Neoliberalism and Conflict in Asia after 9/11 0415375212, 0415568590, 9780415575210, 9780415568595

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Neoliberalism and Conflict in Asia after 9 11

Key events in Asia's recent history have included the end of the cold war, the Asian Economic Crisis, and the "war on terror." The essays in this book offer a critical assessment of these events, and of the interplay of security and economics in shaping political regimes and modifying market systems. Based on the notion that market systems are inherently political and conflictridden, this collection clarifies and explains the conflicts shaping the path of neoliberal globalization. Collectively it represents a disciplined and systematic address of four overarching questions: What are the significant conflicts emanating from neoliberal globalization, and what are their implications?

What are the implications of new security concerns for these conflicts , and what are their impacts? • flow are conflicts associated with globalization and security affecting

social and economic policy directions? l

Can these directions be reconciled with the reproduction of existing political regimes, or do they threaten their basis?

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in In addressing these questions, the essays depict neoliberal globalization the new security context as being able to accommodate a range of political regimes. This fascinating collection is a must-read for those with a professional interest in the region post-9/11.

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This book was previously published as a special issue of the journal Clerical Asian studies (1ssn 1467-2715). Visit wwwcbcasnet.com.

Garry Rodan is Director of the Asia Research Centre and Professor of Politics and International Studies at Murdoch University; Australia. Kevin I-Iewison is Director of the Carolina Asia Center and Professor in the Department of Asian Studies at the University of North Carolina, Chapel Hill. He is also a Research Associate of the Asia Research Centre, Murdoch University, Aus-

tralia.

Neoliberalism and Conflict in Asia after 9 11

Edited by

Garry Rodan and Kevin Hewison

Roudedge Tarot a Francs Group LONDON AND NEW YORK

First published 2066 by Routledge 2 Park Square, Milton Fork, Abingcion, Oxen, 0x14/ URN /

Simult:1.nc:o1.1sIy published. in the FSA Ami Canada by Routledge

2170 Maclison Ave, New Y1'I§, NY 1.0016 Routledge is an imfarizzf

of the

Taylor vements.'" But as i n other parts of the region, renewed nsilitary ties with the United States, and the latter's active part in combating rebel groups in the Phiiippincs, prornptcd widespread.

demonstrations by nzitionziiists concerned about the further erosion of Philippine sovexreigntyrf" Even Thailand is coming under pressure to align itseifwith 'U

policy

--- an outcome that is rendered more likely by the United States sug-

gesting Thai 'i`liaii:,md's desire for 21 bilateral free trade pact is dependent en security' c(i>.fiberai§§m and Conzfiid in Asia after 9/'T 1

has not only' been Anlerica's strategic. interventions that have unclerrnincd Asean autonomy and solidarity: as we have seen, the Asian financial crisis was a pivotal event that both undermines the credibility of the 'East Asia region's distinctive developmental strategies anal allowed exte rnal tbrces to exert powerful reformist pressures on the vulnerable countries of SoutheastAsia in particular. Second, individual Southeast .Asian nations will find it difficult to resist its. hegemony and the reformist pressures of the illlis, no matter how great the pressures ii-om "below" may be." However, in conjunction with the greater economic power and potential. political presence of' their larger Northeast Asian neighbors, they might. The ,Einanciai crisis and its aftermath dramatically' brought home to East Asia's ruling elites just how vulnerable they are to economic forces they cannot effectively control, anti political pressures they cannot easily resist. It is this recognition and the desire to defend the region against ptnverful processes associated with globalization that largely urtclerpins the development of the Asean. Plus 'l"l1.ree (APT) grouping, which in addition to the original Asian countries inclu desjapan, (Allina, and South Korea. While APT has not yet achieved much that is tangible, its capacity to establish a regional monetary regime to insulate itself from future crises and to provide greater policy autonomy for the governments of the region is indicative o f . widespread regional desire to mecliate external influences and control. the impact of global market lOresa The final point to make about the region-wide political initiatives of which die Southeast Asian nations are a part, therefore, that it is essentially 2. reactive process one that is driven by U.S. hegemony and globztlizatiort as much as it is by any exclusively indigenous dtmaniie" The fact that this process of regional political cooperation has gained most momentum. in the aftermath of the economic crisis is especially revealing. .And 'yet it is also important to recognize that its prospects are also likely to be constrained by external forces: the potential for autonomous, coordinated regional policy is limited by _Iapan's continuing

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subordination to the linitecl States, and Cllioals prcoccupaxioil with its successful integration into 3. global capitalist economy dominated by the United States." In short, Southeast A§iz1's prospects Romain largely contingent on the actions of these major pf;>we1's. This brief analysis of East Asian regionalism hats focused almost entirely on the :actions of states and the political elites that govern them. This is not an oversight. On. die contrary; in a region that is still associated with authoritarian rule and state-led development, it is a necessity: In much of East Asia civil society of any sort is still. relatively underdeveloped, let alone the sort ofglobazl civil society that some observers sec as a corollary of economic integration across national borders" Nevertheless, pressures are growing from below, pressures that are developing in opposition to .processes of globaliration generally and to ii .s. hegemony in particular. The dramatic impact of the financial crisis that culanimated in regime change in Irxdooesia. and 'I'hailzm.d rernincled local elites of the importance of at least paying lip service to the interests of the victims of

global structural adjustment.'"' Particularly strildolf, in Southeast Asia --- especally l'ollowi.11g the conflict in Iraq is how much political activism has been

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77

LLS. Hegemony and Southeast Asia

channeled into increasingly prominent Islamic movements, and how much resentznent is directed toward the United States. In Indonesia, for example, which is both the most strategically' important and most populous Muslim country in Southeast Asia, favorable opinions about America have dropped from 61 percent to 15 percent in the space of a year. The collapse in positive views of the United States is especially ironic because while civil society is not w e ] developed in parts of the region, democratic processes seem to be becoming more entrenched. Despite some formidable developmental problems, limited historical experience of plural politics, and a growing preoccupation with security issues, democracy; or "serni-de1nocracy,"9" is establishing itself in precisely the way many hoped it would. In such circum»

stances, the United States ought to be well placed to benefit from the consolidation of global processes that some observers consider uniquely favor it and re nforce its preeminence." And yet II .S. policies are having precisely the opposite effect, generating both antipathy toward the United States and a radical form of Islam that may make the consolidation of democracy more difficult. Particularly in Malaysia and Indonesia, radical Islamists frequently conflate II.s. lbreign policy and what are regarded as undesirable "Western" influences in ways that can only undermine U influence." But if t.I.s. hegemony is to be sustained and ef~ fective it must legitimate the prevailing economic, political, and strategic ideological order. Failure to do this in much of Southeast Asia (and in Iraq, for that matter) will show the limits of Ame1*ica's influence and possibly of its longevity at least in the form it has primarily assumed at the center of the postwar international order.

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Concluding Remarks U.S. power and attitudes toward it have undergone signilieant change. The nature of U.S. hegemony has changed from the highly institutionalized multilateral order associated with globalization and the intcvration of political and economic activities, to unc that is more unilateral and reliant on "hard" military

power rather than

ideological power." More straightforwardly, we might

say that U.S. power is becoming less consensual and more coercive. As we have

seen, however, not only is the application of more daect, coercive power not guaranteed of success and frequently widely resented, but it necessarily engel ders higher "transaction costs." The great advantage of the old order was that it provided clear payoffs for allies and client states; indeed, the rise of East Asia cannot be understood without reference to the positive if generally unforeseen and uneven impact of U1S. hegemony94 Although Southeast .Asia's political elites still support continuing U.S. military engagement in the wider East .Asian region,95 there is a growing recognition that U policies may actually inhibit regional cooperation and development.'XI The emerging, more critical.,

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elite-level attitude toward U.s. power is mirrored and encouraged at a mass level, especially under the Bush administrations aggressive and frequently unilateral foreign policy In such circumstances, as Eareed Zalraria observes, it is entirely possible that "anti-Arnericanisrn will become the global language of protest the unilizing the world's malcontents."'"' default ideology of opposition

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Neoffberafism and Conflict in Asia a£ter 9/'i F

73

The economic devastation wrought by the financial crisis of }.997;'98., the widely resented U.S.-led reform e§orLs that followed in its WaltE and the more recent efforts to curb radical Islam have all server to engender hostility toward the United States in. Southeast Asia. And yet even in indtynesizt, this resentment has been contained and has not led to a rupture in relations. On the contrary there are emerging parallels between the war on terror anti the cold war as Amer:ica's preoccupation with security issues generally and the war on terror i n particular reinforces the position of .regional militaries and authoritarian Ecaders. Such an outcome highlights enduring tensions within U.S. foreign poilqg which rhetorically champions democracy and political libetal.ization, while multaneously' creating the conditions in which their development is constrained. Southeast Asia.ls long-standing tra¢.litio11s of' authoritarian rule when combined with the relative fragility of their economic recoveries, make them n

specially vulnerable to political bacicsliding. Given the underdeveloped nature of civil society in Southeast Asia it is an open question whether political liberal-

ization can be sustained in the face of'domestic tensions and externat prcssu res . Yet the answer to this question is likely to shape Southeast Asia's domestic and inter-regional relations in the lbreseeable ligature.

Notes I would like to thank CAS editors 'Ism Pennon and Patricia Abinales for very con-

'.I'hco.ries

struetive comments on earlier versions of this paper. The usual caveats apply. Iv H. Dsutciler and James M. '[,ind.sz1*5r, America UNbound: The Bush Revolution in Foreign Priliqy (\`fl72ls11ingtt>n, DPI.: Brookings Institution, 2005). and 2. Michael Mastanduno, "I*reserving the Unipolar Moment: Realist

us Grand Strategy aiicr the Cold War," International Security 2 I, i n . 4 (1997) :

4.

49-S8. iFO1' an of-rv*iew of these issues in an East Asian context, see Garry Roman, "'1`heot°ising Political Opposition in East and Southeast Asia," in Political Opposaitfons in hzdustricllising Asia, Cd. (I-zarryt Rodin (London: Routlecige 1996), 1-59. Mark Bison, "The I Initcd States and SoutheastAsia: Change and Continuityin American l~Iegemony," in and Charge .Regional Governance, CCL Kanishka .layastrriyzt (London: Routledge, 2004), 213-29.

5

See, respectively; john .I Mearshcimerr, Y?¢e Fagedy of Great Power ,Politics (New York; VCIW Norton, 2001), and Robert

Cox. Producfiorz, Power and

World Order; Social Forces in the Making ofIIis!'r1ry (N ew York; Columbia I.Ini» 6. 7,

verity Press, 1987). Robert Laihanx, The Liberal! Moment; Mfodernityg .S`ecutitjy, and the Making o f Poséwmr'li~zrerncn!'iona£ Order (New York; columbia University Press, 1997). Mzurk Bison and Mark T. Berger, "The Paradoxes of Paramountqf: Regional Rivairies and the Dynamics ofAnlel'ican Hegemony in Fast Asia," Glo1':=ul Change, Peace and .S`c4cut'il_'y 15, no. 1 (2008): 27-42. Latham, The Liberal Moment.

8.9.

Ilcenberqg Acker .VicI'ory: Instfiutivns, Strategic Restraint, and the Rebufidifzg by" Order quaker Major Wars (Princeton: Prineenon University Press, (B.

2001) . 10. Mark Bison "East Asia, the International Financial. Institutions and Regional Regulatory Reform: A Review of the Issues,"_IourmzI of the Asia: Pacglic .Econ-

omy 8, no. 5 (2005): 505-26.

U.S. Hegemony and Southeast Asia

7g

See, for example, Leonard). Schoppa, Bargaining witbjapazn: WbatAmerican Pressure CYan and Cannot Do (New York: Columbia University Press, 1997). 12, Sec also Richard Higgotfs contribution to this collection: "Alter Neoliberal in,

Giobalivationz The 'Securitization ofU.S. Foreign Economic Policy in Asia." 15. Nagarie WOods, "()rder, Globalization, and Inequality in World Politics," in Inequality, Globalisaafion and World Politics, Cd. A. llurrell and N- Woods (.Ox» ford: Ozdord University Press, 1999): 8-55. 1.4. For an overview of the evolution and .role of the Bretton Woods institutions, see Barry iiichengrcen :md Peter B. Kenon, "Managing the World Economy under the Bretton Worlds System; .An Overview," in Managing the World Economy*Wy Years after Brenton Woods, ed. PB. Kenco (Washington, D.(I.: f nstituto for International Economics, 1994), 5-57. 15. Barry Buzan and Richard Little, "Beyond Westphalia? Capitalism after the 'Fall,'" Review orflnternational Studies, Special Issue (1999): 89-104. 16. Joseph Stieglitz, Globczlzizatiou c d Its Discontents (New York; WW Norton,

2002) .

o_ftbeAsian

17. See Richard Robison et al., cos., Politics and Markets in the Wake Qf the Asian Crisis (London: Routledge, 2000). 18. See Stephan 1-Iaggard, The Political Economy of the Asian Financial Crisis (Washington, I).C.: Institute for International Economics, 2000) . 19. Robert Wade, "The Asian Debt and Development Crisis of 1.997% Causes and Consequences," World Development 26, no- 8 (1998): 1535-55. 20. Richard Higgott, "The Asian Economic Crisis; A Study in the Politics of Resentment," New Polilica!Economy 5, no. 5 (1998): 535-56. 21. Paul Hutchcroft, "Neither Dynamo Nor Domino; Reforms and Crisis in the Phi1~ Economic Crisis, ed. 'i`.j. ippine Political Economy," in The Politics Impel (Ithaca: Cornell University Press), 163-83. 22. Mark Bison, "Indonesia, the East Asian Crisis, and the Commodification of the Nation-State," New Political Economy 3, no. 3 (1998): 557-74. 23. Don Greenless, "Lenders Press a Rcluctantjakarta for Reform," flbeAuslrolian , 21 January 2003, 8. "IMF Policies 'Generic 'li'ash,'" BIiCNe-ws, on-line version, 15 August 2 i. H 25. Marianne Kearney, "Mega Pressured to Cut IMF Ties," The Straits Time.; Interactive, 9 August 2002. 26. Sian Powell, "Indonesia to Cut the IMF Cord," TbeAustra!ian, 50_]uly2005, 50. 27. Stieglitz, Globalization and Its Discontents. 28.

Smitha Francis, "Indonesia's Battle of'Will with the ME" IDEAS, 2005, available

on-line at www.networkideas.orgfthemes/capital/feb2005/print,'prnt25(}2()3._ Indonesiahtm.

29. Fidelito Ahmad, "Farmers (Iondemn Globalization," Tbejazkarra Post, on-line version, 27 February 2005. 50. Stephan Haggard, "Politics, Institutions and Gloha.lizati.on: The .Aftermath of the Asian Financial Crisis," American Asian Review 19, 110. 2. (2001); `7'.L 51. A'An Suryana, "Low Reforms, Failed Democraqg" Ilbejalearta. Post, '7 October 2008, on-line version, available at www. thejakartapost.com/Archives/Archives

I)t)t2.a5p?'1*lil¢-III)=20050950.@OF .

52. Sian Powell, "'lizrrorism Expert Flies Out of

The A.z¢s£ralian, 7 June

21.105, 11. Greg Feely, "Islam in Southeast Asia- Domestic Pietism, Diplomacy and Secu1°itY, in (Lbntemporary Southeast Asia: Regional Ilvnamics, National Dfgrer-

ences, ed. Mark Bison (i-loundsmillsz Palgrave, 2004), 136-55. 54. Kevin liewison, "Resi:~.=ling Globalization; A Study of Local ism in Thailand," The Pad/20 Review 13, no. 2 (2000): 292.

Neoliberaiism and Conflict in Asia after 9/11

80

as

Jonathan Iloplher, ""t'haiiand's Tztinlcss' IMF Pullout," Asia Times, 20 September 2005, available on-line at www atimes.coin/atimes/'printN.html. 6. Walden Bello, "The Re-emergence of Balance of Power Politics," Bangkok Post, on-line version, 15 February 2005. 2," Rodin, 'Theorising Political Opposition," 1-59; Joseph A. Czitnilifsri, States, / Markets and Civil Society in Ada PQCWC (Cheltenham: Edward. Elgar, 2000) ; r

n

Dzwitl .Martin_llone5, "I)emoc1°utjzation, Civil Society, and Illiberal Middle Class (:ul.ttlre in Pacific Asia," Conzpczraiive .Politics 50, no. 2 (1998): 14?-69.

58. Nancy' Birdsall and Stephan Haggard, .After £1113 Crisis: Time Social

Cfantroct and the Middle Class in ,Ec4sz'A.s'iia (Washington, D.C3.: (Iarncgie Endowment for lnternattiooal. Peace, 2000) . See Kamshka I tvasurxva Southed 1st Asttt i mbeddccl Merctflntilasm m Crisis . 59

International Strategies and Domestic Coalitions," in.No1z-Traditional .S'ecf,¢rizv

Lvsu-es in .S'outhe.czstAsicz, Cd. A. Tam anclj. Boutin (Singapore: Select Publishing, 2001), 26-55; Iitcl Solingen, "Southeast Asia in a. New Era: .Domestic Coztlitions from €Inlsis to Recover" Adm; Survey 44, no. 2 (2004): 189-212. 40. See Paul D. I-lu ttzlacroft, Booty Cajlritali.slm: ?7)9 Politics otliankaing in the Philz}3'Ji1»tes (Ithaca: Cornell Univcrzsity Press, 1998) .

41. Elaine Ramos, "Ascan Backs RP (Ball for Slower I.iberalizalion," .Mamie Siandczrd, on-line version, 16 Apd 2063. For an interesting G-ramscian.-inspired remading of Malaysian development, k john Hill-ey; .Male¢ysiu, .Maba ri9irism, I-Ie,genzon_1,' and the New Ojyaosétion (London: Zed Books, 2001). 45. Ian Stewart, "Mzihanhir Sees Asia's Woes as Western Plot," The Australian, 15 October 1999, 1.3.

4

_;I

Mark Bison. "Mahathir and the Markets Globalization and the Pursuit of Eco-

nomic: Au economy' in Malaysia," Pacy¥r;'01101800.

html. 2. . Andrew Metcalfe, "Rationale for APEC's Row: in €`.ourlter-tcrmrism Activityg"

2008, on-line at www.df;1t.gov;au.f'apc~c/business_forumf?(1025,'abE _1netcalfe.

html.. 0_

U.S. State Deparlmcnt, "Senior APEC Official Links Security Economics," 8 Qc-

tobcr 2000, online at usinfo.stale.gov,itopical,'c:eonfm[c,»'021()0S02.htrn. is.. We Hconomisig 25 October 2002. 52. U.S. Embwisy, "U.S. Pushes Trade I.iberaliz:1tiox1. Via APEC, Other Forums," 22

October 2002, on-line at iapan.usembassjv:gov,iwwwheco2002102E'>ai html. .loan Sperm, "Remzwks Lu American Chamber of Commerce, Manila," 21 .November 1996, on-line at asia.govfrcgional/eajapec/sperm112.hLn1. _lane Kg lsey. An M EC Primer " on lute as spec gen-nv/APh("l-Pn Hun Cited in Bill Rosenberg, "Foreign Ixwcstment and APEC," paper presemzed at

§`>(1

the Abram "»\ltel'nativcs to the APEC Agenda," Knox Hall, Christchurch, 24 April. 1999, online at apeegcn.n;;fiForeign_.htm. Ibid.

APEC, Globalization, and 9/i i

99

57. Sum, "The NIls and East Asian Regionalism," 225. Sec Walden Bello, Dark Victory: Gibe United States, .S'tructz4roIAdjuszment and Glofacdl Poverty (London: Pluto Press, 1994); Michel Chossudovsky; The Globalisaztion o_,f`f-'overty .Impacts ofIMl*` and World Bernie Refwwzs (London: Zed Books, 1998); Eric '1Oussaint, Your Money or }?):r4:r Life! The Iiwznny of Gfobai*

_

Hrzarzce (London: Pluto Press, 1999) 39. Hedi Soesastro, "ASEAN and APEC: Do viiew 8, no. 5 (1995): 483.

(Joncentric

Circles Work?" Pacific' Ke-

40. See Walden Bello and Stephanie Rosenfeld, Dragons in Distiwess: Asia'sMirac[e

Economies in Crisis (San Francisco: Institute for Food and Development Poliqg 1990) . 41. II. Nesuradai, '2\PEC: A Tool for US Regional Domination?" Hzczjic Review 9, no. 1 (1996)= 51. 42. Richard Higgott and Nicola Philips, "Challenging Triumphalism and Convergence; The Limits of Global Libel-alisation in Asia and Latin America,"Review of International Studies 26, no. 5 (July 2000): 368. 45. As argued by Sung-Hoon Park, "Open Regionalism of APEC: Concepts, Recent Developments and Options for the 'runty-Hrs: Ccnturyg" paper presented at the CSGR Third Annual Conference, University of Warwick, 16-18 September

1999. 44. john McKay, arse; Successes, Weaknesses and Future Prospects," Souitbeost .Asian Affairs, 2002 (Singapore: ISEAS, 2002), 42-55. 45. H. Nesuradai, "Globalisation and Economic Regionaiisrn: A Survey and Critique of the Literature," university of Warwick, Centre for the Study of Globali-

sation and Regionalisation, Working Paper; no. 108/02 (November 2002)-_ 34. 46. John Kurt Jacobsen, 'Are All Politics Domestic? Perspectives on the Integration of Comparative Politics and International Relations Theories," Comparative Politics 29, no. 1 (1996): 94-95. 47. Michael Wesley, "APl€C's Mid-Life Crisis? The Rise and Fall of Early Voluntary Sectoral Liberalisation," Pacific Affairs 74, no. 2 (2001). 48. .Mark Bison, "Globalization, Governance and the Political-Economy of Public / no. 4 (October 2001): 495. Policy Reform in East Asia," Governance 14,

International Capital, Singapore's State Companies, and Security

@ARRY RQLQAN

'HE 1997-98 ASIAN ECONOMIC CRISIS generated g,1'eate1' apprehension and op-

position to neoliberal globalization in much of last and Southeast Asia than previously existed. In Singapore, though, there were ellbtts to increase integration with global markets and widen the exposu re of domestic markets to com.petitiire pressures. This was in spite of the city-statc's worst recession (in ZUU1) since loclependence and the devastating economic e f f e c t s of d1c Severe Acute respiratory Syndrome (SARS) (luring 2605. Indeetl, such difficulties only bolstcrccl the conviction of the ruling Feoplc's Action Pa.rt"j/ {PAP) government that economic Iiberaliration and deregulation need to play a part in the restructurlog.; of the city'-state economy: Yet a more comprehensive* engagement with glolnalization and greater accommodation to a neoliberal reform agenda brin. with them an assortment of domestic political challenges and tensions. One such set of claallenges and tensions relates to the impact on the workforce and associated social COl1S(*~ queues. Already in evidence are problems such as mounting structural unem-

ployment and widening differentials in income and wealth, problems likely to be exacerbated by' accelerated accommodations to external economic pres~ sores. .Among other consequences, the inadequacy of social insurance and other redistributive m.ecl1a.:oi.s1*ris in Singapore is being exposer and even com*1

potlndetl The long-stariding social contract between the government and its citizens, founded of! fell employment and 21 teasotla.bl*y equitable distribution of rewards and social services is uncle serious strain, and its .replacement has yet to emerge Meanwhile, another set of challenges an ii tensions is surfacing, involving elements of international capital that arc attempting to extcocl the governor cut's neoliberal reform agenda.. Although domestic capital has complained for de-

cades about being "crowded out" by the vast and powerful array of government-litiketi-companies (GL(Js} in the domestic econo.m'y -- ranging from utilities pro'p1'nle2zl' 56, no . (2002): 5. N. (.`hanclhoke, "Goverrmancfuz and Pl*Lz1'z;lisaI.ion of iliac: State: Iszwplictsations for

Democratic Practices inAsis.," paper prescntfcci at the International Conference Fm fiovernancc in Asia: Culture, Ethnic, Institu tonal Reform, and Policy Change, élite UNiversity; of Hong Kong, 5-7 December, 2802, 18. 14. Bangkok Post, 2 October 2003. 165. K.. jayasun-iya, "Globa.lizaLion, l.;nv, and the Transformation of Sovcxx-:i.g1at'y: The Emergence of Global Rcgulzxtorgr Governance," Indfrzncajozertzaf o f G!obal Le-

galSludies 6, no. 2 (spring 1999)~ 425-55; K._]ayasuri8fa, "Globalization and the C1ha.ngi.ng Archiiecfurcz of the State: Rcguiatory State and the Politics of Negativc Coordination,"journal oflfuropean Public Policy 8, no. 1. (2001): 101»25;

K. _}jasun°iya, 'fAuthoritari2an 1,ibera§.ism, (8}overnanc:ming paper in IAecgnuiisrn and Rejbrwzisrrz in Sozranéeast Asia;Tbe Ylbreat and Promise o/'New Politics, ed. E.-I.. Headman and j.' l l.`. Sibel (New Haven; "aide University Soullzcast Asia Studies Monograph Series, 2004) .

52. TRI' Parqg (n.d.}, "Thai Rank Thai Pau-qr Policy." Available pines where the boundaries between society and state are particulariy vague. 19. Reid, .Philippine L , and F).\Y/urfcl, Filipino Politics; Development and Decay (Ithaca and Loncton: Cornell l.Inive1"sity Pl'ess, 1988) . 20. W Bello, The Future in the Balance: Essays on Giobalisation and Resistance (Quezon Citjt: University of the Philippines Fress, 2002). 21. Republic of the Philippines, "I987 Constitution," ciusd in M.L `Wui and G.S. Lopez, cos., Vol. 2, .S`ta:!e,"(,'izril Society .Relations in Policy-A/faking, ,P`bili]2~pine Defnocracqy Agenda (Quezon City: Third World Studies Center, 1997) . 122. T. R.. George in ()rgarnisingJfr.u' lleniocrciqf: NGOs, Civil .Society and :fae f*'bilz'p-

ipcl.ph/pub/'polbriel72.002,/'may/carp14.shtm1.

O.}"

pine State, ed. G.S. Silliman :my LG. Noble (Quczori. City: Atenco do Manila University Press, 1998), 2235-55, and K. Constantine-David, 'fAn Ovcrvievv," in Six Years in fie trospecrf, 1.-'?. 225. Author interview with R. Reyes, executive director of Piirtncrship for Agrarian Relbrm and Ikvclupmcnt Services, Z 1 .jar1uar3r 2003. 24. S.M. Barras or., "CARP in Its I~loLu1c:eiltl1 Year," Prifizicazf .I3r.iej'i1zg (ZULIZ) www

25. CJ. Soli ran, "The State of lkvclopincnt Initiatives in the Pllilippi.n.cs," in Trarisitifms and Changing Contexts, Cd.. S .R .Dcriquito

(Quezon (lily: (Zan cut of Ngress." (in. the basis of four variables that influence the costs of economic transactions the costs of measuring, the size of the market, the possibility of enforcement, and ideological attitucics 'North has developed dares ideal types of economic organization.. In situations of' per~ sofa exchange, where business is based on siraalbscalc production and local trade, transaction costs tend to be low The costs of production in this type of economic o.r5J,21ni;zation tend to be high, because specialization and division of labor play only 8 marginal role. The second ideal type, impersonal exchange

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Political Regimes and Development Assistance

205

without third party enforcement, can be found in trading at traditional bazaars and production through serfdom and slavery In such circumstances, transaction costs tend to be high and the advantages deriving from trade are limited. Only the third form of organization, impersonal exchange with third party enforcement, is conducive to sustained economic grovnh, according to North. in such a situation, significant benefits will result from economic specialization.. Because of the ectistencc of a third party that is capable of enforcing obligations, economic agents can enter into longterm transactions--such as investment without needing to won~y about the security of their possessions. North has cautioned against too much optimism about institutions and against teleological arguments about economic progress. In his view; the economic success of the West is the exception rather than the rule: "economic history bears abundant testimony to economic growth being the exception.T)** Institutions, in North's conception, are highiypatb dependent, which implies that existing institutional frameworks are resistant to change because of the entrenched interests of certain social and economic girou ps. This means that cou n~

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tries that have a history of less efficient institutional structures cannot hope for sudden improvements in their institutional make-up. North has argued that it is difficult to derive recommendations for developing and transition countries from the new institutional economics. Despite his caution, North has claimed that "adaptive efficiency" is a more relevant obiective for developing economies than "allocative efficiency." Institutions need to adjust to changing circumstances and need to contribute to efficient economic processes under new conditions. This requirement has a significance that is broader than just the allocation of the means of production: 'Allocative eiificiency is a static concept with a given set of institutions; the key to continuing good economic performance is a tlcxible institutional matrix that will adjust in the context of evolving technological and demographic changes as well as shocks to the system."" In addition, North has argued that political institutions can only be stable when they are supported by soda! organizations that have an interest in their continued existence; an essential element ofpoliticaheconomic transformation

the creation of such social organizations. The lesson that can be learned from Western history; according to North, concerns the centrality of the rule of law'r and the safeguarding of' civil' liberties and political rights: "While economic growth can occur in the short run with autocratic regimes, long-run economic growth entails the development of the rule of law and the protection of civil and political freedonts.$915 is

In conclusion, it may be argued that the new institutional economics has added nuances to the neoclassical, equilibrium-oriented understanding ofmarkets, but that markets have nevertheless remaineci central elements in the explanation of development and growth. As was shown above, the argument of new institutional economists such as Douglass North still hinges on the devel-

opment of' an efficient allocative mechanism and a pmductivc division of labor. The new institutionalist economists assume, however, that markets will not develop spontaneously and that institutional mechanisms are necessary for the

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good functioning of markets. The stare as an enforcement mechanism cafpropei-ty rights and contractual obligations is instrumental to all this. The good governance agenda that has cone into being feeds into the broader neoliberal agenda according to which the creation of good and efficient markets is a primary condition for economic progress. The proper functioning of markets would, in its turn, depend on the institutional context that allows markets to work and that contributes to the maintenance of property rights and the rule of law and to contract enibrcement. j.

1

Good Governance, Development Assistance and Selectivity

The end of the twentieth century saw an important change in the discourse on development assistance. The instrumentality of aid

- according to which aid

was either a means to fill a capital gap or a mechanism for the redistribution of wealth -- was increasingly questioned. Part of the explanation for this can be found, according to Thorbecke, in Me growing skepticism about aid conditionalityt 16 A first element fusing the skepticism was the apparent inability of donor governments to "buy" policy change, because of the frangibility of aid.. A second.

victor behind the skepticism, mentioned by Doornbos, was the unfeasibility of monitoring the implementation of such conditionalities in at great number of' countries and. sectors.l" The discussion about the effectiveness of conditionalities led into a wider debate about the effectiveness of development :issistzince genc:1°ally."' This debate derived from the awareness that decades of development resistance had not led to the erad.ication of poverty" in. fact, there are indications that the number of . ,

J

--

--

people who are living in extreme poverty i.e.. :it less than IS 'I a day has increased. since the late 19s0s.2" In the late 1990s, two WOrld Bank reports, which

both focused on the effectiveness of development assistance, gave new impetus to the discussion about aid effectiveness, and made a connection between aid and good governance. The two reports --Aid, Policies and (»rowirb (1997) and changed. the aid agenda by ztrguing that development Assesdng Aid (1998) assistance is cllCctive only in aid-receiving developing countries that possess

-

good institutions and/or implement good pol.icies.2' Both features were taken

as signs of the existence of

governance in developing countries. The .1

Yliirltl Bank studies ccmtendcd that it simply does not pay to give aid to count tries with bad governance . The Assessing Aid report explicitly laid the foundations for 8 move toward selectivitv in developnztent assistance: 'l"ht: development stratclg emerging from this view is two-prongcd

-- put

in place growth-enhancing, market-oriented policies (stable mac1ro-economic environment, effective laws/ and order, trzule liheralizzttion, and so on) and ensure the provision of important public services that cannot be well and. equitably supplied by private markets (irlfrastrilcttxre services and education, for instance). Developing countries with sound policies

and. high-quality public institutions have grown much faster than those

-

without 2.7 percent compared with -0. 5 percent per capita. Put simply, failures in poliqtmaking, institution building, and the provision of public

207

Political Regimes and Development Assistance

services have been more severe constraints on development than capital markets....The key recommendation from these findings is not that finance should go only to welbmanaged countries. Rather, we recommend that aid be allocated on the basis of poverty and economic management. Among countries with similar poverty levels but different policy regimes, more finance should go to the countries with better manaement82

Both Aide; Policies and Growth, by C. Burnside and D. Dollar, and Assessing Aid made their assessment of the effectiveness of aid on the basis of an index that was used as the operationalization of the quality of governance. Burnside and Dollar constructed a "policy index," using budget surplus, inflation level, and trade openness as indicators. These World Bank staff members found that the level of aid received, when interacted with the policy index, has a positive impact on economic grovsnh in a sample of fifty-six countries for which data on six four-year periods from 1970 through 1.995 were available. In Assessing Aid, the World Bank constructed an "index of economic management," which was computed as a weighted sum of the inflation rate, budget surplus, trade openness, and a measure of institutional quality; which was calculated with indicators on the bureaucracy; corruption, the rule of law, the risk of expropriation, nationalization, and contract repudiation, The World Bank report found, similar to Burnside and Dollar's study, that aid has a positive effect on economic growth when it is given in. the context of good economic management." 'the conclusion of this section can thus be that the good governance agenda th at was under way since the early 19905 got a new impetus with the attention to the effectiveness of conditionalities and of development assistance, more generally. The late 1990s witnessed a paradigm shift as the move toward greater aid selectiveness was backed up by empirical findings Strom World Bank research. In the approach developed and propagated in Aid, Policies and Growth the concern Igor good governance, understood. in terms of the quality of institutions, was maned with an emphasis on good policies. Good policies in the World Bank context were defined in terms of the qualities that, earlier, were dominant

elements of the market-oriented Washington consensus, such as trade openness and fiscal and monetary discipline.

4. Good Governance and Aid: Case Studies I. if. The International Development Association

and Performance-Based Allocation The credo of the International Development Association (IDA), which is often described as the World Bzmk°s "soft-lending window" for the world's least developcd countries, is summed up as follows at the IDA website Research shows that aid is most effective in spurring growth and poverty reduction in countries that have a strong commitment to reforms. IDA leads all development institutions in directing its assistance to »

countries that pursue poverty-reducing policies. mA employs a performance-based allocation system to channel its resources to countries that are undertaking reforms. Through targeted allocations, effective

Neofiheraiésni and Confiici in Asia after 9/?7

208

leveraging of resources, and. country~bascd strategies, IDA is helping the poorest countries participate in the world economy, and promoting equity and. inclusive growth for their poorest citizens." Starting in 1977, the IDA has based its allocation of filncis on a so-called performance-based allocation system. PerfOrm once has gradually become understood as "a borrowers implementation of sound policies and institu tonal arrangements conducive to sustainable CC€).\'].{)1'11iC growth and. poverty reduction within a framework of good governance, as well as effective im.plcmenta~ son of its portfolio of ongoing IDA operations."E1 The main instnnnents in. the

performance-based allocation in echanism. used by IDA are the (:o'Llntry Policy and Institutional. Assessment (CPIA) index and the related "governance faet()r 9326

All III)A-eligible borrowers (currently eighty-one) receive an initial. performance rating on the (IPIA indc>:.2' To e scores on the (EPIA ind ex are a composite of scores on twenty items (each .ranging from t to 6) in lout categories, given. by a country team of World Bank staff under the guidance of the central (IPEA. rnanageiH on the basis of 811 assessment questionnaire." The twenty items are given in Table I (p. 598) . Among ds twenty' items are six criteria that time IDA considers to be particu-

iarly relevant br iuclging governance; these are items 4 and 16 to 20 in 'table an The choice of criteria reliects a predominantly technocratic approach to governance in World Bank circles." Apart from being part of the (EPIA and the ensuing rating of' countries, the governance items me singled out and combined into a "governance factor." The governance factor is calculated on. the basis of the following formula, where an average score of 2.5 cm the six governance criteria is seen as the ctitoiif betitveeo an 'uitsatisfactory anti a satisfactory §;ove.rt1art.ce rating: governance etctor = (average rating on governance items:'5.5}1.T`8. /

The governance /actor is multiplied with the initial country performance rating, so that a country that scores above 5.5 on the governance criteria will receivc a premium and a country that scores below 5.5 will receive Zi discount. The potential impact of governance assessment is gauged as "severe" by i1E1:'i v¢G*ighta=€f) .

.

..

.

.

.... .. .... .. ......... ....... ..... ............. ................................................................ .. .......................................... ... .... ........ .. ..... ..... ....

Performance

@quintile [EI'5i` :

.

Number tip

Average

Average

ifuuntries

railing

aéiacatiw *

'E3

4_1 7

12.0

12

3.4-8

0.3

2.i39

5.8

Swcunii ThI§d

I

! i I

For rlih

18

FiI'lh

'i 2

Trial

63

.. .. ... . . . ... . .. . ..

i

5 .4 ?.II]

2.4

~2,§2

. . . .. . . .. .. . .. . .. . .. . .. . . .. . . .. . . . .. . . . .. . .. . .. . . . . . .. . .. . .. . . . . .. .. . . . .. . .. . . .. . .. . .. . .. .. . .. . .. . .. . .. . .. . . . .. .

bliaiiifl Fi rsiéf/

i IiE;h quéntiln*

* Average allocation

.. .. .. . . . .. .. .. .. .. .. . . .. . .. .. . .. . .. . .. . .. . . . . . .. . .. . . .. .. . .. . .. . .. . .. . . . .. . . . . . . .

in US$ p6=r capita pe=r yféar.

peztee so that .Sttierieans can travel, study, and do business, and produces al*

lies. t tkewtse Steven Radelet former tlepotv 21SS1St8l]TI see; etarv of the Treasury in the Bush. :s.dmioistr:a.tion, locates foreign aid and, more specifically; the [Millennium Challenge Aeeoo it among the tools of if foreign and security policy is According to USAID, the: basis for giving U .S. development assistance shouI.d shift "from conditionality to selectivity" and, thus, award countries with good policies and institutions: "A better approach is to dispense ald selectively to reward and deepen and thus preserve and consolidate reforms that a country has already begun to implement according to its own design. "'" G-ood governance is perceived, by' USAID, to be a corzditio sine qua non br development assistance, as "|.t11o amount ofresourees trzinsferred or infrsstnaeture built can compensate for -- or survive* - had governance."*' At the same time, it is elezu'

---

-

that good governance is not deliined. as something that is relevant to the public

sector only USAID ezftplicitlv' links time nature of the political system to the fonetioning of the .private sector and stresses the centtttiity of the protection of property rights:

the prospects for clevelopnient and. for effective development assistance, depend on the quality of governance

--- thc: way" in which public power is

exercised and public resources are managed and expended. Poorly perforrning states those mired in poverty and illiteracy for cleezrcles will not achieve sustainable development unless they dr'..imatieziI.1y' improve governance. Only wfaen the rule f I.4¢aw efz5r,.¢1"es frrcaperzy rights c d low Eawnsactiofz costs will domestic capita! Zee in vested p roducrizfely and interrzatfona! capitalfouf airs. But corruption and weak rule of Law will persist rrrrtii voters have time power to remove governments that fail to per-

form - politically as well as ecrmomicaile' [emphasis added ] Sound econornie poircres " winch relate re i SAID s view to good cover rance, have to do with the funetionirig oi'rlati.olia1 markets, as w e ] 85 with the integration of developing countries in the world economy through trade :iris investmertt." Referring to the captions of two figures presented Br USAID,

Political Regimes and Development Assistance

211

"greater freedom means greater integration with global markets" and "marl»;ct integrators grow faster. The Millennium Challenge Account is based on the principle of aid. selectivity; as it intends to support countries that are good performers in terns of "governing justly, investing in people, and encouraging economic freedom..1:44 in order to select developing countries that pedbrm well 011. the three criteria, a new government corporation, referred to 8 S the Millennium Challenge Corporation, will rate developing countries on sixteen indicators. The indicators, categories and sources of data are summed up in Table 5 (p, 601) . Under the Millennium Challenge Account, developing countries will qualilif for support if their per capita income is below a certain minimum and if they do well in all three categories mentioned in 'table 3. Perlbrmance is measured as scoring above the median on at least halfofthe indicators in all three categories. In addition to this, countries are required to score above the median on the corruption indicator (number 6 in category I) in order to be selected. During the first years of the Millennium Challenge Account, only countries with an income below the historical IDA cutofflevel of ill ,455 per capita will be eligible for tilml~ ing; in addition, in 2004, this group will be limited to the developing countries that are eligible to borrow from the IDA. As of 2006, all countries with incomes up to the lower middle-income level (32,975 per capita) will also qualify for competition for Millennium Challenge .Account funds. Separate competitions are envisaged br countries with an income below the IDA cut-off level and countries with a higher income. The final list of countries that would be recommended to the U.S. president for inclusion in the Millennium Challenge Account would be based on the above-mentioned criteria, plus additional considerations related to "data gaps, lags, trends, or other material information, including leadership, related to economic growth and poverty' reduction."*? Recently, iiadclet has analyzed which countries would qu alifit for funding under the Millennium Challenge Account given its criteria of grxxl governance, social policies, and economic freedom .'*** These countries are presented in Table 4 (below).

4.3. The Netherlands and the Selection of Seventeen Structural Partner Countries The change to aid selectivity has not been limited to donors that have explicitly associated themselves with the 'Washington consensus, such as the World Bank's soft-lending window lDA, or the United States. The experience of the Netherlands since 1998 shows that selectivity has gained currency also among the bilateral donor countries that have traditionally been considered as ideologically committed defenders of development assistance. The Dutch government that was headed by l a b o r Party leader aim Koch dccicled, in August 1998, that structural bilateral development assistance would be concentrated, and that Dutch aid would no longer flow to more than one hundred developing countries. Under the influence of the international discussion about good governance, it was agreed that bilateral, ".government-to~government" aid would be allocated to those developing countries that qu alify on

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Table 3: Selection Criteria in the Millennium Challenge Account .

. .. . .. . . .. . .. . .. . .. . .. . . .. .. . .. . .. . .... .. .. . .. . .. . .. .. . .. . . . .. . .. . .. . .. . .. . .. . .. . .. . .. . . .. . .. ............ . . .

ii.

.. . . .. . . . .. . .

... .. . .

.........................

. .. . . . .. . .. . .. . .. . .. . .. . . . .. . .. . .. . . . . . . .. .. .. ... .. . ... .. . .. . .. . .. . . . .

.. . .. . . . . . .. . . . .. . .

Gnverningjustly

I

Civil liberties (Freedom House)

Poiiiécal rights ifreeéom Hou5@}

Q 5.

Voice and accountability (W