Another book to add to my ‘to-read-list’: Asian Godfathers: Money and Power in Hong Kong and Southeast Asia. Newsweek has an article by the author of the book, Joe Studwell. Studwell had expected that the Asian crisis ten years ago would trigger the transition from crony capitalism to a market free of manipulation by bureaucrats and politicians. After the research for his book, he concludes that he was wrong:
The architecture of the Southeast Asian economy remains what it was 10 and 50 and 100 years ago. The domestic economies of Hong Kong, Singapore, Thailand, Malaysia, Indonesia and the Philippines are all still dominated by reclusive, enigmatic billionaires and their families.
He observes that inequality has persisted in Southeast Asia and Hong Kong and attributes this to the Asian Godfathers. These Asian billionaires can avoid the pressures for global competitiveness by prospering from concessions, monopolies and cartels. Southeast Asian crony capitalism might have followed quite different historical pats – often related to their colonial past – but throughout the region, it has led to the emergence of tycoons whose wealth is rooted in some form of state sanctioned monopoly. And the crisis has not changed this. As he describes for Malaysia, Indonesia, Thailand and the Philippines, the relationships between economic and political elites are enduring:
Malaysia, which imposed capital controls and raised a finger to the International Monetary Fund as the crisis spread, dealt with its fallout in traditional fashion. The businesses of Halim Saad and Tajudin Ramli, the leading bumiputra (or indigenous) tycoons with close links to the ruling United Malays National Organization, were bailed out with injections of government money and state share purchases.
Almost none of the big players was ruined by the financial crisis in Malaysia, Thailand or the Philippines, and so it was in Indonesia, despite the fall of Suharto. The old man’s closest confidant and golfing buddy, Hasan, was made an example of with a conviction for fraud; he served a couple of years in a special and commodious prison cell.
Studwell draws some comparisons with South Korea and Taiwan, where reforms were more successful than in Southeast Asia. He attributes this to measures such as land reforms, commitment to social equity, and the existence of independent organised labour. Also, although all of these countries backed family businesses, South Korea and Taiwan supported local manufacturers, while the Southeast Asian states backed their cosmopolitan trading elites.
Other important differences are related to principles of accountability and transparency and especially, to actually enforcing those principles. After 1997, South Korea’s Kim Dae Jung implemented reporting and compliance requirements in the Seoul stock market and supported the independence of the judiciary. South Korea and Taiwan now have a GDP which is three to four times higher than Malaysia and ten to twelve times higher than Indonesia and the Philippines.
Studwell is clear about the reasons for these different outcomes. Korea’s and Taiwan’s political choices have created free societies and global competitive companies. The political choices in other parts of Asia have led to the persistence of a superannuated economic aristocracy.
Studwell’s focus on the Asian tycoons might not provide a full explanation for all the problems, but I am sure it points to an important one. It emphasises the importance of stable and transparent institutions in economic development. It is pretty clear that the cronyism has all but disappeared after the 1997 financial crisis. Although anti-corruption measures are proving more or less successful in countries like Malaysia and Singapore, in Thaksin’s Thailand persistence of cronyism has been pretty obvious and Jakarta’s new titans are not free of this behaviour either.