Free market alternatives


November 27, 2016

Here is something I wrote in The Phnom Penh Post in 1996, which may still be of interest. Of course, Cambodia has come a long way, having achieved average GDP of over 7 per cent p.a. over the last 20 years. It is enjoying peace and security, thanks to the strong leadership of Prime Minister Samdech Techo Hun Sen.–Din Merican

Logo of Phnom Penh Post newspaper

Free market alternatives

The Editor,

I read Mr Matthew Grainger’s balanced and interesting report on the recent CDRI International Roundtable on Structural Adjustment Programme in Cambodia (January 26, 1996). I also read Dr Walden Bello’s paper titled “Economic Liberalization in Southeast Asia: Lessons for Cambodia”, and Dr K.P. Kannan’s paper, “Economic Reform, Structural Adjustment and Development: Issues and Implications”.

Dr Bello of Chulalongkorn University’s Social Research Institute in Thailand and Dr Kannan, CDRIs research director, are reminding policy makers in Cambodia that there is an alternative paradigm for Cambodian economic development to the standard IMF/IBRD prescription of market economics.

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The trickle-down theory is attractive in concept, but it has limited relevance in the real world due to market imperfections. Government intervention, as a result, is necessary to ensure equity and development without degradation of the environment.

Growth and equity are two sides of the same coin. For that reason, real GDP growth, in my view, is alone not a good indicator, if we ignore the distributional or equity and environmental aspects of development. One has to look at Thailand and Malaysia to realize that this obsession with GDP growth rates among policy makers results in serious socio-economic imbalances with long-term political consequences.

Malaysia’s realization of this problem is now incorporated in its Second Outline Perspective Plan 1991-2000. Even as of yesterday (Feb 13), Malaysia’s Deputy Prime Minister Dato Seri Anwar Ibrahim was reported to have said that in the next Malaysia Plan, our seventh, the social and related aspects of development will receive greater attention. After nearly 40 years of economic management, Malaysia’s decision to evaluate its strategies and adopt new approaches to achieve more balanced development supports Dr. Bello’s call “to articulate an alternative future” and “to ponder carefully the consequences of fast track capitalism…”

We must remind ourselves what development is all about. Here I would quote Dr Kannan:

“In terms of development, the ultimate objective is that of human development and reducing inequities as between people and regions.”

I am, of course, reminded of great development economists of the sixties like Sir Arthur Lewis, Gunnar Myrdal, Jan Tinbergen and Ragnar Nurkse and my mentors in economics, Clifton Wharton Jr., and Ungku Abdul Aziz (Malaysia), who studied the processes of development and underdevelopment with a socio-cultural perspective.

Development is about bringing about systematic change, and providing meaning to the lives of people so that they have opportunities to progress as far as their abilities can take them. It is about ensuring that scarce resources are used responsibly so that succeeding generations can build on the efforts and achievements of their forebears.

It is about institutions, culture and people. It does not exist in a vacuum, certainly not in econometric models, computer simulations, scenario planning systems or in the air-conditioned offices of the World Bank, IMF and the ADB. Most of all, development is about responsibility and accountability for all stakeholders, not a power game.

Image result for cambodia kingdom of wonder

Because it is a grassroots process and culture bound, development must be driven by nationals, in the case of Cambodia by Cambodians, with a shared vision, not by experts who have no stake and who do not have to live with the consequences of their prescriptions. This is not to discount the contributions made by the international community, donor countries and multilateral agencies. But it does emphasize that the granting of technical and financial assistance does not confer on the provider the right to impose their own values, preferences and way of life, or to dictate what is best for the beneficiary.

Cambodian leaders know what they want for their country. They have a clear vision of their country’s future as reflected in their National Programme (NPRD) and this is more than what can be said about some countries in the Third World. They have a strategic purpose which is to create a fair, just and peaceful society and, through strong sustainable economic growth, to raise the living standards for all Cambodians.

Cambodia is committed to a democratic system of government with a Constitutional Monarchy, and free market economic system with the private sector as the engine of growth and government in the role of strategist and manager-mentor.

Cambodia is adopting a state-directed economic growth strategy. This approach accepts the price mechanism, and the market in general, as an efficient allocator of resources. It also taps the dynamism of the private sector, but recognizes that government activism is essential in the area of national strategy in a competitive and interdependent world and to tame the excesses of the profit motive and ensure that economic growth is sustainable, balanced and equitable in the long term.

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Their development will be on the back of agriculture which is today the step child of most economies in East Asia. It may not be the “sexy thing” to do, but Cambodia is making its first wise move. Modern agriculture backed by advances in bio-technology, efficient water resource management systems, and strong marketing and distribution networks is a profitable undertaking.

Since the private sector is going to be given a prominent role in the development of the Kingdom, the World Bank and other multilateral agencies should finance a master plan study on small and medium scale industries and businesses and recommend policies and strategies for developing this sector. In many countries in East Asia, this sector is the driver of economic activity with the greatest potential for growth.

It is more refreshing to talk about development than other issues, usually negative ones, about Cambodia. The country has done well since the formation of the Royal Government. The tasks and challenges ahead are daunting. Cambodia needs the understanding and the patient support and cooperation of friends. Credit when it is due should be given. Criticisms, on the other hand, should be constructive.

For democracy to survive in Cambodia, economic development is essential. I have not known of any situation in the world where democracy exists side by side with abject poverty, unemployment, illiteracy and social inequities.

I stand, therefore, to be educated by anyone who has had the privilege of seeing democracy in a symbiotic relationship with the aforementioned phenomena.

I hope your readers – especially those in the IMF, World Bank, ADB and UNDP here in Phnom Penh – will respond with their comments on my letter. If that happens, my purpose in writing this letter as a sort of rejoinder to the Cambodian development debate is well served.

Image result for Din Merican

Din Merican 2016

– Din Merican, Phnom Penh. (Din Merican is an economist with an MBA degree from the United States, who worked for more than 30 years in the Central Bank in Malaysia and in the private banking industry. This letter represents his personal views.)

5 thoughts on “Free market alternatives

  1. Yes, indeed, development must have a human face. If there is no social achievement or social equity, what good is economic growth?

  2. It is not so simple that the answer to failures of free market is govt intervention. Fundamentally, Adam Smith is still right that free market is still the best mechanism of change. The problem with govt intervention is that it fails even more often than free market, that lesson is still valid. So if reverting back to govt intervention, unless there is an answer to its failure is, reactionary and simplistic.

    Even if tech, bio or otherwise can make advances to agriculture, it does not mean it will bring upward mobility to the small farmers. The benefits accrue to the large industrial agriculture that ultimately the small farmers cannot compete. If small farmers are to benefit, then they must be the workers of the tech itself, using their labour in tech to actually benefit their farm rather than just the consumer of the tech. That govt cannot do, that too difficult even for the most altruistic innovators to deliver.

    On the other hand, if self-driving cars can deliver urban weekend tourist who do not want to drive a few hours to their rural backyard, the farmer can provide the best getaway experience to urban customers, then that farmer will be able to self-lift himself.

    If policy makers understand such complex dynamics and get the prediction right, its possible govt intervention can make leap-frog changes BUT its a leap of public service abilties NO GOVT IN THE WORLD CAN DO.

    Ultimately the idea that the best govt can do is protection of private properties and rights, providing basic public services efficiently is probably correct. The dependent masses can only uplift themselves by empowering themselves with skills and participation as quickly as they can to latest and large macro trends.

  3. In all kinds of political systems there are winners and losers. The powers are in the hands of the government of the day to provide that balance in society. Help only those who need help.

  4. There can never be any viable lasting alternative as long as the world’s GDP is be held hostage to the US Dollar.

    Human factors matter -crucially the degree at which the needs and wants are achieved or satisfied -livimg happy lives,as a result of QUALITY political,social,econmic and cultural developments and achievements,meaning Quality GDP as a measure of goods, services and happiness.( QGDP= G+S+H).

    But the countries world over,including Cambodia,must first free themselves from the ENSLAVEMENT* of the US Dollar in order to find the free democracy alternatives that can provide sustainability in quality happy living.

    *which is often played out under the guise of Empowerment of freedom, in trades, forex or otherwise.

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