where are the southeast asian economies heading? · where are the southeast asian economies...
TRANSCRIPT
Where are the Southeast Asian Economies
Heading?
Presentation to Institute of Policy Studies, Colombo,
December 6, 2016
Hal Hill
Australian National University https://crawford.anu.edu.au/people/visitors/hal-hill
Outline
Southeast Asia in the global economy: overview and historical snapshots.
Is Southeast Asia on the rise economically?
The importance of ASEAN.
Good policy? The case of industry policy.
Risks and challenges.
Putting Southeast Asia in global context
The shifting global centre of gravity, economic, political, etc.
20th Century: The Atlantic Century
21st Century: The Asia-Pacific Century
The global economy’s centre of gravity, 1980 – 2049
The global economy’s centre of gravity, 1980 – 2049
Southeast Asian diversity:
Except for generally rapid growth and rising living standards, difficult to generalize!
06-Dec-16 9
2013
Population (in mil.)
GDP (PPP) in bil. USD
GDP/cap (PPP) in
thous. USD Ag. Sector
(%GDP)
Poverty (%
<$2/day) HDI
Freedom in the World Index
Transp. Int. Corruption Index (175 countries)
Doing Business
Index (189 countries)
Brunei 0.4 29 72 0.73 n/a 0.85 Not Free n/a 98
Cambodia 15 45 3.0 33.52 41.22 0.58 Not Free 156 137
Indonesia 245 2312 10 14.43 46.29 0.68 Partly Free 107 120
Lao PDR 6.5 32 4.8 26.51 61.98 0.57 Not Free 145 159
Malaysia 30 671 23 9.31 2.27 0.77 Partly Free 50 6
Myanmar 61 55 1.7 48.35 n/a 0.52 Not Free 156 182
Philippines 98 622 6.5 11.23 41.69 0.66 Partly Free 85 42
Singapore 5.3 412 79 0.03 n/a 0.90 Partly Free 7 1
Thailand 68 934 14 11.98 3.5 0.72 Not Free 85 18
Timor-Leste 1.2 2.4 2.1 18.42 71.03 0.50 Partly Free 133 172
Vietnam 89 460 5.3 18.38 12.43 0.64 Not Free 119 99
Sources: World Dev. Ind. & Worldw. Gov. Ind. (World Bank), Human Dev. Report (UN), ASEAN Stat. Yearbook, Freedom House
Digression: historical snapshots
Until 1940’s, Southeast Asia was ‘south of China, east of India’.
1. 1945: ‘hope’
Wartime devastation, but end of the colonial era in sight.
Indonesia (1945, 1949), Philippines (1946), …. Singapore (1963).
(East Timor, 2002)
Thailand never colonized, but …
2. 1965: ‘gloom’
“Southeast Asia in Turmoil”
Indo China War intensifying. ‘Dominoes’?
Pyongyang-Peking-Hanoi-Phnom Penh-Jakarta axis of ‘NEFO’s’
‘Konfrontasi’
Malaysia-Singapore separate.
Digression: historical snapshots
1995: ‘optimism’ (but …)
End of Cold War; Indo China countries rejoined the mainstream.
‘One Southeast Asia’, towards ASEAN10.
All 6 major economies growing strongly, for the first time.
2015: ‘pragmatism’ (end of ‘exceptionalism’?)
ASEAN Economic Community to commence (but …)
Some stars on the wane (temporarily?): Malaysia, Thailand and the ‘Middle Income Trap’.
Indonesia’s vibrant democracy (but …)
Stronger growth in the laggards, Burma/Myanmar, The Philippines.
Is Southeast Asia on the rise (economically)?
See slides:
Yes: (I) Comparative analyses.
Yes: (II) Rising incomes relative to the ‘frontier’ (proxied by US per capita income).
Yes: (III) Rapidly declining poverty incidence in most countries.
Yes: (IV) Improved social indicators, education, health, etc.
EG, life expectancy, 1970 to current:
Cambodia 40-66 years. Indonesia 53-72. Vietnam 48-77.
Yes: (V) Rising share of global trade, output and population.
How common is rapid sustained growth?
A relatively rare phenomenon – only 13/about 150
countries in last 100 years
China 1961-2010
Hong Kong 1960-1997
Indonesia 1966-1997
Japan 1950-1983
Korea 1960-2001
Malaysia 1967-1997
Singapore 1967-2002
Taiwan 1965-2002
Thailand 1960-1997
Botswana 1960-2009
Brazil 1950-1980
Malta 1963-1994
Oman 1960-1999
Source: Growth Commission Report
14
Incomes relative to the frontier
Poverty headcount ratio at $2 a day (PPP)
(% of population)
0
10
20
30
40
50
60
70
80
90
100
Lao PDR
Indonesia
Cambodia
Philippines
Vietnam
Thailand
Malaysia
Average Years of Total Schooling
0
2
4
6
8
10
12
1970 1990 2010
Cambodia Indonesia Lao People's Democratic Republic Malaysia Myanmar Philippines Singapore Thailand Viet Nam
0
1
2
3
4
5
6
7
8
9
101
95
0
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
GDP Share Export Share Population Share
But great diversity within Southeast Asia
1. Except for Singapore, not as dynamic as China, NIEs.
2. Around 1970, 3 unusual states: Singapore, Malaysia, Thailand:
‘Always open economies’. Prudent, cautious economic management.
3. Indonesia joined this group from the late 1960s.
4. Vietnam’s ‘Doi Moi’, from plan to market, beginning in the late 1980s.
Cambodia, Laos joined. (note the special case of Cambodia.)
5. Myanmar: ‘The Burmese Way to Socialism’ (and poverty!), 1962-
6. The Philippine puzzle. (a ‘normal’ country in any other region!)
(Digression: economists need to be humble. In the early development economics literature, both Myanmar and The Philippines were expected to be success stories!)
Long-term East Asian economic growth.
Ratio of GDP per capita, 2010/1961:
China 12.4
Korea 15.6
Singapore 12.4
Malaysia 7.9
Thailand 8.2
Indonesia 5.5
Vietnam 5.0
Philippines 2.1
What has Southeast Asia been good at, that other developing countries can learn from?
Illustrative examples:
(a) Managing export-oriented industrialization with FDI; participation in global production networks (S, M, T).
(b) Maintaining sound macroeconomic management (the ASEAN 3; also the Philippines in a complex political setting).
(c) Resilience and recovery from deep crises (I, M, T).
(d) Managing a sudden transition from authoritarian to democratic rule while maintaining growth (I, more recently P).
(e) Achieving rapid transition from plan to market (V).
(f) Achieving high growth after brutal conflict and genocide (C).
(g) Developing moderately effective, outward-looking regional cooperation and integration (ASEAN).
(h) Constructing the world’s best globally-integrated infrastructure (S).
(i) Managing commodity booms (I, M, earlier).
(j) Participating in global services trade; call centres (P).
What has Southeast Asia struggled with, found difficult?
Country illustrations, diversities. Some examples:
(a) Reforming education systems: from quantity to quality.
(b) Preparing for the rapid demographic transition, from Malthus to ZPG; being ‘old before rich’.
(c) ‘Picketty’: rising inequality.
(d)Transitioning from middle to high income, eg, Malaysia, Thailand.
(e) Developing high-quality institutions, including the legal system, the bureaucracy, independent checks on governments.
(f) Environmental management: is ‘grow first, clean up later’ still viable?
‘Yes’: high-quality environments a ‘luxury good’ for poor countries.
‘No’: environmental catastrophe beckons with fundamental changes.
Also, how to ‘manage the commons’ – forests, marine resources, etc.
(g) Developing independent business groups; are the leading business conglomerates ‘rent-seekers or real capitalists’?
The Importance of ASEAN
ASEAN, established in 1967, the most durable regional grouping in the developing world. cf, The Economist, ‘Mercosur, RIP’.
Similar origins to EU: after decades of ignorance, occasional hostilities, wanted to be good neighbours.
But also significant differences:
1. ASEAN didn’t want a ‘Brussels’; its member countries unwilling to cede much authority to the Jakarta Secretariat.
2. Great political diversity within ASEAN:
Only Indonesia and the Philippines reasonably functional democracies.
Same party/group in power for decades in Singapore, Malaysia, Vietnam, Laos, Cambodia, Myanmar, Brunei.
(Thailand at the other extreme – 19 constitutions – and counting – since 1932!)
Understanding ASEAN
3. ASEAN has practised ‘outward-looking regional economic integration’ (Hadi Soesastro).
Not possible to have a common external tariff, ie, preferential/discriminatory trade policy, so often ‘multilateralized’ its internal preferences.
Why?
a) Singapore, <1% of ASEAN population, dominates intra-ASEAN trade)
b) Unlike the EU, most ASEAN trade is extra-regional.
c) About half of intra-ASEAN trade is electronics/global production networks, which has to be free-trade (supported by the ITA/WTO).
See slides.
4. ASEAN won’t have a common currency for the foreseeable future.
It has learnt from the EU!
(see summary comparative table)
Intra-ASEAN Exports and Imports as a
Share of Total Exports and Imports,
1970-2011
0
5
10
15
20
25
30
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
5
10
15
20
25
30
Export Share (%) Import Share (%)
Sources: UNCTAD, 2009. Handbook of Statistics Online (1970-1989 data), and ARIC Integration Indicators Database
Major Intra-ASEAN Trade Flows (10 major flows in 2006, % of total intra-ASEAN Trade)
Exports to:
From:
Indo Malaysia Phils Sing Thai VN
Indonesia 4.8
Malaysia 13.2 4.5
Singapore 13.2 18.9 2.7 6.0 2.9
Thailand 3.5 4.5
Table: Indicators of Economic Integration
Indicator ASEAN EU NAFTA CER Mercosur
Free trade in goods part yes yes yes part
Free trade in
services
part yes part yes part
Capital mobility (FDI) part yes part yes part
Labour mobility no yes no yes no
Competition law
converging
no yes no yes no
Monetary union no yes no no no
Unified fiscal no part no no no
Good policy?
Southeast Asian case study: Policies for industrial progress, not industry policy.
(Drawing on some work with Dr Archanun Kohpaiboon, Thammasat University)
“We all know what to do, we just don't know how to get re-elected after we've done it. “
Jean Claude-Juncker, President of EU
Motivation
Can governments pick winners? Or do ‘losers’ pick governments?
Industry policy, defined as non-neutral inter-industry (and sometimes inter-firm) incentives is a contested field.
There is general agreement in the literature on factors that underpin rapid economic development.
The contestation centres on whether these general, economy-wide factors are sufficient, or whether in addition there is a role for sector-specific interventions.
Earlier literature on IS v/s EO, etc; largely settled.
Main debate now on whether there is a case for ‘smart’ industry policy in broadly open economies.
Theory provides little guidance.
The arguments for selective industry policy are well known– dynamic externalities; learning by doing; infant industry; extra-market linkages – but they are mainly conceptual.
The empirical evidence, even from the high-growth East Asian economies, is inconclusive. Correlations without causality, etc.
This approach is deductive and inferential, choosing cases of sectoral ‘success’, and the role – if any – of government policies, drawn from several high-growth Southeast Asian economies.
We choose successes since they are more elusive than failure. There are endless ways of getting things wrong!
We also highlight cases within countries of both success and failure, suggesting that an institutionally nuanced approach is necessary.
Contents
1. Motivation
2. The Thai Automotive Industry
3. Malaysian Higher Education
4. The Philippine BPO’s
5. Cambodian Garments
6. Conclusions and Lessons
The Thai Automotive Industry
Thailand has become the auto hub for ASEAN, with rapid growth, rising export orientation and industrial deepening.
A conventional beginning with import substitution: CBU imports banned, high and cascading tariffs on CKD’s, LCRM’s imposed.
Major changes in the global industry underway during the 1980s; rapid growth in emerging economies, many of which were entering into RTA’s. So auto majors needed to select major regional hubs. These had to be efficient, relatively open economies.
The Thai government response was pragmatic; it began to liberalize; did not pursue a national car project. In effect, it was the only feasible location for a SE Asian regional hub in the 1980s. Also, it invested heavily in the Eastern Seaboard, with excellent infrastructure and flourishing industrial zones. It also had a sizeable domestic market as a springboard, particularly in commercial vehicles).
The govt introduced several pragmatic, ‘market-conforming’ import substitution programs.
Started with one-ton diesel engine, when by late 1980s the local market had sufficient economies of scale. Moderate protection in exchange for export targets and rising LC ratios.
Then eco-car project (2007), similar approach.
Major policy features:
i) A consistently (relatively) liberal, stable trade and commercial environment. No national car project!
ii) Policy approach has been pragmatic, market-conforming, consultative. Also contestable market, picking projects, sectors, not individual firms. And always more than one firm involved.
iii) All decisions based on sound economic fundamentals. Avoided great technological leaps; economies of scale could be achieved.
iv) Consistently good timing in policy decision – design or good luck?
But also an incomplete industry policy strategy with high costs:
i) Human capital/skill constraints are becoming more serious, especially as the govt pushes firms into more sophisticated engineering & design tasks, and reflecting historic under-investment in advanced higher education.
ii) Weak local level skill base indicating limited FDI spillovers. Few local suppliers are able to connect to the MNE regional production networks, to meet demanding quality, design, technology standards. Also, few local suppliers have been able to graduate from the earlier LCRM’s, where standards not as demanding and competitive pressures not as strong.
iii) Trade policy: Industry protection remains high, especially for CBU’s, also with cascading tariff structures and hence some very high EPR’s. Thus auto exporters cross-subsidizing markets, to the detriment of Thai consumers, well beyond any plausible infant industry period.
Malaysia and the Internationalization of Higher Education
A country case of considerable success alongside one costly failure, hence the need for institutionally nuanced approaches.
Also the interesting sub-national (Penang) story.
Two major early successes (tropical cash crops, electronics/GPNs).
One major, very costly failure, in heavy industry, especially autos.
Higher education is one of the world’s fastest growing internationally traded services.
Malaysia, historically a state-dominated and rigidly controlled system with ethnic quotas; major sending country; very few foreign students c 1990, now over 100,000.
Now arguably the most successful developing country provider.
Explaining the success.
Pre-conditions: Earlier large investments in the public HE system; open economy and labour market; high standards of livability; a multi-cultural environment, including widespread use of English.
Major reform in 1996, deregulating entry, allowing private sector to establish full campuses, including several major foreign universities.
The government also established reasonably credible accreditation and quality control processes.
Internationally recognized standards and much lower costs resulted in very rapid increases in private students, both domestic and foreign. Though two-way traffic, Malaysian students still go abroad in large numbers.
Though no guarantee that this approach will lift the country’s rankings internationally. Need a different sets of policies for this objective.
Note also additional positive spillovers: (a) enhanced ‘soft power’ from many international graduates; (b) an indirect boost to tourism, etc; and (c) ameliorated non-Bumiputera discontent to some extent.
The Philippine BPO’s
The Philippines has a very mixed record with industry policy, mostly failures. But BPO’s have been a significant success story and, owing to the global technological telecoms revolution, this is a fast-growing, rapidly diversifying sector. The Philippines ranks #2 behind India. Employment now >700,000; negligible 20 years ago; 5% of GDP; annual exports about $12B. Creating ‘quality’ jobs, attractive pay and conditions, spatially footloose. Initially, foreign firms dominated, now increasing numbers of local firms. Seemingly ‘recession proof’, eg, in 2008-09 GFC, growth still strong. Now diversifying into more skill-intensive services.
Explaining the success? Virtually ‘accidental industry policy’. BPO’s were not a key policy target. Main drivers:
i) The global revolution in ICT created many new, internationally traded services through unpackaging.
ii) A comprehensive telecoms liberalization in the Philippines in the 1990s.
iii) A pre-existing Philippine comparative advantage in semi-skilled services, English proficiency, historical US orientation.
Government policy was also supportive, through the PEZA incentives package (which arguably as much about removing distortions anyway).
Why didn’t BPO success spill over to other, related sectors? EG, the GPN’s in electronics (also tourism)? Why does it succeed in an international service network (ie, BPO’s), but not a manufacturing one (GPN’s)?
(a) The minimum wage regulations negatively affect the latter but not the former.
(b) Goods trade is adversely affected by the country’s less efficient logistics and ports; not relevant for BPO’s.
Cambodia: Garments
Cases of success in spite of extremely unfavourable initial conditions, in practically every respect.
Established as a factory activity only in the mid 1990s, with little industrial antecedents, as a result of preferential market access to the EU and US under the MFA.
Resulted in rapid growth; now a significant garment exporter, ranked #12, ahead of more established exporters like Sri Lanka, Thailand, etc.
Now the country’s major merchandise export and manufacturing employer, with transformative labour market effects (employment of more than 400,000 in a non-agricultural workforce of about 3.5M)
Crucially, the growth was maintained after the abolition of the MFA in 2005.
Also, rising export market and product diversification. Moving beyond the early simple CMT model.
Also increased local employment in more skilled occupations.
And assisted in establishing a country ‘export reputation’, especially in footwear; now also increasingly in a range of other manufactures, some related to ‘Thailand +1’ risk diversification.
The key was building effectively on an initial market opportunity, through the adoption of a highly open, business-friendly environment; including establishing export zones compatible with MNE investor preferences, eg, along the Thai border.
Although some concern about the overuse of fiscal incentives.
Conclusions and Lessons
Important to take account of country characteristics and nuances. But several recurring themes, at least 6.
i) Importance of openness: All cases involved export-oriented goods and services, and FDI, technology, human capital flows.
Openness also imposed a discipline on firms, governments, rent-seeking.
ii) Government policies: These were important in various ways. Often, and probably most important, was deregulation, unshackling markets.
In some cases, governments did considerably more, eg, in Malaysia, providing a regulatory framework; in Thailand, pushing MNE’s to adopt the country as a regional export base.
iii) Country strengths, often deeply rooted: These present in most cases, from Angkor Wat to Malaysia’s cultural diversity and Philippine English-language proficiency.
iv) Good luck and timing: Most examples involved governments undertaking promotional/deregulation measures where timing was fortuitous. Or clever governments?
v) The effects of liberalization are difficult to predict: In very few cases did policy-makers (and academics) accurately predict outcomes, ex ante. This reflects the the dynamic benefits of openness, and also the presence in most of the countries of complementary, supportive policies. Crucially also, export success builds a constituency, so cases of backtracking are rare.
vi) Diverse outcomes within countries: There is surprising diversity of within-country outcomes, both over time, across sectors and sub-nationally. Articulating country ‘stylized facts’ therefore needs to take account of this diversity.
Risks?
1. Growing old before growing rich?
2. Another global financial crisis?
3. Inequality: rising or falling?
Demographic ageing 70% Japan 61% Korea 58% Singap.
42% China 41% Thailand 37% Vietnam 35% Sri Lanka
30% Indonesia 27% Myanmar 23% Malaysia 20% India 18% Laos 16% Philipp. 15% Pakistan 6% Timor
Rate in 2050
0%
10%
20%
30%
40%
50%
60%
70%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Population aged 65 and above as proportion of population 15-64
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Working age population as proportion of total
Japan United States Australia China-HK China-Macao Europe Avg.
Korea Mongolia China Singapore Thailand Vietnam Malaysia Myanmar Indonesia
Bhutan India Laos Bangladesh Nepal Cambodia Pakistan Philippines
Demographic dividend
Economic development
0
5,000
10,000
15,000
20,000
25,000
30,000
1950 1960 1970 1980 1990 2000 2010
Singapore Japan Korea Malaysia Thailand China Indonesia Vietnam, India Philippines
1989 Korea universal healthcare 1948 UK universal healthcare 1935 USA social security and welfare 1961 Japan universal pension and healthcare
GD
P p
er c
apit
a (1
99
0 P
PP
)
Ultra-Easy Monetary Policy in Response to GR
GR Fears of dot-com burst (2001) to oil price hike & hurricane Katrina (2005). Fear of “R”ecession (2007), Fed rate fell to 0%-0.25%
Comparable to 1933-40? Fed assets is $4.5 trillion, 5 X the end of 2007
Fed rates (%)
Fed Assets Size
Gross Capital Inflows: Selected Emerging Asia (US$ bill)
GR GR
50
The reversal in global inequality trend
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
30
35
40
45
50
55
60
65
70
75
80
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Pe
r ce
nts
(Gin
i)
Figure 1. Evolution of global inequality : 1910-2010 (various measures)
Historical series Recent period
Inco
me
ratio
Gini Coefficient
Top 10% to bottom 10% income
19891997
2006
1989
1997
2006
2010
2010
P90/P10 quantile ratio
B. Within country inequality : the recent increase in developed countries
51
-3 -2 -1 0 1 2 3 4 5 6
Spain
Ireland
France
Greece
Australia
Korea, Rep.
Denmark
Japan
Luxembourg
Belgium
Canada
Austria
Sweden
Netherlands
United States
Germany
Italy
Norway
United Kingdom
New Zealand
Portugal
Finland
Change in the Gini coefficient : mid 1980s to mid 2000s, developed countries
Percentage pointsSource: OECD Source: Oecd, disposable income per CU
Top (market) incomes in developed countries: a trend reversal
52 Source: Top incomes
0
5
10
15
20
25
30
35
40
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Pe
r ce
nts
Year
Share of top 5% income in total income: 1920-2009, selected developed countries
USA
UK
France
Sweden
Japan
Source: Top incomes
Inequality change in developing countries (excluding LAC)
53 -10 -8 -6 -4 -2 0 2 4 6 8 10
Kenya
Malaysia
Iran, Islamic Rep.
Algeria
Lesotho
Pakistan
Panama
Yemen, Rep.
South Africa
Moldova
Mongolia
Hungary
Madagascar
Slovak Republic
India rural
Tunisia
Morocco
India urban
Tajikistan
Vietnam
Mozambique
Slovenia
Indonesia
Philippines
Albania
China rural
Botswana
Ghana
Kyrgyz Republic
Poland
China urban
Change in the Gini coefficient : mid 1980s to mid 2000s,Other emerging and developing countries
Source: World Bank, Povcal