one other conclusion: never again did they want to have to put themselves through a restructuring at the hands of the IMF if they could avoid it. This had two consequences. The first was an agreement for greater regional cooperation among the ASEAN plus Three (China, Japan and South Korea) signed at Chiang Mai in 2000 to swap foreign exchange reserves if any of them came under speculative attack again. The amount that was pledged was relatively small – in 2000 it was US $35.5 billion, and as of 2010 it had been raised to US $120 billion – and it has, so far, not been needed. However, it reflected the common sense of outrage in the region over the perceived lack of sympathy that they had received from the West and the IFIs during the crisis. But the second consequence – and one of the chief reasons why this fund has not been drawn upon so far – was the determination of most states to raise their own foreign exchange reserves as an insurance against crisis in the future. The results were shown in Table 5.3, so that as of 2009, Pacific Asia accounted for almost 57 per cent of global foreign exchange reserves. The objective of building up these reserves has become a key priority in structuring national economic policies. It reflects scepticism about liberalized international financial markets always achieving optimal welfare outcomes for all participants – a scepticism that has only been strengthened since the global financial crisis in 2008.

Questions for further discussion 1 What are the strengths and weaknesses of state-owned banks? 2 Why did the apparent strengths of the main bank system in Japan fail to prevent the enormous losses and NPLs in the 1990s? 3 Could the Japanese Postal Savings Bank serve as a model for aggregating savings and channelling them into industrial investment in other states with a high proportion of the population living in rural areas? How justified are the plans to privatize it? 4 If banks in Southeast Asia have close ties to large conglomerate groups and have good knowledge of their underlying business performance, why did those economies not achieve levels of development as high as those of Northeast Asia? 5 How effective are large foreign exchange reserves in defending a country’s currency?

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Further reading Andrew MacIntyre, T. J. Pempel and John Ravenhill (eds), Crisis as Catalyst: Asia’s Dynamic Political Economy (Ithaca, NY: Cornell UP, 2008) – a reconsideration of the Asian financial crisis and its long-term consequences. Angelo M. Venardos, Islamic Banking and Finance in South-East Asia: Its Development and Future (Singapore: World Scientific, 2006) – a good introduction to the subject Jung-En Woo, Race to the Swift: State and Finance in Korean Industrialization (NY: Columbia UP, 1991) – the authoritative account of the role of finance in the strongest growth era of a developmental state. Mariko Fujii and Masahiro Kawai, Lessons from Japan’s Banking Crisis, 1991–2005 (ADBI Working Paper 222, 2010) (http://www.adbi.org/files/2010.06.29.wp222.lessons.japan.banking.crisis. 1991.2005.pdf) – a readable account of lessons from the Japanese banking crisis for US policy in the current global financial one. Paul Blustein, The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF (Oxford: Public Affairs, 2001) – vivid investigative journalism that goes behind the headlines to present decision-makers’ responses to the Asian financial crisis which confronted the IMF in 1997–1998 and its aftermath. Paul D. Hutchcroft, Booty Capitalism: the Politics of Banking in the Philippines (Ithaca, NY: Cornell UP, 1998) – a colourful account of bank-related crony capitalism in Southeast Asia.

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9 Patterns of Business Across Pacific Asia Chapter Outline Introduction The State and Asian business systems: The shadow of the developmental state and the network economy National variations: Patterns of business organization Travails of labour organizations Reform of business since the Asian financial crisis: Neoliberalism rules? Conclusion: Towards Anglo-American capitalism or coordinated market economies? Further reading

217 218 225 240 241 247 249

Introduction This chapter will first introduce the concept of network economy across the region generated by traditional practices of business. Within that general framework it emphasizes two recurring characteristics of businesses: family companies and paternalistic management. One other recurring feature there is the crucial importance of business groups; that is, groups of independent companies that pursue long-term collaboration and hold shares in one another. It then goes on to examine more specific basic features of business systems in South Korea and Japan, Taiwan, Southeasat Asia, and China and Vietnam. There is a brief reference to the widespread subordination of organized labour to the interests of capital across the region, as well as the emergence of Sovereign Wealth Funds. After that follows a discussion of the

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Governance in Pacific Asia impact of the 1997 Asian financial crisis on traditional business structures and practices. The Conclusion highlights the relevance of the region for general discussions of different varieties of capitalism.

The State and Asian business systems: The shadow of the developmental state and the network economy Studies of political economy in Pacific Asia have been heavily influenced by the concept of the developmental state, as presented in Chapter 5. Although that chapter emphasized differences in the form that it took in Northeast Asia as compared with Southeast Asia, and also differences between earlier and later forms of it, the shadow of the developmental state still hangs over business organizations throughout the region. Company organizations have been heavily influenced by the features of the state within which they had to operate, and that influence persists to the present. Many of the largest companies in the region achieved that status through privileged relations with state actors. The most obvious examples of this in Northeast Asia are the chaebols in South Korea, and in Southeast Asia the conglomerates in Indonesia that throve under Suharto. Though the nature of the relationship with the state varied considerably – in Korea it was President Park Chung Hee who deliberately selected companies that would be willing and able to accept his direction, while in Indonesia it was the close connections between members of Suharto’s family and (usually) Overseas Chinese businessmen – in both cases the political relationship was the key to success. The election in 2001 of the business tycoon Thaksin Shinawatra as prime minister in Thailand, and, in 2008, of the former chaebol head Lee Myung Bak in Korea, both highlighted the persisting connections between business and the state. In these economies the state provided the main vectors of development. They are, however, also market economies, and their shape was established by the actors participating in them. ‘The market’ is an abstraction which typically assumes a network of interactions between actors operating at arm’s length from one another, with each seeking to maximize its welfare. Markets that actually exist are social constructs, which both depend upon

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their initial participants for operating processes and which also then structure the attitudes and policies of newcomers so that they can fit in. Markets across Pacific Asia were formed by economic actors who shared the same attitudes towards the construction of order as they did towards the construction of social order in general. This was manifested in two ways. First, they believed in the kind of ‘diffuse reciprocity’ mentioned in Chapter 3. They believed that the trust necessary for regular stable economic exchange could be achieved and maintained by the exchange of favours. They established the basic element of trust that could normally be presumed to guide the attitudes of counterparts when they needed to do business with one another. This exchange established networks of connections that could be turned to the advantage of participants. In Chinese societies this practice is associated with the term guanxi, and Chapter 3 outlined ways in which they operate. From this perspective, a stable society can be seen as much as myriad networks of trust-bearing connections as it is ensured by the state holding the frame that contains all social interactions and imposing order. This tradition obviously structures the behaviour of Chinese, both inside China and overseas, but it is spread more widely across the region. It is a crucial determinant of behaviour in other societies as well. Whether or not they have an equivalent term to guanxi, they practise something similar. When it comes to the market, the same predisposition can be observed. Trust is established by the regular and skilful exchange of gifts of various kinds, which are not always financial; they could also be favours. Exchanges of gifts do not mean that economic actors do not seek to profit from their dealings with one another, but it does mean that they will only seek to do so according to the locally agreed ‘rules of the game’. Sometimes businessmen will agree to lower profit for themselves, conceding higher profits for counterparts than would otherwise have occurred, for the sake of developing a long-term mutually profitable relationship. Thus, a great deal of commerce, both domestically and regionally, relies upon these networks of connections. In Japan, the economist Itami Hiroyuki characterized relations between major corporations as ‘the visible hand’, in contradistinction to Adam Smith’s ‘invisible hand’ of the market (Sakakibara, 2003: 64). They helped to overcome what Hara (1998: 135) described as the fundamental problem that confronted traditional economies in Southeast Asia; namely, the segmentation of their labour, capital and land markets. Because of social and regional divisions within and between each country, as well as difficulties in communication and transport, local markets hindered both the accumulation of capital that could be used for industrialization and also the alignment of rational calculations of interests in a more or less integrated

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Governance in Pacific Asia national market. But in doing so, these businesses left an enduring impact upon the patterns and styles of business across the region. Murphy expressed a perspective on Japanese companies that is representative of a much wider attitude towards business and society in the region: ‘What really matters for the Japanese company are the strength and credibility of its network. Its “capital” consists less of yen than the number and quality of its relationships’ (1996: 46). These relationships include bureaucrats, politicians, bankers, suppliers, customers, sources of employees and so forth. ‘Network capitalism tells us that it is the quality of those links that really constitutes a Japanese firm’s capital.’ Ide emphasizes the difference from the United States: ‘Whereas US capitalism is based upon the open market paradigm, Japanese capitalism is based much more on face-to-face negotiations between the parties involved’ (1998: 59). Within that context there are two fundamental characteristics of business systems in Pacific Asia. The first is the enduring significance of family firms and family-style firms. The second is the dominance of business groups. (i) According to Backman: ‘In Asia . . . [c]ompanies are less important [than families]. It is the people behind them who really matter . . . It is the families who define the companies and not the other way round . . . Rarely is business in Asia about profits or fighting for market share’ (Backman, 2004: 5, 12). Hofstede (2007: 417) concurs about the importance of familial organization of firms in Asia and adds that he is unaware of any social science theories that deal with the role of the family in management and organization. Obviously, in all Pacific Asian states, apart from North Korea, the overwhelming majority of companies are small, family-run enterprises, as in the rest of the world. However, what is striking about Pacific Asia is the importance of family control in numerous large corporations. In the aftermath of the Asian financial crisis, the World Bank carried out a major survey of corporate ownership in Asia so as to identify more clearly who really owned what. It covered a sample of nearly 3000 companies across the region that were listed on the national stock exchanges. The results can be found in Table 9.1. What stands out in Table 9.1 is the extent of the concentration of ownership of economic assets across the region. The chief exception is Japan, and that is no doubt a result of the expropriation after 1945 of the families of industrialists who had contributed to the Japanese war effort in WWII. It supports Sakakibara’s assertion, mentioned in Chapter 4, about Japan

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Table 9.1 Concentration of family ownership of commercial assets in Pacific Asian economies, 1996

Country

Number of firms

Average number of firms per family

Percentage of total value of listed corporate assets that families control

Percentage of GDP

Top 1 family

Top 5 families

Top 10 families

Top 15 families

Top 15 families

Hong Kong

330

2.36

6.5

26.2

32.1

34.4

84.2

Indonesia

178

4.09

16.6

40.7

57.7

61.7

21.5

Japan

1240

1.04

0.5

1.8

2.4

2.8

2.1

Korea

345

2.07

11.4

29.7

36.8

38.4

12.9

Malaysia

238

1.97

7.4

17.3

24.8

28.3

76.2

Philippines

120

2.68

17.1

42.8

52.5

55.1

46.7

Singapore

221

1.26

6.4

19.5

26.6

29.9

48.3

Taiwan

141

1.17

4.0

14.5

18.4

20.1

17.0

Thailand

167

1.68

9.4

32.2

46.2

53.3

39.3

Source: Claessens, Stijn, Djankov, Simeon and Lang, Larry H. P. (2000), ‘The Separation of Ownership and Control in East Asian Corporations’ (Journal of Financial Economics 58:1–2, 108).

having ‘capitalism without capitalists’. The other states show a much higher concentration of capitalist economic control, although the figures suggest a trend of diminishing concentration in the more developed economies. Cumulatively, this degree of familial dominance of corporate ownership has an impact upon business systems as a whole and the way that they operate. Backman (2004: 12) mentions four motivations that affect the business strategies of dominant families: to give family members a job to hold the family together to honour the ancestral founders of the firm to preserve the family’s prestige and honour

These are in addition to the normal objective of trying to maximize profits, and sometimes they work against it. They can affect the ways that large corporations respond to macroeconomic incentives. Business judgements may sometimes owe more to family considerations than to macroeconomic incentives. Suehiro (2008: 210–4) gives the example of the Central Department Store Group in Thailand. The founder, Tiang Chirathivat, had had three wives and fathered 26 children by the time he died in 1968. By adding in all their children, it was said that in three generations there were already over 160 family members with direct ancestry to the founder. All of them were entitled to expect some position in the business group if they wanted

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Governance in Pacific Asia it. And then there were more distant relatives. Business strategies and opportunities had to be shaped to take account of that. Companies in Pacific Asia have also commonly emphasized quasifamilial relations among employees. Many of them have explicitly attempted to create an ethos of familial solidarity. In Japan, companies did this after WWII, appealing partly to pre-war traditions (Yoshino, 1968). Rohlen (1974: 45) identified the official ideology of the ‘one great family’ of a Japanese bank in the 1960s. Uedagin, the fictional name that he gave to the bank where he carried out research, presented itself as a multi-generational entity like a family, where the current generation of workers benefited from the achievements of their predecessors and would in turn act as the mentors (senpai) training newly hired employees. It provided dormitories for younger, unmarried employees and apartment blocks for married couples. Sometimes bank officials acted as go-betweens in arranging marriages between employees. In Korea, Janelli (1993) followed Rohlen in doing field research in a bank. There, too, his bank played upon the family metaphor for its employees, though the latter were more robust in challenging it than in Japan, especially the older ones who resented the limitations on promotion for those not related to the founder. Kondo continued the story in the 1980s in a fictionalized confectionery firm. She mentions the company’s ‘attempts to add the family flavour, through trips, benefits, gifts, and recruitment practices’ (1990: 160). The company provided dormitories for unmarried employees and looked after them like parents. They bought them New Year presents, acted as gobetweens in arranging employees’ marriages, and arranged funerals if they had no relatives. Company outings also included suppliers and their families. At the same time employees would reinterpret the family metaphor to sharpen their resentment over what they regarded as unfair treatment. Thus, although it was a synthetic version of familialism, it did structure the ways in which both employers and employees thought about their interests and pursued them (Kondo, 1990: 161–225). (ii) The second characteristic of business systems in Pacific Asia is the dominance within them of business groups. These are groups of companies within individual countries that privilege dealings with one another over dealings with other companies. Granovetter defines them as: ‘sets of legally separate firms bound together in persistent formal and/or informal ways’ (2004: 429). They are in between a single integrated company and sets of companies that cooperate, but only short-term. In many ways they resemble conglomerate corporations, but their constituent units are legally

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independent. However, Chang stresses the key feature that despite this legal independence, ‘they pursue unrelated diversification under centralized control’ (2006: 1). They coordinate their long-term business strategies. They diverge from the more common vertically integrated corporations found in the United States. While business groups can be found around the world, Carney underlines their importance for this region: ‘It is in Asian countries . . . that business groups dominate their domestic economies’ (2008: xv). As we shall see, their forms vary from one country to another. Their structures have been affected by history, culture, tax codes, legal codes, state policy and the overall frameworks of national economies. Redding (1990) focuses on the business styles of Overseas Chinese conglomerates, emphasizing their founders’ entrepreneurial instinct to always be on the look-out for quick profits and their reluctance to commit to longterm deals, let alone engage in lines of business that require long-term R & D. Thus, they are reluctant to focus on a single comparative advantage and exploit it to the maximum. Jeon and Kim (2004) provide a more general theoretical explanation for the appearance of conglomerates in emerging markets. They stress the weaknesses of factor markets at low levels of development. It can be rational and more efficient for their management to internalize the (re)distribution of capital within a conglomerate, especially since this gives the conglomerate managers greater control over their own resources. At the same time, their behaviour also profoundly influences the nature of market relations. Because they usually contain some core unit or company that acquires, distributes and redistributes capital between the various constituent units, and because that core’s deliberations are not transparent for other business actors, they constrain the emergence of more open capital market institutions. To some extent they still do. Because at least some of these groups have become very powerful, they are able to prevent a level playing field for rivals aspiring to obtain equal financial resources and compete with them. Carney (2008: 264–71) suggests that there is no single explanation for the emergence of conglomerates across the region. Instead he offers three alternatives: (i) groups form to provide financial services to one another, especially for credit, investment and insurance. Later, their strategy is partially directed at entrenching their power at the expenses of newcomer rivals. Japan offers an example of this; (ii) under state-led industrialization groups are promoted by state favouritism. Here, South Korea offers relevant examples; (iii) crony capitalist conglomerates are partly a defence against possible expropriation by the state – their opacity disguises the true extent

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Governance in Pacific Asia Table 9.2 Strengths and weaknesses of business groups Value creating

Value destroying

They lower transaction costs for affiliated firms

They are organized as pyramids that are designed to plunder their affiliates

They serve as a quasi-internal capital market for their members

They concentrate corporate control in the hands of a small elite

They are a source of scarce human capital

They entrench their top management

Their reputation signals quality and helps acquire scarce resources in factor markets

Group insiders use their complex and opaque corporate structures to exploit outside investors

They are a mutual insurance device

They are corrupt, crony, rent-seeking instruments

They are effective monitors of affiliate firm performance

They exercise monopoly power

They are a ‘catch-up’ mechanism

They facilitate moral hazard and inefficient investment

Powerful groups make implied contracts with the state Source: Carney, Michael (2008), Asian Business Group: Context, Governance and Performance (Oxford: Chandos, 21).

and location of profits. This strategy is most typical of Overseas Chinesedominated business groups in Southeast Asia. In terms of their advantages and weaknesses compared to other forms of business organization, Carney has compiled a very useful schema, which can be seen in Table 9.2. What this table shows is that these kinds of business groups have both strengths and weaknesses. Because of that there is no overwhelming need to replace them – even if it was possible, although they did come under intense criticism in some countries in the aftermath of the Asian financial crisis. However, as we shall see, even if they have been reformed, they have survived. Though they are subject to pressures from rivals and regulatory agencies, not to mention international pressures, they are likely to dominate business across the region for quite some time to come. If so, they will continue to represent different versions of modern business from those of the United States and Europe. Key points Business in the region rests on dense networks of carefully cultivated relations Family-based companies are key to business development Companies often practise paternalism towards employees, even when they are not family-run Stable ‘business groups’ of companies form the core of national business systems across the region

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National variations: Patterns of business organization Let us begin with an initial sketch of the differences between management styles in Pacific Asian companies compared with those of Western ones as presented in Table 9.3. Table 9.3 Comparison of management and corporate structures in large Asian and Western firms Western firms

Asian firms

1. Short time horizons in decision making

Long time horizons in decision making

2. The company is driven by profits and/or market share

The company is growth driven

3. Corporate direction determined by overall corporate ‘vision’ and strategy

Corporate direction determined by opportunity

4. Highly structured

Often poorly structured

5. Wide ownership (institutions)

Narrow ownership (family)

6. Professionally managed

Family managed

7. More concentrated

Highly diversified

8. Invest on the basis of research

Invest on the basis of connections

9. Minority shareholders well treated

Minority shareholders abused

10. Dispersed decision making

Centralized decision making

11. Relatively small number of units/companies

Large number of units/companies

12. Prefer accrual accounting

Prefer cash accounting

13. Lots of contracting out and buying in

High degree of vertical integration: lots of internal transactions

14. Reliant on external funding

Prefer internal funding

15. Services are very important

Dislike services

16. R&D intensive

Little or no R&D

17. Participative management

Patriarchal management

18. Senior management is relatively aloof

Senior management is hands-on

19. Well-defined career ladder for staff

Vague career ladder for staff

20. High priority given to transparency, auditing and Low priority given to transparency, auditing and disclosure disclosure 21. Fringe benefits are generally a small part of total Fringe benefits are a high component of salary remuneration (remuneration is paternalistic) 22. Staff training is formal and structured

Staff are trained informally and on the job

23. Employees tend to be promoted on the basis of their inherent productivity

Employees tend to be promoted on the basis of their connections and perceived loyalty

24. Job descriptions are precise and employees are encouraged to use initiative

Job descriptions are vague and employees work as directed

25. Staff initiative expected and rewarded

Staff initiative discouraged

Source: Backman, Michael (1999), Asian Eclipse: Exposing the Dark Side of Business in Asia (Singapore: Wiley, 78).

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Governance in Pacific Asia Obviously there are variations between the management styles of, say, Japanese corporations and Thai ones. Nor do the characteristics identified by Backman apply to all corporations in each country. Nevertheless, this list of traits does suggest differences of emphasis between management styles in Pacific Asia and the West.

Zaibatsu, keiretsu and chaebol Now let us turn to some of the national variations. We will begin with Japan and South Korea; or rather, we will begin with South Korea. This is because Korea better exemplifies the evolution of these types of business groups within the time period that we shall be considering. As was already indicated, the South Korean state played a big part in the emergence of business groups there. What came to be the chaebols were originally family-based companies established either under Japanese colonialism or immediately afterwards that the state later singled out for preferential treatment in an era of shortages, rationing and licensing because they already seemed successful businesses and they could offer the promise of further success. Their origins, therefore, were rather similar to the zaibatsu, the large family-based private companies that had emerged in Japan after the Meiji Restoration in 1868 and that had been favoured by the state before and during WWII. The zaibatsu had spread to Japan’s colonies, so these were the kind of companies that Koreans associated with industrial development. There was, however, one important difference. The zaibatsu were formed usually around a bank, which provided key financial services. In Korea, the state kept banks separate from chaebols. But in other respects there was a lot of similarity. From the time when he became president in 1961, Park Chung Hee sought active supporters in the business community who could help realize his vision of a Korean ‘restoration’ (yushin). He began by having many chaebol bosses temporarily arrested for corruption under the preceding regime, but having made sure that they understood the state’s authority and after they had ‘donated’ businesses to the state in penance, he sought their active collaboration (Kim, 1997). Because Korea at that time was still very poor, entrepreneurs had to devise all sorts of strategies to succeed, finding their way around rationing restrictions and, sometimes, engaging in black market activities. But by proving their acumen and determination, these entrepreneurs attracted government support. Over the next two decades the chaebols grew as the economy flourished and they came to dominate it. The government backed them with encouragement to move into quite diverse activities, as officials identified

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promising new areas. The most dramatic manifestation of this official encouragement was the Heavy and Chemical Industry programme launched in 1973. Under this scheme the state encouraged the large chaebols to branch out into whole new areas of business. Even though Hyundai, one of the largest, was extremely reluctant, it agreed to go into ship-building, and now it is the largest such company in the world. To manage this expansion and diversification, the chaebols formed additional companies, while remaining linked to one another through holding companies. This meant that they retained control with cross-shareholdings, even as they attracted more investors. At the same time, the cross-shareholdings insulated the chaebols against hostile takeovers. Also, because of their state support, these companies felt that they were largely insulated from collapse – unless they antagonized the state. In 1985, the collapse of the sixth-largest chaebol – Kukje – served a salutary lesson. It happened allegedly because the boss of Kukje refused to contribute financially to President Chun’s pet campaigns. It reminded other chaebol leaders that, however economically powerful they had become, they had to defer to political leadership. But provided they did that they were safe. As they grew, they felt free to continue to diversify into new sectors unrelated to their past business expertise. Chen (2004) gives the example of Samsung, which began in sugar and wood textiles in the 1950s, moved into electronics, fertilizer and paper production in the 1960s, into construction, electronic components, heavy industry, synthetic textiles, petrochemicals and ship-building in the 1970s, and into aircraft, bioengineering and semiconductors in the 1980s. If expansion required increasing volumes of bank credit, then that was acceptable because they felt that the risk of defaulting was minimal. They were ambitious. They competed hard with one another and they pushed exports – the state required both of those things – but their main concern was raising their market share in whatever business in which they were active, rather than profitability or efficiency. Minimizing costs was a lesser consideration. Minority shareholders had no power to demand higher profits or dividends because they had no way of effectively challenging management decisions. By the time of the Asian financial crisis in 1997, the 30 largest chaebols were responsible for 45 per cent of total national assets and sales, but only 4 per cent of total employment (Jwa, 2001: 30). At the same time, their debt-equity ratio had risen to around 400–500 per cent. For one or two it approached 4000 per cent. In Korea, the structure of business groups was opaque to the outside world, but the threads linking them together were strong, rigid and direct. The chaebols were organized like pyramids, with the original owners’

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Governance in Pacific Asia families at the top. In Japan, the structure of post-war business groups was also opaque, but much less rigid. The old zaibatsus had been abolished by the occupation administration after WWII. This destroyed the control of the founding families. Banks that had been part of zaibatsus were forced to separate. However, many of the old business networks survived and flourished. Instead of zaibatsu, the large business groups came to be known as keiretsu. The main structural difference was that instead of a pyramid that stretched up to the founder’s family, the organization was usually more like a network, or a spider’s web, of interlocking parts. The members of these groups still held large amounts of shares in one another, which protected them against takeovers. According to a survey reported by Hashimoto (1997: 24), roughly 25 per cent of shares of companies quoted on the Tokyo Stock Exchange in the 1980s were held by other industrial corporations, and a further 40–45 per cent by banks and other financial institutions. It was often argued that these cross-shareholdings enabled the participating companies to take a long-term strategic view of their businesses, rather than being under constant pressure to maintain short-term profitability from other shareholders. And because these groups depended upon one another for business, they also had an interest in both monitoring the performance of their partners and in helping them to improve it if it was necessary. This could include redeploying workers from one company in a keiretsu that had a surplus to another that had a shortage. All of the participants prized stable business relations as much as competition. The strategy of each keiretsu was determined by the presidents’ council, which usually met once a week and included the presidents of all the member companies. In effect, it operated an internal market for capital and also, to a limited extent, for labour. And because shareholder power was so weak, this allowed company managements great latitude to run the corporations as they saw fit, which meant, some alleged, that effectively they were run for the benefit of their workers in the name of ‘companyism’. In Japanese, this term can be seen as a cognate of ‘socialism’, in that the characters for ‘society’ (kaisha) are the same as for company (shakai), only in reverse order. Thus ‘companyism’ (kaisha-shugi) looks quite similar to ‘socialism’ (shakai-shugi). As Ide put it: ‘There has been a very strong consensus until recently that companies belong to their employees, even though they are legally owned by shareholders’ (1998: 153). On the other hand ‘companyism’ also denoted putting the company first and, as we shall see, was accompanied by weak labour unions or company unions. Baba characterized it as ‘a subtle blend of both capitalist competition and corporatist or socialist relationships’ (1997: 184). Gilpin termed it ‘collective capitalism’ (2003: 306–8). It therefore overlapped with

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the practices of paternalistic management but was much more widespread, since it could be found in companies that no longer had a founding entrepreneur. There was no simple template for keiretsu organization, but there were two fundamental types: the ‘horizontal’ and the ‘vertical’. In the horizontal keiretsu, the participating companies are arranged around a central financial core – usually a ‘main’ bank which can own shares in other members of the group but usually not more than 5–10 per cent so that they do not control the others – that allocates capital across the group and also provides a kind of insurance against risk. In the vertical keiretsu there is a more pronounced hierarchy of companies arrayed around more integrated business operations, usually manufacturing processes. Again, a bank may be close to the core, but so too may be a large trading corporation (sōgōshōsha), such as Mitsui, which provides a great deal of commercial and marketing expertise for primarily manufacturing companies, but also trades in its own right. In vertical keiretsu one company is more dominant, but it still has to negotiate with other companies in the group over strategy. Carney (2008) gives Sanwa as an example of a horizontal keiretsu and Hitachi as a vertical one – though Toyota would be an even more integrated version of the latter – while at the same time emphasizing that arrangements within individual groups are even more varied than a simple typological dichotomy would suggest. The business strategies of both types of keiretsu, however, share many similarities with those of the chaebols. Even though the implicit potential role of the state in ensuring the survival of business groups does not exist in Japan (except where banks are concerned), keiretsus, like chaebols, felt relatively secure from the danger of failure or collapse. In Japan, it is again the interlocking shareholdings – combined with the size of the companies involved – that confer the sense of invulnerability. As a result, until the 1990s, company managements felt free to pursue growth rather than profitability, since minority shareholders were powerless to punish managers if demands for higher profits were ignored. In 1990, no more than 30 per cent of the profits of Japanese large corporations were paid as dividends, while in the United States the equivalent figure was as much as 80 per cent (Foong, 1999: 50). According to Ide (1998), the main purpose of Japanese corporations until the 1990s was to generate foreign exchange – primarily US dollars – through exports so that Japan could afford to import all the ingredients of a modern economy that it lacked, rather than to concentrate upon greater efficiency, although Japanese corporations obviously did have to make their manufacturing as ‘lean’ as possible so that they could compete abroad. As was explained in Chapter 8, the value of shareholdings was preserved and

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Governance in Pacific Asia enhanced by increases in land values held by corporations. So long as those values kept rising, shareholders could afford to ignore patchy profit performance, for they could always profit by selling shares instead. Chen (2004: 171) adds that this preference was reinforced by tax laws that taxed dividends as ordinary income, while capital gains attracted no tax. According to Matsuura et al. (2004) there were four institutional features of post-war Japanese economic success: a) the main bank system; b) the Japanese employment system; c) inter-corporate relationships between main firms and their suppliers; d) the interventionist role of MITI and the weak position of the Japanese Fair Trade Commission. We have already covered the first of these in Chapter 8, the fourth in Chapters 5 and 6, and the third in this chapter. The second point refers to two things. Wage and salary rates were predominantly determined by seniority, rather than by results or bonuses. And, at least in the large corporations, employment was for life. Employees changed employers rarely, and companies made every effort to avoid firing people during downturns in business, sometimes relying upon assistance from other members of keiretsus to take over responsibility for workers if there was more work to be done there. Graduates who joined a large corporation would typically be hired after university and remain with them until retirement, usually at age 60. This ‘lifetime’ employment did not apply to people in smaller, less prestigious companies. Key points There is a wide range of contrasts between management styles in Asia and the West, though individual companies will vary in the ways that they practise them The original chaebols grew out of family-based companies with state favours In Korea, the state for decades practised more direct control over the chaebols In Japan, the keiretsus were a more flexible, less direct form of business coordination There are both vertical and horizontal keiretsus In both systems companies hold shares in one another to prevent hostile takeovers and encourage long-term cooperation These systems could lead to ‘companyism’, at least in Japan, where employees put the interests of the company above their own

SMEs in Taiwan Taiwan differed from Japan and South Korea in its reliance upon small- and medium-sized companies (SMEs). The proportion of SMEs among companies in Taiwan has stayed fairly constant at around 97 per cent. In fact this is

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not unusual anywhere in the world – most countries have roughly the same figures. Indeed, it was small family businesses that formed the foundation of the chaebols in Korea. But two things are different about Taiwan. The first is the fact that, in Taiwan, the SMEs have made a much greater contribution to Taiwan’s exports. In the mid-1980s SMEs accounted for two-thirds of Taiwan’s exports (Wade, 1990: 110). The state in Taiwan established a number of large corporations, but their areas of business tended to be more concentrated upon the domestic economy rather than exports – for example, banking, construction and the national Chinese Petroleum Corporation, which imported oil. Later, the state established a few corporations that also engaged in exports (e.g., the national China Shipbuilding Corporation), but the SMEs were still responsible for half of Taiwan’s exports. This is quite different from Korea, where it was the chaebols that were primarily responsible for exports. Second, for various reasons, the state refrained from the kind of explicit support for private companies which the Korean state had given. The ruling Nationalist Party (KMT) was ideologically committed to a path between capitalism and communism, and so it was wary of moving too close to capitalists. Also, the ruling party leadership largely consisted of people who had fled from the mainland between 1947 and 1949, while business in Taiwan remained largely in the hands of the majority local population, who tended to resent the outsiders. The KMT accepted a set of governance arrangements where, in general, it controlled political life, while leaving the economy largely to the Taiwanese. However, one important exception was the KMT’s own commercial enterprises. The KMT itself formed a conglomerate of its own in various sectors whose value has never been publicly disclosed, but which probably runs into billions of dollars. This made it probably the richest party in the world. So the greater reliance upon SMEs did not emerge as a conscious choice between competing alternative business strategies, but rather as the result of a broader range of factors. The consequences, however, have affected the nature of business on the island. Companies there have shared a lot of common characteristics with SMEs run by Overseas Chinese across Southeast Asia. They have predominantly remained small, flexible and adaptable. Business failures among SMEs are frequent, yet those that survive demonstrate a remarkable ability to prosper and grow (Redding, 1990). They remain close to markets and adapt to them with great skill. They often begin life as subcontractors, manufacturing goods for larger firms with established brands. To achieve this they have to remain extremely efficient. Yet such firms remain dominated by two things: the personality of the founder, so they stay paternalistic; and the difficulty of making very large profits.

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Governance in Pacific Asia Traditionally, such firms were reluctant to engage in R & D, because they did not have sufficient resources. From the 1980s, the state attempted to remedy this problem by setting up a Science and Technology Park in Hsinchu, which could both pool financial contributions from various firms and also facilitate start-up technology businesses. This has proved extremely successful, and it has played a big part in developing Taiwan’s worldwide reputation in microelectronics. Yet despite their technological prowess, Taiwanese firms have still found it difficult to establish their own international brands with the opportunity for accruing extra profits. Taiwanese companies produce nearly 90 per cent of the world’s laptops (over half of them now in factories in mainland China), but mostly they are sold under the brand names of American and Japanese MNCs, rather than, say, Acer. Despite the traditional importance of SMEs in the Taiwanese economy, and the often-mentioned aspiration for businessmen there with ideas to set up their own companies rather than work their way up an existing corporation, which has helped to ensure that the pattern of SME activity is kept alive, Taiwan has also gradually been experiencing the same trend of growing business group formation. By 2002, the largest 100 business groups represented roughly 56 per cent of total market capitalization and accounted for 85 per cent of GDP (Chung and Mahmood, 2006: 77–8). Nevertheless, they remain, in general, smaller than those of Korea and smaller still than those of Japan. Key points Small- and medium-sized companies play a bigger part in the Taiwanese economy Here, too, business groups have become increasingly important

Southeast Asian conglomerates Conglomerates in Southeast Asia very often emerged from the Overseas Chinese communities and they are still closely connected with them. There are exceptions, sometimes the result of deliberate government intervention. In Malaysia, for example, the government policy of promoting ethnic Malay (bumiputra) capitalists, mentioned in Chapter 5, has enabled a growing group of entrepreneurs to build their own business empires (Gomez and Jomo, 1997). A few of the conglomerates there, for example, Renong, have had very close connections with the ruling UMNO party. The Overseas Chinese companies have also become much more cosmopolitan in their relations, not least because that may diversify the firms’ assets and so provide greater insurance (Carney, 2008: 248–9).

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Nevertheless, they do still dominate the ownership of private sector assets in various Southeast Asian states. Carney (2008: 238) cites figures from the 1980s of 90 per cent in Thailand, 70 per cent in Indonesia, 60 per cent in Malaysia and 45 per cent in the Philippines. This means that companies and business groups there remain heavily influenced by the traditions of these communities: paramount paternalistic founding entrepreneurs, respect for hierarchy and the family in decision-making, short-term deals rather than long-term strategy and preference for reinvestment from retained profits rather than bank loans. In large business groups, some of the constituent companies may be listed on the stock market, but not all. Redding summarizes the strengths and weaknesses of Chinese family business organizations, and these are reproduced in Table 9.4 What Table 9.4 emphasizes is the traditional inclination on the part of Overseas Chinese entrepreneurs to think in terms of small companies, proliferating them on the back of the success of earlier ones. They seem more appropriate for commerce than for the manufacturing industry. Their internal governance and accounting tended to be opaque at best – only Table 9.4 Strengths and weaknesses of the Chinese family business forms of organization Organization domain Strengths

Weaknesses

Vertical cooperation

Identity with goals of boss and organization

Dangers of factions and cliques lower down

Compliance by subordinates via work diligence and perseverance

Lack of innovation and initiative from below

Long lasting and stable key relationships

Limitations as to how far legitimate authority stretches

Low transaction costs in economic exchanges

Limited field for cooperative relations, tendency to small scale

Reliability of networks and linkages

Mistrust and urge to control lead to capital starvation

Manoeuvrability of linkages

Technical limitations caused by scale restrictions

Intensity of managerial commitment

Lack of neutrality and professionalism

Reliability of managerial commitment

Goal displacement possible when goal is unclear

Cost efficiency by reducing bureaucratic control

Coordination problems due to lack of focus

Strategic flexibility

Danger of non-rational opportunist leaps

Speed of response

Possible diffraction of organization

Personal vision can be operationalized

Lack of creative tension and debate on strategic issues

Horizontal cooperation

Control

Adaptiveness

Source: Redding, S. Gordon (1993), The Spirit of Chinese Capitalism (Berlin and New York: de Gruyter, 207).

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Governance in Pacific Asia members of the family had a (fairly) clear idea of how things worked and where real profits were made. However, as many companies have grown, they have needed to hire professional managers and have introduced more international practices. But it would be wrong to explain the management styles of Overseas Chinese companies solely by reference to community culture. Hipsher (2010: 101) notes that Thai companies generally also rarely engage in long-term planning. He explains this in terms of Theravada Buddhist social attitudes, which stress the impermanence of all things, and also the frequency of military coups, which make the predictability of regimes difficult. This suggests a wider complex of factors that determine businessmen’s behaviour, though it may also be the case that Thai companies mimic the behaviour of their more successful Chinese competitors. Key points Overseas Chinese companies dominate business in Southeast Asian countries Traditionally, such companies were more oriented towards commerce than manufacturing, and towards short-term deals rather than R & D

Business transition in communist states Business in communist states obviously needs separate treatment because of the different nature of the state. Traditionally, communist regimes banned private enterprise. The system was dominated by state-owned enterprises and cooperatives. North Korea still practises this, but it has not prospered. Its economy has stagnated for years, and in the early 1990s it suffered starvation that led to the deaths of hundreds of thousands of people, at least. More recently, in 2002 it seemed as though the regime was embarking upon market experiments, but the leadership seems to have been frightened by the successes and the challenges that they might pose. Since 2006, the reforms have been closed down again, and in 2009 the regime suddenly ordered that all banknotes be returned to the state bank to be replaced by new ones on terms dictated by the state, which had the effect of destroying all the profits that people had made from selling things in previous years. The regime’s obduracy recalls similar obstruction of reform in the Soviet Union and Eastern Europe before 1989. The persisting North Korean failures throw the reforms in China and Vietnam into dramatic relief and the determination of the leaders there to persist with reform even in the face of serious difficulties. They are a reminder of where China and Vietnam might be today if they had not embarked upon reform. The reforms in China began in December 1978,

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and in Vietnam in 1986. In both cases, they exemplify the assessment of Lin Yi-Min about them initially being reforms in what he terms the ‘political’ marketplace; that is, ‘the restructuring and erosion of authority relations in political process that have reoriented particularistic state actions in the distribution of resources, opportunities, and levies’ (2001: 197). In both states, the leadership embarked on gradual pragmatic reform without having a clear view of where they would end. As mentioned in Chapter 4, the guiding principle in China was ‘crossing the river feeling for stepping stones.’ White (1993) captured the exhilaration and risks involved in the graphic title of his book Riding the Tiger. There was no guarantee of success and there were multiple risks of failure. The leaders were primarily concerned with reducing the role of state planning and liberalizing management of the economy, which meant reintroducing market methods. They avoided anything like the ‘shock therapy’ programme of radical privatization that was later launched in the former Soviet Union and Eastern Europe. Initially, they removed restrictions on individual private enterprise, allowing people to set up small-scale service operations. In China, townships and villages were able to establish their own small-scale, usually light industrial, factories. These proved extremely successful, greatly increasing the supply of consumer goods in the 1980s, which helped soak up the additional income of farmers after the abandonment of the agricultural communes and improved their standard of living. These Township and Village Enterprises (TVEs) were heterodox institutions in that they incorporated the funds of local government agencies as well as the capital, and especially the labour, of individuals. Property rights within them were vague, as was the legal system that might be expected to determine them. And there was no guarantee that the state might not turn back against such enterprises if another faction in the leadership won out. Yet despite all the uncertainties, the TVEs proved a great success and played a big part in the success of the reform movement, driving forward further reforms. From the 1990s, in China, enterprises were granted ever greater autonomy in determining their business strategy. Stock exchanges were created in Shenzhen and Shanghai. These traded some shares primarily in stateowned enterprises (SOEs) for both individuals and other companies. From 1987, the state had actively encouraged the formation of giant business groups, most of them horizontal conglomerates that had been administered by the same economic departments. Then, from 1991, the state began a ‘systemic transformation’ of SOEs. It adopted a policy of ‘grasping the big and letting go the small’. It planned to create a number of powerful industrial

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Governance in Pacific Asia corporations that would be internationally competitive – the ‘national team’ – while allowing smaller SOEs to be privatized and make their own futures. Regional and local authorities were placated by the prospect of being able to profit from business successes within their region. The number of SOEs fell from 57,300 in 1999 to 31,897 in 2004, though they still represented 53 per cent of total industrial assets (down from 68 per cent in 1999) (Holz, 2003: 291–2). Garnaut et al. (2005: 10) calculated that this meant that SOEs represented 34 per cent of China’s GDP where the figure had been 41 per cent – and, by coincidence, the figure of 34 per cent was the same as the estimated value of domestic private ownership. The trend in terms of liberalization and privatization is clear, yet the role of the state remains crucial. Nee and Opper (2006) characterize the Chinese political economy as ‘political capitalism’. It was the state that devised a business development strategy much influenced by the Korean chaebols. It initially identified 57 such business groups in 1991, and then a further 63 in 1997. One consequence of their origins is that these groups tend to be more focused than their counterparts in Southesat Asia, or indeed Korea. They are much more sectorally based, and are less diversified in their products. In that respect, they are more like Western corporations. On the other hand, they benefit from preferential treatment by the large state banks and this has meant that sometimes they have obtained loans at low interest to buy shares in other companies, rather than concentrating on industrial development of their own. Thus, they have begun to develop the crossshareholding patterns of ownership of business groups elsewhere in Asia. According to Cyril Lin (2001: 25), some 70 per cent of the shares of companies quoted on either stock exchange in China at the end of the 1990s were never, or rarely, traded. Some of the groups have interlocking directorships and a linking finance unit that can redistribute outside finance around the group. Also, they often hired as managers former bureaucrats who used to work for the state because they had widely scattered contacts who could be of use – for example, in obtaining critical resources, planning permission and so forth. In doing so, these companies were replicating the relationshipbased patterns of business found elsewhere in the region. So while their structures might resemble those of Western corporations, their business practices remained more Asian. Redding and Witt (2009) expect China’s business systems to converge most with those of present-day South Korea, though they will still retain essential differences. The state has retained significant shareholdings in these groups so that it can intervene to ensure that they do not operate solely for the purposes of wealth maximization and that they bear in mind the public interest (Carney, 2008: 176, 183–4). Cyril Lin

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(2001:7) suggests that in practice these groups are ‘agents without principals’; that is, they lack the institutions of corporate governance that ensure effective outside accountability other than state officials. These characteristics apply not only to the largest national state groups, but also at the level of individual provinces as well. It would be wrong to assume that business development in China is exclusively directed by the state and SOEs. McNally (2007) argues that capitalism in China is emerging through the interaction of state policies from above and network-type capitalism found elsewhere in the region from below. China is big enough for pockets of vibrant network-type capitalism to be found concentrated in particular localities – for example, the famous networks of light industrial SMEs in the city of Wenzhou in Zhejiang province. Some of the network enterprises are financed by Overseas Chinese. Huang (2008), however, contends that capitalism in China has mutated away from the more entrepreneurial, more rural version of the 1980s, which originally made such a big contribution to China’s reforms. Successful enterprises from the 1990s rely much more on technocratic management and are located in China’s urban centres near the coast. They have become more capital-intensive and depend on preferential treatment over bank loans. He calls it a ‘commanding heights’ economy, where the top is still dominated by state policy; and he argues that the large corporations now constrain further economic dynamism and efficient use of resources. Yusuf, Nabeshima and Perkins (2006: 218) confirm that capital-output ratios – that is, the amount of extra capital needed to increase output – have been rising. This means that capital efficiency has been declining. Fforde (2007) makes a similar argument about the SOEs in Vietnam. There, the regime also intervened to transform most of its SOEs into 18 General Corporations and 70 Special Corporations (Masina, 2006: 114). Even though the process of transformation has been slower there, the ‘equitization’ of companies – that is, the floating of equity shares in them on the stock market – has also led to the emergence of cross-shareholdings (Evans and Hai, 2005). In turn, the growth of SOE companies has tended to be slower than in private enterprises, yet the mechanisms for stimulating greater focus on more efficient production have been subverted by these cross-shareholdings so that, critics allege, they have become obstacles to more rapid overall development. On the other hand, given the rapid growth that China and Vietnam have both enjoyed over the past decade, it is difficult to believe that they could have achieved even more if they had retained more entrepreneurial versions of capitalism. And the type of management that they do have could lead to more effective use of scarce managerial resources, since companies that are

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Governance in Pacific Asia in the same groups can monitor one another’s performance and encourage mutual improvements, as happens in the keiretsus. Also, Nolan (2001b: 86–93) justifies the role of the state by outlining the difficulties for developing countries in building large, competitive firms, without which it will be difficult for them to compete successfully with existing MNCs and developed economies. For a start, developing economies are still highly segmented, which hinders economies of scale. China still has diverse regional economies, especially since quite a lot of factories were built in the Maoist era in outlying areas because they would be difficult to capture by an invader. The geographical logic, then, was military security and remoteness rather than proximity to markets and efficiency of supply chains. Weak transport infrastructure still perpetuates this. And the economic reforms since the mid-1990s have restored local governments’ blocking powers, in that they can profit from economic success in their region and therefore wish to keep assets and control over them. All this means that China has a lot of SMEs which struggle long and hard to assert themselves against one another. Losers in this competition find it difficult to downsize and winners find it difficult to restructure, for they are subject to a lot of local pressures to resist increasing unemployment and ceding assets to the control of another region. This is exacerbated by the persisting fundamental political role of the communist party and its multiple units at various levels, which insist on the right to intervene in company policy for public reasons if they see fit, whatever the shareholders may want. In this sense, China practises something akin to the ‘convoy’ system that used to be found in Japan, which limits the ability of winners to grow at the expense of the losers, only it is informal and on a much larger scale. Another problem is the weak networks of suppliers. Also, because Chinese companies generally still find it difficult to compete internationally through superior technology, this confines most of them to supplying domestic markets and being subcontracted to manufacture for existing MNCs, where profits are lower. All of these considerations help to explain why the Chinese government has focused on using its authority to promote ‘national champions’ as a way of moving up the industrial technology chain. For the moment those favoured companies still remain smaller than their Korean and Japanese equivalents. Key points In both China and Vietnam the state has dominated the restoration of capitalist business They have attempted to create internationally competitive national champions, which dominate national priorities

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Lesser companies have been left to fend for themselves Pockets of vibrant capitalism have emerged in various regions Here, too, business groups have begun to emerge with cross-shareholdings

Sovereign Wealth Funds One other form of business organization has become more prominent in the region over recent years. These are Sovereign Wealth Funds; that is, investment funds that are put together and managed by state institutions. Their main purpose is to safely invest funds surplus to current needs for the benefit of the nation. Some, such as Singapore’s Government Investment Corporation, are responsible for holding funds against which state welfare payments are paid out. Others, such as the PRC’s State Administration of Foreign Exchange , redistribute national foreign exchange surpluses. Yet others are generated by high-priced international commodity exports and attempt to hold the wealth for future generations (e.g., the Timor-Leste Petroleum Fund). They are listed in Table 9.5. These funds have played a big part in the Singapore economy for decades. Unlike most of the rest of Southeast Asia the state has dominated the business world there, though it has also allowed a major place for MNCs. Official government figures put the percentage of GDP contributed by foreign-controlled companies at around 40 per cent. Government-Linked Enterprises (GLCs) account for about 40 per cent of capitalization on the Singapore Stock Exchange and most of the 30 per cent of GDP that is produced by the public sector. (King, 2008: 168–9). Although such estimates are Table 9.5 Pacific Asian sovereign wealth funds Country

Name

Assets (US$ billon)

China

State Administration of Foreign Exchange (SAFE)

311.6

China

China Investment Corporation

288.8

Singapore

Government of Singapore Investment Corporation

247.5

Hong Kong

Hong Kong Monetary Authority Investment Portfolio

180.0

Singapore

Temasek Holdings

84.7

China

National Security Fund

74.0

South Korea

Korea Investment Corporation

30.0

Brunei

Brunei Investment Agency

30.0

Malaysia

Khazanah Nasional

25.7

East Timor

Timor Leste Petroleum Fund

3.2

Vietnam

State Investment Corporation

2.1

Source: http://www.sovereignwealthfundsnews.com/ranking.php (accessed 15 October 2010).

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Governance in Pacific Asia contentious, it will be noted that the extent of the state’s role in business is roughly similar to that of the PRC now. Both Temasek and GIC remain opaque, secretive institutions. Traditionally, Temasek held shares in Singaporean companies, while GIC invested abroad. Backman (2004: 91–100) gives a brief survey of their main known holdings. However, in recent years Temasek has outgrown Singapore and expanded its operations abroad as well. The links between government and Sovereign Wealth Funds have attracted increasing international interest as the number of these funds has increased in recent years (Curto, 2010). Temasek has been a very influential model for new Sovereign Wealth Funds being set up. Their activities are particularly important in Pacific Asia, given the large foreign exchange reserves that have been accumulated. Although the funds decry possible political motivations behind their investments abroad, arguing that they only want to make profitable deals, the opaqueness of their activities, business strategies and accounts leaves international markets and other governments nervous. They could help to recycle large revenues from high commodity prices to productive investment. On the other hand, they could also be used to buy up sources of commodities in other parts of the world that are in short supply. Thus, they could add a new international dimension to national developmental state practices. Key points Sovereign Wealth Funds have emerged to invest funds from either the sales of high-priced commodities or large national foreign exchange reserves They are particularly important for the Singaporean economy

Travails of labour organizations So far this chapter has focused on business systems across the region. One common feature of doing business there is the relative weakness of organized labour. This is a common thread running through all the contributions of Warner (2003). Formal labour organizations have not traditionally been granted an equal voice in determining business policies and wage rates. They have been kept subordinate to the needs of employers and the authority of the state. In Japan, for example, corporations have run their own company unions, which have limited the effectiveness of the national trade union organizations. In Taiwan and South Korea, unions were repressed by authoritarian governments for fear that they might be subverted by communist infiltrators. The same was true of states in Southeast Asia as long as there was a fear of communist subversion. Schmidt (1997: 50) argues that

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workers in MNC companies in Southeast Asia have suffered greater discrimination because they have not been allowed to form independent unions. So they are dependent upon the goodwill of employers. But Deyo (1989: 212–3) mentions that states pursued a variety of strategies to control the workers. South Korea pursued much more brutal repression, but Singapore practised more pre-emptive intervention through housing complexes and neighbourhood associations, the threat of being both dismissed from jobs and evicted from government housing acting as a deterrent against labour militancy. And, ironically, in the PRC and Vietnam the national labour organizations have continued to be dominated by the ruling communist parties since the introduction of market liberalization, which has effectively repressed worker discontent over the cutbacks and layoffs caused by the market reforms, not to mention abuses of health and safety documented (see, e.g., Chan [2001]). This has not prevented sporadic worker protests – they contributed to the mass demonstrations around Tiananmen Square in Beijing and other Chinese cities in 1989 – but, in general, the state has kept the lid on them. It has vigorously repressed unofficial attempts by workers to set up rival labour unions, though worker protests do keep breaking out; for example, the waves of unofficial strikes that broke out in Shenzhen in summer 2010, predominantly in foreign-owned factories. But it is immigrant workers that have suffered the most across Asia, because they have suffered both exploitation and discrimination (Bello and Rosenfeld, 1992: 309–15). As the numbers of migrant workers in Asia continue to rise – at the turn of the millennium the International Labour Office (ILO) estimated that 2.6 million Asians migrated to other Asian countries every year – their treatment will become a more salient political issue not just within states, but also between them. Women face greater exploitation and discrimination (ILO, 2006). The treatment of individual female Filipino workers in Singapore has already caused frictions at the inter-state level. Key point Organized labour has been subordinated to the needs and interests of capital across the region

Reform of business since the Asian financial crisis: Neoliberalism rules? The Asian financial crisis sparked waves of debate over the effectiveness and appropriateness of Asian business systems. It revealed that even if the

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Governance in Pacific Asia traditional ways of doing business were generally well understood within individual countries, they were not by outsiders. Where local people had a sense of those they could trust, outsiders no longer did. Business dealings were too opaque. Accounting procedures were lax. Too much depended upon personal connections. This easily morphed into ‘crony capitalism’ and corruption. The controversy spread to Japan as well, even though it was not especially hit by the crisis, but it had been stagnating throughout the 1990s. The severity of the crisis seemed to justify the criticisms of those in the West who had criticized Asian ways of doing business. The solutions seemed to lie in greater liberalization of the economies and in convergence with Western business practices. It would mean less reliance upon personal connections and greater reliance upon more impersonal corporate bureaucracies. Porter, Takeuchi and Sakakibara (2000), for example, proposed a radical plan for liberalizing the Japanese economy and what they described as ‘nothing less than a major reorientation in thinking and practice’ as far as company organization was concerned. Their objective was summed up in the title of the book: Can Japan Compete? As far as business was concerned, they recommended the following points. It should: create distinctive, long-term strategies (which meant more individualized products, and less reliance upon suppliers from the same keiretsu if they could find better ones elsewhere) expand the focus of operational effectiveness (which meant expanding the scope of IT innovation and increasing productivity throughout companies, even if it meant ending lifetime employment) learn the role of industry structure in strategy (which meant less pursuit of ‘metoo’ competition in one sector after another, being ready to abandon areas with inherently low profitability) shift the goal from growth to productivity (which meant paying more attention to the interests of shareholders) reverse unrelated diversification (which meant a more Western-type focus upon core businesses) update the Japanese organizational model (which meant less deference to consensus and to rigid hierarchies in the name of greater innovation, greater rewards for success, as well as improvements in corporate governance) develop a new role for the private sector in national and regional economic progress (which meant business taking a more active role vis-à-vis government in asserting its interests and being less deferential).

As can be seen, these changes, if fully implemented, would make Japanese corporations much more similar to those of the West. As for other states hit by the crisis, Backman added a further charge:

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Asia’s 1997–1998 economic collapse wasn’t random. In fact, its very precision was breathtaking. Each Asian country’s degree of collapse was in direct proportion to its level of cronyism, corruption, poor legal structures, poor corporate accountability, and general ethics – those economies that were hardest hit were the most deserving. Indonesia rates worst on all these counts and was hit the hardest. Singapore and Taiwan rate relatively well and mostly suffered collateral damage. Malaysia is somewhere in between (although probably closer to Singapore than to Indonesia) and so it suffered but wasn’t devastated . . . In the age of globalism the world is reduced to only one marketplace, which means there is just one set of rules. No longer can Asia afford to indulge in an ‘Asian way’ when it comes to business. The world’s economies (even Asian ones) must march to the same tune . . . The real Asian ‘miracle’ is that the collapse didn’t happen earlier. (Backman, 1999: 4–5)

According to this view, ‘globalization’ was requiring all Asian economies to behave as Western ones did. It seemed as though this had to happen, even if it meant that traditional Asian values such as gift-exchanging and network-building, which were prized as synonymous with being human, had to be sacrificed. Although the main critics came from outside the region, there was no shortage of economists from within it who had been trained at Western universities who agreed with the prescriptions that were proposed, or of qualified MBAs who had the training to carry them out. There is no doubt that reforms were introduced that moved Asian economies and business practices closer to a neoliberal ideal. In Japan, corporations began to fire employees even at the cost of abandoning (though only to a limited extent) lifetime employment. Shareholders began to demand higher dividends now that they could no longer be compensated with ever-growing values of stocks and land. Corporations also reduced the cross-shareholdings. And courts in various countries took a closer interest in ‘crony capitalist’ deals. Some indication of the changes can be seen in the following tables. Table 9.6 shows the most recent Transparency International figures for perceptions of corruption and it will be seen that, where comparable figures exist, most states in the region have made progress or maintained the same level over the last decade, with the exception of Malaysia. Interestingly, the perceptions of corruption in the United States and the United Kingdom have worsened over the same period. But there are still quite low figures for several states in the region. Table 9.7 shows the most recent figures from the World Economic Forum for global competitiveness for states in the region, and here too it will be seen that many of them have a high ranking. From this it is clear that many now have quite high scores, which suggests that they are both attractive to

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Governance in Pacific Asia Table 9.6 Transparency International corruption perceptions index rankings and scores for Pacific Asian states in 2001, 2010 2001 Rank Singapore

4⫽

2010 Score 9.2

Rank 1⫽

Score 9.3

Hong Kong

14

7.9

13

8.4

Japan

21

7.1

17

7.8

Taiwan

27

5.9

33

5.8

38

5.5 5.4

Brunei Korea

42⫽

4.2

39

Malaysia

36

5.0

56

4.4

Thailand

61⫽

3.2

78⫽

3.5

China

57⫽

3.5

78⫽

3.5

Indonesia

88⫽

1.9

110

2.8

Vietnam

75⫽

2.6

116

2.7

East Timor

127

2.5

Philippines

134

2.4

Cambodia

154⫽

2.1

Laos

154⫽

2.1

Papua New Guinea

154⫽

2.1

Myanmar

176

1.4

UK

13

8.3

20

7.6

USA

16⫽

7.6

22

7.1

Sources: http://www.transparency.org/policy_research/surveys_indices/ cpi/2001, and http://www.transparency.org/policy_research/ surveys_indices/cpi/2010/results N(2001) ⫽ 91, N(2010) ⫽ 178. North Korea not included.

MNCs for doing business there, as well as having competitive companies of their own. What is also striking about these figures is that on particular dimensions of market strength, several of them perform at least as well as the neoliberal economies of the United States and the United Kingdom. Indeed, Japan and Taiwan perform better. This suggests that there are viable alternative strategies for building efficient market economies. The neoliberal version is not self-evidently superior. And Table 9.8 adds qualified support to this assessment with the most recent figures from the World Bank for ease of doing business in states in the region. They suggest that many countries have made it relatively easy to start new companies, though from this perspective several countries could still do a lot more.

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Table 9.7 World Economic Forum 2010 rankings of Pacific Asian states for overall global competitiveness and for various dimensions of market efficiency

Global ranking Brunei

Intensity of market competition

Extent of market dominance

Effectiveness of anti-monopoly policy

28

61

74

75

109

106

80

79

China

27

19

23

50

Hong Kong

11

32

66

63

Indonesia

44

54

42

35

6

7

2

7

22

14

112

43

Cambodia

Japan South Korea Malaysia

26

38

30

32

Philippines

85

65

109

92

Singapore

3

28

14

9

13

1

4

21

Taiwan Thailand

38

37

69

56

133

137

123

131

Vietnam

59

75

48

58

UK

12

8

10

8

USA

4

16

9

17

East Timor

Source: World Economic Forum (2010), The Global Competitiveness Report 2010–2011, Geneva. N ⫽ 139. North Korea, Laos, Myanmar and Papua New Guinea are not listed.

On the other hand, it would be an exaggeration to suggest that ways of doing business in Pacific Asia are virtually indistinguishable from those in the West. It is an assumption running through the collection of essays edited by Chang (2006) that business systems across Pacific Asia will gradually converge with those of the West. There has been change, but we are still a long way from complete convergence. Steier (2009: 531) notes the fact that some economies in the region are moving towards Anglo-American capitalism, while denying any generalized convergence. Ahmadjian points out that there has been a weakening of ties between Japanese corporations, but this has chiefly affected those that no longer had significant business relations. And some corporations have had to restructure drastically; for example, Nissan Motors, which was taken over by Renault – something that would have been unthinkable before the 1990s. So there is a contrast between successful and unsuccessful business groups (e.g., Nissan as compared with Toyota). Nevertheless, for the moment Ahmadjian concludes: ‘While some groups are weakening and some interfirm ties are being broken, there is little evidence that groups are disappearing completely from the Japanese

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Governance in Pacific Asia Table 9.8 Ranking of Pacific Asian states for ease of doing business Singapore

1

Hong Kong

3

Thailand

12

Japan

15

South Korea

19

Malaysia

23

Taiwan

46

China

89

Vietnam

93

Brunei

96

Papua New Guinea

102

Indonesia

122

Philippines

144

Cambodia

145

East Timor

164

Laos

167

Source: World Bank, Doing Business 2010 (http:// www.doingbusiness.org/rankings) N ⫽ 183 Myanmar and North Korea are not listed.

economy . . . Business groups, and the ties within them, will exist as long as there are economic reasons for them’ (2006: 50). The evidence for persistence of business groups in Southeast Asia is also strong, despite reforms. In Indonesia, for example, the Overseas Chinese conglomerates have weathered the economic catastrophe of the collapse of 1998–1999, so that, if anything, they are more powerful now than they were, since they no longer depend so much upon the patronage of the ruling family (Chua, 2008). And no better evidence of the survival of traditional business structures could be found than the resurgence of the chaebol in Korea. The crisis of 1997–1998 was the biggest challenge to their survival. Ever since the 1980s, various governments had attempted to trim their power by encouraging the rise of SMEs. The 1997 crisis was the best opportunity to achieve radical change. Out of the top 30 chaebols, 13 either went bankrupt or were forced into radical restructuring. Practices among the survivors have changed. Some cross-shareholdings have been unwound. Cross guarantees of debts have been abolished. Debt-equity ratios have fallen from 400 per cent in 1997 to 85 per cent in 2006. Dividend payouts have increased fivefold, partly to discourage domestic investors from selling out to foreign speculators. The

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economy has returned to respectable growth and the surviving chaebols have prospered. Of the 51 business groups with more than 2 trillion won in assets (US $2.1 billion), 36 are still controlled by the owner-families, even though they only hold 4.61 per cent of total shares (Kalinowski and Cho, 2009: 238). Where the chaebols were popularly blamed for the losses of 1997, now they are respected for restoring prosperity. Key points The Asian financial crisis led to drastic reform of traditional business practices aimed at greater openness and more efficient use of capital Cross-shareholdings have been reduced Surveys suggest that perceptions of corruption have generally improved Neoliberal reforms have made some headway, but many different ways of doing and organizing business in Pacific Asia from those of the West still persist

Conclusion: Towards Anglo-American capitalism or coordinated market economies? This chapter has outlined the basic features of business systems across Pacific Asia, focusing especially on the large business groups. It has argued that, although there are significant differences between them from one country to another, they do collectively represent a coherent approach to the structure and practice of business systems. While this type of business structure is not unique to Pacific Asia, the ‘network capitalism’ variant is more characteristic of it. It is demonstrably different from the type of capitalist organization associated with Anglo-American capitalism, even if it has been evolving in that direction since 1997. Thus it should be seen as an addition to the growing literature on varieties of capitalism. Hall and Soskice outlined two alternative types of capitalism. In one – ‘liberal market economies’ – ‘firms coordinate their activities primarily via hierarchies and competitive market arrangements.’ In the other – ‘coordinated market economies’ – ‘firms depend more heavily on non-market relationships to coordinate their endeavours with other actors and to construct their core competences’ (2001: 8). These non-market relationships can include more contracting through relationships, informal insider relations and more reliance on strategic collaboration than competition. It should be clear from the previous sections that economies in Pacific Asia almost all tend towards

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Governance in Pacific Asia the second type of capitalism. In some cases, the core of the coordination may be provided by the state. In others, it is the product of guanxi relations between business groups. Only Hong Kong relies predominantly on competitive market arrangements between arm’s-length separate companies. Because of this, some have argued that capitalism in Pacific Asia can be compared to the coordinated market economies of continental Europe. Dore (2000) made a detailed case for comparing the virtues of the ‘welfare’ capitalisms of Germany and Japan where friendly companies hold blocking parcels of shares in one another and thus can ally to obstruct hostile takeovers. For him, these were systems that put harmony and community above market fundamentalism. Orrù, Biggart and Hamilton (1997) also compared German and Japanese capitalism, but emphasized fundamental similarities as well between two other pairs of countries: France and South Korea, where the state has played a technocratic dirigiste role; and Italy and Taiwan, with their family-based SMEs. The Asia Pacific Journal of Management devoted a special issue in 2009 to the whole question of the relevance of theories of coordinated market capitalism to East and Southeast Asia. Thus, the study of Pacific Asian business can contribute to a more sophisticated theoretical and empirical analysis of the different types of capitalism around the world. Yet, at the same time, it should not be forgotten that elements of capitalism spread around the world and national variants absorb and integrate them. The experience of Pacific Asia since 1997 is that more features of Western capitalism have taken root there, while some of the more opaque, not to say corrupt, features of local business have been abandoned. In that sense, business in almost all of the countries (with the exception of North Korea and Myanmar) has become more cosmopolitan. Globalization, however, has worked in both directions. Western manufacturers, for example, have been much influenced by the Toyota innovation of ‘lean manufacturing’, which relies, in part, upon intra-keiretsu cooperation (Womack, Jones and Roos, 2007; Liker, 2004). Even though Toyota has not exported the keiretsu form of relationship to its main overseas suppliers, it has treated them in quite similar ways as joint long-term partners developing new products, rather than as separate companies to be squeezed for the most profitable short-term deals. Car companies in the United States and Europe have attempted to learn from them. Corporations from the region are increasingly expanding their operations overseas and having to adapt their business models so as to compete effectively. All these are further dimensions of the notion of multiple modernities adumbrated in Chapter 4.

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Questions for further discussion 1 In what ways and how far do the structures of network economies in Pacific Asia differ from those in other parts of the world? 2 How far do Pacific Asian companies depend upon the exchanges of gifts with business partners to prosper? What about domestically and internationally? Can they do without them? Should they? 3 Why are conglomerate business groups much more common in Pacific Asia than in the United States? How do they achieve internationally competitive efficiency? 4 How genuine is the ‘family spirit’ espoused by Pacific Asian companies for their employees? Can it survive? Should it? 5 How far do Pacific Asian economies practise coordinated market capitalism? How would you judge?

Further reading Gordon S. Redding, The Spirit of Chinese Capitalism (Berlin and NY: de Gruyter, 1990) – a very influential analysis of the relationship between business and social organization among the Overseas Chinese. Ian Rae and Morgen Witzel, The Overseas Chinese of South East Asia: History, Culture, Business (Basingstoke: Palgrave, 2008) – a very approachable introduction to the history, cultures and business practices of the region. James R. Lincoln and Michael L. Gerlach, Japan’s Network Economy: Structure, Persistence and Change (Cambridge: CUP, 2004) – outlines the notion of network economy and applies it to the most developed economy in Pacific Asia. Malcolm Warner (ed.), Culture and Management in Asia (London: Routledge Curzon, 2003) – an excellent collection of articles on culture and management styles in Pacific Asian states. Michael Carney, Asian Business Groups: Context, Governance and Performance (Oxford: Chandos, 2008) – an excellent survey of this key feature of business systems across Pacific Asia. Peter Nolan, China and the Global Economy: National Champions, Industrial Policy and the Big Business Revolution (Basingstoke: Palgrave, 2001) – analysis that links the development of business in China to the broader questions of China’s place in the world economy. Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State (Cambridge: CUP, 2008) – a persuasive account of the evolution of business in China since the introduction of economic reforms.

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10 Welfare Societies Chapter Outline Introduction Three worlds of welfare Use of welfare to stabilize and maintain macroeconomic performance Welfare societies in Pacific Asia Implications for gender relations Conclusion Further reading

251 251 254 256 271 274 275

Introduction This chapter will begin by relating Pacific Asia’s experiences to EspingAndersen’s influential typology of welfare states. It will emphasize the greater priority that states there have given to economic development as the prime way of enlarging welfare, rather than to specific welfare policies. It will then suggest that the term ‘welfare societies’ better captures the interlinking of public and private provision of welfare there. This will be followed by more detailed examination of the policies in Northeast and Southeast Asian states, and in the nominally still communist regimes there. This leads to a discussion of the relationship between welfare policies and gender relations, followed by the Conclusion.

Three worlds of welfare One important dimension of the notion of multiple modernities is the variety of forms of welfare provision. It will be remembered from Chapter 3

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Governance in Pacific Asia that the family in Pacific Asian societies occupies a crucial place in social values there. We shall see that the family also plays a key role in the distribution of welfare there and this has set them apart. Among comparative studies of welfare regimes around the world, that of Esping-Andersen (1999) is particularly well-known. He suggested that there are three basic types in developed economies. These are summarized in Table 10.1. Esping-Anderson was at pains to emphasize that his concept of welfare regime referred to the balance between three channels through which welfare was distributed to society: state, market and individuals. It was not just a matter of state provision. These three types were distinguished by their historical origins as well as more contemporary patterns of distribution. He stressed that he was trying to encompass not just the activities of welfare states, but also the contributions of other social actors. The dimensions of welfare included pensions, unemployment and sickness benefit. The liberal type was prevalent among Anglo-American societies, the social democratic among the Nordic countries, and the conservative among continental European societies. The social democratic model had gone furthest in that it sought, as far as possible, to enshrine the principle of universal and equal entitlement to welfare as a form of citizenship right. Esping-Andersen termed this objective ‘decommodification’; that is, removing the issue of availability of funds from consideration as to whether individuals should receive it. Welfare was seen as a citizen’s entitlement. It implied redistribution of funds for support from the better-off to those in need. The liberal type tried to limit entitlement to welfare through means Table 10.1 Summary typology of welfare regimes Liberal

Social democratic

Conservative

Role of Family Market State

Marginal Central Marginal

Marginal Marginal Central

Central Marginal Subsidiary

Welfare state Dominant mode of solidarity

Individual

Universal

Kinship Corporatism Etatism

Dominant locus of solidarity

Market

State

Family

Degree of decommodification

Minimal

Maximum

High (for bread-winner)

Modal examples

USA

Sweden

Germany, Italy

Source: Esping-Andersen, Gøsta (1999) Comparative Welfare Regimes Re-examined (Oxford: OUP, 85).

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testing so as to avoid excessive public cost; the conservative type could be more generous in welfare provision, though it tended to rely more upon social insurance than upon redistribution of funds from one group in society to another so as to preserve existing status and income inequalities in society. Of Pacific Asian states Esping-Andersen only considered Japan, and he provisionally included it among the conservative group, along with Germany and Italy. However, he admitted that it fitted less well into the typology, so that it might be either a hybrid or a different type altogether. The crucial issue was the fact that Japan (and other states in the region) placed much greater stress upon the family as the prime source of welfare with only a residual role for the state, whereas in Germany the state played a bigger role. This emphasis upon familialism was the opposite of ‘decommodification’ since it meant that individuals would gain different levels of welfare, depending upon their family circumstances. Even though welfare was not strictly a commodity, it was, nonetheless, implicitly treated as a commodity, and was subject to laws of supply and demand. In the end he concluded that his theory made more sense if it was limited to the three basic types outlined above, but implied that the issue was not conclusively decided. In fact he also admitted that southern European states such as Italy and Spain might constitute a distinct type for the same reason: the prime importance of the family and residual importance of the state in providing welfare. Thus, there are significant similarities in this respect between Pacific Asian and southern European states. On the other hand, some have followed Esping-Andersen in seeing parallels between the welfare arrangements in Pacific Asia and the conservative systems in Europe, since they shared the common features of heavy reliance upon social insurance rather than income redistribution, and the maintenance of traditional status differentials (Aspalter, 2001). Alternatively, Kwon (2004: 3) suggested that East Asian states had pursued a developmental welfare state. By this he meant that elite policymakers set the basic goal as economic growth, devised a strategy to achieve it and used welfare policy to assist. This implied a deliberate policy of governments in developmental states to arrange the provision of welfare so as to promote economic growth. Key point Pacific Asian states are not easily assimilated into Esping-Andersen’s typology of welfare states; they appear more as hybrids

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Governance in Pacific Asia

Use of welfare to stabilize and maintain macroeconomic performance Of course there is one aspect of state welfare systems that became more important to governments from the 1960s, but which Esping-Andersen did not consider. This is the macroeconomic role of welfare systems. Most often, this means the contribution of welfare payments in stabilizing capitalist economies when they run into difficulties. Unemployment benefit and social security payments tend to go up when the economy goes down and more people are put out of work. So such payments can act as counter-cyclical expenditure to maintain demand for goods and services in a recession. This means that the agencies of government responsible for macroeconomic control may view state welfare as an important element in maintaining national economic health, irrespective of the benefits that individuals may derive from it. Indeed, the contributors in Mkandawire (2004) have sought to ask whether, and if so how, social policy can facilitate economic development without eroding the values that it normally promotes. In general, economic orthodoxy has tended to regard welfare policies as residual adjuncts to development, at most patching up some of the more extreme socially disruptive elements of economic development. On the face of it, the Pacific Asian experience of development would seem to conform to this pattern, at least until the Asian financial crisis. Yet governments in the region introduced policies that had the effect of altering welfare distribution, even though they have not technically been seen as ‘welfare’ policies as such. For example, there were the land reform policies of Japan, South Korea and Taiwan in the 1950s and the subsequent protection for agriculture and farmers as outlined in Chapter 7, public housing schemes arranged by Singapore and Hong Kong, various forms of corporate welfare arranged by corporations, support for small shopkeepers in Japan, and policies aimed at restricting luxury consumption. All of these policies can be seen as welfare in nature, because they brought social cohesion and political peace. We have already seen from Chapter 5 that the Japanese government certainly did practise active demand management in economic downturns to help the economy to recover. However, the way that they did it was through expanding expenditure on infrastructural construction rather than

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through additional welfare payouts (Woodall, 1996). It made the state into a kind of giant insurance agency that would pay out more when times were bad, but rather than paying to individuals, it would pay primarily to companies. The intention was that this would keep up levels of employment, and the benefits would trickle down to individuals and their families afterwards, though this also made welfare more ‘commodified’. But it is Singapore of all Pacific Asian states that has concentrated most attention upon the potential benefits of welfare savings for macroeconomic development. Even in colonial times, Singapore had a Central Provident Fund (CPF) which was intended to finance pensions. However, over time the Singaporean government has made the CPF one of the most important sources of savings for investment. In 2001, the value of the CPF amounted to 60 per cent of GDP (Ramesh, 2004: 204). Because employers and employees are required to make regular contributions, it is one of the steadiest forms of capital accumulation, and the CPF’s directors can then invest it for the long-term benefit of the people, so that it can be sure of paying out on all the claims that are made upon it. In particular, it supports large-scale housing projects that provide relatively cheap accommodation for workers, and they can use their CPF savings to buy flats. Over 90 per cent of Singaporeans are owner-occupiers, primarily because it was facilitated by the CPF. The CPF and its equivalent Employee Provident Fund (EPF) in Malaysia both played a big part in financing infrastructural development in earlier decades. Hong Kong did not have a Provident Fund until 2000, but the Hong Kong Housing Authority provided lots of cheap housing for decades – another form of welfare provision. One consequence of state-mandated national welfare schemes, especially those like the Provident Funds of Singapore and Malaysia, is that they make a very big contribution to national savings. These savings can then be used to finance national development projects, (e.g., infrastructure). One of the striking features of development in Pacific Asia has been the widespread, and for decades growing, share of national income that has gone to savings rather than consumption. This can be seen from Table 10.2. What is noticeable is that two of the top three savers are, indeed, Singapore and Malaysia. Key points Pacific Asian states have sought to provide welfare primarily through ensuring economic growth In Japan, spending on construction was an important element in counter-cyclical macroeconomic management

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Governance in Pacific Asia Table 10.2 Gross savings/GDP ratios for Pacific Asian states, selected years (in per cent) 1960

1970

12.11

10.53

1980

Brunei Cambodia China

1990

2000

2009

43.22

44.59

59.30a

5.61

30.30b

28.93

34.83

39.63

37.53

51.20

Hong Kong

23.74

28.16

34.37

35.67

31.90

29.70

Indonesia

12.37

14.31

38.04

32.26

32.76

31.80

Japan

34.05

40.95

31.88

34.08

26.89

21.90

1.87

15.16

23.91

36.44

33.42

29.70

South Korea Laos

14.19

23.10a

Malaysia

25.70

24.29

29.81

34.98

46.28

36.00

Myanmar

10.99

10.64

17.64

11.68

12.35

14.90a

6.14

15.07

16.12

38.83

36.10c

Philippines

19.46

21.88

24.19

18.38

23.07

15.60

Singapore

8.85

18.35

38.06

43.98

46.91

48.30

32.60

28.10

25.50

26.30

32.89

33.84

31.47

31.70

–46.87

–46.10 27.20

Papua New Guinea

Taiwan Thailand

14.08

21.17

East Timor Vietnam UK

17.68

USA

19.56

18.39

3.33

27.15

17.60

18.07

15.82

12.54

20.26

16.3

16.60

10.86

Source: World Bank database; ADB Key Indicators 2002, 2010; EconStats. North Korea not listed a

2007, b2008, c2006.

Most states have prioritized social insurance rather than income transfers By establishing provident funds, some of the states have encouraged national savings and investment Singapore and Hong Kong have provided a great deal of cheap accommodation for workers

Welfare societies in Pacific Asia Haggard (2005) outlined the main features of the welfare regimes in Pacific Asia. He distinguished between two types of social policy: a) insurance against life-cycle risks, such as unemployment, sickness and old age; and b) the provision of social services, especially health care and education. He noted the generally low level of public provision across the region, at least until recently, although Hort and Kuhnle (2000: 167–8) remind us that Asian states introduced the first rudimentary forms of state welfare at lower

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257

levels of development than did European states. This applied both to social insurance and to the provision of health care. Where the state introduced social insurance, it usually passed on the financial cost to employers and employees. And while the state introduced public health care facilities, it usually required patients to pay for their treatment. The only usual exception to this reliance upon private payment or privately funded insurance for welfare services concerned school education. States usually provided this out of public funds, even if it took some time for provision to become universal, first for primary, and then later for secondary education. The difference of scale between state support for education as compared with health care can be seen in Tables 10.3 and 10.4. It will be noted that the figures for Australia, which are included as a comparator, show the opposite relationship. There, health care spending is more than double that for education. Across Pacific Asia only the Japanese government spends more on health care than on education, and that has only been true since the early 1990s. Haggard’s explanation for the greater spending on education in the region is that governments recognized the importance of state education programmes for socializing pupils into the values of the state – an important Table 10.3 Government expenditure on education for selected states in Pacific Asia (as per cent of GDP) 1990

1995

2000

2009

Brunei

4.0

4.6

4.2

3.0a

Cambodia

0.8

0.9

1.3

China

4.0

2.0

Hong Kong

2.9

3.0

1.4b 3.5b 3.6c

3.2 c

Indonesia

1.7

1.3

1.3

Japan

3.5

3.7

3.9

3.8 b

South Korea

2.9

2.4

3.2

3.7

Malaysia

5.5

4.8

4.2

4.9

Papua New Guinea

7.3

4.7

5.1

Philippines

3.1

3.2

3.5

2.9

Singapore

4.0

2.9

3.9

3.1b

Taiwan

1.0

1.4

2.3

1.7b

Thailand

2.8

3.5

4.0

Timor Leste Australia

4.4 10.5

1.6

1.7

Source: ADB (2010), Key Indicators for Asia and the Pacific 2010 (Manila: ADB, 263). Other states are not listed. a

2007, b2008, c1995.

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Governance in Pacific Asia Table 10.4 Government expenditure on health for selected Pacific Asian states (as per cent of GDP) 1990

1995

2000

Brunei

1.6

2.3

2.1

1.4a

Cambodia

1.5

0.3

0.9

1.0b

Hong Kong

1.5

2.2

2.5

2.4

Indonesia

0.4

0.4

0.4c

Japan

4.5

5.3

6.3

7.4b

0.1

0.3 2.1

South Korea

2009

Malaysia

1.5

1.2

1.5

Papua New Guinea

2.9

2.0

1.6

Philippines

0.7

0.4

0.4

0.5

Singapore

0.9

1.2

0.9

1.0b

Taiwan

0.1

0.1

0.2

0.2b

Thailand

0.9

1.2

1.3

Timor Leste Australia

2.0 4.9

3.8

3.9

Source: ADB (2010), Key Indicators for Asia and the Pacific 2010 (Manila: ADB, 264). Other countries not listed. a

2007, b2008, c1995.

consideration for newly independent regimes. Suehiro (2008) adds that the states also prioritized the education system, both for training in the skills needed for ‘catch-up’ industrialization and to encourage the ethic of competition that would support national economic competitiveness. Otherwise, the dominant tendency was for the state to leave welfare to private providers – a choice that was entirely compatible with familial traditions. To some extent, of course, the choice to refrain from public welfare programmes was linked to the low levels of economic development in the region in the 1950s and 1960s. It meant that the states were not able to afford substantial welfare expenditure. This argument was often repeated and it obviously had great cogency. It is further strengthened by later developments, when several states began to introduce greater public welfare schemes of various kinds, as we shall see. Nevertheless, the example of Japan demonstrates that it was not simply a matter of limited national resources, since Japan was the most developed economy in the region; it also reflected the predominant social values of the time, certainly among the political elite, which still stressed the importance of traditional communal self-help rather than relying upon the state. Garon (1997: 222–4) shows that from the 1970s, the ruling Liberal Democratic Party (LDP) explicitly set out to establish a ‘Japanese-style

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welfare society’ (nihon-gata fukushi shakai) where families and communities would provide the bulk of social welfare rather than the state. Throughout the post-war period the state urged people not to avail themselves of public welfare benefits if they did not need them. The point was to avoid Swedish and British-style welfare states where individualism meant that old-age pensioners lived lives of ‘loneliness and isolation’, characterized by ‘cold-hearted human relationships’. In 1977, the Japanese Economic Planning Agency had advocated taking advantage of Japan’s different traditions of intermediary groups, such as families and local communities, to strive for an optimal mix of individualism and groupism. A third factor in the rejection of state welfare schemes was the persistence of authoritarian rule (where democratic Japan is the exception). This made it difficult for ordinary citizens to press for such schemes, particularly given the repression of organized labour that was also prevalent and mentioned in Chapter 9 – in a number of European states it had been organized labour that had played a big role in the introduction of welfare schemes in earlier decades. The importance of this factor should not be overestimated for the time, since the traditional political culture had been opposed to state welfare anyway. However, Ramesh (2000) explains the decades-long paucity of public welfare arrangements in Indonesia by the longevity of the Suharto regime and its lack of perceived need to make welfare concessions to compensate for other problems of domestic legitimacy. The effect of the lack of democracy was thrown into relief more recently when various states in the region introduced or increased the provision of public welfare schemes since the early 1990s and especially after the Asian financial crisis, despite the fact that all of them were facing heavy additional financial burdens in recovering from the crisis. All of the states that did so were democracies, including (now) Indonesia. Again, it should not be assumed that the introduction of democracy led immediately to new welfare arrangements. In some cases, such as Taiwan and Thailand, it took a decade or more from the introduction of democracy for these reforms to take place. And, as we shall see, state welfare has also significantly increased in China over the last decade, although the regime there is not democratic. Nevertheless, the change to democracy both opened the way to reforms and enabled civil society advocacy groups and NGOs to play a bigger part in bringing change about. Kwon (2004) contains casestudies of reforms in various countries over the last two decades: expansion of public health care in South Korea, Taiwan and Thailand; unemployment benefit in Korea and Taiwan; and an expansion of care for the elderly in Japan. The Provident Funds in Singapore and Malaysia have also expanded

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Governance in Pacific Asia their coverage of health care costs. A big factor in the changes was the experience of the Asian financial crisis, which put an end to the view that traditional methods of macroeconomic demand management could continue to ensure welfare in the broad sense. This suggested that in the field of public welfare, just as in other fields, it was time for fresh thinking. Only in Hong Kong was there a retrenchment of the still limited public welfare provisions after the crisis. The changes are illustrated by Tables 10.5 and 10.6. Table 10.5 shows that trends on government spending as a proportion of GDP across the region have been mixed since the Asian financial crisis. Most are spending more, for example, Korea and Thailand, some are spending less (e.g., Singapore and Brunei), while yet others, such as Japan and Taiwan, are now spending roughly the same amount. While the picture is complex, it does not suggest that there has been a dramatic shift in governmental priorities towards the smaller state advocated by neoliberal ideas and noted by commentators on the region, despite all the rhetoric after the Asian financial crisis (Robison, Rodan and Hewison, 2005). In fact Table 10.6 shows that all

Table 10.5 Total government expenditure for selected Pacific Asian states (as per cent of GDP)

Brunei Cambodia

1990

1995

2000

2009

43.7

66.0

40.6

27.8a

8.4

14.8

14.8

15.0a

16.3

22.3

16.4

17.7

17.8

China

18.5

Hong Kong

14.3

Indonesia

19.6

14.7

15.8

17.8

Japan

15.7

16.6

18.4

15.5a

South Korea

15.2

15.3

18.1

24.0

Laos

23.4

26.7

20.8

20.8

Malaysia

27.7

22.1

22.9

30.3

Myanmar

12.4

9.8

3.5

Papua New Guinea

34.2

28.3

32.9

Philippines

20.4

18.2

19.3

18.4

Singapore

20.2

15.6

18.5

16.4a

Taiwan

14.5

14.3

22.6

13.8a

Thailand

13.6

15.4

17.3

Timor Leste

30.7

20.7 102.4

Vietnam

21.9

23.8

22.6

29.7

Australia

21.8

24.8

23.4

26.1

Source: ADB (2010), Key Indicators for Asia and the Pacific 2010 (Manila: ADB, 262). Data refer to central government only, apart from China. a

2008.

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Table 10.6 Government expenditure on social security and welfare in selected Pacific Asian states (in per cent of GDP)

Brunei

1990

1995

2000

1.1

1.3

1.2

0.3

0.2

Cambodia

2009

1.4

China

0.3

0.2

0.7

2.2a

Hong Kong

0.9

1.2

2.1

2.5

Indonesia

0.9

Japan

7.4

9.2

10.7

12.8a

South Korea

1.3

1.0

3.2

5.1

Malaysia

1.2

0.8

0.9

1.2

Papua New Guinea

0.3

0.2

0.5

Philippines

0.2

0.4

0.8

1.2

Singapore

0.4

0.8

0.7

2.0a

Taiwan

2.8

3.4

5.7

3.2a

Thailand

0.5

0.5

1.0

Timor Leste Australia

1.8 18.9

8.6

10.0

Source: ADB (2010), Key Indicators for Asia and the Pacific 2010 (Manila: ADB, 265). Other states in the region not listed. a

2008.

are spending more on social welfare, even though the gross figures are still small (with the exception of Japan) and the rate of change is modest. They confirm the assessment of Zin, Lee and Abdul-Rahman: ‘Development creates the need for formal social security provisions’ (2002: 131). Key points Until recently, the states have prioritized public education and spending on economic competitiveness rather than on health care States have tended to think of welfare as an obligation for society as a whole rather than just for the state Since the Asian financial crisis, states have generally been spending more on social welfare, although in most cases the absolute amounts remain small Democratization has also changed the dynamic interplay of social groups over welfare, giving greater opportunities for citizen groups to press for more support

Northeast Asia Jones suggested that the states in Northeast Asia practised what she termed a ‘Confucian welfare state’; that is, ‘Conservative corporatism without

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Governance in Pacific Asia (Western-style) worker participation; subsidiarity without the Church; solidarity without equality; laissez-faire without libertarianism; an alternative expression for all this might be “household economy”; welfare states – run in the style of a would-be traditional, Confucian extended family’ (Jones, 1993: 214). Ka (1999) expanded on this insight with a study of the ‘Confucian welfare cluster’ in Japan, China, Singapore and Hong Kong. He identified four basic building blocks in it: a) familism; b) hierarchical groupism; c) moralism and decommodification; and d) state paternalism and feudal centralism. He also noted the many similarities between this system and that of southern European Mediterranean countries, although he thought Confucian welfare was more authoritarian, where in southern Europe it was more clientilistic. Nevertheless, he coined the term ‘Confucian welfare society’, based upon reciprocity and mutual obligations and also upon ‘welfare pluralism’. In other words, the state and the informal sector explicitly complement each other in providing a welfare safety net (Ka, 1999: 67, 177–83). A fundamental characteristic of welfare systems in this region has traditionally been the relatively small size of state welfare provision. Table 10.7 gives a clear indication of this when compared to public welfare provision across the OECD. Even the two East Asian states that are members of it are below the OECD average, Korea strikingly so. Yet as Table 10.6 showed, the governments of Japan and South Korea spend more on social welfare as a proportion of GDP than any other state in the region, with the exception of East Timor, though we shall return to these two cases later. Kono (2005: 118) summarized what he regarded as the five main elements of the Japanese welfare system: (a) active informal welfare practices; (b) high economic performance substituting for state welfare; Table 10.7 Total government social spending of selected OECD countries, 2005 (as per cent of GDP) Japan South Korea

18.6 6.9

Australia

17.1

UK

21.3

USA

15.9

OECD average

20.6

Source: http://www.oecd-ilibrary.org/socialissues-migration-health/governmentsocial-spending_20743904-table1.

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(c) a status-segregated social insurance system; (d) accepted welfare for ‘core’ workers; and (e) low spending on personal social services. Overall, he compared it to ‘residual’ welfare systems in other parts of the world, although it obviously had specific Japanese characteristics. A large part of the welfare system was actually devolved to enterprises, where, as was emphasized in Chapter 9, trade unions had very little power, but enterprises were regarded as a community of workers rather than as owned by shareholders, so there was employment for life, at least in the core, large corporations. Payments were linked to seniority, with relatively small differences between the pay of blue-collar and white-collar workers. But women tended to be consigned to low-skilled jobs and were paid less well as a result. Estévez-Abe (2008) concurs that Japan relies upon functional non-state equivalents to spread welfare more widely. As she explains, the Japanese social protection system stands out by emphasizing: (a) work-based protection; that is, eligibility for most public welfare benefits (e.g., pensions) is determined by one’s occupation, the size of one’s employer firm and whether one is employed full- or part-time; and (b) savings programmes controlled by the state. In general, Japan is less generous than other OECD states in the cash benefits that the state provides, with the exception of pensions. Not only are claimants for unemployment benefits, family benefits and so forth, means tested, the possible contributions from members of the extended family are also included in the calculation. This reliance upon the family for care has also meant that many mothers with dependent children had to go out to work. As for the savings programmes, Estévez-Abe shows that many of them, especially those for pensions, while nominally private, were actually ‘captured’ through regulation by the state and used by the FILP to finance key elements of national economic development. Quite a lot of these funds were then used to keep afloat industries and SMEs that were in trouble. So, as she puts it: Japan used industrial policy as welfare policy . . . Rather than creating a large public sector – which would have benefited the opposition parties – or an extensive active labor market to pool and retrain redundant workers, Japan subsidized private sector employment instead . . . It allowed the state to invest in public works beyond its tax revenue. It also permitted private firms to function as primary welfare providers by shielding them from financial pressures . . . [P] ostwar Japan pursued a brand of capitalism, where economic units – that is, firms – were very much treated as units of welfare provision as if under a socialist regime. (Estévez-Abe, 2008: 198)

Calder (1988) explained the segmented patchwork of welfare benefits available to different categories of workers by the ad hoc responses of the

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Governance in Pacific Asia long-time ruling Liberal Democratic Party (LDP) to crises of their legitimacy. When these occurred, the party responded with concessions or changes over welfare to placate particular key constituencies that would otherwise be disaffected. Estévez-Abe (2008) generalizes from this to argue that many of the specific features of the Japanese welfare system can be explained in terms of specific election and re-election calculations by LDP members of parliament and their desire to keep the support of core constituencies. Thus her model presupposes that political arrangements in a democracy were and are the basic factors driving the system rather than cultural values. Kwon (1999) and Ku (1997) make similar arguments for Korea and Taiwan, respectively. Both regimes introduced social welfare policies from the 1960s to the 1990s in order to placate particular sections of society as a way of restoring overall legitimacy after facing serious crises. They too had cycles of crisis and compensation. Kwon identifies two groups of experts who influenced the making of Korean welfare policy: the ‘idealists’ from the Committee for Social Security, who believed in the public provision of social welfare, and the ‘pragmatists’ from the Korean Development Institute. According to his analysis, it was the pragmatists to whom presidents regularly listened the most. This ensured that welfare remained an adjunct to development policy. Jung and Shin (2002) argue that the Korean government has, since 1997, made a commitment to create a full social protection system, but at the same time has committed itself to strengthening the free market. So they believe that these two objectives can only be reconciled by a work-linked welfare system, as in the United States and United Kingdom, where unemployed workers will be motivated to find alternative work rather than relying upon long-term unemployment benefit. Yet although Table 10.6 shows that in Pacific Asia Korea has one of the highest levels of social protection, Table 10.7 shows how far it still has to go before it reaches, for example, the level of the United Kingdom or the United States. And Jung and Shin allege that ‘Korea’s traditional values and orientations have more commonalities with continental European countries than with Anglo-Saxon countries’ (2002: 299). This gap is even greater. However, the context of social needs and popular expectations that they should be met clearly also contributed to the outcomes. When Japan was developing its welfare system in the 1950s and 1960s it was facing favourable demographic and social trends. The number of dependents was relatively small, while the numbers of people of working age was increasing. In the mid-1960s there were eleven workers for every pensioner. So the state did not need to allocate large sums of money to welfare, especially if the

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economy could grow rapidly and therefore not suffer from widespread unemployment. Now, however, the situation has changed dramatically, with only 2.6 workers for every pensioner (The Economist, 2010). It is this context that frames current debates in Japan over possible changes to welfare provision. Above all, this points towards the rapid aging of the Japanese population and the increasing demands for care there. Some 70 per cent of all social security payments go to those over 65. The impact can be seen from Table 10.6, which shows the dramatic increase in social welfare spending over the past 20 years – and in a democracy that for various reasons gives greater weight to the votes of the elderly, that will not be easy to change. The problem is exacerbated by the nation’s low birth rate. It is now 1.4 births per woman, the lowest in the developed world apart from South Korea (The Economist, 2010). If current trends persist, the Japanese population will be down by over 30 million (from the current figure of nearly 127 million to 93 million) by 2050. Japan has been struggling to cope with this problem for two decades now, and it has a ‘Catch-22’ effect on the economy. Because the state pensions are relatively modest, this means that the elderly and those who are approaching retirement feel that they need to keep substantial savings of their own in case something untoward happens. So their savings are high. But this means that these resources cannot be used to revive the stagnating economy by increasing demand. The state could conceivably encourage pensioners to spend more by increasing the guaranteed pension – but in that case the burden on the state would obviously worsen as the number of retirees would continue to rise, thus exacerbating the fiscal difficulties of a state which already has one of the highest public debt/GDP ratios in the world. No government has yet managed to devise and implement an acceptable reform, but this particular problem would have been more easily addressed in the 1990s when Japan still had a relatively low public debt. Now the intractability of the dilemmas means that Japan will probably have to maintain some version of a ‘welfare society’ rather than moving to a welfare state. Some elements of welfare will have to continue to be provided by families and social groups rather than the state. While the legitimation of such an approach can partly be traced back to cultural traditions, the strength of those traditions has been eroding. A culturalist explanation would oversimplify the point. It is the objective economic challenges that will keep this argument alive. The government will no doubt be tempted to go on appealing to it because, they will say, there is no affordable alternative.

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Governance in Pacific Asia Key points Some commentators have suggested that there is a distinct Confucian welfare syndrome in Northeast Asia This assigned a prominent place to families in helping wherever possible Demographic changes have made these states devote more resources to welfare in recent years. Another factor in this has been the end of the assumption since 1997 that the state can ensure sustained economic growth and therefore can afford to disregard welfare failings The scale of the welfare challenges may make it difficult for states to assume responsibility for overcoming all of them

Southeast Asia Southeast Asia has also shown growing interest in public welfare provision. Thailand, for instance, introduced a Social Security Act for the first time in 1990, even though its provisions remained modest. Schramm (2002) explains the innovation as the result of a combination of circumstances. The increasing economic success encouraged greater expectations among workers and employees for compensation in case of mishaps and misfortunes. As more people were drawn into new industrial and service sectors away from home, traditional social support mechanisms became more frayed. It was a time of democratic reform too, allowing both politicians and activists from civil society greater space to make themselves heard. But what also mattered was that state bureaucrats became more sympathetic to the idea of public welfare provision. Schramm emphasized that the system remained ‘paternalistic’, in that the expansion of welfare depended upon state leadership. Later, the democratic government of Prime Minister Thaksin Shinawatra evoked an enthusiastic response when it introduced a health care scheme for all Thais, where each individual would have to pay only 30 baht (less than US $1) for each medical consultation and intervention. The government attached special schemes for the very poor so that they did not even have to pay that much. Health care costs had been a major worry for people, especially in less developed areas. Nevertheless, Tables 10.4 and 10.6 show that, comparatively speaking, Thailand still devotes a lower share of GDP to public health care and social security provision than more developed economies. This means that non-state provision will continue to be important. Schramm (2002) talks of Thailand moving towards a ‘communitarian’ welfare state. It would be less paternalistic, but it would still continue to allow a major place for private companies and community associations alongside the state. This is a similar notion to that of ‘welfare society’ in Japan.

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Public welfare has become more common in other states of Southeast Asia too. Ramesh (2000) outlines the changes that have taken place in the 1990s in terms of funding for unemployment, and for accident and health care insurance, but he emphasizes that coverage of various sections of society remains patchy. The benefits tend to be skewed towards those working in the formal as opposed to informal sector of the economy. Above all, it has been state officials and the military that are entitled to the highest benefits. Ramesh points out that state welfare in Southeast Asia, as in the rest of the region, tends to be limited to state-organized insurance schemes, though this does discriminate against people working in the informal sector. The models are the Provident Funds of Singapore and Malaysia, which have attracted recent emulation in Indonesia and Thailand. The idea of using welfare to redistribute national wealth to the most deprived is still resisted – on the grounds that this would undermine the economic competitiveness of the nation. Asher and Rajan (2002: 236–8), for example, explain that Singapore has accumulated persistent and large budgetary surpluses that could fund larger expenditures on health and social security, especially old age pensions, but doubt that there is the political will to do so. Instead, the Singaporean government insists on people being self-reliant and damns social protection measures that prevent this as being ‘welfarist’. Key points Southeast Asian states have also only recently begun to devote more resources to welfare schemes Again, democratization and the aftermath of the Asian financial crisis have contributed to this

Communist states China and Vietnam merit a special section because of their historical evolution. When the communist regimes there were set up, they enshrined a principle of state welfare, though not a welfare state in the traditional understanding of the term. They introduced various welfare benefits – pensions, sickness and unemployment benefits and so on – where the preceding regimes had had nothing. However, these benefits were not entirely equal or universally available and they were delivered through the workplace rather than through government agencies. It was enterprises that were responsible for providing housing, health care, kindergartens, pensions and so forth. In China, employees depended upon their ‘unit’ (danwei) for all of these and more. Their entitlement depended upon the

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Governance in Pacific Asia amount of work that they put into the commune in a year, measured in work points. In many ways these work units were a communist equivalent of the paternalist companies in capitalist countries, acting as surrogate ‘families’ – and indeed, as was mentioned in Chapter 4, the Maoist regime was trying to eliminate families. It also meant that employees very rarely changed employers, because to do so would mean that they would lose their welfare entitlements. The sections of society who benefited most were state employees, though this was not restricted to public officials – it also applied to workers in state-owned enterprises. The justification for this distinction was that the state was supposed to be working for the interests of the whole people and they had no share of the profits. So employees there were entitled to compensation with higher welfare benefits. The main alternative form of employment was in cooperatives – particularly agricultural ones. Here the members were still notionally working for themselves, albeit in collectives, and so were entitled to share out the profits only when the cooperative had fulfilled its obligations of deliveries of food or other products to the state. So cooperatives, or later communes in China, were expected to make welfare provision for their members out of those profits. In fact the profits made were never very high because the state fixed their output targets and there was no formal negotiation with any individual cooperative or commune. This meant that the welfare benefits available to peasants – that is, the majority of the population – were much less generous than those working for the state in urban areas. However, the cooperatives or communes did at least provide rudimentary benefits and services for their members, which was more than had been available previously (Dixon, 1981). This was a time when the Gini coefficients for income distribution were at their lowest – supposedly roughly equal to those of the Nordic states, even though these coefficients understated the effective inequalities because they took no account of differences based upon administrative entitlement of officials, rather than purely income. This is still the welfare system that applies in North Korea. Economic reform, first in China, and then later in Vietnam and Laos, changed all that (Ferdinand and Gainsborough, 2003). The agricultural cooperatives or communes were among the first organizations to be dissolved. With them went the cooperative provision of welfare services. Peasants earned more from being able to sell produce on open markets, but they now had to pay for their own health care, and there were only families to look after the elderly. But because of the one-child policy in China, a family would have no-one to help them if they had a daughter who had married into another family. For that reason, some peasant families flouted

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the law and paid the hefty fine that the state at that time imposed on them for having more than one child, because otherwise the parents would have been condemned to labour until they died. And then, within a few years, SOEs also began to be subjected to pressures for market reforms and reductions in their obligations that were not strictly business-oriented. It was a slow process, but firms were subjected to increasing pressures to become more competitive, which meant reducing the number of their employees. In practice, there developed a mismatch between the pressures for greater efficiency or profitability of SOEs and the legacy welfare entitlements of workers. There was still no separate state welfare agency. Workers were reluctant to move between companies because they would risk losing their company accommodation. Older SOEs would find it difficult to compete with new companies because of pensions and other welfare entitlements that had accrued to their workers in the past.The most extreme version of the ‘Catch-22’ situation in which workers found themselves was the provision of unemployment benefit in SOEs. Workers were entitled to receive such benefits from their employers, but if the firm ceased to exist, then there was no other agency that was obliged to pay them. So in the most extreme circumstances the entitlement was ineffective. The potential social consequences of this fact sometimes restrained officials’ attempts to restructure the economy. Companies were kept alive to avoid creating more unemployment and large concentrations of misery in disadvantaged regions such as China’s northeastern provinces, with its old-fashioned heavy industrial plants. The obvious solution was to transfer all those obligations to other agencies, thus freeing SOEs to compete on a more level playing field with new companies. However, for many years the Chinese state refused to do this on the grounds that China was too poor to be able to afford a welfare state. This hindered the pace of reform; but, from the middle of the 1990s, the Chinese state began to change its attitude towards public welfare provision. Whereas previously it had argued that China could not afford state welfare, it now began to argue that China could not afford to do without state benefits, even though it could not introduce them immediately and uniformly across the country. Instead, the more prosperous urban areas such as Shanghai were encouraged to set up their own welfare schemes for their workers, albeit limited ones, initially focusing upon health care, injury benefits and unemployment insurance, though these did not cover the workers’ families. At the same time, companies were encouraged to privatize their housing so that workers could more easily change jobs. It was expected that such schemes would gradually spread around the country. It was also

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Governance in Pacific Asia hoped that rural areas would begin to provide basic welfare, since farmers were particularly vulnerable to high charges for medical care if they needed to go to urban areas for it. A scheme for rural cooperative health care to at least pay for serious illness was launched in 2002 with the objective of covering the whole country by 2010. In 2009, the government introduced a more ambitious plan for a universal health care system, which they aimed at putting in place by 2020 (Li, 2010). In the very long term, a panel of over 200 Chinese experts on welfare were reported as believing that China would establish a full welfare state by 2049 (China Daily, 2008), but it is estimated that the cost will be enormous. Nevertheless, for the moment, Chan, Ngok and Phillips conclude: ‘China is one country with two welfare systems that serve two distinctive groups of citizens – there is a clear division of social welfare between urban and rural residents’ (2008: 198). Coverage of rural inhabitants is much more patchy and meagre, compounded by significant variations in benefits between provinces. In 2001, 89 per cent of all social security expenditure went to urban areas and only 11 per cent to rural ones, despite the fact that 60 per cent of the population lived in rural areas (Darimont, 2009: 209). Thus, China and Vietnam did begin to move towards more state-based welfare provision, but the primary reason was to increase overall business efficiency. It was not justified on the grounds of citizenship entitlement. Instead, it was introduced as a kind of auxiliary to macroeconomic profitability and it is still subordinated to that goal. Chan, Ngok and Phillips (2008: 56) maintain that social policy-making in China is separated from budget-making. As a result, many social policies prove less effective or ineffective because the resources are not always available for implementation. At least in the case of China, the emerging set of welfare policies entrenched a further inequality between groups of workers based upon administrative rather than market grounds. These new benefits were available to workers who were registered to live in the urban areas. However, millions of migrant workers had moved to cities in search of work, but they could not register as permanent inhabitants there without official permission from the ‘welcoming’ urban authorities. So they were excluded from these welfare arrangements. Instead, if they needed welfare support, they would have to apply to their home town or village and have to go there to obtain it. As long as the state retains this home registration system (hukou) and encourages local rather than central authorities to provide welfare, it will entrench some forms of inequality as well as reduce others. There is no doubt that economic development has lifted large numbers of people in both states out of poverty. According to China’s own figures, the number in poverty fell from

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250 million in 1978 to 29 million in 2004 – an enormous achievement. (Chan, Ngok and Phillips, 2008: 86). But despite these changes, inequality has been increasing in China since the 1980s – as can be seen from the figure in Table 5.2. And in the background there begins to loom the problem of an increasingly aging society – the consequence of the one-child policy of previous decades – such as Japan already experiences. By 2030, the state estimates that around 400 million people will be aged 60 or over (the current retirement age). However, the difference from Japan will be that this burden will impose itself before China becomes a developed economy. The alternative of postponing the retirement age will also be difficult to implement, as the state still needs to create 15 million new jobs every year for young people as it is. As the numbers of pensioners and the burdens of pensions on the existing workforce both increase, it will be impossible to run a pay-as-you go system. In 2000, the government decided to set up a Social Insurance Fund in order to build up reserves that can pay out pensions in the future, though the task of financing it is now complicated by the need to fund current pensions out of state funds as well. This is part of the reason why overall national savings are so high. As of the end of 2009, the Fund had 776.5 billion RMB, and it has increasingly turned to investing in commercial stocks and shares to generate further income – thus increasing the sense of the commodification of welfare (Chen, Zhao and Tan, 2010). Key points Economic market reforms in communist states initially swept away previous systems of enterprise- and agricultural cooperative-based welfare More recently, both China and Vietnam have begun to introduce welfare schemes, initially at the local levels, as a way of facilitating labour market flexibility However, the task of building up insurance funds to pay for pensions and other forms of welfare is daunting, especially given the problem of growing numbers of pensioners in China

Implications for gender relations One consequence of the official emphasis upon the family as a key element in the provision of welfare across the region is the burden this places upon women. In practice, it is wives and daughters-in-law who have to take on the responsibility of caring for elderly parents, as well as for children. This is an especial burden for those married women who also have careers or full-time

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Governance in Pacific Asia paid employment. The widespread increase in the numbers of female factory workers certainly posed many additional challenges for married women, especially as they tended to be paid less than men; but a lot of time-consuming, physically laborious agricultural work continued to be done by women as well. A great deal of the economic success of the region was built upon years of labour and sacrifice by women (Horton, 1996; Truong, 1999). In general, welfare policy across the region assumed the male breadwinner model of family relations, where men were responsible for earning most of a family’s income and women looked after the family at home. In that sense it was more like Esping-Andersen’s conservative model of welfare arrangements. Until recently, this was a burden that was suffered, if not in silence, then at least in isolation. Quah (2003: 146) conjectures that Asian women ‘think liberal but act conservative’. Feminist organizations were relatively rare. Women who went abroad to study tended to readapt to local traditions on their return. And communist states such as China and Vietnam, which had proclaimed gender equality and had broken with traditional ways of treating women after they took power, made this a much lower priority once they introduced market reforms. On the other hand, Castells has suggested that a general trend of globalization has been a decline in patriarchalism (i.e. the domination of families by their adult male head) as societies become more intertwined, though he remarks that ‘in industrialized Asia, patriarchalism still reigns, barely challenged’, most surprisingly in Japan (Castells, 2003: 245). As social and media flows strengthen both across Pacific Asia and with the rest of the world, and as education spreads among women, it seems difficult to believe that this region will be immune to further trends in declining gender-based hierarchies within families. Already, heads of families in Pacific Asian societies can no longer expect the unqualified subservience that they would have expected before WWII, not even in Japan. And, as Schoppa (2006) has pointed out, one apparent consequence of the pressures on families actually falling on women has been a declining birth rate in Japan as younger women have aspired to greater choice in their way of life and have tried to cope with the various obligations on their time. Of course, it may not always be conceived as an explicit protest as such. It is a ‘silent’ protest, another version of Scott’s ‘weapons of the weak’, where women do not become active members of feminist organizations, but instead turn away from marriage and children. But the effect of it can be seen in the way that it overcomes an opposing tradition, noted from a survey by Kağitçibaşi (1982), for families in states without adequate public welfare

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schemes, including several in Pacific Asia, to want more children as a form of insurance so that they can look after the parents in old age. This trend of declining birth rates is not uniform across the region. The Philippines maintains a high one, despite the fact that family obligations there fall as heavily on women as they do in other states in the region. Nevertheless, the Philippines is an exception. Table 10.8 shows a general picture of declining birth rates. Demographers regard populations as achieving a natural replacement rate when there are, on average, 2.1 children born to every woman. As can be seen from Table 10.8, most states in Pacific Asia fall below this figure. Most striking is the fact that South Korea, Japan, Taiwan, Singapore and Hong Kong have the lowest estimated rates of all states in the world, with the exception of Macau. Of course, more factors contribute to this outcome than just the multifarious burdens placed on women. This trend is associated with high levels of development in general. Nevertheless, it is striking that these five states should still show such low figures, despite all the exhortations and efforts of their governments to raise them. Local governments in Japan have set up agencies to attract young women from South Korea and countries in Southeast Asia to marry Japanese bachelor farmers. The Singapore government has also tried numerous schemes, including its own Table 10.8 Total fertility rate estimates for Pacific Asian states, 2010 Brunei

1.88

Cambodia

2.90

China

1.54

Hong Kong

1.04

Indonesia

2.28

Japan

1.20

North Korea

1.94

South Korea

1.22

Laos

3.22

Malaysia

2.70

Myanmar

2.28

Papua New Guinea

3.54

Philippines

3.23

Singapore

1.10

Taiwan

1.15

Thailand

1.65

Timor Leste

3.20

Vietnam

1.93

Source: CIA, World Factbook 2010.

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Governance in Pacific Asia matchmaking agencies, to encourage couples (especially university graduates) to meet, marry and have several children (Quah, 2003: 20–1). The results consistently fall short of plans. The Singaporean Total Fertility Rate has been below the replacement level of 2.1 since 1975. In the very long term, if these states do not manage to increase their birth rates, they will be faced with an increasingly aged population, and all the attendant social costs and declining economic competitiveness with which Japan is already wrestling. It should be remembered that it is often claimed that it was the declining birth rate in Sweden in the 1930s which led to legislation on women’s rights there, and on public support for child care (Sainsbury, 2001). It proved more palatable than another alternative: allowing greater immigration of foreign workers. Something similar could happen in Pacific Asia. Key points Family-based welfare puts extra pressure on women, especially those who also engage in paid labour This is one of the key factors that have led to dramatic falls in national birth rates; and so far these factors have resisted state attempts at remedies

Conclusion This chapter has emphasized six things. First, there is the relative reliance upon a mixture of public and private welfare arrangements in Pacific Asian states. For decades, governments in the region have viewed the objective of ensuring and maintaining economic growth as the most important welfare priority. In some there has been explicit rejection of any role for the state in using welfare to redistribute incomes within society. None of them can be said to have a welfare state, such as can be found in Europe, and the share of GDP devoted to welfare remains smaller than in Europe. Only in Japan is that share relatively close to the OECD average. Most welfare schemes that do exist are forms of social insurance. At the same time, the state has generally encouraged non-state institutions – principally families and employers – to take on some of the obligations for providing welfare. Because there is a meshing of public and private schemes, it seems more appropriate to characterize them overall as welfare societies rather than welfare states. Second, until recently, states in the region focused most upon providing education, because this would contribute most towards economic development, as well as to political socialization. Other areas of possible

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welfare provision, for example, health care, have been lower priorities. In part this was because, for decades, the populations of these states have been predominantly young. Third, some states – principally the most developed – have expanded their welfare roles in recent years, although the absolute levels of resources committed remain small. There is little evidence of cuts in state welfare provision since the Asian financial crisis. Also, health care is becoming a more important concern as the population becomes older. Fourth, there remain significant gaps in the coverage of society as a whole by the welfare arrangements. Most obviously, this applies to people in the informal sectors of the economy. Precisely because they have informal relations with employers and irregular hours of work, it is impractical for the state to rely upon the employers to provide and fund the same kind of welfare schemes as exist for those with more formal work contracts. Since these groups of workers are among the most exploited in society, the only way that this inequality can be reduced is by an expansion of state schemes for them. Fifth, the combination of work and welfare obligations has hit women especially hard. This rebounds against society with falling birth rates, which over the long term will affect the states’ ability to maintain their population numbers unless changes are made in both the public and private spheres. Sixth, the limited role of state welfare can be attributed to traditional values and to the past choices of authoritarian governments. However, democratization has led to greater pressure for the state to do more for ordinary people, in ‘compensation’ for crises of legitimacy from which regimes have periodically suffered and also for the misfortunes that befall individuals and families. Furthermore, it has been suggested that increased political involvement of women tends to change national government spending priorities, with fewer resources going to military programmes and larger ones to social ones (NIC, 2008: 16). Thus, the prospects for greater welfare provision are partly linked to the likely evolution of the political systems – a subject to which we shall turn in the following chapter.

Further reading Alan Walker and Chack-kie Wong (eds), East Asian Welfare Regimes in Transition: From Confucianism to Globalisation (Bristol: Policy Press, 2005) – a good introduction to the systems in various states in the region. Chak Kwan Chan, King Lun Ngok and David Phillips, Social Policy in China: Development and Well-Being (Bristol: Policy Press, 2008) – an excellent and approachable overview of social policies in China.

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Governance in Pacific Asia Gøsta Esping-Andersen, Comparative Welfare Regimes Re-examined (Oxford: OUP, 1999) – a very influential discussion of the various types of welfare regimes. Leonard J. Schoppa, Race For the Exits: the Unravelling of Japan’s System of Social Protection (Ithaca, NY: Cornell UP, 2006) – a well-written account of the myriad welfare problems confronting Japan. Stephan Haggard, ‘The Political Economy of the Asian Welfare State’, in Richard Boyd and Tak-Wing Ngo (eds), Asian States: Beyond the Developmental Perspective (London: Routledge Curzon, 2005), 145–71 – an article that links welfare with broader issues of political economy in the region. Yayori Matsui, Women in the New Asia (London: Zed Books, 1999) – a collection of evocative articles by a Japanese journalist on the varied experiences of women in various Asian countries and their struggles for a better future.

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11 Political Development and Democratization Chapter Outline Introduction Multiple modernities, Asian values and democracy Emergence of democracy Factors promoting democratization Persistence of authoritarianism Persistence of communist party rule Conclusion Further reading

277 277 279 287 292 293 300 301

Introduction This chapter begins by evoking the challenge of democracy for proponents of ‘Asian Values’. Then it examines the trajectories of attempts to introduce democracy in the region in the 1950s and again in the 1980s and 1990s. The next section tries to generalize the factors promoting democracy from these experiences. After that there is a reminder of the persistence of authoritarianism in some states, particularly those under communist party rule. This will be followed by the chapter’s conclusion.

Multiple modernities, Asian values and democracy One of the most hotly contested issues in the ‘Asian Values’ debates of the 1990s was the issue of democracy. Was it a Western value? Was it appropriate

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Governance in Pacific Asia for Asian societies? Even if it was, would it hold back economic development? Would it undermine traditional values? Former Malaysian Prime Minister Mahathir once expressed his scepticism typically colourfully: ‘ Too much democracy leads to homosexuality, moral decay, racial intolerance, economic decline, single-parent families and a lax work ethic’ (Stephens, 1998). More recently he dismissed democracy as a ‘failed’ ideology and praised the ‘Beijing Consensus’ as an alternative ‘worth studying’ (Malaysia Chronicle, 2010); yet he was repeatedly re-elected as Prime Minister between 1981 and 2003. Minister Mentor of Singapore, Lee Kuan Yew, clashed with Mahathir over many things but agreed with him on this point: ‘Democracy leads to undisciplined and disorderly conditions’ (Christie and Roy, 2001: 1). He too was consistently re-elected. Such scepticism has been quite common in the region. In the late 1950s, the first president of Indonesia, Sukarno, declared: ‘I have said several times that the democracy I crave for Indonesia is not a liberal democracy such as exists for Western Europe . . . What I want for Indonesia is a guided democracy, a democracy with leadership’ (Feith and Castles, 1970: 82). In Japan, despite the success of democracy there since it was reintroduced at the end of WWII, reservations persist about its appropriateness for the country, with concerns focusing on the way that it distorts the traditional Japanese moral purity of spirit, encouraging individualism and materialism (Saeki, 1997). Traditionally, it was argued that political culture in the region was inimical to democracy. Whether it was Confucian societies that stressed the family model of social organization, as identified in Chapter 3, or Islamic societies that stressed the higher priority of following the will of god rather than man, it was often claimed that democracy was incompatible with them. Traditional-minded elites continued to assert the importance of social hierarchies rather than the equality of citizens. Of course such attitudes are still typical for the communist regimes. The Chinese ‘White Paper on Political Democracy’ in 2005 declared: ‘[T]he political system a country adopts and the road to democracy it takes must be in conformity with the conditions of that country . . . The Chinese people finally came to realize that mechanically copying the Western bourgeois political system and applying it to China would lead them nowhere’ (‘White Paper’, 2005). Bell, Brown, Jayasuriya and Jones (1995) suggested that East Asian peoples have been more concerned about the state maintaining harmony and balance than with freedoms, rights and choice. They expect the state to

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perform more tutelary and disciplinary functions. Good government there has traditionally been ascribed to good men rather than good laws. Bell et al. stressed the enduring importance of Confucianism in the Sinic world as a guide to the ordering of public affairs with its dignification of the scholar official (junzi). This philosophy reproduces elite rule, although in more recent times it has been adjusted to allow for the elevation of officials based upon merit rather than traditional social status. In places such as Singapore, and increasingly China, the modernized version of Confucian rule is elite-based meritocracy. Brown (1995: 54), however, emphasizes that elitist rule resonates with traditional values in Indonesia, too, though this owes nothing to Confucian influence. The traditional distinction there between the ordinary peasants (wongcilik) and the elite (priyayi) is just as hierarchical as the Confucian one, though it is based upon the supposed capacity for religious insight rather than knowledge of Confucian texts. Bell et al. (1995: 163) summed up the main features of these states as being: (i) a non-neutral understanding of the role of the state, which directs social development rather than simply holding the ring for debates between different social groups over what should be done; (ii) the evolution of a rationalistic and legalistic technocracy that manages the developing state as a joint corporate enterprise; and (iii) the development of a managerial rather than a critical public space and civil society. Key points Many political leaders in Pacific Asia have been sceptical about the benefits of democracy, even when they themselves have won elections Traditional political arrangements there relied upon hierarchies and elites Modernized versions of this stress technocratic or managerial rule

Emergence of democracy It is only in recent decades that democracy has begun to take root in Pacific Asia. The main explanation usually offered is the importance of levels of development. According to this reasoning, democratization only becomes more sustainable when societies manage to achieve greater economic security. Huntington (1991: 63), for example, suggested that states with per capita incomes of between US $1000 and $3000 (in nominal current prices) were most likely to undergo democratic transition, though only after nations had reached the level of around US $3000 did the evidence suggest that military coups against democracies were less likely to succeed. This

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Governance in Pacific Asia conclusion seemed to be validated by the experience of Pacific Asia. There were two strands to the evidence that was cited in support of this argument: (i) the failure of democratic regimes in the region in the 1950s and 1960s; and (ii) their emergence in the 1980s and 1990s. (i) First let us deal with the earlier period. Chapter 2 underlined the importance of state-building and rebuilding for all the countries in the region after WWII. These processes meant that state authority at that time was uncertain. Traditional patterns of authority and rule had been undermined by colonial power that was now withdrawn. New regular patterns of social interaction had not yet been created to replace them. Challenges kept recurring, whether based upon communist movements, as happened throughout Southeasat Asia, or upon ethnic demands for independence, as happened in Burma, in parts of the Philippines and in Indonesia. It was an era where throughout the region there were ‘strong societies and weak states’, to use the term of Migdal (1988), although that phrase could imply – wrongly – that societies were united or coherent. They weren’t. But states were relatively fragile and they faced powerful challenges from societies that were only beginning to come to grips with the problems of self-rule after decades of colonialism. Some of these challenges have still not disappeared. Scott (2009) has sketched the persisting contestation of the political authority of lowland ruling elites by upland communities across wide swathes of Southeast Asia. Pacific Asia was the site of numerous armed conflicts. All of this contributed to a more authoritarian style of government, in many cases military dictatorships. It was reinforced by the traditional respect for hierarchies mentioned in Chapter 3, but it was also encouraged by international pressures, whether from the West or from the communist world,, that supported their respective clients and ignored abuses of human rights. And though some of these movements preached future equality in the abstract, for example, communist parties, their practices betrayed more immediate assumptions of leadership and superiority over the rest. This cauldron of pressures from above and below made democracy at the time problematic. They were at least as important as the low levels of development illustrated in Table 5.1. Several states in the region introduced democracy in the 1940s and 1950s: Japan, South Korea, Burma, Indonesia and the Philippines, but only in Japan and the Philippines did it take root. In both cases, this could be linked to earlier experiences of democracy – in Japan between the establishment of parliamentary democracy in 1891 and the military governments of the 1920s, and in the Philippines under American tutelage before WWII. It could be argued that those experiences laid the basis of a democratic

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political culture which not been obliterated by WWII and which was promoted by the United States afterwards. Also, Japan at least had relatively settled borders, so there were few challenges to the authority of the national capital. South Korea, Burma, and Indonesia were, however, newly created states. Despite the euphoria over liberation from colonial rule, the habits of democratic culture were as new as the state itself and in all three there were powerful challenges to the authority of the centre. Rustow (1970) had warned about the fragility of democracy in societies where there was no consensus over their borders or the form of rule. In South Korea, the downfall of the Rhee Syngman regime in 1959 was followed by a brief period of turbulent democratic rule that was ended by the coup d’état of General Park Chung Hee in 1961. In Burma, there was democratic government between independence in 1948 and the military coup of 1962, but it was regularly challenged by demands for secession. Indonesia established parliamentary democracy after independence in 1949, but by 1957 political life there was extremely unruly. Between 1950 and 1957 there were six different prime ministers and a change of government every 12.4 months (Reid, 1994: 314). What made politics so disruptive was that parties became the apex of various social groups with conflicting identities based upon ‘streams’ (aliran) of social identities. According to Geertz, (Ufen, 2008a), the most basic ‘streams’ were traditionally based upon religion, differentiating between those who believed in a syncretic religion that included animism (abangan), from those who believed in a purer form of Islam (santri) and those whose beliefs were more akin to those of Hindu aristocrats (priyayi). But the multiplication of parties after independence also multiplied the possible sub-varieties of each, as well as opening up the possibility for secular sets of beliefs to win political support. The parties then set about creating support organizations to promote the welfare of their supporters – clubs, welfare associations, women’s groups, private schools – for which they diverted public funds. Parties even gained control over sections of the civil service, reserving positions for ‘their’ supporters (Ufen, 2008a: 7–11). All this intensified the confrontation between the various ‘streams’, as none had an incentive to seek mutual accommodation, but rather displayed intransigence. ‘Electioneering . . . gave rise to a circular effect: party leaders had to emphasize their ideological positions to appeal to communal segments of the electorate. But by doing so they aggravated the divisions between these segments. And these ideologically reinforced divisions in society at large then sustained the newly sharpened cleavages in the political elite’ (Feith, 1962: 570–1). Elite political conflict became personal and emotional. The confrontations were exacerbated by covert CIA support

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Governance in Pacific Asia for parties opposed to Sukarno, including secessionists in Sumatra (Kahin, 1994). Thus parliamentary democracy came to be seen as having exacerbated national divisions rather than moderating them. This assessment was propagated for decades afterwards in school civic textbooks and helped to create an anti-democratic political culture. Though, to some extent, President Sukarno inflamed the disputes by his emotional, histrionic style of political leadership, he introduced ‘guided democracy’ from 1957 in an attempt to channel political decision-making more constructively. He argued that liberal democracy was inappropriate for Indonesian conditions and that what was needed was a political style that was more compatible with tradition. The official basis of state ideology in the new Indonesia was the five principles of the Pancasila: a) belief in the one and only god; b) just and civilized humanity; c) the unity of Indonesia; d) democracy guided by the inner wisdom of unanimity arising out of deliberations among representatives; and e) social justice for all of the people of Indonesia. Thus, the fourth principle set the standard for Indonesian democracy of decision-making by broad consultation and consensus (musyawarah and mufakat) leading to unanimity, though this never occurred. It did not prize competition or pluralism. Sukarno’s project after 1957 was to create an alternative form of democracy that incorporated all the major sections of society into representative bodies – what were termed ‘functional groups’, such as workers, peasants, students, women, the military and so on. These would be organized from the top down through a coordinating secretariat (Sekber Golkar) (Reeve, 1986). In his thinking, this was intended to supplant the political parties in the National Assembly entirely, but although nine parties were barred from seats there, a further ten were still allowed to operate at the national level. This meant that the Golkar organization became a rival for votes with the remaining parties, rather than a completely different type of political organization. It was not completely different from political parties, although it was distinctive. The result was a messy compromise over institutions. The attempt to create a complete Indonesian alternative to Western liberal, party-based democracy was stillborn. The more limited ‘guided’ democracy of President Sukarno was followed by the brutal suppression of the Indonesian Communist Party with bloody massacres in 1965, and then, from 1966 until 1998, by military rule under President Suharto. The military were much more concerned with maintaining national unity and constraining potentially divisive political forces. Since President Suharto seized power in 1965, the armed forces had been the final guarantor of the political order. They had evolved a theory of ‘dual

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functions’, which meant that the armed forces assumed the roles of guaranteeing both national defence and political order. They still claimed to be ‘guiding’ the nation towards democracy, as President Sukarno had done, but the long-term objective was not a Western-style multi-party democracy. The army rejected the separation of powers as being part of ‘liberal democracy’ and therefore incompatible with Indonesian traditions. They were as determined for an ‘Indonesian’ form of government as Sukarno had been. However, there was no detailed roadmap or timetable. Instead, they took over Sukarno’s creation of the ‘functional groups’. The initial objective was to make Golkar the dominant party of secular nationalism, but gradually they turned it simply into the party of power that dominated the selection of government personnel and was itself primarily responsive to the military. Then, in 1973, President Suharto ordered the merging of the remaining political parties into two: the Unified Development Party (known in Indonesia, by the initials PPP), which was intended to incorporate all Muslim parties, and the Indonesian Democratic Party (PDI), which incorporated all the Christian and secular parties. From then until 1997 these two parties and Golkar were the main protagonists in elections, though Golkar consistently won around two-thirds of the votes. But to prevent electoral politics from becoming as divisive as in the 1950s, the military accentuated ‘integralism’ (Bourchier, 1997); that is, the conception of the state and society ‘as an organic totality in which the primary emphasis is not on individual rights but social obligations’ (Ramage, 1995: 125). It emphasized harmony (keselarasan) rather than freedom, and it appealed to traditional values for legitimacy: ‘The New Order . . . saw the nation as a large family.’ They reiterated the importance of the idea of the ‘family-state’ (negara kekeluargaan). By doing so they blurred the boundaries between state and society (Abdullah, 2009: 389). Moreover, they insisted that no party could have grassroots organizations. The ‘floating mass’ of the population was not to be troubled by politics. As Vatikiotis put it: ‘For Suharto it [was] important for the people to be granted an act of choice [in elections], not actually to choose. The appearances [were] everything’ (1994: 240). Democracy was ritual, rather than substantial control over decision-making. This was in keeping with Javanese and Balinese political tradition, as mentioned in Chapter 3. Thus the explanation for the failures of democracy there involves more factors than just levels of development. At the same time, it cannot be denied that the levels of per capita development of these economies were low in the 1960s, as can be seen from Table 5.1. Only Japan, Hong Kong and Singapore had per capita incomes of over US $3000 in 1960, and the latter two were still British colonies. However, Table 5.1 shows that a number of

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Governance in Pacific Asia other states were already reaching that level by 1970 – namely, Brunei, South Korea, Malaysia and Taiwan. By 1990, Indonesia, the Philippines and Thailand had joined them. Although the figures for Table 5.1 are calculated in constant dollars and on the basis of Purchasing Power Parity, rather than the nominal current ones that Huntington was using, it might be conjectured that on the basis of Huntington’s observations the region was more than due for more democratization by the 1990s. This is indeed what happened. In the second half of the 1980s the region experienced its own version of Huntington’s ‘third wave’ of global democratization. Key points Attempts to introduce democracy in the 1950s and 1960s were mainly failures Attempts to construct democratic systems that were distinctively different from those found in the West also failed Low levels of economic development partly contributed to this Other factors included lack of experience in operating democracy, challenges to the territorial integrity of particular states, and unfavourable international environment

(ii) The first breakthrough came in the Philippines in 1986, though it also had one of the lower levels of per capita income in the region. President Ferdinand Marcos had imposed martial law in 1972 when his terms as legitimately elected president came to an end and the constitution prevented re-election. As outlined in Chapter 5, the Philippines under Marcos had sunk into crony capitalism. His attempts at economic revival had foundered. Such support as he had previously enjoyed had eroded in the aftermath of the killing of a political opponent from a prominent political family. Benigno Aquino had returned from exile in 1983 to challenge him in an election and had been killed almost as soon as he got off the plane. It was a stark reminder that no-one was safe. When the elections were finally held in 1986, Marcos claimed to have won, but this provoked a wave of accusations that the result had been stolen. ‘People power’ took over, as crowds swarmed over the main streets of central Manila. The regime crumbled, unable or unwilling to repress the demonstrators. The Marcoses were forced into a hasty exile. It was a striking demonstration of the effectiveness of ‘people power’. As an example, it sent ripples around the region. In 1986–1987 both South Korea and Taiwan also embarked upon democratization. At that time both were experiencing the quickening of an export-led economic boom, sparked by the re-alignment of currencies in the region against the dollar after the IMF Plaza Accords in 1985. Many

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people were enjoying rapidly growing prosperity. However, the main causes of democratization in both states were internal ones. In South Korea, President Chun Doo Hwan was preparing to hand power over to another general, Roh Tae Woo, after a presidency that had been plagued by civilian protests. After 1986, protesters consciously imitated the methods that had brought Marcos down (Huntington, 1991: 101). Roh won election as president in 1987 by a narrow margin, but the party that supported him, the Democratic Justice Party, failed to win a majority in the National Assembly. Though Chun Doo Hwan had repeatedly used force to impose his will, just as his predecessor Park Chung Hee had done, Roh broke the military mould and promised to work with the other democratic forces. In 1990 he signed an agreement with the leading oppositionist, Kim Young Sam, to form a joint political party, the Democratic Liberal Party. This created a path for democratic rule that, despite upsets, has survived to the present. In Taiwan, in the 1980s, politics continued to be plagued by the divide between the political rulers who had come from the mainland after 1945 (waishengren) and the local Taiwanese population (benshengren), as mentioned in Chapter 5. There were sporadic protests against the ruling Nationalist Kuo Min Tang (KMT) party throughout the period of martial law, most notably in the city of Kaohsiung in 1979, which led to brutal arrests and long prison terms. However, President Chiang Ching-kuo had attempted to broaden the KMT’s appeal by encouraging Taiwanese to join and promoting them to positions of responsibility. By 1986, he had terminal cancer, and when protests again broke out, he decided to allow the leaders to organize a movement, which later turned into an opposition party, the Democratic Progressive Party (DPP). This set in motion a series of reforms after his death in 1987 that led to the abolition of martial law and the transformation of Taiwan into a democracy over the succeeding decade. The DPP ousted the KMT as the government in elections in 2000. The consolidation of democratization in both South Korea and Taiwan was important in that it fatally undermined the previously often repeated claim that democracy was incompatible with ‘Confucian’ societies (Fukuyama, 1995). In 1988, the bankrupt military regime in Burma held elections that were won by the National League for Democracy (NLD) led by Aung San Suu Kyi, but here a different faction of the military mobilized to annul the elections and suppress the democrats. The military accused the NLD of communist subversion. Thousands of people died in the aftermath (Steinberg, 2001). Then, in 1989, came the biggest demonstrations of all, in China. The sudden death of the former general secretary of the Chinese Communist

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Governance in Pacific Asia Party, Hu Yaobang, provided an opportunity for those dissatisfied with the economic reforms which had been proceeding for a decade to protest in public under the pretext of commemorating Hu’s life. They took the regime by surprise and managed to set up tents for two months on Tiananmen Square in front of the Forbidden City. Some embarked upon hunger strikes. Crowds of sympathizers from around the country came to express support for the students (Han, 1990). The Party leaders were divided over their response. The outcome could have been a more harmonious relationship between state and its people. There could have been democratic evolution, even though the per capita level of development was still low. The Party’s then general secretary, Zhao Ziyang, was inclined to be conciliatory, but the hardliners, led by Deng Xiaoping, forced him out. In the end the regime sent troops with heavy vehicles to the square on 4 June. Many of the protesters were able to negotiate their way off the square, but over a thousand people died nearby as the regime re-established its control in the ensuing weeks. Many more died in confrontations in other cities across China (Cunningham, 2009; Calhoun, 1995). For several years it seemed as though Indonesia would hold out against the tide of democratization. The country had achieved decent economic development. President Suharto had acted as a master puppeteer, manipulating both senior officers in the armed forces and various social groups to hang on to power for over 30 years; and in 1997 he was re-elected for yet another five-year term. The Asian financial crisis, however, provided the catalyst for radical change. Despite all the economic achievements of Suharto’s New Order regime over the previous three decades, the crisis undid them. Though Indonesia was not initially affected, foreign investors and speculators turned their attention to Indonesia as they did to the rest of the region after the collapse of the baht. They quickly realized that Indonesian businessmen had become as reliant upon apparently cheap short-term foreign loans to finance expansion in the 1990s as Thai ones had been. So they were already vulnerable to changes in international interest rates. What made the problems worse than in Thailand was the fact that the ownership structures of Indonesian conglomerates were even more opaque in Indonesia. Many businesses had invited members of Suharto’s family to become directors so as to improve their chances of success. The crisis startled outsiders as it destroyed their confidence that those connections would see them through. During the autumn of 1997 the Indonesian rupee lost 70 per cent of its value, massively increasing the debts of those who had borrowed abroad. In the end, the IMF had to come in and impose a drastic programme of

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restructuring. This began to steady the nerves of investors, even if it was going to be painful. However, no sooner was the agreement signed than Suharto appeared to explore alternatives which might reduce the burdens upon his family’s businesses. This both antagonized foreign investors and outraged domestic public opinion. The value of the rupee fell by a further 20 per cent. Protesters, initially mainly students, took to the streets throughout the country, demanding change. For a while, this also degenerated into inter-communal violence, particularly targeting indiscriminately the Overseas Chinese who were blamed for allegedly profiting from the crisis. The security forces cracked down and, during the worst few days of the violence in early May 1998, perhaps a thousand died in Jakarta, with a small number of deaths elsewhere (Dijk, 2001: 192). The deaths fragmented the ruling elite and the will of the regime was broken. Suharto began to talk of stepping down, though not immediately, but this only intensified the pressure and many of his closest advisers began to desert him. On 21 May he resigned and was replaced by Vice-President Habibie. Key points The overthrow of Marcos by ‘people power’ in 1986 marked the beginning of a new wave of democratization across the region Most of these efforts succeeded, though not all Changes in social structure resulting from economic development partly explain this Economic crises, especially the Asian financial crisis were also key

Factors promoting democratization What caused these waves of democratization? While they took place on the basis of generally rising levels of development, this is not sufficient as an explanation. Democratization is not irresistibly determined by economic development. Agency is also crucial. We also need to identify the actors – both groups and individuals – that turned these trends into political action, and their motives. The preceding section has shown that other pressures contributed greatly to political change. One factor commonly proposed was the rise of new middle classes and their increasing self-confidence. This is based upon an analogy with a seminal work by Lipset (1959) on the spread of democracy in Europe in the nineteenth and twentieth centuries. He pointed to the increasing self-assertiveness

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Governance in Pacific Asia of the middle class that wrested political power away from traditional elites. There is no doubt that development in Pacific Asia has seen a significant rise in the size and importance of the middle class over recent decades (ADB 2010; Robison and Goodman, 1996). And, as we shall see in the next chapter, it is clear that democracies in the region pay more attention to the interests of the middle class than did the authoritarian regimes. But that does not mean that it was the middle classes that drove the changes. Budiman (1994) makes a point for Indonesia that can be generalized to other regimes. Although he noted a gradual expansion of middle-class-based political activity in Indonesia after 1988, focusing on issues such as human rights, democracy and the environment, this was also fairly easily rebuffed by the military regime when it appeared to demand too much. A further point is that, given the levels of inequality to be found in some Pacific Asian states, as seen in Table 5.2, the middle classes would have less interest in pressing for mass democratic opening in case it encouraged lower class demands for redistribution of wealth. We shall see in Chapter 12 that this has become one of the big problems in Thai democracy. The reason why it would be a mistake to expect the middle classes to play the same role in Pacific Asia as they earlier did in Europe comes from the different trajectory of economic development. One of the things emphasized in Chapter 5 was the importance of the state in strategic leadership of economic development in many countries of Pacific Asia. This was quite different from the experience of states in Europe in the nineteenth and early twentieth centuries, where development was basically attributed more to the activities of entrepreneurs. Even where the state did actively intervene more in the economy in states such as Germany before WWI, the scale of that intervention was still much smaller. The satisfaction which the newcomers gained from their business achievements gave them the confidence to also demand greater involvement in political life. In Pacific Asia, on the other hand, business success often depended upon close connections with state agencies. It intensified the normal tendency for businesses in the region to base their capital upon networks of connections, as described in Chapter 9. This also though made businessmen less likely to demand political emancipation in case it prejudiced their prosperity. The effect was reinforced by the persisting ethos of state economic managerialism in many states of the region (Jones, 1997). The victory of ‘People Power’ in the Philippines is the exception that proves the rule. The widespread public demonstrations that brought down President Marcos certainly did attract widespread liberal middle class support. But two things made circumstances there different from other

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states in the region. First, Marcos had promoted much more overtly the interests of his cronies at the expense of other businessmen. It meant that the latter had less to lose through protests. So the sense of injustice over state-related corruption, as well as the discrimination, outweighed possible dependency upon state patronage. Second, the murder of his rival Benigno Aquino demonstrated that no-one could feel safe from the regime, so people would feel that they had less to lose by challenging it. Maisrikrod (1997) argues that the middle class in Thailand was consistently in favour of democracy for over more than 20 years, yet he also emphasizes the pragmatic nature of the middle classes. It has intervened in crises to support democratization, but it was much less capable or willing to set long-term goals, let alone lead the process. In any case, Rivera adds: ‘[T]his class is not a homogeneous entity, but is in fact divided into fractions whose concrete political practices and tendencies are further shaped by factors such as religion, ideology, cultural traditions, gender, political institutions and other non-class elements’ (2006: 180–1). Breslin (2007a: 179) echoes this point of heterogeneity among capitalists in the case of China, when he cites the analysis by Bai Shazhou that distinguished three strata of capitalists: the ‘Alliance Capitalists’ who actively support the Party; the ‘Deaf and Mute’ who keep close to the Party and will not challenge it for fear of jeopardizing their business; and the ‘Challengers’ (the smallest group) who are prepared to criticize the regime and take the consequences. The capitalist class in other states, for example, Malaysia, Singapore, and many businesses still depend too much upon the state to risk confronting it. Gainsborough (2002) makes the same point for Vietnam. A second social group that might be thought to have an interest in democratization was organized labour. In Chapter 9 we saw that Pacific Asian regimes generally repressed labour. This was certainly the case in South Korea. Labour organizations had been prominent in challenging the state from the 1960s and they suffered many casualties. So in Korea labour was certainly heavily involved in the struggle for democracy. But in this respect, South Korea is another exception that proves the rule. At least till now labour has not played a similar role in democratization movements elsewhere in the region. A third category of actors that might play a role in the democratic movement is minorities that feel subjugated and demand equal opportunities for participation or independence. A variant of this occurred in Taiwan. There, the underlying resentment of native Taiwanese over domination by the KMT leaders who had come from the mainland after 1945 periodically drove leaders to defy the martial law ban on rival political organization. In

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Governance in Pacific Asia the end, as was mentioned earlier, the ailing President Chiang Ching-kuo lifted the ban and allowed the ‘non-party’ opposition to form into the Democratic Progressive Party. Although this was not the only issue that formed the core ideology of the DPP, it did provide an initial identification that helped to solidify popular support later. Yet, once again, this was a factor that was not replicated elsewhere in the region. Although there are minorities in various other states in the region that feel prejudice against them, they have not had the same success in driving through democratization. A fourth category of actors that have had a prominent role in democratization movements is students. In fact, they have helped to catalyze confrontations against authoritarianism in a surprising number of states in the region. Lintner (1990: 38), for example, remarks that students were always at the forefront of protest movements in Burma from the time of independence. In South Korea, students often took part in demonstrations against authoritarian rule. They were prominent in the protests in the town of Kwangju in 1980, which led to the massacre of anywhere between 200 and 1000 people, and in subsequent years they were active in keeping alive the memory of what had happened. In Taiwan, students were again at the forefront of demonstrations for democracy (Wright, 1999). In Thailand, which has experienced several iterations of alternate democratization and authoritarian reversals, students were often involved in mobilizing opposition to authoritarian rule – in 1973, for example, over half a million took to the streets of Bangkok to topple the military. And we have just seen how students in China in 1989, and in Indonesia in 1998, were at the forefront of demands for change. The issues that provoked students varied considerably. Sometimes it was a matter of poor arrangements for university life. Sometimes it was concern for unfair treatment of other sections of society. Sometimes it was complaints over official corruption. And sometimes it was specific demands for more democracy. In Indonesia, students were at the forefront of demanding political change in 1966, which led to the downfall of President Sukarno, and again in 1974 and 1978, when President Suharto faced them down (Bhakti, 1999). Sometimes, as Lintner shows in the case of Myanmar in 1988, the initial flashpoint was a trivial issue which then ignited more deep-seated resentment. In any case, students were often less amenable to officially promoted political cultures that encouraged submission to authority and their elders. Students were more alive than older generations to ideas about alternative ways of organizing society and living. They could be more receptive to ideas from abroad, despite official programmes of political socialization.But students were also concerned about future careers, and

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some cohorts were more focused upon this than upon broader social issues of principle. So the impact of student activism was uneven. Students, no more than the middle classes, were not consistent upholders of democratic public values. Nevertheless, whatever the specific causes of protest, students sometimes had the temerity to stand up to regimes and to respond in greater numbers to regime brutality. On various occasions they evoked sympathy from other sections of society because of the crackdowns. Their appeal was that they could stand for the conscience of a nation, and its future. And as the regimes developed and increased the size of the higher education sector with the aim of upgrading technical and scientific skills, they also risked provoking larger demonstrations as more students became involved. Yet the regimes knew that they also needed those skills for industrial upgrading, so they could not simply repress them – with the exception of Myanmar, which cut back on university education after 1988, but then this was a regime that made industrial development much less of a priority. Yet while group activity was sometimes extremely important in bringing about change, the choices, actions and decisions of individual leaders also had a decisive impact upon the outcome of crises. As we have seen above, the decisions of Roh Tae Woo and Chiang Ching-kuo to make accommodations with democratic demands in 1987, despite their earlier careers in security and in authoritarian repression, had a crucial impact upon the regimes in South Korea and Taiwan. In Indonesia, Suharto had never been averse to using force to staying in power, but the large number of deaths in May 1998, admittedly in the context of a serious economic crisis, divided his supporters and drained the will to go on. In China in 1989, by contrast, Deng Xiaoping’s willingness to personally authorize the use of force by the army against the students was crucial in suppressing the nationwide movement, despite his earlier professions of support for democratization. Without that, the outcome would have been quite different. These factors, as much as broader social factors and group activity, were therefore vital in determining the evolution of political authority. Key points Various social groups promoted democratization in various countries: the middle classes, workers, minorities and students None of them were consistent supporters of democracy Decisions made by individual leaders also made a crucial difference, especially in national crises

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Persistence of authoritarianism Although democracy has spread in the region over the last 20 years, it has by no means removed all authoritarian regimes. We have already seen that the military government in Myanmar still survives. There, the brutal repression of opponents has played a big part. However, this is not an adequate explanation for its persistence elsewhere. One group of factors is the persistence of traditional elements of political culture mentioned in Chapter3. Attitudes towards authority, whoever exercises it, are still structured by traditional respect for social hierarchy rather than demands for equality, coupled with habits of deference. The traditional emphasis upon the importance of harmony and respect for order discourages confrontation. So too does the instinct to put the interests of the group above those of the individual. But traditional values are not enough to determine behaviour. At most, they structure general orientations towards authority. Their effect is reinforced by instrumental values. Patron-client relations also play a big part in these societies, and authoritarian regimes manipulate them to their advantage. Economic development provides improved standards of living and discourages challenges. Malaysia provides a particular example. There, the government has favoured the development of ethnic Malays at the expense of Overseas Chinese through its New Economic Policy. This has created a sense of common purpose among the newly emerged Malay middle classes that has sustained the regime despite periodic challenges. This is the reason that Pepinsky (2009) gives for the success of the government there in resisting pressures for major reform after the Asian financial crisis hit the country, unlike Indonesia where the economic crisis brought down the Suharto regime. The repeated success of the ruling Malay party, UMNO, has provided activists with prolonged opportunities for career advancement, which in turn has solidified their support. And voters have gained confidence that support for UMNO would be likely to lead to solid, long-term material benefits. As Brownlee (2007: 214) explains, this means that regime durability becomes a function of distribution and exchange of benefits among and between party activists and voters. As long as economic development continues, it will always increase the resources that the state can distribute to its ‘clients’. So, UMNO has established itself as a hegemonic party (i.e. always dominating all others). But it should not be assumed that this hegemony is based solely upon mutually beneficial patron-client relations. The Malaysian state still keeps the 1960 Internal Security Act from the colonial era on the statute books which allows for preventive detention for at least two years without trial of anyone suspected of planning to disrupt

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the security, economic life or essential services of Malaysia (Yatim, 1995). It continues to use it, even against former Deputy Prime Minister Anwar Ibrahim in 1998. Over the years thousands have been detained. The Singaporean People’s Action Party (PAP) is a similar hegemonic party, always winning elections. It supports its hold on power by threatening districts that vote for opposition parties with reduced public services. Moreover, the leaders of the PAP have also used the law to emasculate political opposition, prosecuting critics for libel, so that the damages that are awarded force opponents into bankruptcy and lead to their disqualification from standing for election. The consequence has been that opposition parties have consistently won so few votes that the PAP in 1984 decided to allow three seats in parliament to go to the opponents with the highest losing votes so as to make its victories and rule more credible (Khng, 1997). Key point Some states have been able to resist democratization and retain authoritarian rule, even when backed by elections

Persistence of communist party rule The most striking manifestation of the persistence of authoritarian rule, however, has been the survival of ruling communist parties. While communist systems have collapsed throughout the Former Soviet Union and Eastern Europe, they have survived so far in Pacific Asia. The only avowedly communist system to disappear was that of the Khmer Rouges in Cambodia, and that was as much because of intervention by Vietnam – ironically, another avowedly communist state. All of these regimes had a common institutional starting point. They were all structured around the communist party as the core. The party itself was organized on the basis of ‘democratic centralism’, which had originally been formulated by Lenin. The term connoted that the party should determine policy on the basis of democratic decisions by its members, ideally at the party congress, but then all were expected to implement it (the centralist part). Since the congress met, at most, once a year, and usually less often than that, the body charged with determining policy in the intervening periods was the Central Committee, which in turn elected a Political Bureau (Politburo) that effectively determined the party line. There was therefore greater stress upon centralism than democracy. And although it was not part of the original party ideology, at least in the early years, these ruling

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Governance in Pacific Asia communist parties were dominated by the aura of the great leader. This was as much practice as theory and it had emerged in the era of Stalin. North Korea had Kim Il Sung; China had Mao Zedong; Vietnam had Ho Chi Minh. The parties in Laos and Cambodia emerged as effective political forces after the death of Stalin, so they placed less stress upon the great leader and more upon supposed collective leadership. Nevertheless, Pol Pot in Cambodia and Kaysone Phomvihane in Laos did dominate their parties. More recently, however, these parties diverged in their internal organization and role after their great founding figures died. In North Korea, the party remained a family preserve. The ‘Great Leader’, Kim Il Sung, was replaced after his death in 1994 by the ‘Dear Leader’, Kim Jong Il. Then, in 2010, the latter’s youngest son, Kim Jong Un, was designated the future leader of the country. In practice, the ruling Workers’ Party as an institution has been rather sidelined as a decision-making force by its personal leadership and by the dominant role of the military in government. As mentioned in Chapter 4, the downfall of the Khmer Rouge regime also led to the disintegration of the Communist Party of Kampuchea. By contrast, the communist parties of both China and Vietnam have prospered since they introduced economic reforms. McGregor explains the success of the CCP in these terms: The Party’s genius has been its leaders’ ability in the last three decades to maintain the political institutions and authoritarian powers of old-style communism, while dumping the ideological straitjacket that inspired them . . . [T]he Party has pulled off a remarkable political feat, somehow managing to hitch the power and legitimacy of a communist state to the drive and productivity of an increasingly entrepreneurial economy. (McGregor, 2010: 26)

Instead of ideology, the Party’s main appeal has become economic progress. In any case, Chen Yuan, the son of CCP elder Chen Yun, revealingly remarked in the 1980s: ‘[W]e are the Communist Party, and we will define what communism is’ (McGregor, 2010: 37). The CCP has gradually sought to turn itself into the ‘natural’ ruling party. It tolerates the existence of a number of minor parties that have existed at least formally since before 1949 and in recent years it has even breathed more life into them, with a few of their representatives appointed to ministerial-level posts. However, they are not rivals. There is no doubt that the CCP wishes to remain the political hegemon. Both China and Vietnam moved, first towards greater collective party leadership after the deaths of Mao and Ho, and then, later, towards greater

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institutionalization of Party life. In the case of China this was the result of a deliberate decision by the oldest generation of senior comrades who survived Mao, led by Deng Xiaoping, to prevent the return of the arbitrariness, chaos and personal vindictiveness of the Cultural Revolution. In the short run this led the older generation to sweep aside the Gang of Four and other figures close to Mao in the last years of his life. They did so in the name of ‘democracy’: Deng appeared to support the early protests at the ‘democracy wall’ in Beijing by opponents of the Gang in 1979. Once the Gang had been defeated, however, Deng concentrated upon economic reform. He always remained hostile to any idea of Western democracy or separation of powers, believing it would prevent decisive party leadership of society (Zhao, 2009: 251). Still, there also developed a feeling that political reform was ultimately inseparable from economic reform. In 1986–1987 there was a wide-ranging debate within the party over ways of reforming it (Pei, 2006). In the end, little was done, and the reformist general secretary, Hu Yaobang, was forced to resign. According to Zhou and Wu (2007: 3), there have been three periods of political reform since then. The first was 1989–1997, when the emphasis was upon the development of institutions inside the Party; for example, fixing the length of terms of office and the age for retirement, and increasing the separation between Party and state bureaucracies. Training for cadres was made more professional. Then the Tiananmen Square events in spring 1989 and the suppression of public protests took political reform off the agenda. The leadership had for a while been paralysed by its divisions over how to handle the affair – it led to the dismissal and lifelong house arrest of the next Party general secretary, Zhao Ziyang, for having advocated more conciliation with the demonstrators – and afterwards it closed ranks. This led to Zhou and Wu’s second period: 1989–1997. This was mainly an era of retrenchment, when attention was chiefly focused on economic reform. Then, from 1997, came the third period. This led to the innovation of (limited) competitive elections for party offices. Even a few candidates for election to the Central Committee were rejected by the delegates to the Party Congress. Gradually the Party ethos evolved from revolutionary socialism to being a ‘ruling’ party (zhizheng dang). McGregor (2010) stresses the way that it attempts to penetrate all organizations, certainly all large and important ones. It tries to ensure that no movement in society takes places without its knowledge. On the one hand it sought to become a party of the whole people, symbolized by the decision in 2002 to admit entrepreneurs as members (though few seem to have done so). Though this was extremely contentious within the Party, it also neutralized the potential split

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Governance in Pacific Asia in interests between the Party and entrepreneurs. It reduced the likelihood of middle class pressure for political liberalization. It encouraged the latter to believe that they could continue to work with the Party. ‘Instead of seeking an officially recognized and protected autonomy, they [the entrepreneurs] seek to be embedded in the state, and the state has created the institutional means of linking itself with private business interests’ (Dickson, 2003: 84–5). With a membership of almost 78 million at the end of 2009, the CCP is the largest party in the world. The former general secretary, Jiang Zemin, launched the idea of the ‘three represents’; that is, the Party should ‘represent’ the advanced productive forces in society, advanced modern culture and the interests of the vast majority of the people. According to the Head of the Teaching and Research Department of Party Building in the Central Party School, the Party should change from attempting to do everything to one that ‘serves the people’ by helping them to become the masters of their own affairs (Wang, 2008). On other hand, it has retained its overt elite political status, although this has evolved over time. Where it used to be the party of the downtrodden (or their representatives) and, during the Cultural Revolution, encouraged its members to carry out revolution ‘to the end’ rather than study, now roughly one-third of its members have college degrees. Virtually all the members of the Central Committee have such qualifications (Shambaugh, 2009: 154). In its own eyes it consists of the most outstanding members of society. Being a party member is an honour and some take pride in that fact, but it would be a brave potential newcomer who turned down an invitation to join. In the eyes of its critics its members have increasingly joined the Party for the sake of furthering their careers, whether in the government or in business. For example, all military officers above the rank of colonel are Party members. It has also been accused of furthering, and failing to prevent, official corruption. Roughly 1 per cent of its members are removed every year, often after allegations of corruption have been upheld. But this is a small proportion. Party members can only be prosecuted by the state if the Party agrees to it. This preserves its privileged position (Pei, 2006). The main focus of political reform has been developing the rule of law, expanding the role of grassroots elections, and facilitating greater popular supervision of official decision-making. The CCP goes through periods of debate over reform, even democratization. After his dismissal in 1989, former General Secretary Zhao Ziyang, contemplated evolution towards parliamentary democracy led by the CCP, although he was much more cautious when in office and he emphasized the need for adaptation to China’s traditions (Zhao, 2009: 265–6, 270). Gilley

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(2004) has boldly predicted China’s democratic breakthrough. One more modest proposal that has been made on several occasions inside China has concerned strengthening the National People’s Congress so that it can hold the executive much more seriously to account. At present, it meets on average for only 15 days per year. And there has been encouragement too for equivalent powers to be granted to representative institutions at the provincial level and below (Sun and Cai, 2007). Bell (2006) has expanded on this in a way that is intended to be compatible with East Asian, especially elitist Confucian, traditions. His proposal is for a second chamber of the National People’s Congress that would be composed of nominated ‘experts’ of various kinds for fixed terms of office, rather than relying upon popular election. Their function would be to scrutinize legislative proposals of the lower house. Yet, so far, little has been done. There have been real innovations, such as elections for village leaders, since the early 1990s, but these have still not spread to higher levels of government. Then, in October 2010, Prime Minister Wen Jiabao told CNN that ‘the [Chinese] people’s wishes for, and needs for, democracy are irresistible’. He said he was convinced that China would be more democratic in 25–30 years’ time (Guardian, 2010). Wen has made similar comments before, and he was a close aide to Zhao Ziyang in 1989. However, foreign observers noted a subsequent article in the People’s Daily that seemed to contradict him. It rejected suggestions that political reform was lagging behind economic reform, and reiterated the need for China to pursue its own form of democracy without a multi-party system or separation of powers (New York Times, 2010). At the same time, the Party General Secretary Hu Jintao has been associated with the ‘concept of scientific development’ which should underpin party leadership rather than democracy. It accords with the more technocratic ethos of the latest generation of Chinese leaders and the training that they are given (Li, 2001; Pieke, 2009). He certainly has not shown himself to be a great advocate of democratization outside the Party; rather, the main emphasis has been upon increasing the Party’s capacity for governing, though that includes greater democracy within the Party, if not in the rest of society. Local party organizations have experimented by allowing non-Party members a say in the selection of their secretaries (Fewsmith, 2008: 284). So more competition does take place for election to leading Party positions. It does, at least, represent a fundamental change from the democratic centralism of the revolutionary generation. There is talk of Party members learning how to make democracy work inside the Party before it is spread to the rest of society.

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Governance in Pacific Asia But the regime vigorously repressed the Charter 08 appeal signed by over 300 democratic activists for democratic reform in China (Charter 08), condemning one of its initiators, Liu Xiaobo, to jail for eleven years, though he was awarded the Nobel Peace Prize in 2010. The regime is obsessed with maintaining what Yu (2010) has called ‘rigid stability’. According to him (2010: 37), it spends roughly the same amount on internal security measures to preserve stability as it does on national defence. One stream of thought advocating democratization in China focuses upon the costs of authoritarianism. A graphic plea for China to develop democracy comes from Pei (2006: 206), who characterizes China’s closed political system as increasingly becoming ‘an anachronism’. He describes the economic costs of the CCP’s political monopoly as ‘real, substantial and growing’. He enumerates various types of such costs in terms of rents still appropriated from the economy by insufficiently reformed political institutions, increasing inequality, corruption, governance failures in health care, education and the environment, as well as fragmented legal authority. One of the best-known advocates of democratization inside China is Yu Keping (2009a). He advocates incremental democratization. He too stresses the virtues of good governance as one of the hallmarks of democracy. He believes that ‘democracy is the best political system for humankind’, but he acknowledges lots of flaws: it can cause social disruption, it can slow economic growth and it can be a cover for populism and dictatorship. He presents its main strengths in terms of better social management, rather than freedom or pluralism. There is no mention of party competition, but he devotes a lot of attention to encouraging ‘flourishing’ civil society organizations. For the moment, what he advocates is ‘consultative democracy’ (xieshang minzhu) (Yu, 2009b). Like the ‘White Paper’ on democracy mentioned above, he stresses that China must develop its own form of democracy, which will be different from democracy elsewhere in the world. Implicitly, he takes the same position vis-à-vis democratization that the regime took on economic reform: pragmatic, incremental reform, crossing the river one stepping stone after another, but without, or at least without presenting, a clear vision of what awaits on the other bank. On the other hand, many outside commentators denote the current Chinese system as ‘consultative authoritarianism’. For them, the Party is happy to consult with all sections of society over specific policies, including through the internet, provided there is no fundamental challenge to its authority. Yet by trying to ensure that there are no organized political rivals for the CCP, the Party is also increasing the risk of being surprised by sudden surges of unorganized public discontent which can find no legitimate

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formal expression. The state admitted in 2005 that there had been over 70,000 public demonstrations that year and the figure has gone up since then. Watts remarked: ‘With no democracy, China’s government was being held accountable by riot’ (2010: 135). However much praise is lavished by reformers on the positive contribution that civil society can make to the pragmatic resolution of national problems, the events of spring 1989, which took the regime so obviously by surprise, demonstrated how destabilizing civil society can be too. As Shambaugh (2008) has shown, the CCP has devoted enormous attention to studying the causes of the downfall of authoritarian regimes around the world. They have been particularly interested in the collapse of Soviet power, so that they can learn lessons. According to him (2008: 4), the main reasons that the diagnosed were an ossified party state with a dogmatic ideology, entrenched elites, dormant party organizations, a stagnating economy and isolation from the world community. The CCP has attempted to present itself as a lively party state with a pragmatic ideology, more elite mobility, vibrant party organizations, a flourishing economy and involvement in the world community. Yet the options for reforming an effectively one-party communist regime in China are akin to those that the Soviet leadership contemplated, if the leaders do not want to introduce party competition. Democracy from below to put pressure on recalcitrant and possibly corrupt officials, mobilizing the power of the people at local levels, strengthening the role of national and local elected representative institutions, strengthening the rule of law, increasing intra-party democracy, relying upon the appeals of scientific leadership to restore legitimacy – these were all features of Gorbachev’s reforms of the USSR. The only significant difference – and it is not a small one – is that China has maintained rapid economic development where the USSR was stagnating. This means that reformers in China are not necessarily condemned to the same fate as their Soviet counterparts. If economic growth and non-democratic rule can be sustained in China, then it reverses the argument over the relationship between economic development and democratization outlined above; namely, that economic development is conducive to democratic change. Also, Womack (2005) has argued that China is attempting to establish a different form of democracy from the electoral type typically found in and advocated by the West – that is, a party-state democracy. In this type of system there is no electoral competition for political power. Instead, there is ‘the achievement of the effective power of the people within the framework of a single political party that cannot be challenged by other political parties’ (Womack, 2005: 24). The next decade is vital. In 2004, The People’s Daily acknowledged that the

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Governance in Pacific Asia period from then to 2020, when per capita income is planned to reach $3000 per year in nominal terms, would show whether China would fall into the ‘Latin American trap’; that is, whether it would fail to maintain the momentum of growth (Fewsmith: 2008: 256). But this period is also one when commentators such as Huntington would have predicted greater likelihood for democratization. Vietnam is in a similar position, though somewhat behind at a lower level of development. That highlights the significance of what they do, whatever it is, for theories of democratization. It also suggests the relevance of what they do for the applicability of the notion of multiple modernities and their different trajectories from those of a liberal democratic West. Key points Ruling communist parties across the region have been able to stabilize their power, largely through economic liberalization and growth They have resisted political liberalization and pluralism The CCP claims to be developing intra-party democracy as a prelude to spreading democracy among society as a whole Such attempts are only just beginning

Conclusion This chapter has examined the processes of democratization in the region at different periods. It has shown the complexity of the factors that have contributed to it. While levels of development seem to correlate with the spread of democracy, it also demonstrated that many other factors were involved in particular countries. Shared historical experience, distinctive traditional national orientations towards politics, the ways in which political institutions such as parliaments operate, problems such as corruption, the actions of particular groups of society, and also of individual key decision-makers – all of these have an impact too, sometimes a decisive one. At some periods their interaction may slow down processes of democratization; at other periods they may speed them up. All this makes simple extrapolation of democratic change from levels of economic development problematic. At the same time, the experience of the region also shows that hypothetical alternative forms of democracy which were advocated in various parts of the region in the 1950s have not generally been realized. This was particularly demonstrated by the experience of Sukarno’s Indonesia, which tried to get away from multiparty-based liberal democracy, but which was never able to establish a

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viable form of democracy of its own. It confirms that the range of viable long-term alternatives to ‘Western’ institutional forms of democracy is relatively limited. The only exceptions, for the moment, are the ruling communist parties. However, introducing the institutions is not the same as making them work as they do in the West. We shall return in Chapter 12 to the problems that they have had in doing so.

Questions for further discussion 1 How plausible are the claims that Confucianism and Islam are incompatible with democracy? Why? 2 Compare the public protests on Tiananmen Square in spring 1989 and in Jakarta in May 1998. How do you explain the different political outcomes? 3 Do you believe that democracy in Pacific Asian societies today cannot suffer the same fate as parliamentary democracy in Indonesia in the 1950s? Why? 4 How persuasive is the notion of ‘consultative democracy’ in China, to whom and why? How does it differ from the concept and practice of ‘deliberative democracy’ in the West? 5 How persuasive is Bell’s attempt to provide a coherent account of a democracy adapted to East Asian traditions of elite rule? 6 If democracy eventually triumphs in Myanmar, how successful is it likely to be in consolidating itself?

Further reading Bertil Lintner, Outrage: Burma’s Struggle for Democracy (Bangkok: White Lotus, 1990) – a vivid account of the failed democracy movement which shows how sparks from student complaints were fanned into wildfires of popular protest. Daniel A. Bell, Beyond Liberal Democracy: Political Thinking for an East Asian Context (Princeton: Princeton UP, 2006) – sketches elements of a distinctively East Asian approach to political thinking. David Shambaugh, China’s Communist Party: Atrophy and Adaptation (Washington, DC Berkeley: Woodrow Wilson Center Press and University of California Press, 2008) – a more academic analysis of the CCP and its research into the causes of the collapse of authoritarian regimes around the world. Francis Fukuyama, ‘Confucianism and Democracy’, Journal of Democracy 6:2, 1995, 20–33 – rebuts allegations of the incompatibility of these two concepts. Herbert Feith, The Decline of Constitutional Democracy in Indonesia (Ithaca, NY: Cornell UP, 1962) – a classic study which shows how parliamentary democracy failed in the 1950s. Philip Cunningham, Tiananmen Moon: Inside the Chinese Student Uprising of 1989 (Lanham, MD: Rowman & Littlefield, 2009) – provides a vivid account of the Tiananmen Square events. Richard McGregor, The Party: the Secret World of China’s Communist Rulers (London: Allen Lane, 2010) – a journalist’s account of the ethos of the world’s largest and secretive political party. Shelly Rigger, Politics in Taiwan: Voting for Democracy (London: Routledge, 1999) – authoritative account of the evolution of democracy in a Confucian society.

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12 Tribulations of Democratic Consolidation Chapter Outline Introduction Successes Challenges Challenges to democratic development Conclusion Further reading

303 303 309 328 331 332

Introduction This chapter will focus upon the general difficulties of democratic consolidation across the region. First, it will emphasize the success of democratization in South Korea, Taiwan and Indonesia. Then it will turn to the persisting challenges: the difficulty of establishing robust, issue-based political parties and party systems amid traditions that valorize patron–client relations; problems of money politics and corruption; slow progress in raising the role of women in politics; the still-limited role of civil society; restrictions on freedom of the press; and the challenges that stem from the spread of new communications technologies, especially the internet and mobile phones. After that it will highlight specific problems in a few states: Japan, the Philippines, Papua New Guinea, Cambodia and Thailand.

Successes According to Larry Diamond, a Stanford professor of political science and sociology: ‘More than any other region, Asia will determine the global fate

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Governance in Pacific Asia of democracy in the next two to three decades’(2008: 212). Of course this would not only involve Pacific Asia. South Asia is also key, with India the world’s largest democracy, and the form of rule in Pakistan and Bangladesh would be significant too. Nevertheless, Pacific Asia is vital. First of all it is important to acknowledge the successes. As Freedom House ratings (reproduced in Table 1.5) showed, the number of free and partly free states in the region has increased since 1980. The changes that began in the mid-1980s have been basically sustained. There are no more ‘non-free’ states now than in 1980, so there has been no fundamental reversal. Of the four states that are now classed as ‘free’, only one (Japan) had the same status in 1980. The other three (South Korea, Taiwan and Indonesia) have achieved it in the intervening period. In the case of the first two, democracy has now survived uninterrupted for almost a quarter of a century, and both systems have seen alternations of parties in power without serious challenges to the legitimacy of those outcomes. So it is reasonable to conclude that democracy in both states has been consolidated, which occurs when ‘[p]olitical competitors . . . come to regard democracy (and the laws, procedures, and institutions it specifies) as “the only game in town”, the only viable framework for governing the society and advancing their own interests’ (Diamond, 1999: 63). Both states had been dominated by the military beforehand, so the temptations for military leaders to intervene again have been significant, especially since both are still subject to existential security threats from North Korea and the People’s Republic of China, respectively, yet they have managed to maintain civilian control. Between them they have disproved earlier claims about the incompatibility of democracy and Confucian societies. The most encouraging recent change, however, has been the emergence of democracy in the fourth of those states – Indonesia – since 1998. This has been achieved despite a host of unpropitious circumstances. Despite the claims made by the New Order regime to be ‘guiding’ society towards democracy, it had never laid down a clear route or timetable for achieving this. Thus the preparations were, at best, still rudimentary by 1997. Then the economic collapse at the end of the year destroyed the savings that whole sections of society had patiently accumulated over several decades. State welfare was extremely limited, and the conditions for reform imposed by the IMF effectively excluded the provision of a welfare safety net to cushion the effects of the crisis. Popular anger against those who were thought to have profited from the previous years through ‘corruption, collusion and nepotism’ erupted on the streets in May 1998, particularly targeting Overseas Chinese. Inter-communal violence broke out not just in Jakarta, but

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also in various other parts of the country – West Kalimantan, Sulawesi, Ambon, the Spice Islands. Resentments of ‘natives’ against immigrants from other parts of Indonesia that had been bubbling under the surface for decades finally spilled over, and in some cases were exacerbated by religious differences (e.g., Muslims against Christians). In some parts of the country secessionism reappeared – such as in East Timor, Aceh and Papua. At the same time, the prestige of the armed forces had been undermined by the downfall of Suharto, and the military leadership were clearly divided. So the responses to all these challenges were inconsistent. In some places the local military responded with great brutality. Hundreds of people died in clashes. In other places, the military were more conciliatory. To complicate the picture even more, the collapse of the New Order regime opened the way for political entrepreneurs to set up new political parties in the hope of capitalizing on the country’s difficulties. By March 1999, 144 parties had already been registered (Abdullah, 2009: 534), which threatened to resurrect the political instability of the parliamentary democracy era of the 1950s. And the prospects for the national economy were extremely depressing. The inflation rate in 1998 was 77 per cent, estimates of the cost of recapitalizing the banking system suggested that it would be several times the government budget and 60 per cent of GDP (van Dijk, 2001), and in 1998 GDP fell 13.8 per cent, the biggest fall of any country in the region. To quote the sub-title of van Dijk’s book, Indonesia was ‘a country in despair’. Indonesia seemed condemned to years, if not decades, of hardship. Yet politically things began to improve. At the centre, Suharto was replaced by Vice-President Habibie, but this inaugurated years of turbulence at the top. Habibie was detested by some military commanders and held in contempt by others, as well as distrusted by many of the demonstrators in Jakarta. Where Suharto had been a master puppeteer, manipulating behind the scenes, Habibie was effervescent, unpredictable, spinning like a top. He was forced by public opinion to announce a new presidential election for 1999. To try to resolve the East Timor issue and gain international support, he took everyone by surprise by announcing that the East Timorese would be allowed a referendum where they would be offered the alternatives of a special status within Indonesia or independence. However, he could not satisfy popular demands for retribution against the key figures of the Suharto regime, and especially members of Suharto’s family. What people wanted was repayment of the Suharto family billions, but the authorities appeared unwilling or unable to do anything about this. So, in the end, he recognized the inevitable and did not stand for election as president in 1999.

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Governance in Pacific Asia His successor was Abdurrahman Wahid, the former leader of the largest conservative Islamic organization in Indonesia, the Nahdlatul Ulama. He had long been a critic of the Suharto regime and he also had a long record of advocating democracy. He certainly believed in more open politics. However, he too proved unpredictable and impetuous. He was no builder of institutions or follower of established procedures. He was prone to sudden changes of government personnel, dismissing ministers at will. He never established good working relations with the parliament, even though it was they who had chosen him. In 2002 he tried to dissolve the parliament, but they rejected his decree and he was forced to resign. The next president was his vice-president, Megawati Sukarnoputri, the daughter of former president Sukarno. Where her two predecessors (and indeed her father) had been emotional and mercurial public figures, Megawati practised extreme caution and impassiveness. She did reintroduce greater order into decision-making, but she did not create an image of decisiveness and she was never able to form an emotional bond with the people. She behaved as though she felt that she was entitled to the presidency. So in the presidential election of 2004 she was defeated in a five-horse race by a former general, Susilo Bambang Yudhoyono, who had established the Democratic Party only a little while previously. And to complicate matters even more, the aftermath of 9/11 and the War on Terror sucked Indonesia in as well. Terrorist bombings in Jakarta and Bali raised fears about a possible spread of Islamic fundamentalism there to exploit the economic and political troubles (Abuza, 2007). As the world’s largest Islamic society, this worried the international community a great deal. All in all, Indonesia seemed in danger of becoming a failing state like Pakistan. And yet the fears have so far failed to materialize. The election of 2004 was followed by another in 2009 when Yudhoyono became the first president to be popularly re-elected. There were no serious objections to the legitimacy of either election. As for the political parties, the profusion of new ones did not lead to the political turbulence of the 1950s. Most failed to win seats in the parliament, and the number contesting the 2004 election fell by half to 24 compared with the 48 in 1999, though Indonesia is still the system with the highest number of effective parties (8.3 in 2004) represented in its parliament (Reilly, 2008: 21); that is, it has a lot of political parties with roughly equal shares of the vote. Parties there are somewhat better institutionalized than elsewhere in Southeast Asia (Ufen: 2008b). But what was also striking was that the parties that had been created by Suharto continued to win a great deal of support. Although the depth of popular

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commitment to them had been doubted before 1998, they managed to hang on to support and, in some cases, increase it. Even Golkar, the party of power of the New Order regime, still won 20 per cent of the vote in 1999 – obviously down from the 60–75 per cent that it had won during the New Order regime, but still a substantial figure. No doubt a key reason was the fact that the parties had turned against Suharto in 1998. Their leaders in the parliament had demanded, politely, that Suharto stand down. They had stood up for a new Indonesia. In 2009, Golkar’s vote fell to 14.5 per cent, but this still gave it the second-highest number of seats. Equally strikingly, voters did not divide along confessional lines. Overtly Muslim parties did not do especially well – indeed the party from the New Order period that has done least well has been the party explicitly for Muslims, the United Development Party (PPP). Certainly, there remain problems with democracy in Indonesia. Corruption, including political corruption, remains a major problem. The rule of law is weak; but where in the 1950s politics fell into a vicious spiral, over the past decade it has risen in a virtuous spiral. And this is the more surprising since, as was emphasized in Chapter 11, the talk of the regime about ‘guided democracy’ had remained largely rhetoric. Democracy has not emerged as the result of wise guidance and skilful leadership by the New Order regime, but rather as the result of the confluence of a whole series of factors since its fall. Economic recovery, along with the prospect of gradually increasing prosperity, has helped. So too have the efforts of international agencies such as the international NGO for democracy promotion, International IDEA, which focused much attention on assistance for Indonesian democratic activists. With the end of the Cold War, no outside powers have been tempted to meddle in Indonesian affairs and possibly encourage secession – unlike the 1950s. But the decisions of party and political leaders over how to practise democratic politics have also contributed a great deal. While debates between them have been at times as sharp as in other democracies, they have not degenerated into the corrosive personal attacks and populist rabble-rousing that marked party politics in the 1950s. Slater is quoted as saying: ‘Parties share power far more than they fight over it’ (Dalton, Shin and Chu, 2008: 181, emphasis in original). Compared to the 1950s, that is an improvement. Gradually, the dominant role of the military has been reduced. Even though former generals continue to play a prominent part in national politics – for example, all five pairs of candidates for the presidency and vice-presidency in 2004 included one former general each, and one of them (Yudhoyono) won – they are former generals. The current high

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Governance in Pacific Asia command has resisted temptations to intervene in government outside the sphere of security. Yudhoyono symbolically and successfully created a new party and called it the Democratic Party. Civilian control of the military has been maintained. And government responses to national tragedies, such as the Indian Ocean tsunami of December 2004 that killed roughly a quarter million people, have strengthened the sense of shared national community. It was in the aftermath of that tsunami and of the government relief efforts that the secessionists in Aceh, which had been devastated, agreed to abandon their demands for independence and work with the central government’s reconstruction efforts. All of this suggests moderate confidence that democracy has become consolidated. For the general notion of consolidation, Diamond (1999: 69) has suggested six dimensions that are summarized in Table 12.1. As we shall see, the widespread practices of corruption by political actors do raise questions over the secure consolidation of democracy in Indonesia, and the same can be also said about various other states in the region. But the depth of popular resentment over this has not matched the resentment that turned so powerfully against the commercial corruption of the Suharto regime in 1998. Indonesia has shown marked progress along all six dimensions. There have also been two handovers of the presidency from one party to another on the basis of popular elections – a basic test for the consolidation of democracy. Table 12.1 Indicators of democratic consolidation Level

Norms and Beliefs

Behaviour

Elite

Most significant leaders of opinion consistently support the legitimacy and superiority of democracy in their rhetoric, ideology and symbolic gestures

Leaders of government, state institutions, and significant political parties and interest groups respect each other’s right to compete peacefully for power, refrain from violence and obey the laws, constitution and usually accepted norms of political conduct. They do not incite violence, intolerance or use illegal methods. Political leaders do not attempt to use the military for political advantage

Organizations

All politically significant organizations accept the legitimacy of democracy and the constitution

No significant political organization seeks to overthrow democracy or uses unconstitutional or antidemocratic methods in pursuit of power

Mass public

Over 70 per cent of the mass public consistently believes that democracy is preferable and that the current system of government is the most appropriate

No antidemocratic political organization or movement enjoys a significant mass following and ordinary citizens do not routinely use illegal or unconstitutional methods to express their political preferences or pursue political interests

Source: Diamond, Larry (1999), Developing Democracy (Baltimore: Johns Hopkins UP, 69).

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Table 12.2 Support for democracy in Pacific Asia (per cent of respondents) Democracy is . . .

China

Hong Kong

Taiwan

Korea

Thailand

Philippines

Japan

Desirable for our country now

72.3

87.6

72.2

95.4

93.0

88.1

87.1

Suitable for our country now

67.0

66.8

59.0

84.2

88.1

80.2

76.3

Effective in solving the problems in society

60.5

39.0

46.8

71.7

89.6

60.7

61.4

Preferable to all other kinds of government

53.8

40.3

40.4

49.4

82.6

63.6

67.2

Equally or more important than economic development

40.3

19.6

23.5

30.1

51.3

21.8

44.0

None of the above

13.6

7.2

13.0

0.7

0.5

1.5

5.7

All of the above

17.8

7.0

7.4

15.7

35.6

6.7

23.4

Mean number of items supported

2.9

2.5

2.4

3.3

4.0

3.1

3.4

Source: Chu, Yun-han, Diamond, Larry, Nathan, Andrew J. and Shin, Doh Chull (2008), How East Asians View Democracy (New York: Columbia UP, 12).

Generally speaking, support for democracy around the region can be found in results from the East Asian Barometer surveys in 2001, the results of which are presented in Table 12.2. While these figures show quite wide variation in the degrees of support for democracy across the region, and – to a limited extent – a greater support for democracy in general than for the suitability of democracy at present, they still suggest a general preference for democracy as compared with other systems of rule. Key points Democracy has become consolidated in South Korea and Taiwan The same seems true for Indonesia There is a general, though variable, preference for democratic rule across the region

Challenges Now let us turn to some of the challenges that still confront democracy across the region, on which there is a substantial literature. Case (2009) refers to the general ‘low quality’ of democracy in Southeast Asia. Narine suggests that this is because most ASEAN states have only ‘a tentative grip

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Governance in Pacific Asia upon their sovereignty. Those that have a firm grip on sovereignty are relatively few and unconvinced of their own stability’ (2002: 199). He suggests that only Thailand is relatively secure as a state that is widely accepted as legitimate by its people – yet, as we shall see, Thailand too has its problems with democracy. Rigger (1999) has emphasized the persisting problems of democratization in Taiwan. Various authors have focused on the weaknesses of democracy in Japan, despite the fact that it is the state in the region that receives the highest rating from Freedom House. Chu, Diamond, Nathan and Shin begin their book with the striking statement: ‘East Asian third-wave democracies are in distress . . . Most East Asian third-wave democracies have suffered inconclusive or disputed electoral outcomes, incessant political strife and partisan gridlock, and recurring political scandals’ (2008: 1). The most general problem concerns political parties.

Problems of political parties Political parties in Pacific Asian democracies are generally less strong than those in the West. They play a less significant role in structuring the choices over public policies which are presented to voters at elections. They tend to be weakly institutionalized. (Ufen, 2007, 2008c). They have to operate within social traditions of patron–client relations, and this diverts them from focusing primarily upon general policy issues. Altogether, political parties perform seven key functions in democracies: Legitimation of the political system Integration and mobilization of citizens Structuring the popular vote Representation Aggregation of diverse interests Recruitment of leaders for public office, thus facilitating (normally) non-violent choice between individuals Formulation of public policy, facilitating choice between policy options

In some ways the first function (legitimation of the political system) is the least problematic. Even authoritarian regimes in the region (e.g., South Korea under Park Chung Hee and Chun Doo Hwan, or Taiwan under Chiang Kai-shek) have held elections to create the image of democratic support. The (ironically named) Democratic Republican Party in Korea and the nationalist Kuomintang (KMT) in Taiwan were ruling parties for which the system was designed to ensure re-election. In Cambodia, the ruling

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Cambodia People’s Party has run the country since the overthrow of the Khmer Rouge in 1979 and the reintroduction of democracy in 1993. It has never failed to win re-election. As was mentioned in Chapter 11, the United Malay National Organization (UMNO) in Malaysia and the People’s Action Party (PAP) in Singapore have been similarly successful in elections since independence. The Myanmar military regime held national elections in 2010, in which the officially backed Union Solidarity and Development Party (USDP) unsurprisingly won 80 per cent of the votes, especially since the opposition National League for Democracy was banned from taking part. Thus, although regimes differ in the ways in which parties can operate and the victories of officially backed ruling parties can hardly be said to provide objective support, the functioning of parties certainly do contribute to the legitimation of regimes. Clearly, parties play the biggest part in structuring the popular vote. There is little room for non-party independents in the parliaments of any of these states. This also means that the parties play a big part in integrating and mobilizing citizens. Even hegemonic ruling parties are pressured into great efforts to ensure that large numbers of voters turn out to vote, so as to ‘demonstrate’ broad popular support. But when we turn to functions such as representing interests and aggregating them into policy programmes, Pacific Asian political parties tend to be less effective than their Western counterparts. While they do generally compile policy platforms, their electoral appeal is based more upon social identity. They appeal to particular sections of society on the basis of common identity – region, ethnicity, religion, rather than programmatic coherence. They are not very ideologically minded. They are more pragmatic, catch-all parties, often very dependent upon the appeal of party leaders. To some extent this reflects the fact that many parties arose after the end of the Cold War, which made it more difficult for parties to differentiate themselves on the basis of broad ideology. Even parties that predated the end of the Cold War have had to adapt. This has been particularly difficult for parties that seek to appeal more to voters who want change, voters that are more radical. This is not a problem that is unique to Pacific Asia; it is quite general and can be observed in other parts of the world (e.g., the former communist world). Nevertheless, it does apply in Pacific Asia too. Hicken (2008: 99) notes the general absence of partisan left-wing or labour-based political parties across Southeast Asia. South Korea reinforces the point. While the main party of the right – now the Grand National Party – has established itself as a sturdy institution, parties to the left, or liberal parties, have mutated and/or split more or less at every election depending upon

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Governance in Pacific Asia individual leaders. The Democratic Party became, in turn, the Millennium Democratic Party, Uri (‘Our’) Party and the United Democratic Party before assuming its current designation. Instead of appeals to ideology, parties tend to rely upon appeals to identity of various kinds as a way of maximizing potential support. These could be appeals to nationalism and the whole nation. A typical example of this is Thaksin Shinawatra’s original, very successful, Thai Rak Thai Party (i.e. ‘Thais love Thais’). Or it could be appeals to particular ethnicities – for example, the United Malay National Organization in Malaysia. But even where the appeal to an ethnic category is not overt, a party such as the Liberal Democratic Party presented itself for decades as embodying a certain sense of ‘Japaneseness’. Three things are important about this. First, according to Sheng (2008), the level of partisanship in selected democracies of Pacific Asia (i.e. the extent to which citizens claim to be close to one party or another) is lower than in other parts of the world. The country with the highest figure is Japan, with 37.5 per cent, whereas the figure for the United States is 57 per cent and for the United Kingdom is 46 per cent. In Taiwan, the figure was 33.6 per cent, in Korea 27.3 per cent, in Thailand it was 20.8 per cent and in the Philippines it was 12.8 per cent. Political parties in Pacific Asia do not figure so prominently in people’s thinking about the political process. This shows that there is significant potential volatility in the party system. The generally weak sense of attachment to particular parties means that for most of the population democratic politics is regarded as an activity for other people. Second, according to Dalton and Tanaka (2008), the degree of polarization in relation to citizens’ views on politics remains lower than it is in other parts of the world. They argue that it is possible to identify a left-right spectrum of views in Pacific Asia, but that the divergence between the two poles is less pronounced there. While there is obviously an interaction between the degree of polarization of political views within the voting public and the degree of polarization between political parties, since each can affect the other, the fact of relatively low differentiation at both levels contributes to the sense that parties are competing over the centre ground rather than appealing to core constituencies. This makes them become more like catch-all parties, relying upon general appeals to win support, where slick media presentation of the message, personable media-friendly leaders, and (sometimes) vote-buying and violence against opponents count for more than a distinct policy platform. And in an era of growing middle classes, the appeals tend to be directed more at them. Taiwan is the exception that proves the rule. It is the one system in the region that has succeeded in establishing a basically two-party system,

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revolving around the KMT and the DPP. But the reason for that polarity is unique to Taiwan. The DPP identifies with the ‘native’ Taiwanese; the KMT with the ‘outsiders’ who came from the mainland. Over time the appeals of the parties have become more complex, for neither identity is now enough to win a majority. However, the party system still embodies a fundamental enduring polarization and has therefore survived a lot of political turbulence. No other democracy in the region has the same overriding social cleavage, so party identities and party systems fluctuate much more. Third, the more that parties base their appeals upon identity rather than interests or other types of voter concerns, the more difficult it is for democracies to change governments through elections. Individual and group identities tend to be much more stable and change, if at all, only very gradually. So insofar as parties are able to maintain control over legitimate representation of the features of separate identities, this makes it very difficult for the numbers of voters for individual parties to change. There are much fewer swing voters who can change the outcome of an election. At worst, this can mean that minorities can be pushed into more radical challenges to authority as they despair of ever being able to achieve change in a more peaceful way, because they are always likely to remain minorities. This is part of the explanation for the persisting Islamic rebellion in the southern Philippines, and its emergence in southern Thailand in the last decade. The function of political parties that remains important is the selection and legitimation of the holders of public office at the local and national levels. As Dalton and Wattenberg conclude from a study of politics in OECD member countries: ‘It is difficult to think of national governments functioning without parties playing a significant role in connecting the various elements of the political process’ (2002: 275). The use of elections, rather than relying upon traditional inherited authority, is by far the most common way of achieving this. Nevertheless, there is the widespread practice of appealing for electoral support on the basis of elite status, rather than policy alternatives. These are still somewhat hierarchical societies, as was explained in Chapter 3, and political advancement is often linked to social status. Political parties have often tapped traditional social elites for their representatives, as European parties did after WWII. McAllister emphasizes in a study of Japan, Korea, the Philippines and Taiwan: ‘[T]hey all display a strong element of localism and personal patronage in their politics’ (2008: 89). To this, Dalton, Shin and Chu add: ‘Presidential elections are almost solely candidatecentered contests. Campaigns emphasize patronage and personal ties rather than party ideologies and a program of governance’ (2008: 181).

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Governance in Pacific Asia In Taiwan, Rigger (1999) has given a detailed account of the ways in which local parties rely upon local grass-roots activists or ‘pillars’ (tiau-aka) to help their candidates win election and then to maintain support afterwards. Earlier, when the Nationalist Party (KMT) was the only legal party, it tried to establish closer ties with local communities by persuading prominent local figures to stand for election. Local party offices would consult behind the scenes about the most desirable potential candidates and then, when they had made their choice, they would send out the ‘sedanchair carriers’ to try to win them over; that is, other prominent members of local communities who would pledge support (their own reputations and resources) if the chosen person would stand and they would run the campaign. Following the introduction of democracy, these activists would build up clientilistic networks of supporters who could ‘deliver’ votes in return for promises of services. This could include payments for votes, which became more of a problem under democracy, because under authoritarianism there had been no real competition, but the practice of guanxi meant that clients were more likely to expect services of various kinds rather than money. Rigger also stresses that now, under democracy, ambitious politicians would seek out tiau-a-ka vote brokers to further their ambitions, rather than wait to be invited to stand. “One person that is very important in local politics is the tiau-a-ka. This is the person that helps the county executive with local affairs. The county executive is much too busy to attend to every little thing, so he or she relies upon people in the villages to help out. If someone has a problem and they want to see the county executive about it, first they both go to see the county executive together. That way the person is more likely to get what he or she wants. In recruiting people to be tiau-a-ka, politicians look for people who are influential in their communities, respected by local people, loyal to the politicians and respectful in dealing with him or her. The local people have to be willing to tell the tiau-a-ka their opinions so the tiau-a-ka can pass them along. Tiau-a-kas also need to be able to provide certain services. During elections, the tiau-a-kas are the most important people in a candidate’s organization. They go around and talk to everybody and drum up support. Not everyone can provide good service. Only if you have power and money can you serve the people. Tiau-akas have no formal power – their power comes from their ability to get higher levels of government to act” (interview in Rigger, 1999: 87).

The ‘pillars’ use ties of blood and friendship, as well as favours and money, to win people over. The role can be very time consuming. Apart from dealing with local crises, it can also involve attending (and being seen to donate to) local weddings, funerals and so on – Tien (1989: 143) noted that in

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pre-democratic Taiwan in the early 1980s, over half the legislators would be expected to attend 30 weddings or funerals per month, at which they would give gifts. One of the incentives for becoming a ‘pillar’, however, is that it can help to raise the tiau-a-ka’s own reputation in the community as well. They may also be offered gifts of money and goods. Some will do it in the hope of becoming candidates themselves in the future. Japan has had somewhat similar practices. The very long dominance of the Liberal Democratic Party from 1955 also partly relied upon the patronage of local communities. LDP candidates for the Diet needed to keep close ties with their supporters, not merely in terms of winning funds from Tokyo (although that certainly helped), or protecting the interests of key groups of constituents (especially farmers), but also by generously donating gifts on the occasion of important events in the lives of the families of key constituents, especially the organizers of the candidate’s support committee (kōenkai). Although the support committee had primarily a political function, it sought to win support by all sorts of non-political appeals as well. As Bouissou (1999: 106–7) put it, it is a ‘convivial machine’ that organizes trips, cultural and sporting events, visits to Tokyo and so on, for local constituents. The ability to do all these things gave incumbents a great advantage over challengers who lacked equivalent opportunities. As in Taiwan, it was important to be seen to be generous at times of births, weddings and funerals. And in return, successful politicians could often take advantage of the reciprocal credit that had been built up with local supporters to enable it to be transferred to their children, who could take over a constituency once the father (and it almost always was the father) retired, in the expectation that past favours would be remembered and mutual benefits would continue. Networks of connections are as important as capital for a politician in Japan as they are for business leaders, as mentioned in Chapter 9. Table 12.3 shows the revealing figures that Usui and Colignon (2004) compiled on the increasing trend for Diet members to pass on their seats to a child (usually a son) in recent decades. This trend stretched even further up the political ladder. By the time the LDP lost office in 2009, 12 out of 18 members of the cabinet were ‘hereditary representatives’ (seshugiin). The Philippines – the state with an almost equally long democratic tradition as Japan –demonstrates a similar problem. According to Velasco ‘[t]he political parties in the Philippines do not play a leading role in policy making. Their low level of institutionalization restricts their ability to be agents of policy aggregation and social mobilization. They are essentially parties of notables whose main support is drawn from the

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Governance in Pacific Asia Table 12.3 ‘Hereditary’ representatives (seshu giin) as proportion of total Diet and of total LDP Diet members Total seshu giin

Proportion of diet members

Total seshu giin in LDP

1967

61

12.6

52

18.7

1972

77

15.7

68

24.1

1983

119

23.4

99

37.4

1993

123

24.1

89

39.3

2000

117

24.4

76

31.9

2003

136

28.3

101

41.4

Election year

Proportion of LDP members

Source: Usui, Chikako and Colignon, Richard A. (2004), ‘Continuity and Change in Paths to High Political Office: Ex-Bureaucrats and Hereditary Politicians in Japan’ (Asian Business and Management (3), 408–9).

political elites. Most of them were set up primarily to serve the presidential ambitions of their founders, who in turn direct and control most of the policies and activities of these organizations. The social base is limited by the ethnic grouping and bailiwicks of party founders and bosses’ (Velasco, 2006: 111–2). Like Japan, the Philippines emphasizes the importance of politicians supporting family events of constiituents. ‘A congressman is often asked to stand as wedding sponsor or baptismal godfather, and to do the rounds of wakes and burials. In political parlance, this is referred to as KBL – kasal (wedding), binyag (baptism), libing (burial). In most cases, the congressman is even expected to shoulder some of the expenses – a wedding or baptismal reception here, a coffin or a tomb there’ (Coronel et al. 2004: 187). It also leads to the same phenomenon of hereditary political families, as can be seen from Table 12.4. Key points Parties across the region tend to be weakly institutionalized, operating according to traditional norms of patron–client relations

Table 12.4 ‘Hereditary’ politicians as proportion of total House members in the Philippines Total

Proportion

1987

91

46

2001

102

46

Source: data from Coronel, Sheila S., Chua, Yvonne T., Rimban, Luz, Cruz, Booma B. (2004), The Rulemakers: How the Wealthy and Well-Born Dominate Congress (Quezon City: Philippine Center for Investigative Journalism, 35).

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There is a relatively low level of voter identification with particular parties, and of voter polarization along a left-right spectrum Politicians are expected to satisfy traditional expectations about the social obligations of elites They rely upon intermediaries to handle many of their dealings with constituent families

Money politics and corruption Money politics is endemic across the region. Winning elections is expensive. Performing all the social obligations of a representative is even more expensive. It is likely that no party has resources to match those of Taiwan’s KMT, which has a business empire of its own – in 1995, the opposition DPP alleged that it amounted to NT $150 billion (roughly US $5.6 billion) (Fell, 2005: 77), though precise figures have never been published. But parties generally spend lavishly on elections, even authoritarian ones that are sure of victory, because they believe that broad electoral support boosts their legitimacy. And because state-directed business can often benefit the finances of individual representatives, the attractions of elected public office are magnified. All of this encourages spending. A common problem of democratic regimes in the region is political corruption. Often this is explained in terms of prevailing local patron–client customs. Lui Fei-lung from Taiwan expresses a common perception: A customary saying, ‘to be an official is temporary, to be a man is permanent’, sums up the belief that one cannot perform government duties without taking care of personal duties to friends and relatives at the same time . . . This is why primary social relations usually come first in measuring the relative importance of factors determining one’s voting behaviour. (Lui, 1992: 152)

In theory, corruption is normally understood to mean the illegal diversion of public funds for private benefit. It assumes a clear distinction between the public and private spheres. This would exclude politicians and officials from expecting or granting favours. Yet the traditional understanding of guanxi makes no distinction between public and private behaviour. So politicians make promises of future pay-offs in return for votes. It must be emphasized that this does not apply in all states. Singapore, for example, stands out as a state where corruption, political corruption included, is not perceived as a significant problem. Yet if corruption was primarily attributed to, or excused by, prevailing social norms – for example, guanxi relationships and the exchange of gifts whether in the

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Governance in Pacific Asia public or the private domain – then Singapore ought to suffer as much from corruption as its neighbours. To a large extent, the fact that it does not do so can be explained by the determination of Lee Kuan Yew to stamp it out. While he values Confucian traditions, he presents them as championing the upright, incorruptible public official. He has put a great deal of personal weight behind a meritocratic public service. On the other hand, the fact that Singapore has always paid its public servants as well as in the private sector – the prime minister’s salary, for example, is benchmarked against that of top company CEOs, which makes him the highest paid head of state or government in the world – obviously reduces the temptation for corruption. Since the establishment of the Independent Commission Against Corruption (ICAC) in 1974, Hong Kong has also been relatively free from corruption. Elsewhere in the region the problem of corruption is not confined to democratic regimes, but it has sometimes been alleged that democracy has exacerbated the problem. Under authoritarianism in South Korea, for example, it was claimed that the practice of corruption was relatively disciplined. Key decision-makers were relatively limited, so the number that had to be bribed to get business done was also relatively limited. Democracy, however, has multiplied the number of individuals involved in decision-making, even if the impact of each may be more limited. But the effect was to induce businesses, at least initially, to offer bribes more widely just in case it was helpful, which then led to accusations that democracy had increased corruption. Administrative decentralization has also multiplied the amount of opportunities for patrons to bribe clients. The same has been said about Indonesia (Backman, 2008: 127). According to an Indonesian businessman quoted in Tipton: ‘In the past corruption was a fixed amount, but now the cost is between nought and infinity and that’s what affects most businesses because they cannot do their business plan’ (2009: 427). In general, the close connections between the state and business that were identified in Chapters 5 and 9 have meant a blurring of careers and activities between the public and private sectors. Coronel et al. sketch the ‘typical’ legislator in the Philippines (where the developmental state has been much weaker): [He] is male, middle-aged, and college educated, most likely with a degree in law. He has previously held a local government post and is a member of a political family, with a sibling, father, or a grandfather who had been voted into public office in the past. There is one chance in two that he is related to a former legislator.

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He is also into business and has multiple income sources. He has property for rent, earns a salary from a profession, and has investments in company shares. He is well off, with a net worth (most likely understated in his statement of assets) in the 10 million peso range. And the likelihood is that the longer he stays in Congress, the richer he becomes. (Coronel et al. 2004: 4)

In previous decades, the main source of legislators’ wealth in the region was land. Now legislators are predominantly real-estate developers, bankers, stockbrokers, as well as professionals and businessmen. Politics and business tend to be closely related. This contributes to widespread ‘pork barrel politics’, where representatives seek to win public funds for projects in their area. It helps them to win popularity with their constituents and therefore re-election, but it often promotes their own business interests too. A blatant example of this was the Japanese LDP leader Tanaka Kakuei in the 1960s and 1970s, who built his political career upon promoting infrastructural construction (from which his own constituency benefited spectacularly). Ultimately, this led him to be appointed the Minister of MITI and then prime minister. He was forced to resign in 1974 because of allegations about personally profiting from a deal with Lockheed Corporation, but the mutually profitable connections that he had developed with numerous companies allowed him to remain on as the effective power-broker in the LDP for more than a decade after that. His successes influenced the political calculations of subsequent generations of LDP politicians. The leaders of factions within the LDP are primarily responsible for raising funds for ‘their’ group of Diet members, rather than the party in general. A disciple of Tanaka who became a later ‘godfather’ of the LDP, Shin Kanemaru, was arrested in 1992, and when US $50 million in cash and securities, as well as many gold bars, were found in safes in his home and office, it was not clear whether this was money for his own use or the party’s. Another disciple, Ōzawa Ichiro, spread the practices more widely after he defected from the LDP and became a founder and ‘godfather’ of the DPJ. Conversely, voters may also be attracted to businessmen-turnedpoliticians because they hope that they can work the same magic on the nation’s finances that they achieved on their own. This partly explains the unprecedented electoral success of Prime Minister Thaksin Shinawatra of Thailand in 2001 and again in 2006, for he had made a fortune in telecommunications beforehand. But there are also illicit links between businessmen and politicians (sometimes also involving criminal gangs). The latter was colourfully caught

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Governance in Pacific Asia in Anderson’s phrase about elections in the Philippines, where victory went to those with the most ‘guns, goons, and gold’ (1988: 18). Later, Phongpaichit et al. (1998) conveyed the same impression of politics in Thailand with a book entitled Guns, Girls, Gambling, Ganja. In Taiwan, the Democratic Progressive Party (DPP) won a historic victory over the KMT in the presidential election of 2000, partly because they were able to stigmatize the corruption (‘black gold’) of the KMT. Yet the leader (and the country’s former president), Chen Shuibian, was arrested immediately after his second term of office in 2008, accused of diverting public funds for his own and his family’s use, and he was later sentenced to 17 years in jail and given a fine of US $154 million. In Korea, a series of presidents have promised to clean up politics but have then themselves been prosecuted for corruption after their terms have ended, with the most tragic being the subsequent suicide in 2009 of the former president, Roh Moo Hyun. When economies are going badly or when misdemeanours become particularly egregious, public resentment over ‘corrupt’ politicians swells up. Another manifestation of money politics is vote-buying – often alleged, rarely demonstrated. Rigger (1999: 94) remarked that it was hard to say which was more difficult in Taiwan: finding someone who denied that votebuying exists, or finding concrete evidence to prove that it did. It depends heavily upon the tiau-a-ka, so that candidates can disclaim involvement if things go wrong and also so that they know how to exert pressure on voters to keep their word. Tiau-a-ka cannot keep strangers ‘bought’. Thailand has suffered even more from vote-buying. To some extent this resulted from the erosion of the authority of traditional rural leaders, whose word used to be enough to get their villagers to vote a particular way without the need for money. Just as in Taiwan, local contacts were important in candidates winning over voters. Matters were exacerbated in the 1990s, however, by prosperous businessmen (usually from cities) siphoning money into constituencies so that they could gain the favour of the winner – allegedly, it ‘cost’ US $1 million to win a parliamentary rural constituency by the mid-1990s (McCargo, 2002:227, 7). Worse still, in the 1990s members of parliament regularly switched parties after elections, supposedly because of bribes. The voting systems in several states also used to encourage vote-buying: because constituencies elected several representatives, and parties could put up more than one candidate, they would try to find ways of manipulating voters to opt for one of their candidates rather than another as a way of maximizing the votes for all of them. However, states such as Japan

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(Ramseyer and Rosenbluth, 1997), Taiwan and Thailand have reformed the voting system, with far more single-candidate constituencies, but it has not solved the problem. One attempted solution has been for the state to fund political parties as a way of reducing the need for parties to pursue potential sources of funds (Ferdinand, 2003). However, this has not noticeably reduced the problem. If anything, it has rather increased the amounts available. Key points Money is extremely important in politics in Pacific Asia This encourages corruption, though Singapore and Hong Kong have resisted it It also encourages ‘pork barrel politics’

Gender participation Another set of issues that challenge democracy across the region is the relatively low numbers of women elected to parliament. Chapter 10 already mentioned the argument of Castells (2003) about the persistence of patriarchalism in industrialized Asia. As was suggested in Chapter 3, there is no doubt about the strength of the patriarchal tradition across the region, with the emphasis upon the social functions of the family and the authority role of the (usually male) head of the family. How far does this affect the practice of democratic politics? Recent figures on the share of women among legislators in the lower house of parliament can be seen in Table 12.5. These figures show significant variation. Leaving aside the regimes with ruling communist parties, where members of national assemblies are not directly elected and where those parties actively seek to ensure that major categories of citizens find significant representation, there is no clear correlation between levels of development and female representation. The countries with the highest numbers of women legislators are Taiwan, which has one of the highest levels of development, and East Timor, which has the lowest. Papua New Guinea, despite its generally still favourable Freedom House rating, has only one woman in parliament. The next lowest countries are Malaysia and Japan, both much more developed. The average across the region is in the high teens, which is, at best, average for the rest of the world. Key point Women still play a limited role in politics in Pacific Asia

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Governance in Pacific Asia Table 12.5 Proportion of women legislators in the lower house of parliaments in Pacific Asia (in per cent) Cambodia

14.8

China

21.3

Indonesia

18.0

Japan

11.3

North Korea

15.6

South Korea

14.7

Laos

25.2

Malaysia

10.8

Papua New Guinea

0.9

Philippines

17.1

Singapore

24.5

Taiwan

29.1

Thailand

13.3

East Timor

29.2

Vietnam

25.8

Sources: International IDEA unified database; Taiwan Legislative Yuan database.

Civil Society Another characteristic of Western approaches to democratization is their stress upon a vibrant civil society. ‘Against the background of weak democracies, strong bureaucracies, corporate power, legalism and nationalism resurgent, civil society, as both concept and reality, is essential to the prospects for a peaceful and prosperous world order in the twenty-first century’ (Edwards, 2004: 112). Yet civil society in some states, and at some times, can be fractious and divisive. This was the case in 1950s Indonesia, where the organized ‘currents’ (aliran) struggled against one another with great passion (Aspinall, 2004), while civil society in the Philippines today remains extremely fractious (Franco, 2004). Civil society is normally understood as ‘the framework within which those without political authority live their lives – economic relationships, family and kinship structures, religious institutions and so on. It is a purely analytical concept because civil society does not exist independently of political authority, nor vice versa, and, it is generally believed, neither could long continue without the other; therefore, no very clear boundary can be drawn between the two’ (Robertson, 1993: 69). This explanation clearly shows the difficulty of defining civil society and the provisional nature of any definition. Yet some have argued that this is

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also a term that is inappropriate for analysing Asian societies (Guan, 2004: 2). Is it inseparable from Western individualism and, if so, how can group identity and the social role of the Asian family be accommodated within it? Hahm (2004: 454–7), for instance, has argued that the traditional Confucian view could either not accommodate the public/private distinction or made it a fluctuating one. This was because Confucian doctrine began with the development of virtue in the individual and then gradually widened its horizon to encompass the whole of society. The goal of a virtuous society was impossible without virtuous individual members of it, and individuals could not be virtuous unless they performed the necessary familial roles and rites. Therefore distinctions between family and society were positively detrimental. The problem is further complicated by the difficulty of finding an adequate translation for the term in Asian languages. In Chinese, the most commonly used equivalent is gongmin, which really just denotes citizens. The same is true of shimin, in both Japanese and Korean, which has something of the same positive, somewhat radical connotations that citoyen acquired in the French Revolution. In Islamic societies an additional dimension was the concern about the potential illiberal implications of Western promotion of civil society, which they associated with promotion of eighteenth-century Enlightenment values and secularism. They wanted, instead, a term that was more compatible with Islamic traditions and goals, one that focused more upon organizations of the ulama, the body of Islamic scholars.So they preferred to coin their own equivalents using the Arabic word madani, which stressed the civility that should be found in ‘civil society’. Civil society in Indonesian thus became masyarakat madani (Basso, 1999). Generally, civil society has become somewhat more important in the governance of states in Pacific Asia, especially after the downfall of authoritarian regimes. Organizations concerned with the environment, for example, have proliferated. So too have religious ones. Neighbourhood organizations have always been important in the life of local communities. In Taiwan and South Korea, civil society groups have been bold in challenging authority. In Taiwan, ‘democratic change cannot be comprehended without reference to civil society. Without an assertive and robust civil society, democracy might not have emerged and taken root in Taiwan’ (Fan, 2004: 185). And in Korea: [I]t was civil society groups that initiated and directed the process of democratization by forming a pro-democracy alliance within civil society, creating a

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Governance in Pacific Asia grand coalition with the opposition political party, and eventually pressuring the authoritarian regime to yield to the “popular upsurge” from below . . . [Still today] civil society . . . is generally perceived as substantially more credible, clean, public-minded, rational, and civil than political parties. (Kim, 2004: 139, 160)

There is no doubt about the national importance of civil society at particular moments; for example, bringing down the Marcos regime in the Philippines, or the Suharto regime in Indonesia. However, in general civil society has not replaced state institutions or reduced the role of the state. One reason for that is the social values that accept traditional hierarchies and promote social ‘harmony’, as mentioned in Chapter 3 – these persist partly because many state education programmes reproduce such values by inculcating them in schoolchildren. A flourishing civil society probably requires a strong sense of equal citizenship, a desire for emancipation and for money and markets to be ‘civilized’ through voluntary associations (Mulder, 2003: 218). But the limited prominence of civil society can also be attributed to attempts by states to control the activities of NGOs (e.g., by requiring registration for legal status). States have also taken the initiative in creating quasi-NGOs. Many seeming NGOs are in fact GONGOs; that is, government-organized non-governmental organizations. In Japan, this reflects a broader instinct on the part of bureaucrats: ‘Perhaps the most striking feature of Japan’s civil society over the past century, dating from around 1900, has been the degree to which the state has taken an activist stance toward civic life, monitoring it, penetrating it, and seeking to steer it with a wide range of distinct policy tools targeted by group or sector’ (Pharr, 2003: 325). Perhaps because of that, the members of civil society groups tend to be much fewer than in, say, the United States. Pharr (2003: 328) shows that the average membership of the top ten environmental groups in the United States in 2000 was 700,000, while the equivalent in Japan had only 20,000 members (i.e. only 1/35 of the United States average). The disparity in budgets between the two countries was about 20 times, although Japan was the most-developed economy in the region at that time and had the highest Freedom House rating for freedoms. In Southeast Asia, Mulder (2003) suggests that the great inequalities between the wealth of elites and the rest of society have demobilized the latter. The middle classes seek to promote the interests of their families rather than become distracted in civic activity for the public good. Family networks often take precedence over public concerns – a kind of ‘amoral familism’ (Banfield, 1958).

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Key points The concept of civil society is not so easily applied to politics in Pacific Asia Civil society plays a relatively limited role in political life, although it is becoming more important Family interests often take precedence over general societal ones

Freedom of the press Freedom of the press is quite restricted in various countries. This also affects the quality of democracy, since it hinders the ability of the media to hold government to account. Generally, journalists do not face physical threats, although that does happen in the Philippines, but the pressures to censor the media and to get it to practise self-censorship are considerable. This is reflected in the rankings of various states in the region in the annual Press Freedom Index compiled by Reporters Without Borders. Since some of the factors that contribute to the overall score are liable to significant change from one year to the next, we have included the rankings for three separate years in Table 12.6 in order to give a clearer overall picture. It should be remembered that the rankings are assessments of the treatment of journalists by societies, not just by governments. So attacks on journalists by extremist groups are treated as seriously as those by the police, which helps explain the sharp fall in Japan’s ranking for 2006. Generally speaking, democratic regimes in the region do better than authoritarian ones. North Korea, Myanmar, China and Vietnam consistently come close to the bottom. At the same time, several other states show a consistent deterioration over time – namely, Thailand, the Philippines, Indonesia and Cambodia. Key point The media in Pacific Asia are subject to widespread restraints, with some exceptions

The Internet and new communications technologies The last challenge that political systems in the region must confront comes from new communications technologies such as mobile phones and the internet. Table 12.7 shows the penetration of both the internet and mobile phone communications across the region. There is great variation, with some

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Governance in Pacific Asia Table 12.6 Press freedom rankings of Pacific Asian states (various years) 2002a

2006b

71

108

128

138

163

171

Hong Kong

18

58

34

Indonesia

57

103

117

Brunei Cambodia China

Japan North Korea South Korea Laos

2010c 142

26

51

11

139

168

177

39

31

42

133

156

168

Malaysia

110

92

141

Myanmar

137

164

174

89

142

156

146

136

Papua New Guinea Philippines

42

Singapore Taiwan

35

43

48

Thailand

65

122

153

83

93

131

155

165

UK

21

27

19

USA

17

53

20

East Timor Vietnam

Source: http://en.rsf.org/spip.php?page ⫽ classement (accessed 2 February 2011). a

N ⫽ 138, bN ⫽ 168, cN ⫽ 178.

countries among the most highly connected in the world, while others are among the least. In general, though, connectivity is growing fast. The new technologies have already had an effect, especially at moments of crisis. They have allowed citizens to organize more spontaneously and in real time. This has made it much more difficult for regimes, however authoritarian, to suppress protests. Even though proficiency with the internet and mobile phones is not universal, users can extend the reach of the information by word of mouth. In 1998, the internet facilitated demonstrations in Jakarta that played a big part in the downfall of the Suharto regime (Hill and Sen, 2000). In 2000, mobile phone users networked to organize demonstrations in Manila that overthrew President Estrada, who had been accused of corruption and who appeared to be evading impeachment. These were examples of the ‘smart mobs’, albeit on a mass scale, that Rheingold (2002) predicted would flourish with the new technologies. But the new technologies have also widened the space for public debate and for civil society actors to have more of an impact. In Malaysia, for

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Table 12.7 Broadband Internet and mobile phone penetration in Pacific Asian states mid-2010 (as per cent of population)

Brunei Cambodia

Broadband

Mobile

80.7

110.0

0.5

12.0

China

31.6

59.6

Hong Kong

68.8

164.4

Indonesia

12.3

80.0

Japan

78.2

94.6

North Korea

0.0

0.5

South Korea

81.1

96.2

Laos

7.5

10.0

Malaysia

64.6

106.2

Myanmar

0.2

0.7

Papua New Guinea

2.1

1.0

29.7

93.0

Philippines Singapore

77.8

137.4

Taiwan

70.1

100.2

Thailand

26.3

105.6

East Timor

0.2

8.7

Vietnam

27.1

38.8

UK

82.5

122.9

USA

77.3

91.0

Source: http://www.internetworldstats.com/stats3.htm; http://en.wikipedia. org/wiki/List_of_mobile_network_operators_of_the_Asia_Pacific_ region#cite_note-vfr-108 (accessed 2 February 2011)

instance, the website Malaysiakini has developed as an alternative source of news and comment to that from the government, which has kept a strict hand on the traditional news media. In Singapore, the new media have forced the traditional news media to become more open in its reporting of opposition political parties, at least during the 2011 elections (New York Times, 2011). In China, which has the largest number of internet and mobile phone users in the world, the technologies have been used to disseminate alternative accounts of news events to those of officials and to mobilize protests. On occasion this has forced the regime to change its explanation of events and forced the leadership to apologize for mistakes or misdeeds of local officials. Waves of internet protest have even forced courts to change verdicts in cases that attracted public attention in what has been termed ‘trial by internet’. So although the regime has devoted enormous efforts to neutralizing potential threats from the internet, it has sometimes been embarrassed into giving ground. While the regime remains in control, it is more vulnerable to being

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328

Governance in Pacific Asia surprised by unexpected events, which are then exploited by online activism. Sometimes, international crises involving China have roused online Chinese nationalists into a tide of demands for the regime to stand up for China, especially when it concerned Japan, Taiwan and the United States (Wu, 2007). In general, these technologies have made life more complicated for governments, both democratic and authoritarian, multiplying the pressures upon them. Institutions have to adapt. But the challenge of becoming more agile is greater for authoritarian regimes – the spread of the new technologies has favoured young people and changed the balance between different groups in civil society. It is part of a social, cultural and political revolution, albeit a fairly slow-moving one (Yang, 2009). In Korea, the most ‘wired’ country in the region with the largest proportion of the population online, it has transformed young people’s political activism. In China, it acts as the counterbalance to the current leadership’s promotion of technocratic governance, as was indicated in Chapter 11. Key points The internet and mobile phones have strengthened the ability of ordinary citizens to organize themselves and challenge political authority New communications technologies have facilitated mass demonstrations that have brought down national leaders These technologies will also increase the role in politics of the young and the technologically sophisticated

Challenges to democratic development Finally, let us briefly look at some of the obstacles to democratic development in specific countries in the region.

Japan Despite Japan’s long experience of democratic rule and the high level of development, there is still a major problem with the party system. The LDP has dominated since 1955, and although it finally lost power in 2009 (after a brief interruption in 1993–1994), its opponents have consistently found it difficult to organize a robust party of their own. Indeed, attempts in 1993 to do so quickly foundered in renewed allegations of corruption, and the LDP profited from the disarray to form a fairly unprincipled coalition with its

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former opponents, the Social Democratic Party (SDP). The SDP then suffered from guilt by association and later disintegrated. The more recent attempt to establish a viable competitor, the Democratic Party of Japan (DPJ), was crowned with success when it won a great victory in the 2009 elections. But its main appeal was to restore traditional economic policies that were more associated with the LDP, after the LDP had already abandoned them as it thrashed around trying to restore economic growth. Within months instability returned. The DPJ leader, Hatoyama Yukio, was forced to step down after failing to keep a campaign promise to get an American base on Okinawa removed. The DPJ came to be associated with indecisiveness and corruption, casting doubts on its viability as a long-term pole that could counteract the LDP. Scheiner (2006) suggested that the main reason for the past failures of opposition parties was their inability to combat the clientilism so skilfully practised by the LDP. The paradox he identifies is that to reduce the salience of clientilism, opponents of the LDP first need to achieve sustained electoral success, which may only be possible through the better use of clientilism – in which case the would-be reformers would then have less incentive to change. Only if politicians put issues above favours, and only if voters respond positively, will this occur. Repeated well-meaning attempts to achieve this have all foundered in the past, and so the prospects for a transformation of Japanese politics seem as uncertain as ever.

The Philippines As the second-oldest democracy in the region, and one, moreover, with a much greater traditional sympathy for American democracy, the Philippines might be expected to show enthusiasm for liberal democracy. Yet according to Quimpo (2009), recent trends have been away from the deepening of democracy. Instead, clientilism has become more prevalent, with traditional elites becoming more predatory, exploiting the state for their business interests, and using corruption and violence to win electoral success. If anything, the regime is becoming more authoritarian.

Papua New Guinea It will be remembered that PNG was the only other state in the region (with Japan) rated by Freedom House as ‘free’ in 1980. Over the last decade, however, it has been downgraded to ‘partly free’. According to Reilly (2007: 64–7), the main problem has been the fragmentation of the electorate and political parties on the basis of tribal and clan identities – and as was

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Governance in Pacific Asia mentioned in Chapter 1, it is one of the most heterogeneous states in the region. This makes collective action at any higher level extremely difficult. Democracy in Papua New Guinea has therefore allowed a kind of equilibrium to build up which allows the winners of elections to extract resources for their followers but which also prevents coups, while precluding coordinated development for the nation as a whole.

Cambodia When Cambodia introduced democracy in 1993, it was receiving considerable external assistance from the UN-backed transitional mission UNTAC – the largest UN peacekeeping mission hitherto. It might also be assumed that this, reinforced by the universal sense among surviving Cambodians that the country needed a new start after the horrors of the Khmer Rouge, would provide a good basis for a new democratic order. So there were considerable grounds for optimism. Yet democracy in Cambodia has not flourished. Admittedly the procedures of regular elections have survived, and national reconciliation has strengthened. There has also been some economic development, although the country remains one of the poorest in the region. However, the government continues to be dominated by the ruling Cambodian People’s Party, although sometimes in coalition with other parties, with Hun Sen as prime minister since 1985. Once again, the issue of patronage comes up. ‘In Cambodia . . . ruling as well as opposition parties are first and foremost patronage networks that allow members to gain access to certain services and resources in return for loyalty, political support and, crucially, votes’ (Zeeuw, 2010: 118). This is reinforced by the formative experience of most of the main parties as former armed groups. They still brand their opponents as actual or real enemies and security threats. There is no acceptance of the concept of a legitimate opposition, whether loyal or not (Roberts, 2000). Their leaders, especially Hun Sen, have focused exclusively on winning, rather than building consensus. It is possible that the UNTAC period was too short to embed democracy; and, in addition to this, foreign donors failed to deliver most of the aid they had promised (Croissant, 2008). Whatever the causes, opposition parties remain weak. The prospects for change seem unprepossessing. Democracy remains unconsolidated.

Thailand It is perhaps democracy in Thailand, however, that has most disappointed in recent years. After the failure of the military coup in 1992, in part because of

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popular resistance, it seemed as though Thailand would finally escape from the cycles of coups and corrupt democratic rule that it had experienced. However, elections reproduced the multi-party stalemate and the Asian financial crisis increased the political turmoil until 2001 when Thaksin Shinawatra, a former policeman turned media mogul, won the election as leader of his Thai Rak Thai party (TRT). He appealed to the rural dwellers, who had been neglected in the decades of development, rather than to the growing numbers of urban dwellers. He introduced a universal health care system and various other populist schemes to benefit the northeastern provinces that had been bypassed by development and which felt exploited by Bangkok. He also wanted a strong state where the executive branch was dominated by a powerful party financed by big business (Phongpaichit and Baker, 2004: 173). He antagonized traditional elites. Despite criticisms of corruption and human rights abuses, the TRT won an unprecedented majority in 2005 – the first party to be able to form a government on its own. However, opponents continued to organize demonstrations against official corruption, and, in 2006, the military carried out another coup while he was abroad. They dissolved the TRT, hemmed in its successors and manipulated its replacement in government by the Democratic Party. In 2008, Thaksin was sentenced to jail in absentia for tax evasion and conflict of interest by the Supreme Court, which later also confiscated many of his assets on the grounds of ‘abnormal wealth’. The conflict between his supporters and opponents has dominated Thai politics since then, with both sides engaging in mass demonstrations and confrontations (‘red shirts’ against ‘yellow shirts’) aimed at paralyzing public life in Bangkok. The longer the clashes go on, the more passions are inflamed and the longer it will take to restore a functioning democracy. Key points Clientilism still bedevils democracy in Japan, the Philippines and Cambodia Democracy has hindered the formation of public policy and development in an extremely heterogeneous society such as Papua New Guinea Democracy has exacerbated social divisions in Thailand

Conclusion Where Chapter 11 emphasized the progress that has been made in the region in replacing authoritarianism with democracy, this chapter has emphasized the many problems that still surround it. Despite the economic

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Governance in Pacific Asia and social development that has recovered since the Asian financial crisis, liberal democracy is not emerging. In some cases this is because there is a positive desire for a different type of rule. But it also reflects the persisting problems of clientilism, which is in turn associated with social traditions and identities. At least for the foreseeable future, this will keep alive versions of political modernity that are different from those of the United States and Europe. Curtis prophetically commented on Japanese politics over 20 years ago: ‘It is unrealistic to expect that Japan will eventually adhere to western models of social and political organization and move away from a system in which local political organization is structured around individual politicians. Japan, now with a one-hundred-year history of parliamentary elections, has developed distinctive patterns of political organization that have proved to be remarkably resilient in the face of repeated attempts to change them’ (Curtis, 1988: 190–1). This still rings true. The same can be said about other states in the region, even if they have shorter democratic histories. Indeed, as Curtis also remarked, politics in postmodern societies elsewhere in the world may be moving towards a Japanese model of weak party partisanship and local candidate personalism.

Questions for further discussion 1 Is it possible to have ‘pork barrel politics’ without political corruption? How? 2 How do you explain the effectiveness of the Independent Commission Against Corruption in Hong Kong and the failure of similar commissions in other states in the region? 3 Does a party system that strengthens democracy only emerge by chance from the interaction of political parties, or can it be constructed? If the latter, what lessons can be learnt from the experiences of trying to achieve robust party systems in Pacific Asia? 4 How do you assess Castells’ prediction about the decline of patriarchalism when applied to politics in Pacific Asia? 5 Is ‘civil society’ a meaningful and useful concept for analysing Pacific Asian politics? 6 How far, and in what ways, will the new communications technologies affect politics in the region?

Further reading Benjamin Reilly (2006), Democracy and Diversity: Political Engineering in the Asia-Pacific (Oxford: OUP, 2006) – a stimulating and concise analysis of the problems for democracy caused by diversity across the region.

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Ethan Scheiner, Democracy Without Competition in Japan: Opposition Failure in a One-Party Dominant State (Cambridge: CUP, 2006) – a persuasive explanation for the exceptional electoral success of the LDP. Guobin Yang, The Power of the Internet in China: Citizen Activism Online (NY: Columbia UP, 2009) – a stimulating account of the impact of the internet upon social and political life in China, which raises questions that can be related to other political systems in the region as well. Russell J. Dalton, Doh Chull Shin and Yun-han Chu (eds), Party Politics in East Asia: Citizens, Elections, and Democratic Development (Boulder, CO: Lynne Rienner, 2008) – a good survey of this key democratic institution across the region. Sheila S. Coronel, Yvonne T. Chua, Luz Rimban, and Booma B. Cruz (2004) The Rulemakers: How the Wealthy and Well-Born Dominate Congress (Quezon City: Philippine Center for Investigative Journalism, 2004) – presents vivid pictures of the problems of patron–client relations for democratic politics in the Philippines, with insights for other states in the region. Taufik Abdullah (2009), Indonesia: Towards Democracy (Singapore: ISEAS, 2009) – a historical account of the trajectory of democracy in Indonesia since independence. Xiaoming Huang, Politics in Pacific Asia: an Introduction (Basingstoke: Palgrave Macmillan, 2009) – a good textbook on the political systems. Yun-han Chu, Larry Diamond, Andrew J. Nathan and Doh ChullShin (eds), How East Asians View Democracy (NY: Columbia UP, 2008) – an excellent analysis of surveys on attitudes towards democracy in several states in the region.

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13 Regionalism and Regionalization in Pacific Asia Chapter Outline Introduction Regionalism and regionalization Pressures for integration in Pacific Asia Conclusion: Towards a more integrated future? Further reading

335 335 340 355 358

Introduction This chapter will first define and distinguish between the concepts of regionalism and regionalization. It will differentiate the Pacific Asian experience of both from that of the European Union. Then it will consider several dimensions promoting regionalization in Pacific Asia. First there are the economic: intra-regional trade, finance, regional trade agreements and sub-regional growth ‘triangles’. Then it will turn to security relations, environmental concerns and issues of politics and identity. The conclusion will stress the still relatively limited degree of integration that has taken place, as well as the widely held hopes that more will gradually occur.

Regionalism and regionalization One increasingly salient feature of global politics over the past two decades has been political and economic regionalism. Groups of countries are emerging to manage relations between each other and with other regions in

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Governance in Pacific Asia the world. This process also applies to Pacific Asia and this chapter will focus upon that growing process of regionalization. Accompanying this reality have also been attempts to theorize and generalize regional processes. How far does Pacific Asia conform to those generalizations? The most prominent and successful example of regional integration is the European Union. It is often studied to clarify options, processes and choices that confront other regions as they engage with similar issues and try to achieve growing integration. There are certainly some similarities between integration processes in the two regions. However, the basic argument of this chapter is that there are more differences than similarities. These stem from the context within which diplomatic activity is pursued. There are three fundamental differences. The first concerns the disparity in the size of states. In Europe, while there is significant variety in the size of population between various states – Germany for example has 160 times more people than Luxembourg – the largest states in Europe (France, Germany, the United Kingdom and Italy) are of a roughly similar size. Thus no one power can aspire to sole domination. States have to engage with each other as rough equals and pursue cooperation. In Pacific Asia, however, not only is the Chinese population 3,325 times larger than that of Brunei, but it is also 5.5 times larger than that of the next-largest state, Indonesia. Indonesia itself is only half as big again as the population of Japan, but it is one and a half times bigger than the Philippines and two to three times bigger than Vietnam and Thailand. It is six times bigger than South Korea. Of course, population size does not simply equate to economic might, and the Japanese and Chinese economies are roughly equivalent in gross terms. Nevertheless, the long history of Chinese dominance in the region still casts shadows upon ways of thinking about the balance of power there (Womack, 2010). There is always a temptation for China to pursue policies of divide and rule, although Womack argues that China did not traditionally do this. The suspicions that this can engender hinder regional cooperation. Smaller states have more incentive to band together and keep their distance, but they might bandwagon with China instead. Kang (2003) argues that East Asia has traditionally been based upon a hierarchical set of relations and that the smaller states in the region have internalized the self-restraint vis-à-vis China that went with it. On the other hand, as we shall emphasize later, this might be the traditional default position, but it is not necessarily their preferred position. States in the region now have more options than in previous centuries. Several would prefer to balance China with the continued presence

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in the region of the United States and the engagement of states in other parts of the world. Goh (2007/8) argues that Southeast Asian states have pursued a strategy of ‘omni-enmeshment’ and complex balancing – that is, trying to involve many powers from outside the region in its affairs through linking security, economic and cultural issues so as to balance China’s basic potential domination. She suggests (2007/8: 149) that the states of ASEAN have been working towards a hierarchical regional order based upon the following layers: (i) the United States as superpower; (ii) China as the regional great power; (iii) Japan and India as major regional powers; (iv) ASEAN, Australia and South Korea as major regional players. However, she also recognizes that this is at most an informal hierarchy, and its stability is vulnerable to changes in the power, and the perception of the power, of the United States and China. The second basic difference is the disparity in levels of development. Most literature on regional integration projects has linked success to relative equality across the particular region. This has restricted the national variations in interests and made harmonization of economic policy easier. This was a key element in the earlier phases of European integration, even though poorer countries joined subsequently. Pacific Asia is marked by much greater variations in per capita income, as shown in Table 1.4. The differences between Singapore, Brunei, Hong Kong and Japan on the one hand; and Burma, North Korea and Cambodia on the other, are far greater than in Europe. In Europe, Sweden’s per capita income is only 3.4 times that of Romania (omitting Luxembourg, whose per capita income is an outlier and roughly twice as high as Sweden’s), while the disparity between the original core group of six EU members is negligible. In Pacific Asia, Singapore’s per capita income based on PPP calculations is now 52 times that of Burma.. The third difference is that integration in Europe has fundamentally been a top-down process, based upon a shared supranational consensus among the governing elites of several states after WWII about the need for regional integration. As a way of overcoming the populist demagoguery that had bedevilled European relations between the world wars, and also the popular nationalism that had nourished catastrophic conflicts in three wars between France and Germany in 70 years, there was a strong determination to try to move Europe towards cooperation and integration. The initial conceptualization of the way to achieve this was functionalism – the belief that by integrating key elements of national economies with one another, governments would make it impossible for them to go to war with one another again (Mitrany, 1976; Haas, 1964).

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Governance in Pacific Asia Subsequent further integration was driven by inter-governmentalism, where progress was only made when enough states were able to negotiate mutually beneficial arrangements that compensated for the loss of sovereignty that would be entailed. A fundamental feature of European integration has been increasing pooled sovereignty. These agreements between governments, sometimes in the form of treaties, provided a framework within which economic actors could integrate cross-border business. The most obvious example of this was the Single European Act in 1986 which created the single European market. In Pacific Asia, the trajectory of change has been different. There has never been the same sense of shared existential need for a supranational dimension of policy-making that dominated thinking in core European states after WWII. There was no clear sense of Pacific Asian regional identity after WWII. Then decolonization accentuated support for national independence and sovereignty. Nor was this limited to former European colonies. Lingering resentment in Japan’s former colonies over their past treatment stymied attempts by the Japanese government in the 1960s and 1970s to develop regional economic cooperation (Katzenstein, 2005: 62). Pacific Asia was also divided for decades by the Cold War, and for over a decade by the Hot War in Indochina between 1955 and 1975. The largest state (China) was run by the communist party, while Japan was allied to the United States, and Indonesia (the other potential major power in the region) went into self-imposed seclusion after the trauma of the 1965 massacres. The role of governments in creating a functional framework for economic integration across the region has been significantly smaller than in Europe. There has been much greater resistance to any idea of the pooling of sovereignty. And this was reinforced by the fact that, at least until the end of the Cold War, the United States remained suspicious of proposals for enhanced regional cooperation in case it diminished American leadership (Cossa, 2009). So integration in the region has evolved at least as much because of the actions of non-governmental economic actors as of government policies. Governments have not played the same overarching regional role as in Europe. As yet, there is no consensus between Pacific Asian governments over the objective of integration or the shape that it should take. Integration in Pacific Asia is less of a top-down process than one that has emerged from the middle, or even the bottom. Here it is important to draw a distinction between regionalism and regionalization. Regionalism denotes a conscious and deliberate programme for constructing a set of regional institutions, primarily political ones, that collectively manage the affairs of that region and which interact

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with other government actors outside the region, whether international, regional or national. Europe has generally had regionalism. Regionalization, on the other hand, will be understood as denoting the complex of socio-economic processes which flow throughout a region without any conscious direction and which interact in a way that separates it from other regions. This can also include a shared sense of identity that marks the peoples who live within it as different from those in other regions, though of course governments might deliberately inculcate a sense of regional identity, in which case that would be regionalism (Breslin, Hughes, Phillips and Rosamond, 2002). Pacific Asia has generally had more regionalization than regionalism. This is not to say that governments have played no role in the integration that has evolved. Actually, as we shall see, Pacific Asia has had a great deal of inter-governmentalism, but this has primarily been at the subregional or bilateral levels. The Association of Southeast Asian Nations (ASEAN) has very much created a framework for increasing cooperation and integration. Yet even there, ‘the ASEAN states have consistently placed national interests ahead of regional interests’ (Narine, 2002: 198). And as for Northeast Asia, there is still no equivalent organization there at all. Worse, Japan has long been regarded by its neighbours as, at best, ambivalent over its commitment to the region. For a long time it was said: Japan is in Asia, but is it of Asia? Would it put the interests of the region above its relations with the United States? The general argument of this chapter is that Pacific Asia has so far developed sub-regional institutions, which build some aspects of cooperation between states in the region, but these have not achieved a high level of integration across the region as a whole. However, over the last 50 years regionalization has certainly developed to a point where it encourages more integrated cross-regional cooperation. In turn, that will require greater inter-governmental cooperation to maintain the momentum of change. Regionalization could lead to more deliberate regionalism. If and when that happens, the process will have been the opposite of that of Europe, where regionalism has led to regionalization. Key points It is important to distinguish between the concepts of regionalism and regionalization The context of Asia-Pacific regionalization differs from that in Europe in three key respects: greater disparity in the size of states, greater disparity in levels of development, and a lesser role for governments in promoting overall regional integration

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Pressures for integration in Pacific Asia Economic (i) Trade Trade between Pacific Asian states has steadily grown as a proportion of their total trade. This can be seen from Table 13.1 This table shows that intra-regional trade had risen from roughly onethird of total trade in 1980 to almost half by 2007. Simply in terms of trade, Pacific Asia has become a recognizable region. According to Plummer (2009: 33), the intensity of intra-regional trade there is far higher than in the EU. This has contributed to the figures in Table 1.2 that showed the increase in the share of global GDP from Pacific Asia that has taken place since WWII. And as Table 1.3 showed, the growth has been shared out across the region. While some states have grown faster than others over the whole of that period, almost all have done so at a rate that is higher than the world average, and the three that have not (Cambodia, Laos and North Korea) have been held back, at least in part, by devastating conflict and its aftermath. This experience is somewhat reminiscent of the ‘flying geese’ pattern of development that was originally proposed for the Japanese Greater East Asian Co-Prosperity Sphere before WWII and popularized by the economist Akamatsu in the 1930s and again in the 1960s. This suggested that countries should fly in a sort of inverted ‘V’ formation as geese do. It implied Table 13.1 Intra-Pacific Asian, Chinese and Japanese exports and imports as percentage of their respective total world trade 1980

1990

2000

2007

Exports Pacific Asia

33.28

37.14

43.03

46.01

China

54.88

65.83

46.25

35.95

Japan

22.38

24.42

32.80

40.51

Imports Pacific Asia

32.63

39.01

48.57

47.77

China

34.33

47.80

42.80

37.62

Japan

23.27

23.90

36.11

39.11

Source: IMF Direction of Trade Statistics, various years.

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that all the economies in the region would support one another in technological upgrading by cascading innovation from those at the front to those at the rear. The original suggestion was that Japan should play the role of lead goose, providing the momentum for the whole formation and spreading technological development through it. In the 1970s and 1980s, when Japan was the most developed economy in the region and beginning to invest in Southeast Asia, that seemed plausible. It assumed that all the economies would maintain their relative position to one another, with Japan always in the lead. Since then the picture has become more complicated, with stagnation in Japan and with the emergence of China as a new growth pole. It is no longer the case that Japan alone provides the technological leadership. The process of technological dissemination and integration has become thicker. The last two decades have seen the spread of production networks across the region, where companies increasingly contribute components to the manufacture of finished goods in another country – what is technically termed ‘fragmented trade’. The manufacture of components is becoming increasingly demanding and sophisticated, as well as the assembly of the final product. Sturgeon and Lester suggest that the primary objective of national industrial policies should no longer be the support of vertically integrated national champions’, but rather ‘the development of key supply chain capabilities’ (2004: 83). They draw their evidence primarily from Pacific Asian experience, but the conclusion can also be directed back at states there, encouraging them to do even more. The more this takes place, the greater the integration of the region. Ando and Kimura conclude that ‘East Asia seems to be gaining self-contained economic structure while keeping its open setting intact’ (2010: 87); that is, without reducing its openness to the rest of the world. Table 13.1 also shows the contrasting trajectories of Japan and China in terms of their trade with the rest of Pacific Asia over the last 30 years. Japan has refocused its exports increasingly on Pacific Asia from the rest of the world. The business plans of Japanese corporations show a strengthening of economic ties with regional neighbours, as costs of production have escalated inside Japan (Tachiki, 2005). In a sense China is going in the reverse direction – increasingly exporting outside the region instead of inside it. To that extent, China is becoming the lead ‘goose’ that is integrating the region’s economies with the rest of the world. At the same time, it is also playing the leading role in integrating the economy inside the region too (Breslin, 2007b), since in value terms China’s exports to the region are roughly twice the size of those of Japan’s, while China’s imports from the

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Governance in Pacific Asia region are almost 50 per cent more than those of Japan. The growth in China’s exports in general has, to some extent, been achieved at the expense of other low-cost producers, including in Asia. However, ‘China’s rapid integration into cross-border production networks of vertically integrated global industries as a major assembly centre has created new opportunities for the other East Asian countries to specialize in parts and components for production and assembly’ (Athukorala, 2010a: 288). This strengthens regionalization. (ii) Finance By contrast with industrial regionalization in Pacific Asia, Kim, Lee and Shin (2008) argue that the level of financial integration in the region is much more limited. While there are major financial centres in Hong Kong, Tokyo, Shanghai and Singapore among others, international financial transactions still tend to be carried out predominantly in global centres in other parts of the world. Even though lots of international investments are made by Asian financial institutions, a large proportion of them are still conducted through London and New York. The most spectacular example of this is the enormous Asian investment in US Treasury Bonds. On average, Asian investors in eight Pacific Asian economies only held about 14 per cent of their total portfolio assets in the region, whereas the comparable figure for European holdings inside Europe was over 50 per cent (Kim, Lee and Shin, 2008: 172–3). Nevertheless, Pacific Asia paid a lot more attention to issues of financial integration there after the Asian financial crisis because of the widespread sense across the region that the IMF had shown more sympathy for the lenders from the developed world rather than the peoples of Pacific Asia, who were forced to endure the worst of the costs of restructuring. In the heat of the crisis Japan proposed an Asian Monetary Fund, as mentioned in Chapter 4, but this was repudiated by the United States. Once the crisis had died down, however, there remained a strong sense of grievance against the United States and a feeling that the governments of the region would need to do more to help one another if something similar recurred (Searight, 2009). The members of the ASEAN ⫹ 3 Group (i.e. ASEAN plus China, Japan and South Korea) agreed the Chiang Mai Initiative, under which they committed themselves to forming a fund of US $1 billion which could be used to swap reserves between central banks in the region if any one of them came under speculative pressure. These countries also signed a network of bilateral swap agreements with one another that would raise the total

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amount available to $37.5 billion. In addition, the same countries agreed in principle to increase mutual transparency by allowing monitoring of economic conditions, so that collectively they could both offer advice and experience to any government that was in difficulties, and also reduce the risk of them being taken by surprise by a sudden deterioration in economic conditions in any one of them. As an innovation, it represented a significant step forward in economic coordination between the various countries involved. Yet the effect has been diluted over time because the amount involved has been dwarfed by the huge increases in foreign exchange reserves of many states in the region since 2000, which has much reduced the need to deploy such a fund. In 2010, the states agreed to raise the amount available for swaps to the more substantial figure of $120 billion. While it may still provide reassurance if a crisis ever recurs, their need for support is less pressing. So it is no longer so likely to further the habit of cooperation and mutual dependence. Apart from this, Jung (2008) mentions much more developed consultations across the region over proposals for Asian regional bond markets and harmonized banking and credit procedures, but these are necessarily longterm processes. (iii) Regional Trade Agreements Almost from the outset, ASEAN member states signed agreements aimed at stimulating trade between them by reducing tariffs. However, for decades effective integration failed to take place. They were more concerned with developing their own economies than with cooperating with neighbouring countries in projects that might involve sacrifices for domestic businesses. It was only in the 1990s that more serious efforts were made to promote mutual trade. To some extent this was because the states had laid the basis for their own industrialization and so could see more benefit in cooperating in order to promote diversification of production. But it was also in part a response to the EU’s single market initiative – it focused these states upon the need to raise economic efficiency so as to match it. There followed a series of initiatives aimed at promoting the region as a free-trade area. ASEAN members agreed to set one up in 1992 (AFTA) and it came into force ten years later. It prescribes that all members should restrict tariffs on goods originating within an AFTA member to between 0 and 5 per cent, but there is no common external tariff – it leaves members free to impose their own tariffs on goods from outside. Since the beginning of 2010, AFTA has also had common market arrangements with China,

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Governance in Pacific Asia Japan, South Korea, Australia, New Zealand and India. The latter six states are negotiating with one another over free-trade agreements too. In fact, one of the striking new features of international relations in the region in recent years has been the proliferation of bilateral free-trade agreements between states there. These were, in part, a response to the stalling of the Doha Round of global negotiations at the WTO. Pacific Asian states, led by Singapore, set about new deals with other partners as a way of trying to keep the momentum of liberalization going. But states also launched FTA negotiations as a way of building influence more generally within the region – China and Japan most obviously (Searight, 2009). Most of the agreements have been inside Pacific Asia, though some have been signed with the United States as well. However, it has led to a proliferation of special arrangements – what has been dismissed as a ‘noodle bowl’ of Free Trade Agreements (FTAs), or what Dent (2008) has termed a ‘lattice’ of ties – which have certainly complicated customs administration and economic policy-making, since the agreements have not been entirely consistent with one another. Critics of these developments accuse the governments of deviating from the objective of global trade liberalization. Defenders point out that it was not the fault of these states that the global talks have stalled, and that these innovations do at least keep some of the momentum for liberalization going. If they could deliver free trade within the region, or, even better, across the Pacific, this would be an enormous achievement. But, for the moment at least, the issue of agricultural free trade is as much of a sticking point for a trans-Pacific free-trade area as it is for global trade generally. Japan, in particular, is still unwilling to negotiate away the protection that it accords to its farmers. And because of the proliferation of hub-and-spoke FTAs rather than universal free-trade agreements in the region, Baldwin (2008) warns of the dangers of the emergence of two competing hub-and-spoke systems based upon China and Japan, which together would reduce the economic benefits to the region as a whole. (iv) Sub-regional growth ‘triangles’ During the 1990s, various states agreed upon designated trans-border economic zones to stimulate international trade and economic development. Often they were termed ‘growth triangles’ because they originally involved three partners, but Dent (2008) has preferred the more general term ‘growth polygons’ because in some cases they expanded to include more partners. The original one linked Singapore, the Malaysian federal state of Johor and the Indonesian province of Riau, but since then the

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model has been copied extensively. Dent (2008: 74–5) lists the other main ones as: the Greater Mekong sub-region, linking Cambodia, China, Laos, Myanmar, Thailand and Vietnam the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area the Tumen River Area Development Programme, linking North and South Korea, China and Russia the Yellow Sea sub-region, linking China, South Korea and Japan the South China Sea Growth Triangle, linking China, Hong Kong and Taiwan the Indonesia-Malaysia-Thailand Growth Triangle

Though they may differ in the types of joint economic activity that they are intended to facilitate, and though they have achieved varying levels of success, they all offer reduced government regulation and tariffs as a way of stimulating business cooperation. Insofar as they embody a political as well as an economic logic, it is a functional one. They are clearly intended to reduce potential frictions between states, as well strengthening business interest in cooperation. Key points Intra-regional trade now represents roughly half of all the foreign trade of states in Pacific Asia China, instead of Japan, increasingly integrates production chains both within the region and in trade with other regions of the world Financial integration across the region is much less developed The last decade has seen a proliferation of bilateral free-trade agreements across the region A number of small growth ‘triangles’ have also been created linking production facilities in special zones that cross a number of national borders

Security Compared to trade relations, however, security in the region has fewer region-wide arrangements. There is no Pacific Asian equivalent of NATO. The key agreements are bilateral defence treaties between the United States and Japan, the United States and South Korea, and the security agreement between Taiwan and the United States implicit in the Taiwan Relations Act passed by US Congress in 1979. Apart from that, ASEAN is an agreement between its members to promote security and stability in the region, but it does not oblige its members to come to one another’s assistance if attacked.

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Governance in Pacific Asia Instead, the ASEAN Treaty of Amity and Cooperation, signed in 1976, lays down the following fundamental principles for its members: mutual respect for the independence, sovereignty, equality, territorial integrity and national identity of all nations the right of every state to lead its national existence free from external interference, subversion or coercion non-interference in the internal affairs of one another peaceful settlement of differences and disputes renunciation of the threat or use of force effective cooperation with one another

The ‘ASEAN Way’ of diplomacy is associated with building mutual trust between members so as to pre-empt possible conflicts and to assert greater collective control over their own region. ‘To date, ASEAN’s compelling raison d’être is in being a diplomatic caucus of weaker powers in a regional international system dominated by stronger powers . . . Its cement has been political solidarity in facing external challenges’ (Weatherbee, 2009: 93). It was successful in promoting reconciliation between Malaysia and Indonesia after the period of confrontation in the 1960s, when Indonesia claimed the four Malaysian states on the island of Borneo. This success has encouraged ASEAN to make diplomatic respect and non-interference in the internal affairs of other members core operating principles. Over decades this has become habitual for the original members and strengthened their confidence in possible cooperation. Indeed, it was a precondition of the agreement after 1997 for states to accept greater monitoring of one another’s economies as a way of preventing a new financial crisis. It had led to institutional deepening. Yet Narine (2002: 200) suggests that the main function of ASEAN is still to strengthen the confidence of member states in the reality of their own national sovereignty rather than to pool it. In addition, the widening of membership in 1997 and, in particular, the admission of Myanmar, have weakened the momentum for further deepening anyway. As an authoritarian regime that obstinately resists advice from the rest of ASEAN and liberalization – to the point of exasperating its partners – Myanmar has made enhanced cooperation more difficult. More recently, in the absence of a broader security framework, ASEAN has attempted to create institutional frameworks within which security disputes can be resolved through diplomatic means. The most obvious example is the ASEAN ⫹ 3 arrangement which meets annually and involves all ASEAN members, plus China, Japan and South Korea. In recent years it has deliberately encouraged discussions on security in the region as a way of

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building confidence there. It also arranges rounds of Track II meetings involving think-tanks and Track III meetings which involve civil society organizations. Beyond that, the ASEAN Regional Forum (ARF) aims to provide networks of confidence-building measures that will create a climate of multilateral cooperation. As Leifer put it: ‘The undeclared aim of the ARF is to defuse and control regional tensions by generating and sustaining a network of dialogues within the over-arching framework of its annual meetings, while the nexus of economic incentive works on governments irrevocably committed to market-based economic development’ (Leifer, 1996: 55). However, there are two obvious problems. The first is that key protagonists in the two most serious potential threats to security in the region – North Korea and Taiwan – are not invited to the ASEAN ⫹ 3 meetings. This constrains the ability of any of these groupings to intervene in a crisis. Although ASEAN has achieved a great deal in terms of promoting mutual understanding, one of its key principles – non-interference in the internal affairs of another member – effectively limits its effectiveness in crisis management. So, for example, when crises occur on the Korean peninsula, the grouping that attempts to find a peaceful resolution was created specifically to deal with events there – the Six-Party Talks, which include the two Koreas, China, Japan, Russia and the United States. The second problem is that it is one thing for ASEAN to create a vehicle for mediating disputes between other parties in the region, but when ASEAN itself or member states are protagonists, it is much more difficult for the ARF to act in this way. For example, the Paracel and Spratly chains of islands in the South China Sea are claimed by China (and Taiwan) on the one hand, and in part by Vietnam, the Philippines, Malaysia and Brunei on the other. China has alternated between negotiating with ASEAN as a whole and trying to play one ASEAN member off against another. In 2002, ASEAN and China signed a Declaration on the Conduct of Parties in the South China Sea, which laid down a code of conduct, and the general tone of talks on the issue has remained optimistic. Yet no real progress has been made in solving the issue. Nor has ASEAN been able to prevent disputes between members from breaking out, the most recent example being another armed clash in 2011 between Cambodia and Thailand over land surrounding a temple on the border. Buzan and Wæver (2003) emphasize that the end of the Cold War has opened the possibility for a regional security complex in Pacific Asia. If so, it will necessarily be based for the foreseeable future upon bipolarity between China and Japan, which are by far the most powerful military actors in the

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Governance in Pacific Asia region. How that evolves will depend most of all upon the economic and political evolution of the PRC and the impact of them upon Chinese foreign policy. However, regional security arrangements also depend heavily upon the presence of the United States. This is not just an issue for the states with which the United States has specific treaty agreements. Several other states also wish to keep America engaged in the region to prevent themselves from becoming too dependent upon, and therefore vulnerable to pressure from, China. Singapore’s Minister Mentor Lee Kuan Yew has said as much (Tay, 2010: 16). Singapore, Thailand, the Philippines and (to a lesser extent) Malaysia, for example, have military ties with the United States and they carry out joint military exercises. There are even closer relations between Australia and the United States. And the mutual defence agreement between Japan and the United States remains the cornerstone of Japanese defence policy, although the new Democratic Party government in Japan did float the idea of turning more towards continental Asia and China. Security in the region is therefore inextricably linked with the broader evolution of Sino-US relations. Tay, for example, has warned of what he terms Pacific Asia’s ‘dangerous post-crisis divide from America’. As he puts it: Asians have no history of unity, and no agreed vision or leadership to step into a future with Asia on its own. Asians today are therefore trapped in a dichotomy. On the one hand, they recognize factors that are rapidly eroding American dominance and legitimacy. On the other, they hesitate about vaulting to an untested and unimaginable future of an Asia that stands alone, absent America. (Tay, 2010: 16)

Key points There is no overarching security framework in Pacific Asia ASEAN has played the biggest role in creating institutions to build confidence and forestall conflict, but it cannot address or resolve some of the greatest security challenges in the region Several states support a continued US military presence in the region in order to offset the rise of China

Environmental Though concern about the environment has spread across the region over the past decade and environmental problems in one country spill over and affect others, concerted action to deal with it is still limited (Schreurs, 2007). China, in particular, has suffered from increasing environmental pollution

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with economic growth. Shirk (2007: 33) succinctly summarizes the problems. Acid rain falls on one-third of the country. Half of the water in the seven largest rivers is ‘completely useless’. One-quarter of China’s citizens lack access to clean drinking water. One-third of the urban population is breathing polluted air, and less than one-fifth of urban rubbish is treated and processed in an environmentally sustainable way. Over 70 per cent of rivers and lakes are polluted, and the ground water in 90 per cent of cities is tainted. Sixteen of the world’s 20 most air-polluted cities are in China, including Beijing, and the air quality in 300 cities fails to meet World Health Organization standards for acceptable levels of fine particulates. China’s energy use has increased to fuel development, so that by 2007 it accounted for 48 per cent of all energy produced in Asia (ADB, 2010: 245). Harris and Yu (2009) add that a quarter of China’s land surface has suffered from desertification. This has then blown over into South Korea (Ohta, 2008). Prime Minister Wen Jiabao reportedly commented in his report to the National People’s Congress in 2007 that China’s development is ‘unstable, unbalanced, uncoordinated and unsustainable’(Roach, 2009: 21). China’s neighbours – principally South Korea and Japan – have also complained about acid rain from China falling on them. Japanese scientists in the mid-1990s claimed that 50 per cent of the measured deposits of sulphur dioxide in Japan were of Chinese origin, and a further 15 per cent came from Korea (Dupont, 1998: 14). The Chinese regime in this decade has become converted to the need for its development to become sustainable, and environmental campaigners have become much more active, but Economy (2005) points out that implementation has been very uneven, depending crucially upon effective action by local authorities. This has also affected its foreign policy, so that China has become more amenable to arguments about the need to control its greenhouse gas emissions. China has also begun to spend more on eradicating environmental pollution in recent years. In 2008 it spent 1.8 per cent of GDP on it, whereas in 1981 the figure was only 0.5 per cent, and it has now reversed the trend of increased air pollution. However, it still remains wary of international commitments that may, as the leaders see it, prematurely hold back its economic growth. It continues to rebuff criticism with the argument that only when China has become a middle-income country will it be able to afford to volunteer more action to reverse environmental pollution (Harris and Yu, 2009). Southeast Asia has also suffered from environmental pollution. Partly, this has come from economic development – Laos in particular suffers from very high water pollution (ADB, 2010) – but partly, too, it is a legacy of the Vietnam War. Cambodia, Laos and Vietnam still suffer from the defoliants

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Governance in Pacific Asia that were sprayed on their jungle to disrupt supply routes for Vietnamese guerrillas. In Vietnam alone, estimates of those still affected range from one to seven million (Umegaki, Chi and Phan, 2009). The most dramatic manifestation of cross-border environmental pollution was the recurrent thick haze that spread from Indonesia to Singapore and Malaysia in several years during the 1990s from the burning of rain forest to bring land under cultivation for palm oil. It often lasted for weeks on end. One estimate put the cost to the three economies of around 0.5 per cent of their combined GDP in 1997 (Dupont, 1998: 12). The experience has led to various agreements within ASEAN for combating it, but these have been rather ineffective (Dent, 2008). So too have been the attempts of the Indonesian government to stop it, because they did not have the capacity to prevent the people doing it, and possibly also because officials were suborned to close their eyes to it. The cross-national impact of environmental pollution has led to various inter-governmental programmes to try to control and reduce it in both Northeast and Southeast Asia, but progress has been relatively limited (Harris, 2002). This is partly a matter of resources, but according to Takahashi, the heterogeneity of the region is another contributory factor. As far as effective measures to control acid rain are concerned, he argued that national implementation of international agreements has been much weaker: ‘It is more difficult for East Asia to reach a consensus because it lacks Europe’s relative economic, political, and social homogeneity’ (Takahashi, 2002: 243). Key Points Environmental pollution has spread quite widely, including across borders Governments have been somewhat unwilling or unable to adopt serious joint measures to deal with the worst of the problems

Politics, identity and culture So far, we have seen that regionalization has definitely progressed in Pacific Asia over recent decades, although the impact has varied according to the policy area, with trade being the most developed sector. The trade policy arena also shows a high degree of inter-governmentalism, most obviously exemplified by the spate of bilateral free-trade agreements in recent years. In that respect Pacific Asia has imitated Europe, although the specific manifestations have somewhat differed. However, what about attempts to promote a supranational dimension to regional relations? How successful have they been?

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There is no doubt that various governments have attempted to contribute to this process, as has happened in Europe, but an important difference is that in Pacific Asia there remain disagreements over both the rationale and the purpose of the intellectual arguments deployed in support. In Pacific Asia, unlike Europe, there has been much less enthusiasm for functionalism – the belief that increasing interdependence between national economies will spill over into other areas of social and political cooperation. In Europe, administrative elites involved in the process saw their role as being one of inveigling nations into greater inextricable interdependence. In Pacific Asia, however, administrative and political elites were much more sensitive to the achievements of decolonization and the freedom that it had brought them. They were reluctant to surreptitiously try to reintroduce a different kind of external constraint on the national freedom of manoeuvre. Insofar as policy-makers were guided by social science theories, the two most influential ones were liberalism (specifically they responded to the need to further develop economic efficiency and prosperity through innovation in mechanisms of cooperation) and constructivism (they perceived a need to develop a clearer sense of regional identity and shared norms as a basis for cooperation both inside and outside the region). The liberal approach can be seen in the proposals for free-trade agreements, which followed on increases in trade that had been achieved by business and responded to the desire for further liberalization to maintain the momentum of economic growth. The constructivist orientation can be seen in arguments over the ‘natural’ or most appropriate borders of the Pacific Asian region, shared ‘Asian values’ and the legacies of history. First of all, let us deal with the issue of the borders of the region. There are competing international organizations with borders that overlap with those of states in Pacific Asia but do not entirely coincide (Breslin, 2007b). For example, there is also the Asia Pacific Economic Community (APEC), which includes all the members of Pacific Asia covered in this book (apart from Cambodia, Laos, Myanmar, North Korea and East Timor) plus Australia, Canada, Chile, Mexico, New Zealand, Russia and the United States. It does include Taiwan, under the name of Chinese Taipei. This organization aims to provide ‘open regionalism’; that is, it seeks to develop cooperation and primarily free trade between all the economies of the region without building tariff walls against producers from elsewhere in the world. So it is open to proposals for liberalizing trade with other regions and it now includes most of the states on the Pacific Rim, apart from Ecuador, the countries from Central America and the island groups in the Pacific. The grouping does not contain a secretariat, so it lacks an organizational core. Instead it

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Governance in Pacific Asia focuses its activity on a Business Advisory Council and a number of APEC study centres or think-tanks in member territories. It fosters a trans-Pacific identity based upon shared economic interests and in that way it resonates with the tenets of economic liberalism in international relations. On the other hand, a competing conception of the region concentrates more upon the Asian rim of the Pacific. This was manifested in the argument over an East Asian Summit. The idea was first mooted by Mahathir in 1991 with his call for an East Asian Economic Caucus and it was vigorously opposed by the United States, which would have been excluded. It resurfaced after the Asian financial crisis when the ASEAN ⫹ 3 group proposed it in 2002. This time it gained more support and the first summit was held in Malaysia in 2005. The logic underlying the grouping was the belief that the members shared not only common economic interests, but also a historical identity that separated them from nations in other parts of the world. To a certain extent it corresponded to the views of the advocates of ‘Asian values’ as mentioned in Chapter 3. It implicitly ascribed some validity to the constructivist approach to international relations; namely, that nations interact with one another on the basis of both the identity that they present of themselves and the identity that others associate with them. In fact there were limits to what this could contribute. Accounts of Asian values often skewed the interpretation of them heavily in the direction of supposedly ‘Confucian’ values. Not much attention was devoted to reconciling them with Buddhist, Islamic and Christian social values. Asian leaders could pay lip service to the salience of ‘Asian values’ and states could be socialized into accepting uninstitutionalized but broadly accepted norms of ‘Asian’ behaviour, but there was no consensus on what these actually were (Gill and Green, 2009: 19–20). Moreover, opinion survey projects to research how far ‘Asian values’ were actually shared across the region tended to suggest that there is greater diversity in views than the champions of Asian values assumed – some even suggested that there was greater diversity in Asia than in Europe (Blondel and Inoguchi, 2006). Thus there is certainly room for more work to be done on ‘constructing’ a set of plausible and widely acceptable Asian values that could underpin greater regional integration. In any case, states such as South and North Korea are still far more sensitive to realist features of the balance of power in Northeast Asia than to appeals to Asian identity politics in their external relations (Lim, 2009). Also, Japan is now more inclined to advocate regional integration based on universal values rather than Asian ‘exceptionalism’ (Fukushima, 2009). Pacific Asia’s economic success has also attracted states in other parts of the world to try to engage with it as partners or even insiders. It has led

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to disagreements over membership of the East Asian Summit. The first Summit in 2005 was attended by 16 states: ASEAN plus Australia, China, India, Japan, South Korea and New Zealand. India was already accepted as a member. The United States and Russia then applied diplomatic pressure to become members as well, and this has been agreed from 2011. Therefore the institution that might best exemplify an East Asian identity and that might be the core of an East Asian Community has already been expanded further afield. The significance of the difference between these two perspectives of the core region was enhanced by the fact that the two main foreign policy actors in the region – China and Japan – have a long history of rivalry and they disagreed here too. Traditionally one has been more regionally dominant than the other at different periods of history, and their policies towards the region have reflected their attempts to maintain that dominance. Not only were societies in the region hierarchically structured, so too were international relations. For most of the post-war period it was Japan that was more powerful – both economically, and also militarily in collaboration with the United States. So it was reasonable to expect Japan to play the leading role, especially in integration through economics. Katzenstein and Shiraishi (1997) focused upon the networks that Japan was building across the region which were subtly integrating it. More recently, however, China’s dramatic economic development has led to widespread expectations that this will be converted into political and diplomatic leadership as well (Katzenstein and Shiraishi, 2006). Yet the lack of historical precedent for these two states treating each other as genuine equals complicates not merely their bilateral relations, but also region-wide ones as well. It is a challenge for leaders in both countries. Indeed, various legacies from the past – including Japan’s treatment of the lands that they occupied during WWII – continue to cast shadows over attempts to promote regional integration. All the peoples in the region have relations with one another that date back centuries. For example: Burmese and Thai armies laid waste to each other’s territories for centuries. The Thais have not forgotten that Burma sacked and destroyed their capital Ayudhya in 1767. Nor have the Laotians erased from their national memory the fact that an invading Thai army laid waste to Vientiane in 1827 . . . In the nineteenth century, Thai and Vietnamese dynasties wrestled for control of Cambodia. The blood-soaked traditional Cambodian-Vietnamese relationship . . . was continued in modern Cambodia by the wholesale murder of Vietnamese nationals in the aftermath of the 1970 military coup that installed a proAmerican Cambodian government. (Weatherbee, 2009: 13–14)

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Governance in Pacific Asia Those conflicts can be reanimated by nationalists today to try to win some kind of compensation. The sense of past victimhood and the need for redress are never far below the surface. Though states in Northeast Asia have mounted joint academic projects to arrive at an agreed, objective historical account of these events, the efforts have proved contentious. Despite apparent success in resolving disputes, disagreements have recurred, in part because states claim the right to approve school textbooks, which raises the stakes (Rose, 1998; Berger, 2008). This elevates the views of individual authors of approved texts to the level of state policy and disagreements to the level of diplomatic incidents. Without finding ways of transcending the historical points of contention, regional relations will remain vulnerable to events sparking sudden upsurges of nationalist outrage in one country directed against the government of another. Moon and Suh call for ‘visionary leadership’ to articulate a constructive agenda of cooperation and integration, such as was found in Europe after WWII. As they put it: ‘The most important task is to prevent nationalism from being misused for domestic political gain. This requires not only prudence, self-restraint, and integrity by politicians, but also universal civic virtues and the vigilance of grassroots citizens’ (Moon and Suh, 2007: 48). The trouble is that democratization makes the attainment of this kind of consensus much more difficult. Where relations in the region were the affair of government elites in the 1970s and 1980s, and so were somewhat insulated from public opinion, now that is no longer possible. It makes constructivist approaches to regionalism aimed at building a common identity more problematic. And the memory of patterns and organizing principles of relations across the region dating from previous centuries further complicates the mix. In particular, the ‘tributary’ system of hierarchical relations between more and less powerful states that was traditionally associated with East Asia and mentioned in Chapter 1 is sometimes invoked as an alternative organizing principle for the present and the future. Imperial China and the Sinic world that surrounded it are usually presented as the most obvious precedent (although China was not the only state in Pacific Asia that expected tribute from lesser states). Jacques (2009), for example, looks forward to China playing some kind of similar core tribute-expecting role in world politics as it becomes stronger. If that tribute was mainly ritualistic, as it was to the Chinese emperor, it might not be too problematic. But how this could be reconciled with, let alone assimilated into, the current Westphalian world order based upon a modern international legal system insisting upon the formal sovereign equality of states in the world is not clear. It seems unlikely that Southeast Asian states, still nervous about their sovereignty and

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the persisting economic weight of Overseas Chinese business in their countries, would easily acquiesce in such a system. Novotny (2010) suggests that Indonesian foreign policy elites see China as the main long-term challenge to Indonesian security, which will need counterbalancing. Acharya (2009: 185) maintains that there is no possibility of a Chinese sphere of influence over Southeast Asia. All of these factors help to explain why progress on integration has been slow. And although the aftermath of the Asian financial crisis gave added impetus to efforts at integration, as governments in the region shared a sense of unfairness about the way the region as a whole had been treated by the International Financial Institutions, the subsequent renewed economic growth achieved by most states somewhat reduced the defensive drive for expanded integration since most of them were better placed on their own to prevent a recurrence. Also, the perceived need for the region to strengthen its own free-trade arrangements so as to maintain competitiveness with free-trade areas in the EU and NAFTA has also rather receded, particularly as the EU project has stalled. Thus, although the ASEAN states set the target of a free-trade area from 2010 for the original members and from 2015 for Cambodia, Laos, Myanmar and Vietnam as well, and although there are bilateral free-trade agreements between ASEAN and individual states in Northeast Asia, the long-term goal of a free-trade area for Northeast Asia as a region, let alone for Pacific Asia as a whole, still seems distant. Key points There are still varied, overlapping conceptions of the most appropriate political region for integration in Pacific Asia Some are functional and some derive more from a sense of shared identity The historical legacies of conflicts in earlier centuries also bedevil relations today

Conclusion: Towards a more integrated future? This chapter has shown that there are many more ties linking the various states of Pacific Asia now than there were 50 years ago. Governments engage with one another far more in regular punishing rounds of both bilateral and multilateral fora. Business systems are emerging that span most of the region. The peoples of the various states have a stronger sense of shared experience and shared prosperity. Millions of workers find employment

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Governance in Pacific Asia elsewhere in the region, more of them illegally than legally (Backman, 2008: 89–96). Across the region, NGOs share experiences and coordinate their campaigns. Cultural influences have become much more cosmopolitan. Clothing fashions, pop songs, films, TV and soap operas spread their appeal across national borders. Regionalization has certainly grown and is likely to continue. But the achievements of regionalism remain more modest. The impetus for strengthened regional integration provided by the Asian financial crisis has waned somewhat. Resentment against unfair treatment by the West, especially the United States, has declined, and renewed prosperity in many countries has weakened the sense of an urgent need to merge sovereignties to meet some external challenge. ‘It seems likely that markets rather than regional institutions will continue to drive trade and investment flows, and “open regionalism” will remain a central feature of the emerging economic architecture’ (Searight, 2009: 238). The development of Asian regionalism is not an alternative to other forms of internationalization, but rather a complement to them. Oga argues that ‘Asianization is not an alternative to globalization, but rather, a different interpretation of it’ (2008: 298). For him, the discourse of Asianization is constructed in such a way as to identify common Asian patterns of thinking. This means defining what is ‘Asian’ as something different from what can be observed elsewhere in the world, but also incorporating many features of Western civilization as well – for example, industrial society, technology and urbanization. It is another manifestation of the phenomenon of multiple modernities, albeit this time cosmopolitan ones. Nesadurai adds that Asia-Pacific regionalism is unlikely to be a site for resistance to global governance as long as the national governments continue to engage with the global economy. ‘To put it another way, AsiaPacific regionalism in all its diversity reinforces prevailing global governance arrangements, although it may not exactly reproduce its neoliberal characteristics’ (Nesadurai, 2005: 169). There seems little doubt that regionalization in Pacific Asia will continue to grow. At some point this may well be translated into a stronger sense of a Pacific Asian community. But if it is to succeed, Tay argues that it must become a normative community, where integration is not based upon material power: Asians cannot repeat their history of endless rivalries to bandwagon against China. Nor should they acquiesce to rebuilding a Chinese system of tributaries to a new Middle Kingdom. Leadership in Asia will not be settled and accepted for now. Instead, Asia must develop regional processes that focus not on power, but on norms of equality, cooperation and peace. In this, the small and

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medium-sized countries of ASEAN must remain the hub, as they are in ASEAN ⫹ 3 . . . and in the wider East Asia Summit . . . More and more the need for the region is to bring together Asia as global. (Tay, 2010: 170, emphasis in original)

In other words, globalization and regionalization can proceed together, rather than one at the expense of the other. Cooperation of this kind can only be achieved in collaboration with actors in other parts of the world, especially the United States. Singapore’s former ambassador to the United Nations, Tommy Koh, concludes his vision of the future of the region: ‘I am reasonably confident that, by the middle of this century, Asia will have caught up with the West economically. My dream is that Asia will be admired by the world not only for our prosperity and modernity, but also for our soft power’ (2007: 148). Nevertheless, as we emphasized at the beginning, this will be difficult for states to absorb and practise because of the huge disparities in state power. And how robust can or will a regional community based upon soft power be? Yet the stakes are high, and not just for this region. In the 1990s, Friedberg (1993/4) outlined the fears of East Asia after the end of the Cold War as degenerating into the military rivalry and confrontation that used to be associated with Europe. This has not occurred. But more recently Beeson (2007) suggested the new significance of the project of regional cooperation in Pacific Asia for global stability. Without it there is a serious danger of competition, this time over scarce resources (especially oil), and of environmental damage plunging the Asia-Pacific into cycles of rivalry and conflict. If this happened, it would not leave the rest of the world unaffected.

Questions for further discussion 1 Is there a natural core region in Pacific Asia? If so, what is it? If not, does one need to be ‘constructed’? If so, how best can this be done? 2 Is it the case that ASEAN has made the greatest contribution to integrating Pacific Asia? Why? 3 What are the advantages and disadvantages of the proliferating bilateral Free Trade Agreements around the region? 4 How much does international cooperation in remedying environmental pollution across Pacific Asia matter? 5 What would you expect to be the impact of China’s rise upon international relations in Northeast and Southeast Asia? 6 Can the historical animosities between Japan and various states in Pacific Asia ever be resolved? If so, how?

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Further reading Christopher M. Dent, East Asian Regionalism (Abingdon: 2008) – an introduction to the institutions of cooperation. Gilbert Rozman, Northeast Asia’s Stunted Regionalism: Bilateral Distrust in the Shadow of Globalization (Cambridge: CUP, 2004) – the authoritative account of the ineffective attempts to develop regional cooperation in Northeast Asia. John Ikenberry G. and Michael Mastanduno (eds), International Relations Theory and the AsiaPacific (NY: Columbia UP, 2003) – a stimulating collection of attempts to understand relations in the region through the prism of international relations theory. Jonathan Watts, When a Billion Chinese Jump: How China Will Save Mankind – or Destroy It (London: Faber & Faber, 2010) – a journalist’s account of travels around China observing intertwined economic development and environmental pollution. Mark Beeson, Regionalism and Globalization in East Asia (Basingstoke: Palgrave, 2007) – a good introduction to relations in the region. Michael J. Green and Bates Gill (eds), Cooperation, Competition and the Search for Community: Asia’s New Multilateralism (NY: Columbia UP) – an excellent recent collection of articles on the different perspectives of various actors on the evolution of regionalism in Pacific Asia. Michael Yahuda, The International Politics of the Asia Pacific: Since 1945 (Abingdon: Routledge, 2011, 3rd edn) – a very good historical account of the evolution of international relations across the region. T. J. Pempel (ed.), Remapping East Asia: the Construction of a Region (Ithaca, NY: Cornell UP, 2005) – a collection of essays on the different dimensions of regional relations and the impact upon understandings of the boundaries of the region. Shaun Narine, Explaining ASEAN: Regionalism in Southeast Asia (Boulder, CO: Lynne Rienner, 2002) – an excellent introduction to the ASEAN way of diplomacy and its successes. Simon Tay, Asia Alone: the Dangerous Post-Crisis Divide From America (Singapore: Wiley, 2010) – a lucid Singaporean account of the need for continued US engagement in East Asia.

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14 Conclusion Chapter Outline Recapitulation The evolving nature of the state: From developmental to competition state A sustainable future Towards an Asian century? Further reading

359 362 373 374 378

Recapitulation Let us draw together the main threads of the book. The intellectual argument underlying this book was outlined in Chapter 4. It argued that Pacific Asia epitomizes the concept of multiple modernities. States in Pacific Asia have achieved levels of development that now bear comparison with the developed world. ‘The West is no longer the master of the modern. The Enlightenment vision must be scrutinized and reimagined from a nonWestern point of view . . . The Atlantic world is destined no longer to be the only producer of modernity’ (Smith, 2010: 226). Whether it is on the basis of per capita levels of development or achievements on the Human Development Index (HDI) of the UNDP, many societies there bear comparison with those of the West. Table 1.4 presented figures on levels of development. Table 14.1 presents the most up-to-date HDI figures for the region. The UNDP classified East Asia and the Pacific as a whole as having a medium level of development – below Europe and Central Asia, and Latin America and the Caribbean, but above the other regions and the world average. As Chapter 4 indicated, individual states in Pacific Asia have attempted to formulate their own versions of modern society. They have aspired to their own paths to modernity, distinct from that or those of the West, at least

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Governance in Pacific Asia Table 14.1 Human Development Index rankings and scores of Pacific Asian states 2010 Rankings

Scores

Brunei

37

0.805

124

0.494

China

89

0.663

Hong Kong

21

0.862

108

0.600

Cambodia

Indonesia Japan

11

0.884

South Korea

12

0.877

Laos

122

0.497

Malaysia

57

0.744

Myanmar

132

0.451

Papua New Guinea

137

0.431

Philippines

97

0.638

Singapore

27

0.846

Thailand

92

0.654

East Timor

120

0.502

Vietnam

113

0.572

UK

26

0.849

USA

4

0.902

World average

0.624

Source: UNDP database. North Korea and Taiwan not listed.

since WWII. Some of these failed. For example, the myth of the rural ideal future rather than urbanization no longer attracts support. The attempt by the regime in Burma to realize socialism has led to a brutal military dictatorship, which has resulted in stagnating living standards. And the attempt to build a kind of rural communism in Kampuchea was a calamity for its people. However, by the 1980s Japan was exhibiting a distinctive version of modernity, which has not faded, despite the stagnating economy. And from the late 1990s China has been associated with a distinctive ‘model’ of socioeconomic development. Where do these different versions of modernity come from and on what are they based? The thesis of this book is threefold. First, history and traditional social customs play a big part, as argued in Chapter 2. The longevity of most societies in the region– as great as or greater than that of societies in the West – is the basis of their distinctive identity. In addition, as Chapter 3 suggested, there are a number of traditional social values that reinforce this sense of distinctiveness: the social importance of the institution of the family, the greater priority accorded to the group rather than the individual,

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the continued acceptance of social hierarchies, the preference for maintaining social harmony and for avoiding social confrontations through ritual displays of social respect and the habit of exchanging gifts as the basis of ‘human’ social relations. All of these are typical of societies in the region, although with varying degrees of strength. However, second, it is not just history and tradition that give these societies their distinctiveness. Chapters 5 to 8 suggested characteristic patterns of economic behaviour that construct it. The role of the state in leading or coordinating economic development, relying upon industrial and agricultural policy, leaving financial institutions more exposed, remains salient, despite the liberal reforms that have taken place over recent decades. Chapter 9 showed how the business world, too, displays distinctive characteristics, where large conglomerates are prominent, tending to dominate the network economies. Then Chapter 10 showed that public welfare arrangements remain generally patchy, with large parts of the burden of welfare support falling upon families, although the economically more developed societies are gradually increasing the role of the state. Chapters 11 and 12 showed that basic democratic institutions became more consolidated across the region during Huntington’s ‘third wave’ of democratization, even if not uniformly so. But at the same time it cannot be said that democracy is flourishing there. There remain various problems concerning both the operation of democratic institutions themselves, as in Japan, and also the moderation and conciliation of social conflicts, as in Thailand. If the region is moving towards a liberal democratic future such as that in the United States and Europe, it is still a long way away. Finally, in the third part of this book’s argument, Chapter 13 argued that Pacific Asia has experienced significant increasing regionalization in recent decades. Societies across the region are now far more involved with one another than they were in 1945. While there is considerable variety between them, they have also absorbed features of one another’s way of life that makes them more cosmopolitan. However, political integration remains distant, to a large extent because of the attachment to the nation-state. These elements of the different modernities to be found in Pacific Asia have emerged from the experiences of the peoples involved, even if some states played a role in transmitting those values to new generations through their public education policies. They reflect a sense of difference. Yet at the same time they are not particularly antagonistic towards the values of the West. It was striking that when governmental elites in some Pacific Asian societies deliberately set out to promote ‘Asian values’ in the 1990s because of their supposed superiority, in part to forestall pressure from the United States to

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Governance in Pacific Asia encourage the enhancement of liberal democratic values, they did not achieve great success. Admittedly, the Asian financial crisis also weakened such attempts, but the aftermath showed that although there was widespread resentment in Pacific Asia over the way that they had been treated, this was not translated into the enhanced assertion of the superiority of these values as well. Rather, they reflected a desire for respect, for equal treatment. So although there is underlying sympathy for the notion of the distinctiveness of the values and the different modernities that they embody, this does not mean that these modernities are completely different from – let alone opposed to – those that can be found in the West. Much work remains to be done both theoretically and empirically in identifying the commonalities of this much more complex understanding of modernity. The experience of the societies of Pacific Asia and the theorizing of its main features will be crucial to formulating and refining the layers of this concept, but some of the common features include: 1 market economies (though the extent to which liberal market principles are observed varies) 2 predominantly industrialized societies 3 increasingly urbanized societies 4 increasingly technologically sophisticated societies 5 increasingly consumer-oriented societies 6 in politics, basic democratic institutions (though the extent to which liberal democratic principles are observed remains variable)

The evolving nature of the state: From developmental to competition state Is there a recognizably distinct concept of the state in Pacific Asia? Is it possible to devise one that applies to all the states in the region? The one that has attracted the greatest attention has undoubtedly been the developmental state, as outlined in Chapter 5; but as was also made clear there, it was of variable utility in capturing the development trajectories of all the states across the region. Fundamental questions have been raised about the appropriateness of the developmental state model. Boyd and Ngo (2005a, 2006) edited two collections of articles that addressed this question. They were keen to

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explore the broader underpinnings of states in the region that went beyond developmental concerns. Ngo (2005) himself challenged the implicit notion of an internally cohesive state apparatus coordinating all national efforts at industrialization: on the basis of archival work in Taiwan, he showed the extraordinary amount of internal disputes and turf battles that took place between state agencies in Taiwan in the 1950s. Koo (2005) pointed out the ultimate failure of the authoritarian regime in South Korea to keep control of the labour movement there: its domination could not prevent the challenge from labour organizations that fought for democratization and the transformation of state rule. Edin (2005) stressed the importance of subnational agencies in China at the provincial and county levels of government promoting economic reform and development in the 1980s and 1990s, thus both weakening central leadership and also strengthening national development. Some states, especially China and Vietnam, have moved closer to a developmental state pattern of political and economic relations in recent years as they have pushed forward their reforms. But it was never so accurate a model of the development strategies of Southeast Asian states or Hong Kong, while Japan and the other three NIEs have moved beyond it. The economic doldrums in which Japan has languished for the last two decades, and the irresolution over how to escape from them, most clearly show that a state-devised and state-led path to economic prosperity no longer applies there. Weiss (2003b: 268) raised the question of how best to characterize a former developmental state that has in some ways toned down its industrial and financial activism, perhaps restricted certain internal arrangements and refined its catch-up goals, yet remains distinctively different from its neoliberal Anglo-American counterparts. According to the conclusion of Whitehead, an expert on comparative politics, there is no model of Asian states that distinguishes them from those in the West. He stressed, however, that their long traditions of self-reflection necessarily left an impact upon the ideas and practices of statehood in the region: ‘The really existing states of contemporary Asia present us with a colourful menagerie that is far removed from the standardized attributes of stateness commonly found in Western-originated social theory’ (Whitehead, 2006: 177–8). This seems to bear out the general postulate underlying this book of multiple modernities. Boyd and Ngo (2005a) argued that the developmental state paradigm had distorted understanding of the states there. They argued that it had privileged Western concerns and frameworks of analysis over those of Asians. Focusing upon the role that the state had played in economic development meant that in theory it had considered all the various dimensions involved

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Governance in Pacific Asia in that effort, but in practice it had concentrated most attention upon the role of the economic bureaucracy. By doing so, it had reflected Weberian and Western concerns with rationality and the instrumentality of the state for economic purposes. It had downplayed other key issues associated with the concept of the state; for example, the monopoly of power, violence and domination. In fact, there was no shortage of literature about the brutality of some of the authoritarian regimes in the region (e.g., Bello and Rosenfeld, 1992). Works that focused on the political economy of development there did not overlook the repression of organized labour and the frequent reliance upon cheap female labour. And this criticism overlooked the appeal of such theories in societies still heavily marked by traditions of centuries of highminded elite bureaucratic rule. The revival of the aura of Mandarin rule, updated with a halo of ‘scientific management’, has been a striking feature of political reform in China and Vietnam in recent years (Woodside, 2006). The developmental state literature appealed to that audience. Nevertheless, there is no doubt that Western analysis of Pacific Asia from the mid-1980s was heavily oriented towards the issues of development. It reflected the wide interest in both academia and economic policy circles in the reasons for the economic success of the NIEs and the hope that lessons might be learnt in other parts of the world. The economic achievements of the region and the reasons for it still attract widespread attention. Thus, it seems premature to abandon concepts of the state based upon political economy. The developmental state model was faced with a much greater challenge after the Asian financial crisis and the reforms that were imposed. Since they had been in the direction of liberalization, a recurring strand of subsequent thinking about the state in the contemporary era has focused upon the neoliberal state which is typically more associated with Anglo-American capitalism. Here, the state retreats to a regulatory back seat, leaving business to take the lead in promoting economic development. In line with this, a series of analyses appeared on the neoliberal reforms in the region (e.g., Jwa, 2001; Robison, Rodan and Hewison, 2005; Pirie, 2008). The changes were attributed to globalization, which was argued to have undermined the autonomy of the nation-state. States find themselves under greater pressure than ever before to compete economically. This has given rise to what is termed the ‘competition state’. In one sense, the notion of ‘competition state’ is a truism. All states compete with one another in the world economy for the sake of the prosperity of their peoples, and they have done so for decades. They devise policies that are

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intended to facilitate competitive success for businesses on their territory. Cerny acknowledged: ‘The original model of the competition state was the strategic or developmental state’ (1997: 265), such as was outlined in Chapter 5, but this was no longer relevant, because the scope for control of governments and businesses over markets diminishes with development and the integration of such states into the global economy. ‘The orthodox model of the competition state today is not the strategic state but the neoliberal state.’ As capital moves more easily around the globe, and as sub-national local governments acquire greater capacity to run their own affairs, the traditional nation state supposedly finds itself squeezed from both sides or ‘hollowed out’. The underlying problematic was debated by Cerny (1997, 1999), Hirsch (1995, 1998), Jessop (2002) and others. Despite various disagreements and differences of emphasis, they all tended to agree that it captures the essence of the contemporary capitalist state worldwide. Cerny, Menz and Soederberg argued that there is ‘diversity within convergence’ (2005: 2, 22), as states in general are increasingly becoming ‘competition states’. They all agreed upon the growing significance of internationally mobile capital as the main source of domestic economic competitiveness. They also agreed that, as Hirsch (1998: 32–3) put it, states in general were subject to the new imperative of location politics (Standortspolitik); that is, they all competed with one another to attract capital to locate investments in their territory rather than elsewhere. Cerny summed up the change in similar terms: ‘The main focus of the competition state in the world . . . is the promotion of economic activities, whether at home or abroad, which will make firms and sectors located within the territory of the state competitive in international markets’ (1997: 272). He argued for convergence within neoliberalism, albeit uneven, between Japan and the United States (Cerny, 2005). The Asian financial crisis was widely seen as the catalyst for change in the region. For Cerny, the essence of the change is the change in welfare: the undermining of the principles of the European welfare state – in particular, the weakening of the entitlement of citizens in northern European states to various kinds of state welfare benefits, irrespective of the cost. Another way of expressing the traditional arrangement was Esping-Andersen’s term ‘decommodification’ of welfare, mentioned in Chapter 10. The result of the recent changes is that the process has been reversed, welfare has become subject to market forces (i.e. ‘commodified’) like most other features of social life. ‘Rather than attempt to take certain economic activities out of the market, or “decommodify” them as the welfare state was organized to do, the competition state has pursued increased marketization to make

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Governance in Pacific Asia economic activities located within the national territory, or which otherwise contribute to national wealth, more competitive in international and transnational terms’ (Cerny, 1997: 259, emphasis in original). To what extent has this trend actually penetrated Pacific Asia? It would certainly mark a significant change. It is true that over the past decade something of a convergence with the West has been taking place, at least as far as welfare provision is concerned; but while many of the welfare states in the West have been forced to curtail their support, Chapter 10 showed that several states in Pacific Asia have increased the public provision of welfare, though from a low base. This has continued since the Asian financial crisis. There, the state is becoming more important in welfare, not less. In that sense, the state in the developed world and the state in Pacific Asia are converging from different directions, though Tables 10.4, 10.6 and 10.7 remind us how big a gap still remains. Nevertheless, the main factor driving the changes is the same: the need for international competitiveness. In the developed world it is the perception that public welfare imposes too great a burden on national resources which is leading to its reduction. In Pacific Asia, it has been the positive contribution that welfare can play in strengthening national competitiveness which has led to greater governmental willingness to consider expanding public welfare, for example, through providing education and training, through increasing flexibility in the labour market, as well as in releasing private savings for consumption and investment that would otherwise be stuck in less productive bank accounts. As for overall macroeconomic policy-making, there has undoubtedly been greater penetration of neoliberal economic thinking into the region. As Chapter 5 suggested, this current of economic ideology had not been particularly widespread there before the Asian financial crisis. Until then the main ethos underlying development strategies had been more pragmatic and hands-on. Admittedly, key state officials had often received their economics education abroad, especially in the United States, where they had become familiar with various approaches to economics. But paradoxically, one consequence of the ‘embedded autonomy’ of key economic decisionmakers and bureaucrats, where it existed, was the relative lack of crossover of such ideas to other social groups. Neoliberal economic ideas were not especially embedded in society. The Asian financial crisis, however, changed that. Various policy-makers and commentators became more sympathetic to these ideas because of the perception that the crisis had revealed the weaknesses of the old ways of thinking, and because the international financial institutions were propounding neoliberal ideas as solutions to the region’s

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problems. Some business figures became more attracted by them too. To that extent, such ideas became more embedded than ever before. Yet although the trend of change may be in the direction of a liberal economy and despite the radical reforms that have been introduced, it is doubtful that any of the Pacific Asian states have yet come close to this neoliberal model in terms of institutional change. The following examination of the applicability of the neoliberal competition state will focus on two dimensions: (i) the extent to which liberal markets predominate and (ii) the extent to which states in the region are driven by pressures to attract FDI. Evidence for the first can be found in Table 9.7. It presents the results of the most recent survey of business opinion around the world from members of the World Economic Forum in Davos. As an organization, it deliberately puts business first and takes a pro-business line in encouraging deregulation of business activities. It carries out annual reports on global competitiveness, which are largely based upon surveys of its members around the world. One set of questions asks respondents to rank the intensity of market competition in their country, the extent to which markets are dominated by a few or many business groups and the effectiveness of state anti-monopoly policy. The responses could be taken as proxy indicators of the extent to which the national economies are neoliberal in nature, since neoliberal economics promotes economic efficiency through intense market competition, broad participation in markets and effective anti-monopoly policies. This table shows that in terms of overall competitiveness, Japan and three NIEs (Taiwan, Singapore and Hong Kong) are ranked as very similar to, or better than, the United States and the United Kingdom. South Korea comes a little further behind, with the rest of the region following on. This suggests the region as a whole compares well with the developed world. It justifies the use of the term ‘competition state’. In terms of the three separate elements of market efficiency, however, Japan is ranked ahead of the United States and the United Kingdom, while Taiwan is ranked ahead on two of them and Singapore is ranked ahead on one of them. Strikingly, China is ranked only a little behind on two of the indicators, although it lags significantly as far as anti-monopoly policy is concerned. The rest of the region, however, follows at a greater distance. All of this suggests that most states in the region cannot be classified as ‘neoliberal’ (and the fact that neither the United States nor the United Kingdom is ranked first, or even close to it, suggests that their frequent classification as ‘neoliberal’ may also be more controversial than often assumed). As for the question on the impact on state policies from the pressure to attract FDI, this can be assessed using the figures in Table 14.2. It shows the

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Governance in Pacific Asia Table 14.2 Net foreign direct investment inflows in Pacific Asian states (as per cent of GDP) 1990

1997

2007

2008

7.87

a

Brunei

1.32

Cambodia China

2000

0.98

Hong Kong

5.92

4.06

10.05

4.64

3.20

4.09

3.42

8.85b

36.62

26.25

29.26

Indonesia

0.96

2.17

–2.78

1.60

1.82

Japan

0.06

0.08

0.18

0.51

0.50

South Korea

0.30

0.55

1.74

0.17

0.24

Laos

0.69

4.94

1.95

7.52

4.11

Malaysia

5.30

5.13

4.04

4.53

3.33

Papua New Guinea

4.83

0.58

2.72

1.50

–0.36

Philippines

1.12

1.48

2.95

2.02

0.84

Singapore

15.13

14.35

17.78

18.90

12.49

Thailand

2.86

2.58

2.74

4.55

3.61

Vietnam

2.78

8.27

4.16

9.76

10.57

E.Asia and Pacific

1.57

4.01

2.64

3.94

3.33

World

0.99

1.59

4.83

4.28

3.04

UK

3.31

2.76

8.27

7.05

3.50

USA

0.84

1.28

3.29

2.01

2.27

Source: EconStats. Myanmar, North Korea, Taiwan and East Timor not listed. a

2001, b1998.

ratio of FDI inflows to GDP for the states in Pacific Asia for selected years from 1990. Two intervening years that have been chosen are: first, 1997, since it was the year of the Asian financial crisis, when FDI flows peaked for a while; and 2007 was chosen as the second because this was the year preceding the global financial crisis, when again FDI might be assumed to have peaked. These figures show that FDI is particularly important in Pacific Asia to the city states of Hong Kong and Singapore, and it is also quite important to the states of Indochina – Cambodia, Laos and Vietnam. But none of the Indochinese states rank highly for neoliberal policies, and two of the most developed economies – Japan and South Korea – still attract surprisingly little FDI. While FDI has become a bit more important in a few states over the last decade, this has not been true of the whole of the region. Foreign direct investment there is generally proportionately lower than it was in 1997, and while the figure for East Asia and the Pacific is still higher than the world average, the gap has decreased significantly. So while the term ‘competition state’ can be applied to states in the region, the implication that their policies are primarily influenced by the objective of securing FDI does not seem to be convincing.

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Jessop (2002) presented a more complex account of the contemporary capitalist state. He retained the notion of the competition state, but identified different forms or tendencies within it. He characterized the current predominant form of such states as ’Schumpeterian workfare postnational states’. Each of the three adjectives denoted a key dimension of such a state. ‘Schumpeterian’ denoted a primary focus upon innovation and its promotion as the key arena of competition between states, as opposed to earlier reliance upon available physical resources. ‘Workfare’ denoted the subordination of social policy to the demands of economic policy; that is, the ‘decommodification’ of welfare highlighted by Cerny and others. ‘Postnational’ denoted the erosion of the sovereignty of nation-states as they become entangled in broader international institutions and networks. Although Jessop’s conclusions were drawn from analysis mainly of states in North America, northwest Europe and Australasia, he hinted that it could also be found in Pacific Asia. To what extent does this version of the competition state apply there? There is no doubt about the link between social policy and economic policy throughout the region, as was explained in Chapter 11. The term ‘workfare’ does seem applicable, provided it is spared the negative connotations that Jessop and Cerny attribute to it. Rather than implying an undesirable ‘recommodification’ of welfare and curtailment of citizens’ rights, it can be accepted as compatible with the family-oriented social ethos that still pervades the region. Alternatively, Kwon (2004: 3) used the term ‘developmental welfare state’. But neither of Jessop’s other two terms characterizing the nature of the competition state seems appropriate for the generality of states in Pacific Asia at present. Although many of them are increasing their reliance upon innovation as a source of economic development, only Japan, South Korea and Taiwan have reached the stage where it is becoming significant. Even in Japan it is still not yet the dominant characteristic. Most of the rest are still more preoccupied with the deepening of industrialization.So the term ‘Schumpeterian’ seems definitely premature; and the term ‘postnational’ also seems premature, given the persisting importance of the nation-state in forming the identity and economic development of the states in Pacific Asia. Chapter 13 stressed their still limited willingness to build regionalism. There is, however, one feature of most states’ economies in the region that has become more pronounced over the last decade. This is the importance of savings and investment. It will be remembered that Krugman (1994: 78) explained the original success of Japan and the NIEs primarily in terms of delayed gratification; that is, delayed consumption. Accumulation of economic power has become an even greater national priority since then.

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Governance in Pacific Asia The international dimension of this characteristic can be seen from Table 5.4, which presented the growth of the foreign exchange holdings of states in the region. It showed that in the aftermath of the Asian financial crisis several states have deliberately built up their reserves as a way of strengthening their international economic power or capability. As for internally generated accumulation, evidence can be found in Table 10.2 which presents the gross domestic savings rates in states across the region. It shows the stark contrast between savings rates in the neoliberal economies of the United States and the United Kingdom, and those in almost all the states in Pacific Asia. Of course, 2009 was a particularly bad year economically for the West, so it is not surprising that savings rates there are abnormally low. However, only a slightly smaller disparity could be observed for 2005. Table 10.2 shows that while national savings rates have fallen significantly in Japan since the 1980s, and marginally so in the Philippines, in the rest of the region they have remained fairly constant or have risen, most spectacularly in the case of China. In other words, economic development has generally led to proportionately greater savings rather than consumption over the last two decades. Part of the explanation for this disparity between Pacific Asia and the Anglo-American states lies in the persistence of authoritarian regimes in the former. Consumers there are less capable of pressuring the government into pursuing economic policies that allow them to benefit from economic growth and that proportionately increase their share of national economic welfare. Democracies may be assumed to allow consumers greater freedom of choice. It may therefore be assumed that governments in authoritarian regimes have structured political authority in ways that allow them to focus more upon long-term national economic development (at least this is notionally the case – it may also allow elites in the regime to benefit disproportionately from development). However, all states in Pacific Asia, without exception, show higher savings ratios than the United Kingdom or the United States, irrespective of whether they are democracies or authoritarian regimes. It can also be argued, as was suggested in Chapter 10, that one reason for large private savings is the perceived need to insure against accidents and misfortunes in the absence of highly developed public welfare – and in the case of states such as Singapore, households are forced to save as a form of insurance. So to some extent, the behaviour of governments can affect this savings rate. However, there are three other social factors that contribute to the high savings rate in Pacific Asia. The first is a widespread (though not universal) inclination by individuals to avoid excessive conspicuous consumption and to look to the long term rather than the short term. Hofstede (1994) reported the results of a survey

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of students in various states around the world that focused on the extent of their ‘long-term orientation’. The findings for the Pacific Asian states involved are presented in Table 14.3. They show a surprising regional conformity with the generally high savings rates shown in Table 10.2. Even though this survey only asked questions of students, who might not be representative of national populations as a whole, it did suggest potential significance over time. Insofar as the findings are accurate, they suggest the likelihood that young people might be expected to retain such views for decades afterwards. This therefore reinforces the notion of a widespread long-term orientation in Pacific Asia that prioritizes savings. The second factor in the low consumption rates is the long hours still worked in most Pacific Asian economies, as mentioned in Chapter 6. Even though the numbers of hours worked in Japan have now converged with those in other OECD countries, this is not yet the case for many other states in the region. The third factor in the high savings rates is structural: the widespread adoption of business systems that rely upon cross share-holding where companies are under less pressure to distribute dividends, leaving them greater scope to reinvest for long-term growth. As indicated in Chapter 9, this was first developed in Japan, and even though its significance has eroded there in recent decades, it has been taken up and expanded in other states such as South Korea, Taiwan and China. This both reflects and reinforces the inclination of business leaders in the region to prioritize long-term over shortterm growth (Hofstede, 2007). Ma and Yi (2010) have attributed most of the rise in savings in China over the past decade – and the savings rate in China Table 14.3 Long-term orientation index values for selected Pacific Asian states Country/territory

Ranking

Score

China

1

118

Hong Kong

2

96

Taiwan

3

87

Japan

4

80

South Korea

5

75

Thailand

8

56

Singapore

9

48

USA

17

29

UK

18

25

Philippines

21

19

Source: Hofstede, Geert (1994), Cultures and Organizations (London: HarperCollinsBusiness). N ⫽ 23.

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Governance in Pacific Asia is higher than anywhere else – to the business and government sectors rather than households. The conclusion then is that current Pacific Asian states can be called competition states, but they generally represent a distinct form. They are accumulation-oriented workfare states, though there are a few exceptions – such as the Philippines, Myanmar and, above all, East Timor. They continue to justify the contention of Rodrik (2011) that there are still different roads to prosperity, insofar as their trajectory of development has diverged, at least at times, from that of the West. They are also generally in good shape for international economic competition. The growing economic interdependence across the region outlined in Chapter 13 provides the basis for greater resilience. Of course, there are various obstacles to economic success, as we have indicated in previous chapters, so not all the potential competitiveness will be realized. It would be wrong to see these states as exemplifying a national consensus over economic performance. There remain disagreements and tensions between different strata of society. The transition to innovationbased competitiveness – what Jessop terms ‘Schumpeterian competitiveness’ – will be especially challenging for societies whose education systems have traditionally favoured the learning of facts. Nevertheless, it is clear that the great economic achievements registered in this region over recent years, and which are widely predicted to continue, cannot now all be attributed to wise economic leadership by the state – as was assumed under the developmental state model. It is the product of social cooperation in general. The state may still play an important role, but the active contribution of other social actors and their individual decisions cannot be overlooked either. This combination of circumstances will make it harder for Pacific Asian states to restructure their economies in favour of greater consumption. In turn, following the global financial crisis from 2008, they will not so easily or readily respond to Western calls for them to increase their consumption for the sake of stimulating exports from the West. Key points Pacific Asian states are not completely different from states in other regions of the world, but many of their practices and politics are distinctive Neoliberal economic ideas have become more embedded in the region since the Asian financial crisis, but the states have not become neoliberal They demonstrate high savings rates, both at the national level and at the level of individual families They can also be classed as ‘workfare states’ on account of the close connection between welfare policies and economic development policies

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A sustainable future The fact that Pacific Asian governments remain somewhat interventionist in their economies and that they downplay the importance of mass consumption may be of benefit in another respect. Can their trajectory of economic development continue to track and catch up with that of the developed world? Is it – or would it be – sustainable? Can they develop a different one? Chapter 13 gave examples of various already-existing environmental challenges in the region, but commentators have begun to ask whether the world’s resources could sustain Western levels of consumption throughout Asia if the region was as successful as many projections suggest. As Nair (2011: 44–5) put it: if Asian states grow at an average of 5 per cent a year, by 2050 they would contribute $230 trillion to world product instead of the current $30 trillion. This would put enormous pressure upon natural resources. According to him, if Asia’s population were to use as much energy per person as Americans currently do, they would consume 14 times as much power as the United States does now. Even if Asia ‘only’ limited itself to average European levels, they would still use 8–9 times as much energy as the United States currently does. Møller (2010) identifies five scarcities that both combined and separately pose major challenges for traditional development strategies in Asia: food, industrial commodities, energy, water and a clean environment. For that reason both Møller and Nair advocate that Asia should strike out on a different path from the precedents of the West. According to Møller: As the world view changes away from the Western model that is anchored in industrialization, it is likely or possible that Asia, as the first major power or biggest continent, will break out of that model and, on the basis of its own cultural values, shape a new economic and political model and political system reflecting the changed conditions and new challenges. (Møller, 2010: 502)

Nair adds: Now they [Asian societies] must formally recognise that the Western state model is not appropriate for their needs as the constituent parts of twenty-first century Asia. They must draw on their traditions, they must strengthen their moral authority and use this as the basis to transform themselves into forces which can put the management of resources at the centre of their efforts to ensure viable, sustainable societies. (Nair, 2011: 114–5)

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Governance in Pacific Asia And to achieve this, he argues, Asia needs strong states because they are the only institutions with the ability and power to bring development while reversing environmental degradation, preventing resource depletion and maintaining social order. The countries of Asia must stop waiting for the West to lead and instead find the confidence to go their own way. For too long they have allowed their futures to be defined in developed world terms – as ‘emerging markets’ or ‘investment destinations’, as ‘export-oriented’ or as a ‘pent-up’ source of enormous consumer demand. Now they must identify and pursue their own long-term sustainable strategies. And they should do this regardless of what is happening in the rest of the world . . . Asia has the potential to reshape capitalism and create a new economic model for the twenty-first century – one that is genuinely sustainable. To do this it must end capitalism’s reliance on underpriced environmental and resource inputs. Countries across the region must rewrite the rules that have driven growth until now. They reject the consumption-driven ways that powered the West to global dominance and replace them with new practices, ones that constrain human impact on the environment. (Nair: 2011: 139, 155)

The contours of such a model remain vague; but if they could achieve this, they would definitely establish a different kind of modernity. It would be the most momentous innovation of all the earlier attempts previously sketched in Chapter 4. Key points Achieving the same standard of living as in the developed world will pose enormous and maybe environmentally and ecologically unsustainable challenges for Pacific Asia Some believe that this will oblige states there to explore radically different development strategies

Towards an Asian century? One common assertion and assumption in Pacific Asia is that in the twentyfirst century Asia will ‘come of age’ (e.g., Naisbitt, 1996), that it will be an ‘Asian century’. Over the last 20 years the precise boundaries of such a preeminent Asia have changed. It used to be claimed that it would be an East Asian century. Now that India has begun to replicate the economic growth achievements of Pacific Asia, the notion of a successful Asia has been widened to include South Asia, or India at any rate. Mahbubani (2008) has gone even further and included the Middle East too; that is, West Asia.

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Nevertheless, the core of a prospering Asia is likely to remain East and Southeast Asia for quite some time. The Asian Development Bank (ADB) recently discussed the likelihood of such a ‘century’ and tried to quantify the change in the world economy. They posited that by 2050 the share of global output of Asia as a whole could rise to 50.6 per cent, where in 2010 it was 27.4 per cent. The ADB suggested that seven countries would spearhead this change: China, India, Indonesia, Japan, South Korea, Malaysia and Thailand. Between them they could account for 90 per cent of Asian and 45 per cent of global output by 2050. One major contributory factor in this would be the size of global investments emanating from Asia. Already about 45 per cent of new global investment is in and from Asia. That could rise to 75 per cent by 2050. At the same time, the ADB is cautious enough to warn that nothing about this achievement is preordained. Things could go wrong. In particular, it points to the dangers of the middle income trap: the stagnation which has afflicted economies in other continents – especially Latin America – in previous decades when countries failed to sustain their initial high growth rates, because they found they could not compete either with low-cost or with high-quality producers. If that were to happen, then Asia’s share of global output in 2050 would be more like 32 per cent. But even then it would be 50 per cent greater than the estimated US share of 21 per cent, and if Asia maintained its high growth rate, the US share in 2050 would be only 14 per cent (ADB, 2011). The US National Intelligence Council began its most recent report on global trends with the statement: ‘The international system – as constructed following the Second World War – will be almost unrecognizable by 2025’ (2008: 1). It produced four alternative scenarios for the evolution of international relations up to 2025 which envisaged increased challenges to world order, a possible marginalization of the West, a possible environmental crisis and increasing resource shortages. However, some features were common to all of them, and among the ‘relative certainties’ that it anticipated were the rise of a global multi-polar system based particularly upon China and India, as well as the fact that the ‘unprecedented shift in relative wealth and economic power roughly from West to East now underway will continue’. Indeed, it accepted that ‘China is poised to have more impact on the world over the next 20 years than any other country’ (National Intelligence Council, 2008: iv, vi). It envisaged that by 2025 China would have overtaken Japan to become the world’s second-largest economy, yet this was achieved in PPP terms already by the end of 2010. Partly as a result of the global financial crisis, commentators began to predict that China would overtake the United States as the largest economy sooner than before (i.e. between 2020 and 2030), although it should be remembered that Chinese growth may well

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Governance in Pacific Asia slow down (Eichengreen, Park and Shin, 2011); and, in any case, on a per capita basis China’s people will remain much poorer for decades more. With these changes, Chinese ‘soft power’ is also likely to rise. ‘One trend is certain as Asia globalizes – Asia will Asianize, and in the process Chinese cultural influence will resurface and reassert itself ’ (Foong, 1999: 70). At the same time, the NIC report also assumed that the United States will remain the most powerful country, but it will be less dominant (though its previous report only five years earlier had assumed continued US dominance). It went on to say: ‘the Western model of economic liberalism, democracy and secularism, which many assumed to be inevitable, may lose its luster – at least in the medium term’ (2008: 3). To the extent that this occurs, the development successes of states in Pacific Asia will certainly have contributed to it. In fact, the challenge to the pattern of global governance in recent decades comes not just from Pacific Asia. New rising potential world powers can be found elsewhere in the world too – the much-touted BRICS group of states includes Brazil, India and South Africa as well as China and Russia. Goldman Sachs (2007) and the OECD (2009) envisage other potential developmental success stories as well; for example, Turkey, Mexico, Egypt and Indonesia. In addition, various kinds of non-state actors – business, NGOs, environmental groups and so on – pose increasing challenges to the traditional state-centred system as well (EUISS and NIC, 2010). All of this suggests that global governance is entering an era of turbulent flux. Mahbubani sums up the overall implication: ‘We have reached the end of the era of Western domination of world history (but not the end of the West, which will remain the single strongest civilization for decades more)’ (2008: 9). Nye (2011) accepts many of the problems, but believes that ‘smart power’ from the United States can manage the strains. An early and still inspirational vision for the rise of Asia was written by Anwar Ibrahim, who was Malaysian deputy prime minister at the time. He looked forward to a general Asian renaissance. As a former Muslim youth leader and the man who nearly succeeded Mahathir as Malaysian prime minister, he shared Mahathir’s sense of grievance over colonial rule. ‘The message of the Asian Renaissance should be heeded not just by the people of this region, but also by our erstwhile colonial masters. It is not enough that they merely express regret and remorse over the treatment meted out to those they once lorded over . . . When they hector us on issues such as human rights, patronize us on the matter of values, impose conditionalities on trade, we cannot help but suspect a hidden agenda – a new form of domination in place of the old’ (Anwar, 1996: 30). Yet at the same time he acknowledged the contribution of the Renaissance and the Enlightenment to global human culture and learning.

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Although his book predated the Asian financial crisis, and his own fall from power in its aftermath, it still presents a persuasive vision of a new Asia that could change the world. He looked beyond the rise of China and its economy. Although economic development is a major contribution to the overall impact, for Anwar the main effect lies elsewhere. He focused on Asia’s ‘soft power’ before the term became popular. ‘The renaissance of Asia . . . entails the growth, development and flowering of Asian societies based on a certain vision of perfection; societies imbued with truth and the love of learning, justice and compassion, mutual respect and forbearance, and freedom with responsibility . . . It is religion rather than any other social force which makes Asia a continent of infinite diversity’ (Anwar, 1996: 19). While he was championing the rise of Asia, he also stressed the need for dialogue to change international governance. The primary motif of civilizational dialogue must be a global convivencia, a harmonious and enriching experience of living together among people of diverse religions and cultures. To enter a more meaningful stage of engagement between Asia and the West, it must be an encounter between equals, between cherished ideals and values that will serve to challenge our pride and end our prejudices. In the domain of trade and economics, it is quite clear that the West looks at Asia as a force to be reckoned with. Equally clear, however, is reluctance to accord a similar recognition to Asia’s cultural and civilizational aspirations. (Anwar, 1996: 45)

He added: If the new wave of Asian resurgence is to contribute to global civilization it has, above all, to be benign in its effects. Asia suffered as a victim of the West in the latter’s pursuit of wealth, power and domination, often disguising itself as an ‘emissary of pity and science and progress’ . . . [G]enuine revival must also be a moral renewal. Asia must not look at the world from the perspective of power relations. The Atlantic community too must also not see Asia as a competitor to its ambition for global domination and fall prey to self-induced fear and insecurity. (Anwar, 1996: 129–30)

He concluded: The new world order cannot be based on the hegemony or insular perspective of a particular civilization and culture . . . Now, in the market-place of ideas, the totalitarian concept of modernity, which is the philosophical foundation for the European and Atlantic claim for hegemony, is helpless under constant

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Governance in Pacific Asia intellectual assault from multiculturalism and postmodernism . . . The new global order must be rooted in the reality of a pluralistic and multicultural world. (Anwar, 1996: 136–7)

This is, or at least could be, the broader significance of the rise of Pacific Asia. But what transpires will depend not only upon what the region does, but also what happens in the rest of the world.

Questions for further discussion 1 How valid is the categorization of Pacific Asian states as ‘competition states’? What are the weaknesses? Do they matter? 2 How strongly do you think people in Pacific Asia are attracted by developed world consumerist lifestyles? Will they be willing to forgo them for the sake of more sustainable development? 3 Are democracies or authoritarian regimes more likely to adopt pro-environment policies? How can leaders in either kind of state be persuaded to do so? How can ordinary people be persuaded? 4 Should Pacific Asian states be expected to increase the share of consumption in their economies? Why, and for whose benefit? 5 How should Pacific Asian states manage their rise in world affairs? How should the rest of the world respond?

Further reading Anwar Ibrahim, The Asian Renaissance (Singapore: Times Books, 1996) – an inspirational vision of the significance of a rising Asia and what its impact on the world should be. Asian Development Bank, Asia 2050: Realizing the Asian Century (Manila, 2011) – the development prospects and challenges facing Asia in general and Pacific Asia in particular. Chandran Nair, Consumptionomics: Asia’s role in Reshaping Capitalism and Saving the Planet (Oxford: Infinite Ideas, 2011) – pleads for Asia to shun mass consumption in favour of sustainable development. Kishore Mahbubani, The New Asian Hemisphere: the Irresistible Shift of Global Power to the East (NY: Public Affairs, 2008) – a challenging and (as can be seen from the title) in places triumphalist account of the impact of a rising Asia upon global governance and the place of the US. National Intelligence Council, Global Trends 2025: a Transformed World (Washington, DC, 2008) – the most recent set of scenarios from the US government on the evolution of global relations and how Pacific Asia might fit in. Richard Boyd and Tak-Wing Ngo (eds), Asian States: Beyond the developmental perspective (Abingdon: Routledge Curzon, 2005) – a stimulating collection of articles analysing the state in Pacific Asia.

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Governance in Pacific Asia.indb 411

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Governance in Pacific Asia.indb 412

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Index Abangan 281 Abdurahman Wahid 306 Aceh 32, 305, 308 Acer 232 Agricultural policy 165–86 contribution to industrialization 171–2 protection 181–2 Agriculture Development Bank (China) 211 Aliran 281, 322 Amsden, Alice 110–11, 118, 133 Anderson, Benedict on ‘imagined’ communities 36 Angkor Wat 35 Anwar bin Ibrahim 293 on Asian renaissance 376–8 on lack of settled Asian identity 73–4 Aquino, Benigno 289 ASEAN Regional Forum 347 Asia-Pacific Economic Cooperation (APEC) 351–2 Asian Development Bank 375 Asian financial crisis 128, 130, 205–10, 227, 366 post-crisis reforms 241–7 Asian Free Trade Area (AFTA) 343–4 ‘Asian values’ 67–71, 352 Association of Southeast Asian Nations 337, 339, 343–8, 353, 355 ASEAN plus Three 214, 342, 346–7, 352 Aung San Suu Kyi 285 Authoritarianism 292–3 Bali 306 Banfield. Edward D. on amoral familism 63, 324 Bangkok Bank of Commerce 198

Governance in Pacific Asia.indb 413

Bank Bumiputra 200–1 Bank for International Settlements 213 Bank Islam Malaysia Berhad 200 Bank Muamalat Malaysia Berhad 200 Bank Negara Indonesia 198 Bank Negara Malaysia 200 Bank of Japan 202–4 Boxer uprising 26 BRICS 376 Bumiputra 122, 198–9, 232 ‘Bureau pluralism’ 160 Business groups 222–4 Asian compared to Western 225 Cambodia 330 Cambodia People’s Party 311, 330 Central Department Store Group (Thailand) 221 Central Intelligence Agency 281 Central Provident Fund (Singapore) 255, 259–60, 267 Chaebol 116, 127, 129, 133, 161, 208, 218, 226–8, 231, 236, 246–7 Charter 08 298 Chen, Shui-bian 320 Chen, Yuan 294 Chiang, Ching-kuo 147, 285, 290–1 Chiang, Kai-shek 310 Chiang Mai Initiative 214, 342 China agriculture 176–9, 184 banking system 211–12 ‘Beijing consensus’ 99–103, 278 border disputes 347–8 car industry 157–9 ‘civilization state’ 100 economy ‘agents without principals’ 237 economic reform 234–8 national champions 133–4, 238

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414

Index ‘systemic transformation’ 133–4, 235–6 township and village enterprises 235 environmental problems 349 foreign trade 341–2 history civil war 32–3 dispute over border with Korea 43 Great Wall as symbol 35 Maoist period 81–5 significance of official history-writing 20, 22 inequality 268 political culture fear of chaos 61 insiders (nei) and outsiders (wai) 56 preserving face 62–3 urbanization 105 welfare system 267–71 White Paper on democracy 20, 278, 298 China Development Bank 211 Chinese Communist Party 293–300 Chinese Petroleum Corporation 231 China Shipbuilding Corporation 231 Chun, Doo Hwan 227, 285, 310 CIMB Group 200 Civil society 50, 101, 113, 259, 266, 279, 299, 303, 322–4, 326, 328, 347 Colonialism (Western) imposition of European state system 40–4 legacy 24–9 Committee for Social Security (S.Korea) 264 Competition state 365–72 Confucius Confucian principles of rule 49–51, 323 ‘Confucian welfare state’ 261–2 Confucianism and democracy 285, 304 filial piety 66

Governance in Pacific Asia.indb 414

five cardinal relationships 59 contemporary Confucianism 75, 278–9, 297, 318 Consultative authoritarianism 298 Coordinated market economies 247–8 ‘Crony’ capitalism 120, 197–9, 242 Daewoo 155 Danwei 267 ‘Decommodification’ of welfare 252, 365 Definition 1–2 Democratic Justice Party (S.Korea) 285 Democratic Liberal Party (S.Korea) 285 Democratic Party (Indonesia) 306 Democratic Party of Japan 186, 213, 318, 329, 348 Democratic Party (S.Korea) 312 Democratic Party (Thailand) 331 Democratic Progressive Party (Taiwan) 285, 313, 320 Democratization consolidation 304 factors 287–91 Deng, Xiaoping 286, 291, 295 Developmental states 110–40 criticisms 114, 362–5 embedded autonomy 112, 123, 128, 366 financial control 113 in communist regimes 132–4 impact on business systems 218–19 justifications 113–4 repressed financial systems 190–6 restructured 124–9 six components 112–13 Southeast Asian 118–24 welfare state 252 Diamond, Larry on democratic consolidation 308 on significance of democracy in Asia 304–5

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Index Diet (Japan) 315 Diffuse reciprocity 64, 219 Disneyworld 138 ‘Dutch’ disease 119 East Asian Barometer 309 East Asian Economic Caucus 352 East Asian Summit 352–3 East Timor 31, 33, 149, 262, 305, 321, 372 Economic Planning Agency (Japan) 259 Eisenstadt, Shmuel on uniqueness of Japanese social organization 96–7 Employee Provident Fund (Malaysia) 255, 259–60, 267 Estrada, Joseph ‘Erap’ Ejercito 326 Export-oriented industrialization 130 Fair Trade Commission (Japan) 230 Family companies 220–2 Familial companies 222 Fiscal Investment and Loan Programme (Japan) 194, 203, 263 Financial sector 190–214 importance of bank credit 190–2 unimportance of stock markets 190–1 ‘Flying geese’ 341 Food and Agriculture Organization (FAO) 167 Foreign exchange reserves 130–2 Free trade agreements 344 Freedom House 304, 310, 321 Freedom of the press 324 Fukuzawa, Yukichi 94 Gang of Four 295 Geely 158 Gellner, Ernest on modernization and nationalism 35 Gender politics 321 General Motors 155 Globalization 243, 356–7

Governance in Pacific Asia.indb 415

415

Goh, Chok Tong 68 Golkar 282, 307 Gorbachev, Mikhail 299 Government Investment Corporation (Singapore) 239–40 Government Organized Non-Governmental Organizations (GONGO) 324 Grand National Party 311 Growth ‘triangles’ 344–5 Guanxi 63–5, 138, 219, 317 Guided democracy 278, 282–3, 308 Habibie, B. J. 88, 160, 287, 305 Haggard, Stephan 116 Hamilton, Alexander 110, 113 Hashimoto, Ryutaro 203 Hatoyama, Yukio 329 Heavy and Chemical Industry Corporation 156 Hitachi 229 Ho, Chi Minh 51, 294 Hofstede, Geert 57, 60, 72, 220 Honda 110, 126, 154 Hong Kong compared to Singapore 134–40 ‘utilitarianistic familism’ 51 Hong Kong Housing Authority 255 Hsinchu 232 Hu, Jintao on scientific development 297 Hu, Yaobang 286, 295, 297 Hukou 270 Hun Sen, Akeak Moha Sena Thapdey Decho 330 Huntington, Samuel on democratization 279, 284, 300 Hyundai 155, 157, 161, 227 Ikeda, Hayato 115 Import-Export Bank (China) 211 Independent Anti-Corruption Commission 138, 318

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416

Index Indonesia avoiding confrontation 62 banking 198–9 cooperative principle 88 corruption 307–8, 318 democratization 281–3, 286–7, 304–8 family principle (kekeluargaan) 54, 88 family state 283 functional groups 283 gotong royong 88 in-group (kenal) and out-group (tidak kenal) 56 ‘integralism’ 283 massacres in 1965 31 national integration 31–2 New Order regime 31, 121, 205, 283, 286, 304–5, 307 social importance of rice 168 Indonesian Communist Party 283 Indonesian Democratic Party (PDI) 283 Industrial Bank of Japan 193 Industrial policy 143–62 debates over scope and success 143–7 different types 152–3 Inequality farm size 171 social 120 Internal Security Act (Malaysia) 292 International Institute for Democracy and Electoral Assistance (IDEA) 307 International Labour Office 241 International Monetary Fund 128, 205, 208–9, 213, 284, 304 Internet 325–8 Islamic economic theory 90–3 Jakarta 306, 308, 326 Japan agricultural support 182–3 administrative guidance 110

Governance in Pacific Asia.indb 416

amakudari 127, 185 changes in family structure 74–5 civil society 324 construction 254–5 critique of Washington consensus 97–8 demographic challenge 264–5 familial ideology 52–3 financial system ‘bubble’ 196, 201–5 erosion of state leverage 195–6 main bank system 195, 202, 230 Postal Savings System 194, 203 state leverage 193–4 foreign trade 341–2 hybrid welfare type 253 in-group (uchi) and out-group (soto) 56 keigo 59 management ‘capitalism without capitalists’ 97 ‘companyism’ 228–30 keiretsu 228–30, 238, 248 lifetime employment 230, 243 nemawashi 62 ‘people-centred’ 97 zaibatsu 228 nationalism(s) and national homogeneity 37–9 nihonjinron literature 95–6 security treaty with US 345, 348 social importance of rice 169 welfare system 262–4 Japan Development Bank 193–4 ‘Japanese-style welfare society’ 258–9, 266 Jiang, Zemin 296 Johnson, Chalmers 110 Joy, Lina 94–5 Kaohsiung 285 Kaysone Phomvihane 294 Khmer Rouge genocide 37, 90 rule 89–90, 293

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Index Kia 155, 156 Kim, Il Sung 51, 85, 294 Kim, Jong Il 85, 294 Kim, Jong Un 294 Kim, Yong Sam 155, 285 Kōenkai 315 Koizumi, Junichiro 203 Korea, North economic reform 234 juche ideology 32, 85, 117 race-based ideology 74 Korea, South agricultural support 182, 183 corruption 318 Heavy and Chemical Industry programme 192, 227 ‘self-reliant economy’ 117 state ownership of banks 192–3 welfare system 264 Yushin Constitution 115, 122 Korean Development Institute 264 Krugman, Paul on deferred gratification in Asia 148, 151, 157 Kukje 227 Kuomintang (KMT) 231, 285, 313–14, 317, 320 Kwangju 290 Labour organizations 240–1 Laos agriculture 179 New Economic Mechanism 179 Lee, Kuan Yew 48, 68, 278, 318, 348 Lee, Myung Bak 218 LG 161 Liberal Democratic Party (Japan) 186, 213, 264, 312, 315–6, 318, 328–9 Liberal market capitalism 247 Lin, Justin Yifu 147 List, Friedrich 110, 113 Liu, Xiaobo 298 Lockheed 318 Long Term Credit Bank 193, 196

Governance in Pacific Asia.indb 417

417

Mahathir, Mohamad 38, 40, 68, 94, 122, 205, 278, 376 Mahbubani, Kishore 28, 376 Malaysia financial system 199–201 Islam 93–4 lack of sense of national community 40 New Economic Policy 199–201, 292 Malaysiakini 327 Manila 326 Mao Zedong 294 in Cultural Revolution 22, 82–5, 295 in Great Leap Forward 33, 81–2 Marcos, Ferdinand 122–4, 197, 284–5, 288–9, 324 Megawati Sukarnoputri, Diah Permata 306 Ministry of Agriculture, Fisheries and Food (MAFF) 166, 185–6 Ministry of Finance (Japan) 202–3 Ministry of International Trade and Industry (MITI) 110, 160, 230 Ministry of Post and Telecommunications (Japan) 160 Mishima, Yukio 94 Mitsubishi 156 Mitsui 229 Money politics 317–21 Multiple modernities alternative approaches to history 20–1 non-Western paths to modernity 11–12, 15, 79–81, 277–9, 356, 359–62, 372, 376 Myanmar Burmese road to socialism 32, 86–7 economic failings 124 history anti-secession conflict 30–1 legacy of WWII 28 significance to military rulers 23

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418

Index Nahdlatul Ulama 306 Nanjing Auto 158 National League for Democracy (Myanmar) 285, 311 National People’s Congress 297 Nationalism ‘civic’ 36 everyday 39 theories of 34–6 Ne Win 86 Network capitalism 219–20 Nippon Credit Bank 193 Nissan 110, 154, 245 Northeast Asia agriculture 172–3 Occidentalism 71 Opium Wars 27 Orientalism 71 Overseas Chinese companies 223, 233–4, 246 Ōzawa, Ichiro 318 Pacific Asia authoritarianism 280 complexity 4–5, 30 democratization 12–14, 280–7 demographic challenges 272–4 different types of families 71–2 economic development 5–11 economic structure 148–52 education spending 257–8 environmental 348–50, 373–4 GDP 117 gender relations 271–4 healthcare spending 257–8 history pre-colonial tributary relations 41–2 significance of 19–23, 353–5 traditional doctrines of rulers 24–5 importance of religion 73–4 importance of education 105–6

Governance in Pacific Asia.indb 418

management style individualism 57–8 power distance index 60 social rituals 67 nation-building 34–40 political culture gift-giving and corruption 65 importance of family 48–55 position of women 72 preference for consensus 60 social ritual 66 ability to trust others 70 problems of regional identity 351–5 regional organization 16–17 savings rates 369–72 size 2–4, 335–7 state-(re)building 30–4 urbanization rates 104 vehicle manufacture 153–9 welfare 14–15, 260–1 Pancasila 54, 282 Papua New Guinea Melanesian family 54 problems of democracy 329–30 Park, Chung Hee 115–16, 122, 147, 218, 226, 281, 285, 310 on lessons from Korean history 22 Patron-client relations 310, 315–7, 329, 331 People’s Action Party 293, 311 Perry, Matthew C., Commodore 27, 38 Pertamina 198 Philippines agricultural weaknesses 174 banking 197 closeness to US 29 democratization 284 ‘people power’ 284 primacy of family 54 Pol Pot (Saloth Sar) 294 Political parties functions 310–61 Prestowitz, Clyde 144 Priyai 281 Proton 156

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Index Ramo, Joshua Cooper 99 Regional integration 340–5 Regionalism 338–9 Regionalization 339, 355–7 Renault 155, 245 Renong 232 Reporters Without Borders 324 Rhee, Syngman 74, 281 Rice and identity 169 Roh, Moo Hyun 320 Roh, Tae Woo 285, 291 Rover 158 Samsung 155, 161, 227 Santri 281 Sanwa 229 Shanghai 12, 83, 157–8, 235, 269, 342 Shenzhen 235, 241 Shin, Kanemaru 318 Singapore Stock Exchange 239 Sihanouk, Prince Norodom 35 Singapore compared to Hong Kong 134–40 welfare system 267 Six-Party Talks 347 Smart mobs 326 Smith, Adam 110, 114, 219 Smith, Anthony D. on ‘primordial’ theories of nationalism 34–5 Social Insurance Fund 271 Sony 126 Southeast Asia agriculture 173–6 banking 197–9 conglomerates 232–4 environmental problems 349–50 history, significance of 22–3 social hierarchy 58–9 welfare arrangements 266–7 Sovereign Wealth Funds 239–40 Stalin, Joseph 294 State Assets-Supervision and Administration Commission (PRC) 134

Governance in Pacific Asia.indb 419

419

State Administration of Foreign Exchange (PRC) 239 Suharto, President 54–5, 121, 156, 160, 198, 218, 259, 282, 284, 286–7, 290–1, 305, 324, 326 corruption 32, 128, 308 style of rule 23 Sukarno, Kusno Sosrodihardjo 81, 121, 198, 278, 282, 284, 290, 300, 306 Sun, Yat-sen on threat from the West 27 Supply chains 341–2 Taiwan agricultural support 182 creating a national identity 40 family traditions 48–9 Nationalist claim to rule mainland China 33 small and medium-sized enterprises 230–2 state ownership of banks 192 Taiwan Relations Act 345 Tan, George 200 Tanaka, Kakuei 318 Tariffs 125–6 Temasek Holdings 240 Thai Rak Thai Party (Thailand) 312, 331 Thailand agricultural success 175 avoiding confrontation 62 banking 197–8 individualism 72 political conflict 76 sakdina principle 59 street confrontations 331 vote-buying 320–1 welfare system 266 Thaksin, Shinawatra 125, 218, 266, 312, 331 Theravada Buddhism 234 ‘Three represents’ 296 Three worlds of welfare 251–3

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420

Index Tiananmen Square 241, 286, 295 Tiang, Chirathivat 221 Tiau-a-ka 314–5, 320 Timor, East 31 Timor Leste Petroleum Fund 239 Tokyo Stock Exchange 202, 228 Toyota 110, 154, 157, 229, 245, 248 Transparency International 243 Union Solidarity and Development Party (Myanmar) 311 United Development Party (PPP) (Indonesia) 283, 307 United Malays National Organization (UMNO) 232, 292, 311, 312 US National Intelligence Council 375–6 US security relations with Pacific Asia 348, 357 Vietnam agriculture 179–80 doi moi 180 equitization of companies

Governance in Pacific Asia.indb 420

237

familial ideology 51 nationalism 43–4 hybrid Marxism 44 Volvo 158 Wade, Robert Hunter 110–11 Wang, Gungwu 34 Welfare and macroeconomic stimulus 253–5 Welfare societies 256–61 Wen, Jiabao 297 Wenzhou 237 World Bank 116, 121, 139, 147, 205, 210, 220, 244 World Economic Forum 243, 367 World Trade Organization 126, 133, 150, 210, 344 Yu, Keping on incremental democratization 298 Yudhoyono, Susilo Bambang 306 Zhao, Ziyang 286, 295–7

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