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By Ronald D. Palmer

Part III

Growing Complexity
During 1955-1965, Southeast Asia's economic and political development grew more complex. It is useful to recall though that in 1957 there were no holders of economics doctorates in Malaysia, Vietnam, Laos, Thailand or Cambodia. There were two in Singapore, two in lndonesia and a few in the Philippines.

Economic nationalism based on import-substitution continued as the basic economic strategy in the 1955-1975 period and the Philippines, Malaya (Malaysia in 1963), and Thailand grew rapidly. The U. S. commodity import programs in South Vietnam, Laos, and Cambodia brought artificial prosperity to the élites of those endangered dominoes. Meanwhile, Indonesia suffered the mounting inflation and declining productivity of Sukarno's hypernationalistic Guided Democracy era (1957-1965).

Japan followed up its large 1950s reparations payments in the region by offshore investments to service local consumer markets. Matsushita set up its first plant in Malaysia outside Kuala Lumpur in 1959. The United States had strenuously urged Japan to take a leading role in Southeast Asia in the 195Os, but by 1960 Japan had invested only about $100 million in the region. By comparison, U. S. investment was over one billion dollars in 1960. However, Japanese investment in Southeast Asia grew massively in the1960s.

Driven by immense U. S. Vietnam War-related spending in the 1965-1975 period and increasing Japanese economic activities, the Southeast Asian region boomed. Moreover, Thailand, Malaysia, Singapore, Indonesia, and the Philippines adopted export-oriented development strategies.

Nevertheless, this was a politically desperate period for these countries. The 1950-1973 dictatorship of the Thai military ended in violent 1973 student demonstrations.
Malaysian trickle-down economics favoring Chinese economic interests were inadequate to satisfy Malay resentments and violent Malay-initiated riots occurred in Kuala Lumpur in 1969 in which hundreds of Chinese and Malays lost their lives. State intervention in favor of Malays was instituted in 1971 by the New Economic Policy. Such methods included affirmative action, quotas, and any form of positive discrimination deemed necessary. Mahathir was a leader of the movement to improve the status of Malays. He was considered an ultra-nationalist and had been ousted from the leading Malay party in 1969. Rehabilitated politically in 1971, Mahathir soon was clearly the heir-apparent to national power, becoming deputy prime minister in 1976 and prime minister in 1981. His avowed and unwavering goal has been the unrelenting promotion of Malay interests to enable Malays to compete with Chinese in all fields of activity, including business.

The Malaysian development concept is that there can be no economic development without political stability and there can be no political stability if there is inadequate Malay participation in the economy. Fortunately, oil production came on stream in the 1970s and supported wide-ranging income redistribution goals. Malaysia began pumping 600,000 barrels a day and made initial investments in natural gas production.

Singapore was ejected from Malaysia in 1965 and faced an apparently bleak future. Brilliant politico-economic leadership by Lee Kuan Yew avoided that fate. Singapore needed housing badly and had twenty percent unemployment. The government began building public housing financed by its Central Provident Fund (more or less Social Security) and that has remained a salient source of its political legitimacy to the present. Presently eighty percent or so of the Singapore population lives in government-supplied housing.

Singapore is a Chinese island in a Malay sea and economic growth and development were deemed essential for its security. The Singapore Government led a vigorous drive to achieve economic security and by 1975 had achieved seven percent annual growth.

Indonesia in 1965 went through the horror of the Year of Living Dangerously. After Sukarno relinquished his power to General Suharto in 1967, the new leader's first priorities were slowing down runaway inflation, reducing government spending, and increasing productivity. He was aided in these efforts by a cohort of US-trained economists who became collectively known as the Berkeley Mafia. They cooperated closely with the World Bank in instituting market-favoring policies. Recovery was so strong that Suharto was able to win convincingly his first electoral victory in 1970 and commence his "New Order" of Pantjasila Democracy. Suharto's legitimacy arose from his ability to promote economic development and a rising standard of living.

President Marcos of the
Philippines declared martial law in 1972 and began a determined effort to replace the traditional élite with his own cronies. As the Marcos "kleptocracy" grew, his regime increasingly lost legitimacy.



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