Approaches to the Politics of Economic Growth in Southeast Asia

8/12/2019 Approaches to the Politics of Economic Growth in Southeast Asia

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Approaches to the Politics of Economic Growth in Southeast AsiaAuthor(s): Richard F. DonerSource: The Journal of Asian Studies, Vol. 50, No. 4 (Nov., 1991), pp. 818-849Published by: Association for Asian StudiesStable URL: http://www.jstor.org/stable/2058543.

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pproaches t o t h P o l i t i c so conomic r o w t h

n Southeast s i aRICHARD F. DONER

I. IntroductionTHE PACIFICRIM'S RECORD of impressiveeconomicgrowth over the past twentyyears is now well known. While most obvious in Japan, this expansion has beenstriking in the East Asian Newly IndustrializedCountries (NICs): Singapore, HongKong, South Korea, and Taiwan. But it has also occurred to varying degrees infour of the original membersof the Association of Southeast Asian Nations (ASEAN):Indonesia, Malaysia, the Philippines, and Thailand.' In addition to increases in

overall output, each of these four economies has achieved a considerabledegree ofrestructuringin favorof manufacturingand away from commodity production sincethe 1970s (e.g., Lee and Naya 1988:S134).Among those who have tried to explain this process, neoclassical economistshave attributed growth in the East Asian NICs and in SoutheastAsia to governmentsuccessat getting the pricesright, at letting freemarket-basedpricesignalsdeterminethe most efficient allocation of resourcesfor national economic growth (e.g., James,Naya, and Meier 1989; Noland 1990). To this end, policymakers have allegedlypromoted relatively open economies, avoided the provision of more incentives tosome industries than to others, and generally limited the government's economicrole.But recent studies of economic growth, especially in the East Asian NICs, havesuggested limits to the explanatoryusefulnessof neoclassicalviews. Some have assertedthat economic success in the NICs results from governments providing selectiveincentives and getting the prices wrong, i.e., deliberately engineering pricedistortions to create comparative advantage where none existed before (e.g., Wade

RichardF. Doner is AssistantProfessor f PoliticalScienceat EmoryUniversity.An earlierversionof thisarticlewaspresented t a conference n SoutheastAsianStudiesand the Socialand HumanSciencesat the WingspreadConferenceCenter,July 22, 1990,sponsoredby the Joint Social Science ResearchCouncil/AmericanCouncil of LearnedSocietiesCommitteeon SoutheastAsia. I wish to thankAlasdairBowie,Don Crone,DavidFeeny,Anek Laothamatas,NathanielLeff, LindaLim, Ansil Ramsay,Danny Unger, andMarthaWinnacker or helpfulcomments.'Singapore as the fifthoriginalASEANmember.Brunei,whichhassincejoinedASEAN,will not be treatedhere. In this article, SoutheastAsia will refer o Indonesia,Malaysia,the Philippines,and Thailand.

The ournalofAsian Studies 0, no. 4 (November1991):818-849.?C1991 by the Association or AsianStudies,Inc.818

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POLITICS OF ECONOMIC GROWTH IN SOUTHEAST ASIA 8191988a; Bradford 1987; Amsden 1989:ch. 6). Others, while acknowledging thateconomic growth requiresmarket-conformingpolicies, emphasize the need to explainwhy and how such policies have been implemented in certain countries and timeperiods, but not in others (Haggard 1990; Wong 1990:418; Myhrman 1989).Work on the roots of economic expansion by scholars studying East Asia, aswell as Latin America and Africa, has contributed to the study of political economy,an emerging subfield within political science whose broad focus is the ways in whichpolitics influences aspects of economic policymaking, and economic interests andoutcomes influence political processes and outcomes. My emphasis in this article ison political economy as the study of the institutional bases of economic growth.But my overall concern is the unfortunate gap between Southeast Asian studies andpolitical economy more broadly defined.

The mutual influence of politics and economicshas certainlybeen part of SoutheastAsian studies (e.g., Furnivall 1944; Boeke 1961; Geertz 1963; and Anderson 1977).But with the notable exception of the debate over moral versusmarket-based peasantbehavior (Popkin 1979; Scott 1976), work by Southeast Asianists has not beeninformed by the theoretical concerns of political economy. This weakness has notgone unnoticed. In the mid- 1980s, remarking on the Latin American origins ofwork on dependency and corporatism, Clark Neher, for example, contrasted thelack of systematic, coherent Southeast Asian scholarshipand the paucity of lastingtheoretical breakthroughs with the innovative perspectives on the study of Latinsocieties that have transformed social science analyses of 'Third World' nations(1984:130). Similarly, Richard Higgot and Richard Robison have found it ironicthat while the levels of capitalist development in Asia are certainly higher thanthose in Africa, the level of analysis of these respective rates of development arereversed (1985:49).This article will explore the ways scholars of Southeast Asia are now beginningto make importantcontributionsto the field of political economy. Southeast Asianistshave continued the areastudies traditionof confrontingtheoristswith the singular,the anomalies that compel theoretical examination (Johnson 1975). The case ofIndonesia, for example, has been used to show the problems of simple strong-weakstate dichotomies (Emmerson 1990) as well as the ways the implementation ofneoclassical economic policies involves political culture, ideology, and coalitionalpolitics (Liddle 1989).Southeast Asia's combination of diversity in sociopolitical arrangements andimpressive economic performance therefore makes it an especially fertile area formarrying the contextual sensitivity of area specialists to the more general assertionsof the political economy literature.My principal objective in this article is to providesome guideposts for furthermutually enriching research. I do so by using data fromEast and Southeast Asia to evaluate three development frameworks:dependency,statist institutionalism, and an inclusionary form of institutionalism. I also wantto demonstrate the theoretical superiority of the third framework. Unlike statism,which has been emphasized in much of the recent literature on the East Asian NICs,inclusionary institutionalism suggests the utility of arrangements involving lessdominationand more cooperationbetween state and businessand within the businessworld itself.Section II of this articledefines political economy as a field of study and suggestsan explanation for the relative weakness of the field in Southeast Asian studies.Section III highlights areas of dispute in the economic performance of capitalistSoutheast Asia. Section IV evaluates the dependency school and external influences



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820 RICHARD F. DONER

on Southeast Asian growth. Section V focuses on domestic sources of economicgrowth through an exploration of statist and inclusionary institutionalism.

II. Political Economy and Southeast AsiaThe interaction of economics and politics is an old theme in the study of bothinternational and domestic politics (Spero 1990:1-3; Staniland 1985:12-13). Yet,

since the rise of liberalism in the eighteenth century, the logics of the two fieldshave stood in sharp contradistinction to each other. Neoclassical economics assumesthat preferencesare measurableand rationally derived from the desire to maximizeindividual benefits; politics assumes that people's preferencesreflect (at least in part)values less easily ascribable o rational, measurablecalculations of individual benefits.Also, economicsassumesa world of efficient marketsin which all might gain; politicsdepicts a more zero-sum world in which conflicts over justice and distributionalissuesare resolved by actorswith unequal power. In the West, the separationbetweenpolitics and economics became institutionalizedin part due to academicspecializationand in part becauseof conditions afterWorld War II. The Cold War both minimizedthe importance of economic issues and encouraged the establishment of rules andstructures that diminished conflict over economic issues (Spero 1990:1-2).The last twenty yearsor so have witnessed a growing critique of this separation.A literature has emerged that spans the boundaries of politics and economics inboth domestic and internationalrelations.2But the two logics remainsharplydistinct.The simple recognitionof overlapand mutual influence betweenpolitics and economicsdoes not constitute a methodology or theory. Indeed, a central feature of politicaleconomy is its eclectic mixture of methods and theoretical perspectives (Gilpin1987:9). Thus, political economy is best understoodnot as a theory but as an agendaor an object of theoretical ambition (Staniland 1985:198).Acknowledging this eclecticism, we can nevertheless dentify at least three relatedareas of researchon the political economy agenda. One is the strict application ofneoclassical assumptions to nonmarket situations. Some political economists thusexamine the degree to which the behaviors of the electorate and elected officialsconform to the search for immediate individual gain rather than longer term, value-basedobjectives.3A second area concernsthe ways individuals, groups and/or nationstransformpolitical resources nto economicpower and economic resources nto politicalpower (e.g., Gilpin 1981).A third areaof research,the one most pertinent to our present concerns, focuseson the failure of markets to operate according to strict neoclassical assumptions.The political economy frameworks examined in this study are thus efforts to explainmarket malfunctions, their consequences, and/or efforts to contend with them.Neoclassical economics makes several important assumptions, the first of which isthat markets are perfectly competitive. Dependency theory, however, proceeds fromthe recognition of market imperfections; the international capitalist system is seenas facilitating the flow of foreign investment with monopoly or oligopoly powerover host-countryfirms to the detriment of host-country development (Hymer 1976;Gereffi 1983).

2For reviewsof these critiques,see Staniland 1985:ch. 2); also Strange 1988:partI);andAlt andChrystal 1983:1-6).For example,are voters' choicesbasedon economic or noneconomicconditions?Doofficialsshow anyconcern or citizen welfareor their own long-termreputations, r do theymortgage he futurefor currentelectoraladvantage ?Alt and Chrystal1983:104-05).



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POLITICS OF ECONOMIC GROWTH IN SOUTHEAST ASIA 821

Institutionalism is a response to the violation of three other neoclassicalassumptions: he absenceof externalities,of public goods, andof significant informationor transaction costs (Alt and Chrystal 1983:22-24). Externalities are the benefits(positive) or costs (negative) of one individual's activities that spill over to othersfor which payment or compensation is not made (Davis and North 1971:15; Gilpin1981:70). Negative externalities would include the costs of one firm's pollutingactivities on the welfare of others. Positive externalities include unintended benefitsaccruing to the economy at large when, for example, one firm trains large numbersof engineers who then take jobs elsewhere. Public goods are goods or services suchas national defense or water systems characterizedby nonexcludability (no one canbe excluded from consuming them), and joint consumption (use by one individualdoes not affect the use by others).

Externalitiesand public goods are problematicfor neoclassicaleconomists:becausethey are difficult to price, the market does not provide the means to express demandfor them. Even when all parties explicitly recognize the importance of, say, bettertechnical training, actual provision may be blocked by collective action problemsthe disincentive individualshave to pay an amount equal to the benefits they acquire.In collective action problems, shirking individual contributions eads to an undersupplyof goods necessary or nationaldevelopment. A lack of property rights or coordinatingarrangements means that the benefits of such goods may accrue to individuals whopay little or nothing (free riders). Finally, joint production of a good or service maybe undermined by high transactioncosts, i.e., individuals lack information and/orcannotaffordto bargainover and organizethe productionof certaingoods (Williamson1985).Collectiveaction problemsarepotentiallyresolvableby institutions-arrangementsthat go beyond the arm's-length relationships of competitive markets to regularizethe processes of cooperationand competition (North and Thomas 1970:5). The stateis certainlyone such institution but not the only one capableof resolvingthe collective4problems associated with economic development.

Political economy studies in the area of market failure generally exhibit twofurther characteristics worth noting. First, they incorporate interaction betweendomestic and international variables. Even if we are seeking to explain domesticphenomena such as national development, the growing interpenetrationof nationalmarketsrequiresus to take account of external forces. There has thus been a marked

blurringof boundaries between the fields of international relations and comparativepolitics (Keohane and Nye 1987:753). Second, much of the recent work in politicaleconomy has a sector- or industry-specific focus. Such a focus often provides a clearview into both the tensions between allocative and distributive objectives and thecollective action problems of coordinating disparate interests.How do we account for the relatively meager contribution of Southeast Asianstudies to the political economy literature? One contributing factor is the economicsprofession'spreferenceor theoreticaloverappliedstudies. ChalmersJohnson'sargumentthat academic economists discriminate against the study of the Japanese economyapplies to the study of Southeast Asia as well (Johnson 1987). Second, the politicaldivisiveness of the Vietnam War in the U.S. academic community probablydiscouraged he developmentof some dependency-orientedcholarswhose work wouldhave contributed to a stronger political economy thrust in Southeast Asian studies.

4Thre is also an extensive iteratureapplying the institutionalistapproacho interna-tional relations, especiallythe study of international egimes in areas such as tradeandmonetaryrelations.See, for examaple,Keohane1988.



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Many activist scholars either never secured any academicposition, voluntarily left,or were forced out of Asian studies (Allen 1989:117).

The underdevelopment or at least low visibility of private entrepreneurshipinSoutheast Asia also impeded the development of a political economy literature onthe region. For Western observers, the dependent position of local business vis-a-vis state officials encouraged a static view of indigenous capitalists as pariahentrepreneurs Riggs 1966). Vertical, patron-client links obscured the processesofcapital accumulation, class formation, and private influence over economic policies.With rare exceptions (e.g., Skinner 1957), few plunged below the bureaucraticpolity's official-centered ocus to analyze the beehive of private commercialactivities,the seeds of subsequent capitalist growth. And few anticipated the incentives forstate officials' cooptation by business rather than bureaucratic domination ofentrepreneurs (McVey 1990:19). The result was a general neglect of dynamicinteractions within the private sector and between public and private interests.

The weak position of local business also undermined the development ofproducers and consumers of a political economy literature within the region

itself.5The impact of import substitutionindustrializationISI)merits special emphasisin this regard. Unlike most of Southeast Asia, most of Latin America entered intoISI during and even prior to WWII. This prompted strong economic nationalism,broad, politically informed debates on development conflict and strategy, and anincreasingly sophisticatedawarenessof state-market and foreign-domestic interactions(e.g., Hirschman 1971; Prebisch 1950; Cardoso and Faletto 1979; and Goodsell1974). It is perhaps not a coincidence that Southeast Asian postwar social scienceand nationalist writings were the most developed in the Philippines, where ISI hadthe strongest base during the interwar period (Yoshihara 1985; Golay 1961). 6

The link between the emergence of local capital, economic nationalism, andstudiesof politicaleconomy is suggested by more recentwork in English by Westernersas well as Southeast Asians. In the wake of Indonesia's 1974 Malari Riots againstJapanesefirms (and their IndonesianChinesepartners),Indonesiansbegan to advocatecountering foreign firms through the organizationof big local capital into nationallyintegrated economic units (e.g., Panglaykim 1974; Chalmers 1988:ch. 5). RichardRobison's (1986) pathbreaking work on Indonesian capital can be seen as partof this general affirmationof the role of local entrepreneurs.While differing in cer-tain respects, the studies of Hewison (1989), Suehiro (1985), Thanamai (1985),Phongpaichit (1980), Laothamatas(1989), and Chenvidyakarn(1979) on Thailandand Sundaram(1988), Lim (1985), and others (Hirschman 1989) on Malaysia canbe viewed in a similar light. There is also a growing political economy literaturein Southeast Asian languages (Reynolds and Lysa 1983; Neher and Bowornwathana1984; Anderson 1984). Work in Thai has been especially impressive, no doubtbolstered by a growing Thai-language business press.7

5Harris 1988) discussesthe idea of consumers f politicaleconomy. ReynoldsandLysa (1983) make a similarpoint in noting the importanceof political strugglesin gen-eratinga Thai Marxist iterature.6However, the depression rovided essstimulusto ISImanufacturingn the Philippinesthanin LatinAmericadue to the former's ontinued mport capacity resulting romsugarexportsto the U.S.) and its lack of tariff andexchangeautonomy Brown 1989).7Recentworksin Thai includeSamudavanija 988; Pornvalai1989; andThanapornpan1990. For an exampleof the Thai-languagebusinesspress, see Phu ChaatKan (Manager).Also worth note are in-depth case studiessuch as Thammasat 1987) and the M.A. thesesfrom the English-language rogramof ThammasatUniversity'sEconomicsDepartment.



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POLITICS OF ECONOMIC GROWTH IN SOUTHEAST ASIA 823The region's economic growth is thus beginning to generate a literature thatdescribesand explains that development. Beforeevaluating these and other writings,

it is useful to assess the nature of that growth.III. Economic Performance in Southeast Asia

Since we are concernedwith explanations of Southeast Asian economic growth,it is necessary to note divisions of opinion as to the depth of that performance.Many studies have emphasizedrising manufacturedexports, increases n higher value-added products(Simandjuntak1988), and the strengtheningof local capital, measuredby equity ownership, in all areasof economic life (Hewison 1989; Robison 1986).But others have pointed to important weaknesses. One is the region's tendencyto adopt capital-intensive growth strategies that create small pockets of highly paidurbanworkerswhile leaving the ruralor traditional sector behind (Clad 1990; Hay1989:656; Lee and Naya 1988:S140). Unequal income distribution environmentaldegradation(Hirsch and Lohman 1989; UN 1988), prostitution, and other negativeresults of economic expansion also seem to be intensifying.8It is also asserted that Southeast Asian growth remains overly reliant on andvulnerable to external forces. With regardto trade, the region's export markets areunstable and unlikely to provide the kinds of opportunities enjoyed by the EastAsian NICs (Clad 1990; Bello and Rosenfeld 1990:9- 11). Perhapsthe most seriouscriticism concerns the shallowness and dependence of the region's own economicstructures. Southeast Asian capitalism is viewed by some as ersatz (Yoshihara1988; Suehiro 1985; Clad 1990). Local capitalists lack independent technologicalcapacity in areasoutside the tertiary sector and light manufacturing. Entrepreneursfavoropulence over excellence, rent seeking and speculationover long-term industrialinvestment. They are, in sum, paper capitalists, compradorsof foreign firms. Theregion's shortage of technical personnel reflects and reinforces this inattention toreal industrial development (e.g., Tasker 1990a; 1990b). Unlike those in thedependencytradition(discussedbelow), this critique emphasizesnot externally mposedobstacles but the inability of local capitalists to follow their Japanese and NICcounterpartsin taking advantage of external opportunities.This line of criticism highlights the need for further empirical research. Theefficiency of local producerscan be evaluated through tariff levels, export subsidies,and the percentageof exports undertakenby local versus foreign investors (measuredthrough levels of interfirm transfers).Technological reliance on foreign capital canbe assessed through outward remittances of management fees, patent royalties, andmanagement fees (e.g., UN 1984).Some notes of caution are in order, however. Studies of Southeast Asian capitalshould avoid paying exclusiveattention to large firms. There is considerableevidence,from studies of Japan, the East Asian NICs, and Southeast Asia, that small andmedium-sizedfirms arean activeand importantcomponentof recenteconomicgrowth(Doner 1991; Phongpaichit 1989:345; Friedman 1988; Amsden 1989:ch. 7).Future studies should also be cautious in drawing too sharp a contrast betweendependencyand self-reliance.Most less developedcountries(LDCs)arebest understoodnot as one or the other, but as somewhere on a continuum between the two (e.g.,Grieco 1984; Packenham 1983). Cumings (1984), for example, notes that South

8Fora critiqueof the East Asian NICs along many of the same lines, see Bello andRosenfeld1990.



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Korea and Taiwan expanded their autonomy in the world at large while deepeningtheir reliance on Japan. As Hirschman (1989) argues in the Malaysian context, morework is needed on the issue of foreign versus local control and benefits in SoutheastAsia.Finally, we should avoid overly sharp dichotomies between rent-seekers orcommercialcapitalistson the one hand, and industrialistson the other. Somecapitalistsare clearlymore oriented toward short-termprofits and tertiaryactivities than others.Yet, throughout Asia, strong industrial firms have emerged from commericalcapitalists, speculators,and rent-seekersbenefiting from government-controlled mportlicenses. Research on the South Koreaneconomy has shown that the large industrialgroups known as chaebol actually meaning financial clique ) emerged from thoseentrepreneurs known as 'political capitalists,' plutocrats, or compradors (Kim1976:469; see also Amsden 1989:46-48; Jones and Sakong 1983).9Despite these questions as to its depth and endurance,SoutheastAsia's economicgrowth has been quite impressive. Explaining this performance (as well as itslimitations) requires considerationof the opportunities and constraints provided byits external environment.

IV. Dependency and theExternalContext of GrowthMuch of the recent academic emphasis on external conditions as influences onLDC development (or its absence) has come from the dependency school. Threecentral assertions characterizedependency literature. First, as noted earlier, LDCsare confronted with international market imperfections: international capitalism ispresumed to be a hierarchicallyordered system of dominance of which LDCs arefound at the bottom or periphery(Haggard 1990:16). Second, this peripheralpositionundermines the opportunities for autonomous economic growth in the developingworld. More specifically, foreign investment (1) squeezes local entrepreneursout ofthe most dynamic sectors; (2) employs inappropriate apital-intensive technologies,

thus adding to unemployment; (3) worsens income distribution; and (4) modifiesconsumer tastes and undermines local culture (Moran 1978). Finally, the politicallink between the international capitalist system and the preceding distortions isprovided by a triple alliance among subservient local capitalists and states on theone hand, and dominant foreign capital on the other (Evans 1979; Bennett andSharpe 1985; Gereffi 1983).There have been severaldependencystudies of Southeast Asia (e.g., Steven 1988;Weinstein 1976; Permtanjit 1982; Bell 1978; Elliot 1978), but apartfrom the earlyto mid-1970s, the influence of dependency has been weak. Critics from both insideand outside the region have noted a number of important flaws in the approach.Methodologically, the school's fuzzy operationalization of dependence and itspresumption that even nationalist host country demands reflected the interests offoreign investors made some of its hypotheses difficult to falsify (Packenham 1983;

9The act thatoriginsdo not determine ndustrial trength s illustratedby a comparisonof PhilippinebusinessmanRicardoSilverioand SouthKoreanbusinessmanPyong-cholYi.Bothexpandedromcommercial riginsto createmajor ndustrial roupswith support rompowerfulpolitical patrons.Silverio, however,becamea notoriousMarcos crony who wasforcedto flee the countrywhen his mismanagedand overextended onglomerate ell apartin the early 1980s. Yi, on the other hand, foundedSamsung,South Korea's argestchaebolbased on steady expansion rom productionof consumergoods to basicindustries.



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Becker 1991:106). Empirically, LDC realities have been at odds with dependencypredictions. Industrializationhasoccurred,albeit unevenly,and indigenous bourgeoisieshave emerged that confront as well as integrate with foreign capital (Higgott andRobison 1985:37). The fact that this capitalist growth has been uneven suggeststhat the dependency approach is also flawed by its ignorance of domestic factors,accounting for different national responses to similar external constraints.tBut the dependency framework'smost serious flaw is its lack of a well-developedtheory or paradigm of international capitalism (Becker 1991:105). The fact thatLDC growth has occurredat all and is uneven suggests that the internationalsystemis not a monolith blocking Third World development. It is rather a variegated anddynamic structurethat can influencedevelopment in two relatedways: economically,by providing externalopportunities for, as well as constraintson, developing countrygrowth; and politically, by influencing the growth of national capabilities necessaryto contend with external conditions.Studies of the East Asian NICs suggest that these processes can be understoodin part through the interaction of the product life cycle with global and regionalhegemony. The product cycle refers to the process by which standardizationanddiffusion of technology promotes the gradual shift -of a product's manufactureoutof the innovating country to other countries with similar factor endowments butless advancedtechnology (Wells 1986:200-1). As the Japaneseportray t, the productcycle resembles a wild flying geese pattern in which the leader of the inverse Vformation of geese is periodically replaced by a newcomer (Akamatsu 1961). Theproduct cycle's evolution is not automatic, however, but conditioned by the interestsand relative strength of dominant external powers.Applied to Northeast Asia, the argument is that South Korea and Taiwan havebenefited from a Japanese-led product cycle embedded in a changing hegemonicstructure. Prior to 1945, unilateralJapanese colonialism not only strengthened thetwo countries' physical and human infrastructure,1' it also promoted modernmanufacturing in Korea and Taiwan. Beginning in the late 1960s, heavyindustrialization efforts in these two countries encountered opposition from U.S.economic planners who claimed that such plans violated the law of comparativeadvantage.Yet South Koreaand Taiwan obtainedJapanese technology and financingin part because their new programs provided the structure necessary to receivedeclining Japanese heavy industry (Cumings 1984:76).U.S. geopolitical objectives in the region first encouraged this move up theproduct cycle by providingeconomicopportunities.The U.S. securityblanketallowedJapan to devote its full energies to economic restructuring, a processwith beneficialspillovers for Taiwan and South Korea. Also helping was the diffuseness of U.S.hegemony relative to prior systems of domination. The open U.S. trade regimesprovided significant market opportunities for the East Asian NICs (Yoffie 1983).The U.S. also helped to strengthendomestic structures n NortheastAsia necessaryto internal policy changes. American aid was a critical source of domestic capitalformation in South Korea and Taiwan during the postwar period. These financialflows also provided state officials with important leverage over business interests.And through its support for land reform, the U.S. helped to erase a source ofpolitical instability and to remove landed interests capable of obstructing state-initiated economic reforms (Cumings 1984:54, 56). Researchalong these lines has

'0SectionV explores hese domestic factors.1The apanese olonial contribution o South Korea's nfrastructure as reducedby thefact that South Korea hadalready ost its colonial ndustrialbase in the North whenKoreawas divided (Jong, 1990:100).



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already begun to yield useful comparativeand theoreticalresults, whether in showinghow U.S. interests in Latin America were more antagonistic to locally initiateddevelopment than in East Asia (Gereffi and Wyman 1989:38-40), or in showinghow Taiwan's experience challenges the hierarchical assumptions of Wallerstein'sworld systems approachto development (Crane 1982).In sum, while dependency theoryis flawed as a theoreticalapproach, t highlightsthe need for research on the influence of external variables on (1) the economicopportunities available to Southeast Asia, and (2) the region's domestic capacitiesto take advantage of these opportunities.

Economic OpportunitiesResearchon economic opportunities should focus on the expansion of a regionalproduct cycle, the structure of regional hegemony, and the interests of externalactors. Some argue that a product cycle has already begun in Southeast Asia, thatIndonesia, Malaysia, the Philippines, and Thailand have already begun to participatein a multiple catch-up process through which Japan leads the Asian NICs andthen the other ASEAN countries through stages of comparative advantage. As theNICs follow Japan into capital- and knowledge-intensive products, the ASEAN-Four will move into exports from light industries such as textiles, food processing,and simpler electronics. The region, in sum, is presumably shifting from Japan's

garden to its tool shed (Hay 1989; Meier 1986:15). Yet many SoutheastAsiansargue that this process has been blocked by Japan's reluctance to share technologyand to open its markets to foreign (or at least Southeast Asian) manufacturedgoods(e.g., Sundaram 1988).Two specific research foci can help clarify the evolution of the region's productcycle. First of all, sectoralstudies can be invaluable. LindaLim (1988), for example,has helped to identify the extent and processesof manufacturingdiffusion in electronicsthroughout East Asia. Also worth examination is the emergence of a regional (albeitJapanese-led) division of labor in auto components production.12 A second focusinvolves the expanding linkages between capitalist and socialist Southeast Asia.Investments in Vietnam by Indonesia'sAstra group and Thai acquisition of loggingconcessionsin neighboringcountriesmay reflect an extension of the regionaldivisionof labor in which foreign-exchange-poorIndochina becomes a source of rawmaterialsand cheap labor for its more developed neighbors (e.g., Buszynski 1989; Far EasternEconomic eview,March 23, 1989:95).The product cycle's evolution is influenced by the structure of hegemony, i.e.,the relative distribution of capacities among the larger external powers.13 For some(e.g., Stubbs 1989), the cooperative oint hegemony of U.S. geopoliticaland Japaneseeconomic power in the postwar period facilitated the region's prosperity. While thisarrangementchiefly promoted Japanese,not Southeast Asian interests(Borden 1984),the openness of the U.S. market supplemented Japan's investment in and purchasesof primary commodities from the region. In addition, the presence of two majorpowers provided Southeast Asia with alternate sources of capital, at times allowinga country to obtain from one what the other refused (e.g., Robinson 1985).But the postwar hegemonic structure is undergoing transformation.Reductionsare occurring in the U.S. geopolitical presence and in the level of U.S.-Japan

12Reportson this regionalproduction chemecan be found n various ssuesof EconomistIntelligence nit,JapazneseMotorBusiness.'3Fora discussionof structure,see Waltz 1979.--



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POLITICS OF ECONOMIC GROWTH IN SOUTHEAST ASIA 827cooperation.The degreeand impactsof these shifts merit study. Cumings hassuggestedthat increasedU.S. -JapaneserivalryandJapan'smove towardgreaterpolitical influencein low-growth periods can spell trouble for smaller, weaker countries such as thosein SoutheastAsia. The analogy here is with the interwarperiodwhenJapan, strivingtoward core-powerstatus, attempted to limit the opportunitiesof less industrializedcountries in the region. Japan is portrayed here as resembling not a lead goose inthe product cycle but a moth moving toward a flame (Cumings 1984:82).This hypothesis of increasing rivalry closing off opportunities for the ASEANcountries seems overly general. First, the inflow of funds from Taiwan and SouthKorea may reduce Southeast Asia's reliance on Japanese capital. Second, followinga pattern set in Northeast Asia, the erosion of American influence may reduce therole of U.S.-supported agencies in Southeast Asian developmental coalitions, thusincreasing domestic economic autonomy (Deyo 1987a:240). Third, Thailand'sadaptation to Japanese dominance in the interwar period, as well as former PrimeMinister Chatchai's proposal of joint naval exercises with Japan, suggest that somemay be better positioned to benefit from external shifts than others. This highlightsthe need for crossnational studies of foreign policy goals, a task facilitated by Wurfeland Burton's The Political Economy f ForeignPolicyin SoutheastAsia (1990).The opportunities for economic development reflect not only the distribution(structure) of external powers but also the particularinterests of those powers. Onearea for furtherresearchconcerns the impact of economic versusgeopolitical interestsof Japan and the U.S. Identifying the U.S. as principally concerned with regionalstability is less and less valid. The increasing American concern with the defenseof its own domestic economic interests clearly spells trouble for Southeast Asiancountries long reliant on U.S. purchases of manufacturedexports. This shift willprobably threaten what the U.S. perceives as an unfair division of labor: SoutheastAsia sells raw materials to and buys capital equipment from Japan, but sellsmanufacturedgoods to the U.S. 14This brings us to a related question: What are the features and consequencesof economic changes within Japan and the East Asian NICs? Recent work has shownthat conscious economic restructuring is occurring not only in Japan but in Taiwanand South Koreaas well (Unger 1989; Morris-Suzuki1984). Undertaken in responseto trade frictions, exchange rate shifts, and rising labor costs, this restructuringhasgenerated significant flows of foreign investment from the NICs to Southeast Asia. 15Of particular interest is the possibility that much of this recent investment comesfrom small and medium-sized enterprises. Because these firms tend to employ labor-intensive manufacturing techniques, this investment can help even out rural-urbanwage differences. It can also encourage a regional product cycle by introducingindustries whose financial and technical requirementsare compatible with SoutheastAsian capacities (Phongpaichit 1988; Hay 1989; Dunne 1989).These investments, through the provision of financing, export channels, andtechnology may have the additional benefit of easing the transition from importsubstitution to export promotion. Comparativestudies of both the NICs and LatinAmerica suggest that this transition may be the central issue of development (e.g.,

14See Lim (1986) as well as various articles by Linda Lim in SoutheastAsia Business, pub-lished by the Center for South and Southeast Asian Studies, University of Michigan, AnnArbor.15For recent accounts see Nigel Holloway, The numbers game, FEER, November 16,1989, p. 71; N. Balakrishnam, The south will rise, FEER, May 4, 1989, pp. 76-77;Jonathan Moore, The upstart taipans, FEER, April 19, 1989, pp. 84-87; and PaulHandley, Moneybags move in, FEER, April 19, 1989, pp. 87-88.



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Haggard and Cheng 1987; Gereffi and Wyman 1989). In Southeast Asia, thistransition may be especially difficult (but typical of LDCs) because revenues fromnatural resource exports have financed high rates of protection for inefficient localproducers of manufactured goods (e.g., Yoshihara 1988:118-19). The politicalconsequences of forcing local firms to contend with foreign competition throughtariff reductions and devalued exchange rate are often quite severe.Whether foreign investment, in fact, benefits a Southeast Asian economy willdepend in part on the entry strategies of foreign investors which are themselves afunction of negotiations between foreign firms and local governments. For example,initial moves into exports by Thailand and Malaysia during the mid-1970s werefacilitated by the small and medium-sized firms leading Japan's investment at thattime. The willingness of these firms to accept minority shares made it easier forthe ASEAN governments to sell the idea of foreign investment and export-orientedindustrialization to domestic business interests (Stubbs 1989:532-33). One studyhas gone so far as to argue that foreign investment in East and Southeast Asia mightrepresentthe thin edge of the wedge in the eventual triumph of capitalism overimperialism (Lim and Pang 1991:231).Whether this, in fact, is the case depends not only on the changing nature ofthat investment but also on coalitions of interests and institutions internal to theSoutheast Asian countries. As shown in the remainder of this section, these factorsare influenced by the external environment.16

External Influences on National CapabilitiesExternal conditions can affect LDC abilities to respondto external opportunities

by influencing (1) the political strength and (2) the strategies and organizationalcapacities of domestic interests.Foreign actors can influence what one scholar has termed a country's strategiccapacity -its ability to develop a coalition supportiveof well-chosen developmentstrategies (Deyo 1987a:228; 1986). The importance of foreign influence in thisregard is most striking with regard to the shift to export promotion. The coreargument of work on this issue, based on studies of the East Asian NICs, involvesthe sequenceof foreign-domestic inkages and a state's initiation of economicchanges:in South Korea, Taiwan, and Singapore, geopolitically inclined external actorssuppresseddomestic forces(e.g., laborunions and landlords) ikely to oppose changesin economic policy beforeuch changeswere initiated by the state. These same externalforces simultaneously strengthened the organizationalcapacities of the state, whichthen had a relatively free hand to implement domestic economic changes whilerestricting the role of foreign capital.This process did not occur in the Philippines (or Latin America) where foreigninvestmenttended to foster vested social and economic interestsopposedto industrialmodernization (Chan 1990:56). This was in part a function of U.S. objectives.While geopolitics drove the U.S. policies toward domestic actors in Northeast Asia,private firms were-the leading force in U.S. policy toward the Philippines. In theirdrive for economic benefits, U.S. investors strengthened first the Philippines' agro-basedelites and then, after World War II, an expandinggroup of Philippinebusinesses

16Itbearsemphasis hat domesticinstitutionsare influencedbut not determinedby ex-ternalfactors.This is illustratedby differencesbetweenstatesin South KoreaandTaiwan,despite the fact that both underwent apanesecolonial control(Cumings1984, Hamiltonand Biggart 1988).



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POLITICS OF ECONOMIC GROWTH IN SOUTHEAST ASIA 829based on import-substitution industrialization.In addition, U.S. effortswere devotedby and large to minimizing rather than strengthening Philippine state intervention.The result, argues Deyo (1986), was coalitional immobilism. Domestic actorswith crosscutting interests, foreign (private) backers, and claims to the nationalistmantle were well entrenched prior to economic reform efforts initiated by technocratsin the Marcos regime.Deyo's approach s statist in assuming that powerfulsocietal interests will opposeneeded changes in economic policies. The emphasis is on the developmental utilityof suppressing societal actors so as to clear the decks for state-led economic reforms.While valid in many cases, this emphasis may preclude something different butequally beneficial for economic flexibility: external strengthening of indigenouscapitalists interested in economic changesand capable of implementing those changes.In the late 1950s, for example, foreign investment provided political protection forSino-Thai entrepreneurs pressing for economic reforms (Hewison 1989:274-77;Phongphaichit 1980).A related hypothesis worthy of investigation is that external challenges canencourage corporatist arrangements, i.e., the organizational strengthening of localentrepreneursand close public-private sector cooperation. Katzenstein (1985) hasargued that corporatistarrangementsoften develop in small, industrialized states asa way of mobilizing resources to cope with the vulnerabilities of those economiesto external market shifts. Others have added that such corporatism will be mostcommon in trade-dependent countries with highly differentiated exports (Rogowski1983:729). This pattern may have begun to emerge in Thailand where the needfor export-orientedeconomic policies encouragedstrongerpublic-private cooperation(Laothamatas1988). It is likely that such collaboration will occur at the industrylevel when developed country protectionism forces state and industry officials towork out joint agreementson quota arrangements,quality control, productupgrading,etc. (e.g., Douglas 1989:428).Externalfactors can influence the organizationalresourcesas well as the politicalstrength of local firms and the state. Dependency studies argued that foreign capitalsqueezes out domestic firms and that the Third World state is simply a hingebetween internationalcapital and Third World social formations-in effect a stagingpoint in the syphoning of surplus (Higgott and Robison 1985:47). Weinstein (1976)provides compelling evidence of Japanese restraints on Southeast Asian firms. Andseveral authors have shown how external threats and constraints on fiscal powerslimited the organizational capacities and objectives of the Thai state during thenineteenthand early twentieth centuries(Feeny 1988; Anderson 1978; Brown 1988).Recently, however, analysts have noted more positive consequences of foreigninvestment. A postimperialism iteraturehas argued that collaborationwith foreigncapital can expand the technical capacities of LDC capitalists as a class (Becker etal. 1987:180). Further studies are necessaryto specify the firm-specific impacts offoreign investment, but general support for the postimperialist view comes fromHewison (1989) and Richard Robison's study of Indonesian capital.'7 Peter Evanshas made a similar argument with regardto the state-namely, that in the postwarperiod, the transnationalizationof economic relations can provoke an organizationalstrengthening of government agencies in countries characterized by some priorbureaucraticinstitutionalization and relative autonomy (1985:207). Illustrations of

17 '[TJheoint venturedoes not lead inevitablyto the subordination nd decline of thedomesticpartner.Integrationwith foreigncapitalthroughthe joint venture may equallybe the mechanismwheredomesticcapitalmoves to a higher stageof capitalaccumulation,corporate rganization,and technological omplexity Robison1986:197).



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this pattern are beginning to emerge in Southeast Asia. Robert Muscat highlightsthe ways in which U.S. aid promoted the development of Thai state institutions(1990:esp. 284-87). ClarkNeher's(1989) study of U.S.-Thai disputesover intellectualproperty rights portraysa Thai bureaucracypushed toward increasing expertise andactivism to contend with U.S. protectionism. But as the Malaysian textile casereminds us, protectionism and the attendant need for state involvement in quotaallocation can expand opportunities for corruption as well as increased efficiency(Douglas 1989:435).The external context can also strengthen a country's human and physicalinfrastructure.The impact of international conflicts merits special note here (Stubbs1989). Increasedcommodity prices due to the Korean conflict raisedexport revenuesfor Malaya and Singapore. This windfall (combined with the need for colonial self-reliancedue to problems in England)led to improvementsin both tax administrationand physical infrastructure. The Vietnam war, with its heavy dose of U.S. aid toThailand, encouraged an expansion of the national transport system and the civilengineering sector. The conflict also strengthened Thailand's fledgling consumergoods sector, since Vietnamwas forced to use United Statesaid to purchaseconsumergoods from neighboring countries, particularlyThailand (Stubbs 1989:528).The impact of the international system on domestic interests and institutionsmay be usefully addressedthrough case studies of specific types of foreign-domesticinteractions in jargon:cases of external inkage mediation ).A first category involvesbargaining between foreign investors and host countries. Several studies of suchbargaining exist for Latin American and South Asian cases but, to my knowledge,few for SoutheastAsia (e.g., Doner 1991). Studies of trade conflicts are also useful.In addition to the two studies already cited (Neher 1989; Douglas 1989), scholarscan referto work on trade bargaining relations between the U.S. and the East AsianNICs (Yoffie 1983; Odell 1984). Finally, relations between countries in the regionand foreign financial institutions constitute fertile researchsoil. Indeed, work hasalready been done on the Philippines' external debt problem (Broad 1988; Bello etal. 1982; Haggard 1988), on Indonesia and the IGGI (Robinson, 1985), and onThailand's encounters with the World Bank (Hewison 1987; Muscat 1990).In examining the rangeof external nfluenceson national interestsand institutions,I have depicted a more complex and less constraining internationalsystem than thatportrayed by the dependency school. It is now necessary to examine domesticinstitutions as independent variables, i.e., as potential contributors to developmentin and of themselves. To do so we shall draw on an institutionalist framework thatexplains why nonmarketarrangementsare useful for development in the first place.

V. InstitutionalismAn institutionalist approach to development begins with the assumption thata country'sability to exploit externalopportunitiesand avoid externaldangers dependsin large part on its ability to mobilize and shift resourcesto new purposes. Certaincountries are less developed than others because their factors of production are lessmobile (Krasner 1985:40). At least three factors help explain this state of affairs.First, routinized market mechanisms for factors of production such as labor andcapitalare often inefficient in LDCs due to a lack of well-developedcommunications,transportation,and legal institutions for contract enforcement, as well as the greatervulnerability of LDC economies to change and uncertainty (Lee 1990:7-10; Leff



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1979:47). Second, LDCs' long-standing pursuit of import substitution strategiesoften results in protected, inefficient, and politically influential entrepreneurs whoare unwilling to promote activities that are risky (or not immediately profitable)but beneficial for national growth.Finally, poor countries must contend with a particularlydemanding set of marketrequirements. They face the need to balance between: openness versus selectivityover foreign investment; protection of new industries versus free trade (to obtaininputs and expose those industries to competition from efficient producers); thebenefits of competitive markets(to encourageefficiency)versus the utility of oligopolyor monopoly (to promote standardization and scale economies); and undervaluedexchange rates (to support exports) versus overvalued exchange rates (to minimizethe costs of inputs and foreign debt repayment) (Amsden 1989:13).

In sum, LDCs face collective action problems described earlier in this paper:they must encourage entrepreneurswith often contrasting and entrenched intereststo undertake diverse activities for the benefit of the country as a whole; and theymust do so where uncertainty s high and information ow. The centralityof collectiveaction problems is highlighted by Southeast Asian case studies discussed at the endof this section.

Statism

The collective action problems described above constitute the demand forinstitutions, especially, argues one school, strong states. The statist view rests onthe virtues of the political and organizational omponentsof state strength. Politically,strong states are autonomous from powerful societal interests. They thus have theleverageto extractresources, provide public goods, reconcilediverseneeds, encouragethe most productive firms, and impose the short-term costs associatedwith efficienteconomic adjustment (Haggard 1990:262; 1988a:264). They are also able to extractbenefits from foreign capital independently of powerful distributional coalitions.Organizationally, such states are coherent, consistent and flexible (Moon 1990:24).They are thus able to accumulate and act on information necessary to reconcilediverse interests (e.g., Mardon 1990).This statist approach has proven useful in several important respects. It hastaken us beyond the assumptionthat marketsalways operateefficiently (Wade 1988a).It has helped to explain crossnational differences in economic performance. And ithas identifiedsourcesof economic successin the East AsianNICs that are not addressedby neoclassical explanations (e.g., Lim 1983). 18 Statism has also begun to findsupporters among Southeast Asianists. Harold Crouch has argued that industry inASEAN is least developed where the ties between business and government areclosest, and that technocrats have greater opportunities for rational policy-makingwhen the political and business elites are separate (1984:96, 94).But the statist approachsuffers from two general weaknesses. The first has todo with its descriptive accuracy, even in the East Asian NICs. With regard toorganizational strength, the institutional structures of states in South Korea andTaiwan seem cohesive,but case studies reveal nternalpreferencedifferences,competingcoalitions, and decentralizationof decision-making (Moon 1990:24-27; Noble 1987).

18The strong tate abelshouldnot obscuremportantdifferences mongthe NICswithregard o degreesof authoritarianism, conomic developmentof privatesectors,and stateimplementation apacity.See, for example,Johnson 1987; Haggardand Cheng 1987; andHamilton and Biggart 1988.



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Crossnationalvariation also appears in NIC state structures leading to differencesin policy instruments and economic strategies (Chu 1989). Turning to the issue ofautonomy, even strongstatesare creatures f politicalexigencies as well as institutionswith recurrent preferences(Haggard 1990:264). Thus, the South Korean state hadsome capacity to construct a supportive coalition within the business community.But its auto policies were not implemented when they conflicted with the broadstructure of big business interests (Jong 1990).A second weakness is functional: an autonomous state may not always be bestsuited for development tasks. Autonomously developed preferences may lead topredatorybehavior by state officials. Prior state commitments may be hard to breakbecausethey have generatedpowerful societal interests demanding their maintenance(Ikenberry 1986). State-initiatedeconomic reformsmay weaken the state's coalitionalbase and impede subsequent efforts to impose its preferences (Moon 1988). Andwhile organizationalcohesion is certainlynecessary,centralizationmay not be. Thus,one study of bargaining with foreign investors in Southeast Asia found thatcentralization led to the exclusion of some agencies and, as a result, poorimplementation (Encarnationand Wells 1985). Conversely, some intrastateconflictsmay be beneficial. Where the goal of industrial deepening pervadesthe bureaucracy,as in Indonesia, interagency struggles can take the form of competitive nationalismand lead to more effective bargaining with foreign firms (Chalmers 1988). Finally,the expertise of state officials is rarelysufficient to resolve complex commercial andindustrial issues. As one review of Southeast Asia concluded, state officials mayknow enough to formulate economic policies, but they may lack the capacity toimplement such plans (Crone 1988:256).The implication of these functional weaknesses is not that we should ignore thestudy of states as institutions. As shown by numerous studies, states in SoutheastAsia are important as developmental actors in their own right, as influences on thedevelopmental contributions of societal interests, and as reflections of broadersociopoliticalarrangementse.g., Halim 1982; Wong 1990; Wibisono 1989; Hewison1989; Bowie 1991; Hawes 1987). Nor is the implication that institutions areunnecessary.It is ratherthat, as the case of Hong Kong suggests, developmentalistorganizations need not be confined to public or state sectors (Deyo 1987a:243).

Inclusionary Institutionalism and theNew Institutional Economics

Based on their abilities to formulate and implement policy independently ofpowerful groups, states in Indonesia, Malaysia, the Philippines, and Thailand arenot strong (Crouch 1984; Mackie 1988). Thus, unless we are to attribute theireconomic growth solely to market conditions, we must explore the role of nonstateinstitutions. Useful for this purpose is a body of literature known as the newinstitutional economics (NIE). The important feature of this approachis its unit ofanalysis. NIE begins with the transaction, viewed as a relationship or contract(Yarbrough and Yarbrough 1990:241; Williamson 1985). Such relationships arecentralto mobilizing and shifting resources or development. Yet they are vulnerableto the information and collective action problems described earlier.Like statism, then, NIE begins with collective action problems. And like statism,it suggests the utility of hierarchicalinstitutions rather than competitive marketstO resolve these problems. But unlike statism, NIE's explicit focus on transactionsallows it to acknowledge the importance of private and public-private institutions



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as well as states. 9 This approachis only in its infancy as applied to developmentin general and to Southeast Asia in particular (Nabli and Nugent 1989; Lee andNaya 1988). It also contains important weaknesses, about which more later. Butit does draw our attention to several nonstate and nonmarket institutions importantto any explanation of both growth and problems in Southeast Asia.BusinessGroups.The group is a large-scale firm that invests and produces inseveral product lines that involve vertical integration or other economic andtechnological complementarities (Leff 1979:52). Often, but not always, groups areowned and staffedat the higher levels by individuals who are linked by a communal,ethnic, or regional group (Leff 1990:7).Groups merit further researchby Southeast Asianists for two reasons. First, asreflected by their importance in the East Asian NICs, they arepotential institutionalsolutions to the market failures so common in LDCs (e.g., Johnson 1987; Jonesand Sakong 1983; Mody 1990; Imai 1987-88). In the absence of a well-developed20capital market, they often allocate capital among diversified activities. In the faceof information shortages and political obstacles, they may link primary inputs andintermediate goods within their firms. And their very participation in multipleactivities allows them to reduce uncertainty concerning investment and productiondecisions. In sum, they may perform many of the special functions required forentrepreneurshipin underdeveloped countries (Imai 1987-88:53).Groups also merit study because they dominate much of the private anddomestically owned advanced sector in Southeast Asia, as well as other developingregions.2' Existing studies of Southeast Asian groups include Robison (1986) andYoon (1990) on Indonesia;Lim (1981, 1985) on Malaysia;Hewison (1989), Suehiro(1985), and Phipatseritham (1982) on Thailand; and Yoshihara, (1985), and Belloet al. (1987) on the Philippines. But work on these groups is just beginning. Wehave no systematic studies of several important groups such as Thailand's majorindustrial conglomerate, Siam Cement, or Malaysia'sUMW. And while it is clearthat groups such as Thailand's Saha Union, Charoen Pokphand, and Siam Cement,as well as Indonesia's Astra, do attempt to resolve market problems through verticalintegration,our knowledgeof how they do so and with what success s still rudimentary(e.g., Doner 1991; Christensen 1990:36).Networks:Whereas groups attempt to overcome market failures by internalizingtransactionswithin a firm or group of firms underone ownershipumbrella, networksinvolve regularized linkages between and among independent firms or individuals.As in the case of groups, research on Japan and the East Asian NICs shows thepotential contribution of network arrangements to economic growth.22 Work onsuch arrangements in Southeast Asia might usefully seek to identify crossnationalnetworks in particularindustries such as textiles, or electronics (Arpanet al. 1984).

19Whilenot unrelated, he newinstitutionaleconomics hould be distinguishedromthenewinstitutionalism. Both schoolschallenge he neoclassical ssumptionof the firmas acompletelyrational,technologicalunit operating n competitivemarkets.But NIE focuseson ways of organizingtransactionsn ways that go beyondthe impersonal,arm's-lengthoperationsof the freemarket. The new institutionalism tressesthe relativeautonomyofpoliticalinstitutionsand the way such institutions nfluence ndividualpreferencesMarchandOlsen 1984; Moe 1984).20Unless therwisenoted, the followingdiscussion s adapted rom Leff(1979).2'For references n the operationof LDCgroups,see Leff(1990:6, fn. 10).22Researchon PacificRim businessnetworkshas been conductedunderthe auspicesofthe International rogramon East Asian Businessand Development EABAD)at the Uni-versity of California,Davis. This research as focusedon East rather han SoutheastAsia.



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Of particular interest here is the degree to which Southeast Asian entrepreneurshave gradually dislodged the foreign firms initiating such networks.Research should explore the ways in which networks, both domestic andcrossnational, help to finance and organize economic growth. The Bangkok Bank'sactive role in the Thai textile and apparel industries is an important case of suchactivities (Doner and Ramsay 1991). But work on interfirm financing should notbe limited to largebanksand companies.An importantareaof analysisis the informalfinancial sector-arrangements such as rotating credit associations, moneylenders,and credit between borrowersand lenders linked to transactions in other markets.Such institutions are widespread throughout the developing world and particularlyin SoutheastAsia (accountingfor over 40 percent of outstandingdebt in Thailand).23They are also now recognized as potentially useful for economic growth. Along with

general studies using the new institutional economics framework, recent empiricalwork on Sino-Thairice traderssuggests that rotatingcredit societiesand other informallinks may help to resolve problems of information-scarcity, transaction costs,monitoring, and free riders (Wongtada 1990; Hechter 1987; Varian 1990).Business-InterestssociationsBIAs). Formal associationsof firms in the sameproductarea, industry, or sector are quite widespread in SoutheastAsia. In many cases theseinstitutions grew out of communal, especially ethnic Chinese networks (e.g., Bowieand Doner 1988). In addition to their impressive numbers, BIAs have fulfilledimportantfunctionsat industry, national, and regionallevels in SoutheastAsia (Tiglao1990:68; Laothamatas 1988; Maclntyre 1988; Wibisono 1989; Soesastro 1989).They have attempted to promotea sense of class identification(e.g., Stifel 1963:173),to influencepublic policy, and perhapsmost importantfor our purposes,to implementpolicy. This latter function includes working out product standards,allocating exportquotas, monitoring prices, promoting the adoptionof new technologies, coordinatingcontracts, and supporting efforts to diffuse foreign protectionism (see especiallyLaothamatas 1988). Note also that trade and producers' associations have grownthrough participation in the industry clubs of the Association of Southeast AsianNations (Young 1981; Doner 1991). All of these activities requirethe reconciliationof otherwise conflicting private interests.Public-Private ectorConsultation:Regularized consultation between state officialsand local capitalistscan help overcomeproblemsof uncertaintyby encouraginggreatercoordinationand sharing of information than would occur through the market (Lee1990:21). Work on Japan, South Korea, and Taiwan has stressed the ways in whichthese arrangements facilitate state leadership and coordination, especially in theprovision of industrial finance. Appreciation of such formations has emerged in theliterature on Southeast Asia, although the emphasis here is more on collaborativethan state-dominated institutions. Jamie Mackie has emphasized the importance ofgrowthcoalitions involving the state and private sector (1988). Such arrangementsmay exist on the nationallevel and, as describedby Laothamatas1988) for Thailand,contribute to greater administrative efficiency and shifts out of import substitutiontoward export promotion. Perhaps most common are sector- or industry-levelcollaborations o improve local responsesto shifting foreign marketsand investments(e.g., Siriwatpatara 1989:ch. 6). Hong Kong's ability to contend with U.S.protectionism in textiles and apparel provides perhaps the best illustration of thepotential gains from public-private cooperation (Yoffie 1983:95, 118).

230n Southeastand South Asia, see Friedland 1990:35, and Lee 1990:7-8. Hechter(1987:107-11) providesextensive references n rotating credit societies in the developingworld.



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Problems of the Institutionalist Framework

Despite its utility, the new institutional economics has at least two importantweaknesses. The first is its general neglect of the redistributive and thus politicalconsequencesof institutions. NIE advocates presume that institutions are necessaryresponses to problems of market failure; they are efficiency-creating mechanisms.But at the most basic level, institutions often define efficiency in ways that favorsome more than others (Bromley 1989). Groups may succeed in resolving factor-market imperfections by mobilizing their own capital or producing their ownintermediategoods. Forexample, Thailand'sCharoenPokphandcircumventedpoliticalconflicts among soybean farmersand millers by building its own soybean processingmills and developing a contract-farming system (Christensen 1990:36). But suchmoves may resultin the weakeningof smallereconomicunits. And, as Leffemphasizes,these same groups may then create product-market imperfections, i.e., a specialform of oligopoly capitalism that reducesoverall efficiency(Leff 1979:55). Similarly,informalcredit marketsin ruralareasmay be vehicles for exploitationof poor peasantsratherthan the most efficient mechanism for local financing. And business interestassociationsmay be more thanmechanismsto share nformationand promoteefficiency.Indeed, if we are to follow Becker in viewing capitalists as social movements, wemust see business associations as mechanisms of class cohesion and propagation ofclass ideology (Becker 1991:121). There is, in sum, the danger that the newinstitutionalism becomes a new apologia for big business (Dugger 1983:107).24The NIE is also flawed by its overemphasison the demand for institutions andits inattention to their supply. That is, this literature demonstrateshow institutionscan resolveproblemsof uncertaintyand informationscarcityreflectedin, for example,the absenceof developedcapitalmarkets. But the very creationof institutions requirespeople to work together and thus involves collective action problems (Bates 1988).With few exceptions, then, the NIE literature lacks a theory of institutional origins(Feeny 1988).How, for example, do we account for what seems to be a greaterpredominanceof large, vertically integrated firms in Indonesia than elsewhere?What accounts forthe strength of business associations in one country and not in another?One set ofexplanations includes coercion and/or incentives provided by political elites. Forexample, Japanese business associations, buttressed by state incentives, were quiteactive in promoting the importation and diffusison of foreign technology into thecountry'scotton spinning industry. Such institutions did not exist in colonial Indiaat least in part due to the indifference or opposition of dominant English firms(Otsuka et al. 1988:73-89).Still anotherset of explanations ocuseson what Robert Bates has termed softerfactorssuch as community, symbolism, and trust (Bates 1988:398-99).25 Becausetransactionsin LDCs are often plagued by uncertainties, and becauseconsensusmustusually precede contract, some type of normative consensus is often a necessaryprecondition for the establishment of long-term relationships. According to JohnHall, the provisionof such a consensuswas one of the Church'sprincipalcontributions

24A relatedcriticismis that the veryassumptionof marketfailure s not justified,thatit simply legitimatesthe expansionistgoals of big groups. Nevertheless,when evaluatingthe welfareeffectsof groups, the most relevantcomparisons not the LDCwith perfectlycompetitiveproductandfactormarketsbut the LDCwithoutthe groups.I am gratefultoNathanielLefffor emphasizing his point.25Asimilarconcernhas been expressedwith regard o the studyof internationalnsti-tutions(Keohane1988:391).



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to European economic growth (Hall 1985:123-26). In Southeast Asia, ethnic andcommunal ties among Chinese have clearly been important to the emergence ofbusiness associations, credit networks, and powerful business groups (e.g., Lim andGosling 1983; Suryadinata 1988:265).26 The analysis of institutional origins inSoutheast Asia thus has the great virtue of incorporating, indeed requiring, thestudy of culture and ethnicity.Yet variationin institutional outcomes within similar ethnic or cultural contextsreminds us that the contribution of soft factors to institutional growth is mediatedby the broader social, economic, and political environments noted earlier. Theseenvironments, in which cultures and ethnic groups are embedded, can help explainone of the critical issues of SoutheastAsian development: crossnationaland historicalvariationin levels and formsof assimilation by overseasChinese (e.g., Skinner 1973;Mackie 1988; Lim and Gosling 1983). State efforts to coopt and control local firmsthus help to explain the expansion of associational activity under Indonesia's NewOrder (MacIntyre 1988). The growth of Thai associations reflected official effortsto obtain collective business support in policy implementation (Laothamatas 1988).Sociopoliticalfactorscan also help explain crossnationalvariation not in the existenceof institutions but in their levels of efficiency and commitments to industrialization.The incentivesprovided by the Marcosregime to large crony conglomeratesdifferedfrom those to which a more efficient conglomerate, such as Siam Cement, has beenexposed.But culture, ethnicity, or political constraints would seem unable to accountfor a still more microlevel of variation-namely, differences between firms of thesame nationality and ethnicity. How, for example, are we to account for the factthat Indonesia'sAstra is a more market- and industrial-orientedgroup than the morecommercial-, financial-, and political-favor-orientedLiem group? Similarly, how dowe explain the higher level of professionalization measuredby staffingand willingnessto go public) exhibited by Thailand's Saha Union relative to the TBI group (Donerand Ramsay 1991)? Explaining such variation will requirethat scholarsexplore suchfactors as firms' economic origins, personalities of founders, regional opportunities,and links to political elites (e.g., Mackie 1988a:245).

A Problem-Specific Research FocusMy emphasis on the weaknesses in the NIE literature is meant to strengthen,not discourage,researchon the developmentalcontributionof institutions in SoutheastAsia. Such researchshould, however, be problem-specificand comparative.It shouldbegin with collective action dilemmas in order to avoid prejudging institutionalsolutions. And it should examine these dilemmas and the institutional responsestothem in different countries, industries, and time periods. Comparative analysis can

clarify (1) the demand side of the equation-the range of functional requirementsthat any institution will have to fulfill if problems are to be resolved; and (2) thesupply side-the kinds of institutions feasible in particular social, political, andcultural contexts.26JamieMackie mplicitlystresses he role of communal ies in explaininghow IndonesianChinesebegantheir shift into higher-leveleconomicrolesduringa period(1957-66) whenanti-Chineseeeling was quite high: the Chinese wereable to adjustto the difficult con-ditions of inflationand shortages f key materials, oreignexchangeand capitalwith a muchgreaterdegree of flexibility thanthe ponderously ureaucratictateenterpriseswhich tookover the formerDutch investments 1988a:237).



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The following developmental tasks constitute useful starting points for suchresearch. They are common in LDCs and they are politically difficult: each involvesreconciling disparate individual interests with national economic growth. They arealso tasks on which researchhas already begun with regardto SoutheastAsia (Doner,forthcoming).1. StructuralAdjustment/Economiceform:To promote efficiency and exports,countries often attempt to implement a set of economic policies including monetaryand fiscal restraint,tariffreduction,and currencydevaluation.However, these measuresoften encounter political resistance. They may, for example hurt those manufacturerswho rely on overvalued exchange rates to keep the prices of imported intermediateand capital goods low. The implication, accepted by some Southeast Asianists, isthat implementation of such politically difficult reforms requires bureaucraticauthoritarianism or corporatism(Higgott and Robison 1985).Yet broadcomparativeresearchhas cast doubt on a correlationbetweenadjustmentand authoritarianism(Haggard 1986). Indeed, structuraladjustment in South Koreahas led to a replacement of unilateral administrative guidance by consultationand consensus between the state and business (Moon 1988:75). In Southeast Asia,privatebusiness associationshave played an importantrole in Indonesia'sderegulationprocess (Maclntyre n.d.; Soesastro 1989), prompting Richard Robison to note thatthe link between adjustment and authoritarianism is more complex than originallythought (Robison 1988). Thailand's recent devaluation suggests even more groundsfor skepticism as to the functional need for authoritarianism. This move did notcorrelatewith increased repressiveness.Much of the pressure for export promotionin Thailand reportedly came from private firms suffering from domestic marketslumps (Laothamatas 1988; Phongpaichit 1989).2. ReconcilingUpstream nd DownstreamFirms:LDC attempts to increase bothvalue added and efficiency can pit producersof a finished good (downstream) againstthose supplying needed inputs (upstream). The externalities of firms at all stagesof the production process must somehow be captured by the national economy. Thetextile industry can illustrate some of the specific dilemmas. Downstream producers,such as garmentmakersselling to foreign markets, require cheap, high-quality inputsfrom upstream firms, such as spinners, weavers, or dyers. In Southeast Asia, thegarment firms generally prefer (or are required by U.S. importers) to obtain suchinputs from more efficient, high quality foreign producers. The dual task is then(1) to provide strong domestic demand for products of upstream industries, while(2) enabling/forcing upstream firms to become more efficient. The South Koreanand Taiwan cases suggest that selected rotection and subsidy by state officials is onecomponent of a solution to this problem (Weiss 1988:232-33; Wade 1988:50).Also necessaryare state measures that reduce the costs of inputs to the upstreamfirms themselves (e.g., cutting tariffs on rawmaterialsor capital goods for spinners).All of this suggests the need for a capable, autonomous, and flexible group of stateofficials. But private firms or associations may also play an important role. Businessgroups may overcome upstream-downstreamproblems through vertical integration.Credit allocation by private actors may be more efficient than those of the state.Bulk purchasesto reduceinput costs may be successfullyundertakenby large tradingconcerns-the case for South Korean cotton spinners (Amsden 1989:61). Work onthis issue in the SoutheastAsian context has only just begun. Studies of the Indonesiantextile and Thai soybean industries illustrate both the centrality of such conflictsand the importanceof multiple actors in resolving them (Wibisono 1989; Maclntyre1988; Christensen 1991). But with one partial exception, existing studies do



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not identify upstream-downstream conflicts as the central problem (Robison1988:66-67).3. Standardization:The adoption of standard technologies leads to importantexternalities: greater scale economies, more rapid cost reduction, and potentiallymore rapid consumer acceptance. But convincing groups of firms to agree on asingle format is difficult, especially in situations where production designs comefrom foreign, parent firms. While governments have a potentially important roleto play in this problem, even Japan's MITI was not highly successful in imposingcommon technologies on electronics or auto firms (Noble 1989). Conversely, animportant standardizing role for large firms and associations of small firms issuggested by researchon the Southeast Asian auto industry (Doner 1991).4. ExcessCapacity:Small markets and/or market slumps combined with large

numbers of producers ead to negative externalities:surpluscapacityand inefficiency.While all firms generally acknowledge this problem, each would prefer that someother producer close down its operations. The South Korean electrical equipment,shipping, and auto industry cases show that governments have an important roleto play in resolving this collective action problem. But in Japan the governmentfailed in its attempts to rationalize the auto industry, and in textiles it was theJapan Cotton Spinners' Association that checked overproduction and uneconomiccompetition (Amsden 1989:61). In Thailand and Indonesia, there is evidence thatsuch problems areaddressedby banks as well as by tradeassociations(Ramsay 1987;Wibisono 1989:34-37).5. Investmentcreening:btaining benefits fromforeigncapitalrequiresa gatekeepercapable of imposing conditions on foreign investors. Governments have playedimportant roles in this regard through the imposition of local content and exportperformancerequirements, limits on technology licensing agreements, etc. (Mardon1990). But evidence from the East Asian NICs as well as from SoutheastAsia suggestthat local capitalists have been active and sometimes decisive participants innegotiations over these issues (e.g., Amsden 1989; Tang 1988). Private sectorparticipation seems especially important in Southeast Asia where state officials donot possess high levels of technical expertise. Equally important is the tendency forthe private sector to demand improvement in governmental expertise.6. Infrastructure: major obstacle to further industrialization in Southeast Asiais the lack of trainedpersonnel and physical infrastructure.Clearly, states must playa coordinating and financing role in providing such collective goods. The issue ofwhy some do and others do not is an important area of research(e.g., Malaysiantraining seems the most advanced, perhaps due to ethnic pressuresto expand ethnicMalay economic participation). But so is the possibility that such goods and servicesare provided through private sector efforts. As noted, for example, one study ofcotton textiles found that Japan's strength relative to India was in large part dueto the pooling of technology by membersof the Japanese spinners'association Otsukaet al. 1988:87). These mechanisms aregenerally lacking in SoutheastAsia, althoughin-house training programs and the use of Chinese technicians from Hong Kongand Taiwan may be partial solutions to the problem.

Conclusions: Political Economy andSoutheast Asian StudiesPolitical economy can be understood as that body of literature addressing thesources of, and potential solutions to, market failure. Until recently, this literature



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has been only minimally informed by or applied to Southeast Asian cases. This isunfortunate. Students of political economy have generated frameworks,at least twoof which-dependency and institutionalism-are potentially useful for understandingSoutheastAsia's economic performance. Conversely, a grasp of regional and nationalparticularities is a helpful corrective to errors and oversimplifications in theseframeworks.The dependency school attempts to explain one form of market failure, theexistence of monopolistic or oligopolistic foreign firms. Developments in SoutheastAsia and other regions have highlighted the conceptual and empirical limitationsof the dependency literature. Yet dependency has the virtue of drawing attentionto the influence of external variableson the region's growth. By tracing the interactionof product cycles, structures of hegemony, and the interests of external powers inEast and Southeast Asia, I have described a more variegated regional and globalcontext than the hierarchical structure portrayed by dependency theorists. I haveexplored the influence of this context on the economic opportunities facing thecountries of Southeast Asia and their domestic capabilities to profit from theseopportunities.A secondframework, nstitutionalism,addresses he domestic requisitesforgrowththrough its focus on collective action problems and nonmarketsolutions. SoutheastAsianists

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Approaches to the Politics of Economic Growth in Southeast Asia