THE SOUTHEAST ASIAN CASE
By Ronald D. Palmer
|Economic Nationalist Strategy|
The 1945 to 1955 period encompasses the beginning of the Cold War, the first Indochina War and the Geneva Accords; the failure of Liberal Democracy in Indonesia and rise to dominance of Sukarno; the victory over the Communists by Britain and Commonwealth forces in Malaya, Singapore, Brunei and Borneo; the rise of Magsaysay in the Philippines and the beginning of the decline of parliamentary democracy in Burma.
The World Bank and the International Monetary Fund played key roles in outlining development concepts for the new Southeast Asian political economy in the first ten years after 1945. The Bank drew up sectoral programs for investment and, working with the Fund, promoted import-substitution strategies. Import substitution emphasized the role of the local state in mobilizing local capital and local élites to establish local industries to replace imported products. Alliances were made between holders of capital, often Chinese, and the local political élite to erect protectionist barriers to keep out competing products. The post-World War II political élites were typically members of the traditional patrimonial élite, so their political power was strengthened by economic wealth as economic growth began.
Typically, the Southeast Asian region consisted of closed economies in the prewar period and were oriented to colonial metropoles. Virtually only Singapore, an entrepot, had direct exposure to international trade. In the independence period, controls similar to prewar controls were continued on trade and financial flows. Employment-generating investments were high priorities for local governments, which pursued full employment goals. Fiscal and monetary policies were tailored to domestic needs. Welfare state regulations and initiatives were promulgated. Poverty was widespread. Education was limited.
Nevertheless, postwar governments, by and large, managed domestic change with relative success. Domestic interest groups tended to agree explicitly or tacitly to arrangements concerning the distribution of income and the organization of economies. Webs of commitments and patron-client payments to rent-seeking patrimonial authorities facilitated cooperative behavior. This promoted political stability and boosted the international credibility of individual states.
Inward-looking import-substitution policies, combined with strong emphasis on the public sector as the regulator of the private sector, promoted domestic stability. Governments intervened in trade, the financial system, prices, agriculture, manufacturing, and labor markets. Political nationalism was the driving force of economic nationalism. The goal of Southeast Asian governments was national development and national growth. Malaysia was a special case where the development of the Malay underclass was a high priority.
lsolation of the Southeast Asian Capital Market
Statistics for the 1950s are incomplete in the series maintained by the International Monetary Fund. However, it seems that GDP per capita in the region was about $50 in 1950. It appears that GDP doubled from 1950 to 1955 and increased again by about a third from 1955 to 1960. However, until the beginning of the 1960s, domestic financial markets tended to be protected from external competition by capital and exchange restrictions introduced to limit the destabilizing effects of short-term cross border flows of private capital. A 1967 OECD study noted that international capital transactions were still dominated by official government transactions outside the of financial markets. Transactions with international commercial banks had only slowly developed. Private sector finance was still dominated by traditional domestic banking activity and was subject to government controls. Security markets were narrow. Transactions by nonresidents rarely had an impact on domestic markets. Governments sought to minimize the risk of foreign exchange and international payments crises.
In summary, in the 1950s the region enjoyed U. S. war-related spending in the Korean conflict which drove up prices of strategic commodities such as tin and rubber. The wealthy politico-economic élite in Malaya, Singapore, Thailand, and Indonesia prospered greatly, but the masses fell behind. Malays were angered. Singapore was restive; there was twenty percent unemployment. The Thai and Indonesian communist parties grew rapidly in this period.
The United States sank deeper into involvement in Indochina. U. S. Cold War aid to the French in Indochina began in 1950 and mounted rapidly. By the time of the French defeat in 1954, the United States was paying ninety percent of the cost of the war. Hectic wartime prosperity resulted in Indochina, but deep political and economic dissatisfaction fueled communist appeal in Vietnam, Laos, and Cambodia.