13 - 19 September 2001
Issue No.551
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Al-Ahram Weekly Online 13 - 19 September 2001 Issue No.551 |
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Can't happen here?
Al-'Arab wa Al-Tagruba Al-Asiyawiya -- Al-Durus Al-Mustafada (The Arabs and the Asian Experience -- Lessons Learned), Mahmoud Abdel-Fadil, Beirut: Centre for Arab Unity Studies, 2000. pp261The phenomenal economic growth experienced by the societies of Southeast Asia over the past four decades or so has posed a challenge to many accepted theories of planning, industrialisation and growth. Yet, just as it appeared that these economies could only move from strength to strength, the sudden stock market crash in these countries in the summer of 1997 cast grave doubts on their ability to withstand the ravages of globalisation. However, this crash is incidental, or at least tangential, to the primary focus of noted Egyptian economist Mahmoud Abdel- Fadil in his new book The Arabs and the Asian Experience -- Lessons Learned.
Abdel-Fadil looks instead at the base upon which these nations launched their astounding growth and succeeded in overcoming what traditional economists -- capitalist and Marxist alike -- held were insurmountable obstacles to Third World nations' prospects for development. If, perhaps, the major exponent of traditional economic thought on this subject has been Gunnar Myrdal in his The Asian Tragedy: An Attempt to Understand the Causes of the Poverty of Nations (1967), an extension of this perspective can be found in the World Bank's 1993 study The Asian Miracle and in the dozens of academic attempts that appeared around that time attempting to explain the astounding success of the "Asian tigers." Abdel-Fadil discards miracles as an explanation for the Southeast Asian countries' success, instead, seeking concrete answers to two crucial questions: Is the Southeast Asian model for development reproducible? And if so, is it reproducible in the Arab World at this point in time?
In order to answer these questions, Abdel- Fadil explores the relationship between governments, markets and institutional frameworks in Southeast Asia, looking at how this has contributed to spurring economic growth, increasing technological research and development, developing the productive infrastructure and accumulating capital in the region. He further investigates policies adopted to stimulate export trade, the forms of regional co- operation that have fostered opportunities for growth and development and the forms of deregulation that have been conducive, or inimical, to the development process. Finally, he takes the five Asian tigers -- Singapore, Malaysia, South Korea, Thailand and China -- in turn in order to examine the relative strengths and weaknesses of their individual experiences.
The figures are, indeed, awe-inspiring. In Singapore, a country of four million people, GNP soared from very modest beginnings in 1960 to reach $99 billion in 1997, yielding a rise in per capita income from $430 to $16,000 and a rise in the volume of foreign trade from $5.2 billion to $257 billion as it did so. Similar exponential economic growth trajectories were experienced by the four other countries, indicating an unprecedented pace of infrastructural development, a powerful reorientation towards export production, and a radical restructuring of domestic productive capacity towards the processing or modern technological industries, such as electronics, communications and transport.
Such success stories demand explanation, and Abdel-Fadil's study offers the keys to one. The most important of these is the dominant role the State has played in steering the development process in co-ordination with the private sector and in co-operation with major multinational companies. In Malaysia for example, the government's industrialisation policies from 1970 to 1981 focused on the development of light industries, advancing to heavy industries thanks to a direct injection of government subsidies, followed from the mid-1980s on by a strong reorientation to export. One of the primary components of Malaysia's industrialisation strategy is known as the "cluster approach," which links manufacturers to primary and secondary material suppliers. Malaysia's second major industrialisation plan for 1996 to 2005 illustrates the extent to which this strategy has boosted production and made diversification possible. It focuses on developing eight branches of industry: electronics, automobile manufacturing and shipping and transport equipment, chemical and petrochemical industries, textile manufacturing, rubber and cocoa products, the metal and ceramic industries, the food- processing industries and, finally, tools and appliances.
In the four other tigers the State has played a similar, if not more dominant role. Thus, successive governments in South Korea have adopted unequivocally protectionist policies to promote domestic industry, while China in 1994 introduced the concept of "pillar industries" to spearhead industrial development. In all these countries State-led development of this kind has been complemented by a strong and dynamic alliance between the public and private sectors and reinforced through co-operation with multinational corporations. It is perhaps this dynamic that has inspired some economists to label these governments "development-oriented."
A second ingredient in the success of the Southeast Asian economies has been the attention they have accorded to research and development in all sectors of industry. R&D allocations in these countries have ranged from 1.3 per cent of GDP in Malaysia, for example, to more than two per cent in South Korea. This high level of investment, together with a serious R&D infrastructure and ambitious technical training programmes in both the public and private sectors, has enabled these countries' industries to gain a valuable competitive edge in international markets. In addition, China and South Korea have gone one step further and established special government departments for technological development to oversee the creation of technological training institutes and industrial development support funds. More importantly, this general focus on R&D in the Southeast Asian countries has been accompanied by the intensive and comprehensive development of the entire educational system, the potential source of a permanent, diversely skilled labour force.
Twin towers, Kuala Lampur
The third contributing factor to rapid industrialisation in these countries has been one that can be readily contextualised historically, namely the large quantities of direct foreign investment (DFI) that they have been able to attract. Abdel-Fadil explains that the primary stimulant for such increasing amounts of DFI was the West's desire to check the encroachment of communism in these countries, beginning in the mid-1950s in Japan and extending throughout the rest of the region by the late 1960s. So massive has this influx of Western capital been, we are told, that in Singapore, for example, DFI came to dominate three quarters of the industrial-processing sector and approximately 85 per cent of the total industrial-export sector. As Abdel-Fadil puts it, Singapore has gradually become one large factory for the manufacture of the products of major Western-based companies.
Malaysia, by contrast, has proceeded more cautiously. Thus, from 1965 to 1985 DFI accounted for only 17 to 30 per cent of total investment in industrialisation. This, however, changed dramatically the following year, when DFI skyrocketed, reaching 71 per cent of total investment in this sector by the end of the 1980s. It began to taper off again in the 1990s, falling to 44 per cent by mid decade. Nevertheless, Abdel-Fadil adds that foreign investment has continued to dominate in the country's electronics and appliance industries.
In South Korea -- curiously, given its geographical position -- DFI has played only a very minor role in the industrialisation process. Instead, successive governments there have relied on loans from international donors, and, as a result, DFI never climbed above 10 per cent of foreign loans throughout the 1980s.
Abdel-Fadil finds China to be something of an anomaly. Although Western foreign investment in the country rose dramatically between 1979 and 1998, going above $549 billion, the majority of this investment was Chinese in origin, whether from the Hong- Kong Chinese, from Taiwan or from elsewhere in Southeast Asia. In view of this, the author asserts that foreign investment in China cannot be seen as primarily Western or American in origin.
Fascinating though Abdel-Fadil's analysis of the figures and of the five Asian tigers' industrial experience is, perhaps the most intriguing chapter in this section of The Arabs and the Asian Experience is that devoted to "Chinese market socialism." The author's analysis of the Chinese model, and of the problems this has encountered with regard to the role of the consumer, planning, the limitations on market forces and distortions in the distribution of income, is very enlightening -- though one is left to wonder what lessons can be drawn from it.
Nevertheless, in general there are plenty of lessons to be drawn from the Southeast Asian experience as a whole. These Abdel-Fadil delineates in the final section of his study, in which he argues that these countries' success has rested upon three fundamental factors: firstly, State-led development and long-range strategic planning; secondly, a major restructuring of the productive base together with the dynamic co-operation of public and private sectors, on the one hand, and international companies on the other; and, thirdly, a proactive reorientation to export production in these countries' economic and legislative policies.
However, Abdel-Fadil further outlines a number of important criteria by which their success may also be measured. Among these are the rise in savings and investment rates in Southeast Asia to a minimum of 30 per cent of GDP, evidence that the economy has crossed into the realm of high-technology use and innovation, and these countries' capacity to penetrate international markets in terms of manufacturing, rather than in terms of the export of primary or raw materials. Abdel-Fadil also adds sociological criteria, such as the equitable distribution of the fruits of economic growth, the fostering of a work ethic founded upon dedication and excellence, and, finally, the existence of institutional frameworks to promote co-operation between the various sectors of industry and society in meeting the goals of development.
Abdel-Fadil reduces these criteria to a formula, "judicious State planning + a mature market = potential for success," and this suggests an answer to the first question with which he commences his study. Yes, the Southeast Asian experience does appear to be reproducible. However, unfortunately in Abdel-Fadil's view prospects for reproducing it in the Arab World are poor. The new global circumstances following the end of the Cold War, the implementation of the GATT agreements with all the attendant impediments they impose upon developing economies and the lack of effective inter-Arab co-ordination and integration all work against applying the Southeast Asian model here. Yet, if The Arabs and the Asian Experience closes on a sober note, it is nevertheless an important contribution to the literature on Arab development, and one that only an economist of Abdel-Fadil's scope and depth could have written.
Reviewed by Abdel-Khaleq Farouq
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