Geography 484

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• Geography 484
• Southeast Asia
• Jim Glassman
• Lecture 7a
• October 15, 2008

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Discussion question

• What should the states role in economic
  development be? (List what you consider to be
  legitimate state activities.)

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World Bank Office Memorandum, December 12, 1991

• Dirty industries. Just between you and me,
  shouldnt the World Bank be encouraging more
  migration of the dirty industries to the LDCs
  Less Developed Countries? I can think of three
  reasons

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• 1. The measurement of the costs of health
  impairing pollution depends on the foregone
  earnings from increased morbidity and mortality.
  From this point of view a given amount of health
  impairing pollution should be done in the country
  with the lowest cost, which will be the country
  with the lowest wages. I think the economic
  logic behind dumping a load of toxic waste in the
  lowest wage country is impeccable and we have to
  face up to that.

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• 2. The costs of pollution are likely to be
  non-linear as the initial increments of pollution
  probably have very low cost. Ive always thought
  that underpopulated countries in Africa are
  vastly under-polluted, their air quality is
  vastly inefficiently low compared to Los Angeles
  or Mexico City. Only the lamentable facts that
  so much pollution is generated by non-tradable
  industries (transport, electrical generation) and
  that the unit transport costs of solid waste are
  so high prevent world welfare enhancing trade in
  air pollution and waste.

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• 3. The demand for a clean environment for
  aesthetic and health reasons is likely to have
  very high income elasticity. The concern over an
  agent that causes a one in a million change in
  the odds of prostate cancer is obviously going to
  be much higher in a country where people survive
  to get prostate cancer than in a country where
  under 5 mortality is 200 per thousand. Also,
  much of the concern over industrial atmospheric
  discharge is about visibility impairing
  particulates. These discharges may have very
  little direct health impact. Clearly, trade in
  goods that embody aesthetic pollution concerns
  could be welfare enhancing. While production is
  mobile the consumption of pretty air is a
  non-tradable.

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• The problem with the arguments against all of
  these proposals for more pollution in LDCs
  (Intrinsic rights to certain goods, moral
  reasons, social concerns, lack of adequate
  markets, etc.) could be turned around and used
  more or less effectively against every proposal
  for liberalization.
• - Lawrence H. Summers

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The states role in NIC growth

• Neo-liberal theory market-led growth
• Neo-Weberian theory guided-market growth
• The Southeast Asian NICs as a unique case

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Neo-liberal analysis of Southeast Asian growth

• Free trade (EOI) regimes
• Getting the prices right

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Neo-Weberian analyses of Southeast Asian growth

• State intervention in markets
• subsidized credit
• export-promotion, discipline of capital
• Movement from ISI to EOI orientation
• Domestic rather than foreign-investment driven

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Southeast Asia as a unique case

• Less state intervention in markets?
• The World Bank view
• The Neo-Weberian view
• Southeast Asianist views
• Differing roles for the state
• Export promotion (e.g., tax incentives)
• Subsidies to capital (e.g., infrastructure)
• Repression of labor

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Southeast Asian growth

• Dependence on FDI
• Relative technological dependence
• Early growth based on natural resources
• Japanese investment after Plaza Accords, 1985

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Singapores industrial policy

• 1959 Singapore gains independence from Great
  Britain PAP-labor-student alliance
• 1960 UN Industrial Survey Mission (Winsemius)
  recommends ISI strategy
• 1961 Singaporean government adopts Winsemius
  recommendations
• 1963 Split between PAP and Left groups over
  entry into Malay Federation
• 1965 Singapore splits from Malay Federation

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Singapore(cont.)

• 1967 Great Britain announces closure of military
  bases in Singapore
• 1967-68 PAP implements EOI strategy, including
  lowering wages
• 1968-74 EOI strategy successfully pushes
  Singapore into electronics manufacturing
• 1974-75 Global recession hits Singapore economy
  hard
• 1975-78 Economic recovery with substantial
  foreign direct investment

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Singapore(cont.)

• 1978 Beginning of Second Industrial Revolution
  (higher wages tax breaks/subsidies)
• 1979-84 Second Industrial Revolution pushes
  economy into higher end manufacturing
• 1980s Strategic state investment in cutting edge
  industries
• 1984-85 Global recession causes contraction,
  highlights dependence on US market

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Singapore(cont.)

• 1985-90 Rethinking of development approach
  relaxing of wages, emphasis on services
• 1989 Development of growth triangle idea
  Johor-Singapore-Riau Islands
• 1991 Strategic Economic Plan emphasizes
  competitive advantage, strategic clustering
• 1990s Increased socio-economic inequality?
• 1997 Economic meltdown in Southeast Asia fails
  to affect Singapore

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Malaysias industrial policy

• 1957 Malaysia gains independence from Great
  Britain UMNO-led alliance
• 1958 Malaysian state promotes ISI with Pioneer
  Industries Ordinance
• 1957-70 Income disparities increase income of
  bottom 20 percent declines
• 1968 Malaysian state encourages shift to EOI
  with Investment Incentives Act
• 1969 Alliances electoral support slips ethnic
  clashes and UMNO palace coup

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Malaysia(cont.)

• 1970 New Economic Policy promotes Bumiputera
  ownership
• 1971 Free Trade Zone Act encourages investment
  in industrial estates
• 1975 Industrial Coordination Act enforces
  Bumiputera equity requirements
• 1975-79 Global recession and economic slowdown
• 1979 State loosens Bumiputera equity requirements

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Malaysia(cont.)

• 1981 HICOM formed to promote Bumiputera movement
  into heavy industry
• 1984-85 Global economic slowdown leads to
  privatization push
• 1986 State loosens Bumiputera equity
  requirements more Promotion of Investments Act
• 1970-90 Significant reductions in poverty and
  economic inequality

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Malaysia(cont.)

• 1990s State attempts to push into high tech
  industry worsening inequality
• 1997 Economic crisis affects Malaysian economy
  but state doesnt go to IMF
• 1998 Malaysian state implements international
  capital controls
• 1999-2000 Intensified struggle between UMNO and
  neo-liberal opposition

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