Part 1 of 2 Economic development strategy in SE Asia

Part 1 of 2 Economic development strategy in SE Asia

Narongchai Akrasanee, Former Thai Minister of Commerce, Jakarta

The countries in Southeast Asia have to continuously formulate
and adjust economic development strategy.

In doing so, we are influenced by at least four groups of
issues: Social and economic phenomenon, economic theory,
country's experiences, and changing business paradigm.

Making decisions on today's economic development strategy
depends on those considerations, plus where we are on the
development mode of trade, finance, and technology.

Let's first look at the influence of the social and economic
phenomenon. Each of us might have had a different social and
economic history. But all of us have experienced Western
domination. Those who suffered more have taken more time to join
the Western model of market capitalism and democracy.

Now almost all of us have joined the global market capitalism
and some form of democracy, depending upon the different concern
about security issues in our country.

Each has a different degree of success with market capitalism.
Some are skeptical about market capitalism, and are trying to
develop own model of economic development.

Recently Asia has gained more economic power, particularly
because of China. Thus new economic development model is focusing
more and more on inter-Asian economy.

Further, let's look at the strength of economic theory. If we
learn economics in the West, we tend to support market
capitalism. In market capitalism David Ricardo told us more than
200 years ago that trade should be based on comparative
advantage.

This was supported by the works of such economists as
Heckscher & Ohlin, Stolper & Samuelson. The theory tells us that
trade liberalization through optimal allocation of resources and
factor price equalization would be welfare enhancing, even
reaching Pareto optimum.

That requires a perfect market, which Edwin Chamberlain and
Joan Robinson say does not exist. We liberalized trade and had
gained from trade, but often with unfavorable terms of trade. And
now Joe Stiglitz, a Nobel Laureate in economics, tells us that it
is so because we have "asymmetry of information", meaning because
we know less than our trading partners.

On finance we learn from such economists as J.R. Hicks and
Harrod/ Domar that capital is the engine of growth. We can only
grow as much as capital accumulation allows us to grow. We are
encouraged to have domestic saving and to borrow from overseas.

We are encouraged to open our capital account and to
liberalize our financial sector. Some of us did, like Thailand
and Indonesia in the early 1990s.

It is true our economies grew a lot. But look at what happened
in 1997 and 1998. We have now learned that by joining the global
financial market we are faced with unfavorable terms of risk.

On technology we learn form Joseph Schumpeter the power of
innovation. We learn from Dale Jorgenson about growth due to
productivity improvement. We learn that to benefit from
productivity driven growth we must have a good system of
intellectual property rights.

Now most of us are grappling with this concept. It is not a
part of our culture. This is now a necessity, as Paul Krugman
said, that we have exhausted our labor and natural resources. To
grow we must rely on productivity and creativity, through the
development of the Intellectual Property Rights (IPR) system.

Further, one should look at the factor of country's
experiences. We have had different experiences with the economic
development strategy we adopted. Thailand and Indonesia could
claim some success for trade liberalization, but failed at
financial liberalization.

Malaysia has done better in both areas. And Singapore has done
very well. The Philippines has not opened the capital account as
much. Vietnam is experimenting with trade liberalization. So each
of us has different views about trade and financial
liberalization.

We are told that to really benefit from liberalization we must
have: Proper sequencing, practices of good competition policy,
practices of good governance, and maintenance of sound
macroeconomy. As we could not claim to have all those virtues,
the bad experiences some of us had with liberalization was said
to be entirely of our own fault. The critics say that there is
nothing wrong with the liberalization model.

There is also the influence of the changing business paradigm.
As we open up to do business we are constantly confronted with
the changing business paradigm initiated by the West. The
paradigm has important bearing on our competitiveness. And we
continuously have to play the catching-up exercise.

Factors which have influenced business practices the most are
transportation and telecommunication technologies. And now
computation technology, which is evolving very rapidly, is having
the biggest impact on business paradigm. Transportation
determined the trading mode ever since the steam -- engined cargo
ships started to travel from Europe to Asia in the early 19th
century.

Now we have container ocean liners and cargo jumbo jet planes,
which contribute towards the ever growing intra-industry trade
and specialization. And the continuous advancement of
telecommunication technology has transformed commercial
transaction into electronic -- thus the emergence of e-commerce
in all areas.

At present, behind the changing business paradigm is the rapid
progress of computation technology, which is happening so fast
that even the Moore's Law has become obsolete. Remember, the
Moore's Law says that "At the same cost, computation capability
doubles in 18 months". In the last three years computation
capability in all categories including processing, storage, and
transmission increased many folds. This was happening along with
software development and the Internet expansion.

The development of computation technology has created
ubiquitous computing (meaning computing everywhere),
computational biology, cognitive devices, and e-commerce.

So now the business paradigm is changing from: Economy of
scale to economy of speed, mass production to customized
production, owning assets to accessing assets, tangible assets to
intangible assets and intermediation to e-mediation. This fast
changing paradigm prompts Juan Enriguez to threaten us that if we
do not change, we will be "caught by our future".

The above article is abridged from the writer's presentation
at The Jakarta Post's seminar on Strategy for Indonesia's
Economic Development held on April 28.