Singapore Economic Model and Authoritarian Democracy: THE PHENOMENON OF THE 21ST CENTURY IN SOUTH...

Singapore Economic Model and Authoritarian Democracy T H E P H E N O M E N O N O F T H E 2 1 S T C E N T U R Y I N S O U T H E A S T A S I A

Panakorn Dejthumrongwat

MA Global Political Economy 110035234

CITY UNIVERSITY LONDON

SCHOOL OF ARTS AND SOCIAL SCIENCE

DEPARTMENT OF INTERNATIONAL POLITICS

Supervisor: Anastasia Nesvetailova December 2012

City University London Panakorn Dejthumrongwat

Table of Contents

Page

1 Acknowledgment

2 Abbreviations

Introduction 3 Introduction

5 Methodological Approach

The Asian Developmental Model

6 Literature review

Democracy and Liberalism

8

Statism

11 Conceptual Framework

The Political Trilemma

12

Authoritarian Democracy

15

Singapore Economic Market-led by Foreign Investment State Developmental Capitalism

Economic Plan and Economic Transformation

State Capitalism

18

20

22

Case Study

Background in Politics and Economies

Indonesia Politics Economy

Thailand Politics Economy

Malaysia Politics Economy

24

25

28

30

32

33

Why Authoritarian Democracy and Singapore Economic Model are chosen to embed into These Countries.

The Weak Political Institutions

Asian Value

37

39

Analysis


Provision Rapid Economic Growth

Authoritarian Paternalism: From Feudalism to the Spoil-system Society

41

43

Why It Might Not Work?

Human Development Indonesia Thailand Malaysia

Corruption and Crony Capitalism Indonesia Thailand Malaysia

Economic Transformation Indonesia Thailand Malaysia

47

50

52

55

58

60

62

65

69

Conclusion 73 Conclusion

76 Bibliography

1


Acknowledgement

This paper could not finish without a lot of grateful from many kindness people. First of all, I have to thank my mom who is the most important person for my achievement. Under the crucial capitalist world, studying in UK; especially for non-EU student, is extremely expensive – cost of living, housing and tuition fee is unreachable for most Thai people. My mom, she comes from nothing, however, she has been working hard from her whole life for the family and now she selflessly pushes her stupid son to nearly graduates from UK University. I also have to thank my dad for his good wishes for me. He always tries to warn me every time he thinks I might make mistake. His supports are always willingly occurred every time I ask for help. Secondly, my heartfelt thank to Fonthip; even though she came here for studying her own course at the UK too, she has always stayed here beside me to help me finish my course. Hanging around UK with her is a moment in my life. Lastly, before I came here; my teachers from Thammasat University helped me a lot. I am deeply indebted to Dr. Pichit Likitkijsomboon and Dr. Patcharee Siroros for writing recommendation letter for me even I was not deserve for their kindness. Although I am not under supervised by Dr Pichit who is an economics lecturer and Dr. Patcharee has a very busy work, they never hesitate to help me to be success in my further study.

I wish that someday I will have chance to show my respect to all these people and I promise that all knowledge will be used morally. To be educated is be lived privileged but not for ruling society but for creating better society.

With heartfelt respect

Panakorn

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Abbreviations

MITI: Ministry of International Trade and Industry

EDB: The Economic Development Board of Singapore

NWC: The National Wage Council

NCB: The National Computer Board

IT: Information Technologies

SIJORI: The Singapore–Johor–Riau

GLC: Government Linked Corporation

SWF: Sovereign Wealth Fund

PWC: PricewaterhouseCoopers

ASEAN: Association of Southeast Asian Nations

NEM: The National Economic Model

CPF: Central Provident Fund

GDP: Gross Domestic Product

CPI: Corruption Perception Index

OECD: The Organization for Economic Co-operation and Development

BBC: The British Broadcasting Corporation

PISA: The Programme for International Student Assessment

TOEFL: Test of English as a Foreign Language

IMD: International Institute for Management Development

MOF: Ministry of Finance

KPK: The Corruption Eradication Commission

US DoS: U.S. Department of States

MP3EI: The Master Plan for Acceleration and Expansion of Indonesian Economic Development

PPP: The public–private partnership

ADB: Asian Development Bank

TCC: The Trade Competition Act

ETP: The Economic Transformation Program

PEMANDU: The Performance Management & Delivery Unit

3


Introduction

Singapore has experienced rapid and sustainable economic development in the past 50 years, its

GDP having grown by a factor of 26 and income per capita having increased by a factor of 63.7

(Lim, 2008). Both BBC (2012d) and Freedom House (2012) consider Singapore to be an

“authoritarian democracy” because, despite it having had elections, it is de facto a single-party

state with a high degree of control over social and economic activities. Bornschier and Lengyel

(1994: 324) define an authoritarian democracy as a regime with a “lack of legitimacy and weak

economic performance. Proponents of authoritarian democracy advocate a less flexible system of

political representation”. List-Jensen (2008: 22) argues that this evolutionary will be inevitably

ended in fully democracy. Nonetheless, Singapore does not suffer a lack of legitimacy and,

obviously, is no longer a poor country. Although elites still control the political system, they are

powerfully supported by the majority who are content to remain within an illiberal system (BBC,

2012d).

Singapore‟s political economic model is very attractive to surrounding countries because of its

high economic growth, low incidence of social conflict and, in particular, the status of its elite

group. Its neighbors, Malaysia, Indonesia and Thailand, are looking to adopt Singapore‟s model:

“Malaysia is interested in tapping Singapore‟s successes” (Benjamin, 2011); “Thailand should

not aim to become a fully fledged democracy but rather an „authoritarian democracy‟ like

Singapore” (The Nation, 2008); and from Indonesia: “Singapore is small, the government system

is smaller, but there are things to learn” (Pasandaran and Antara, 2010). Furthermore, it is not

only its economic model that Singapore is exporting to the South East Asian region; South East

Asian emerging countries are also tending towards the political model of authoritarian

democracy (Springer, 2009). Malaysia is an authoritarian democracy under single-party rule.

Indonesia, during Bambang‟s regime, is populist authoritarian. And, although Thailand is still in

the throes of civil political war between the royalist bureaucrats and the right-wing capitalists,

both sides seem to advocate authoritarianism.

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Hence, the goals of this work are; first, how Singapore achieve the economic success? Second,

what is authoritarian democracy, and is it support economic growth? Third, why these countries

interest in this political economic mechanism? And, what are the problems that may obstruct

them to pass through the middle income trap?

5


Methodological Approach

This paper will start by stating a conceptual and theoretical framework, taking the Asian

developmental model as a big picture of economic development in the region. The relation

between democracy and liberalism will be analyzed and the concept of statism will also be raised

as a root of authoritarian democracy. “The Political Trilemma” theory will be explored as a core

concept that bridges the economic model and the political regime. Secondly, it will research

authoritarian democracy to demonstrate the model‟s underlying political mechanism, and

analyze the structure of Singapore‟s economic model: why it succeeds, what the components of

“Two parallel strategy” are, and how to implement the model. Later, the paper will describe the

political economic background of Malaysia, Indoneaia and Thailand and analyze why they are

interested in adopting Singapore‟s economic model and tend towards authoritarian democracy.

Finally, I will summarize the strategy of these countries and evaluate via three categories –

human capital, corruption and cronyism, and economic transformation plans – to the degree to

which they have managed to pass through the middle-income trap.

6


The Asian Developmental Model

Asian capitalism is characterized by high investment and high savings. This is in contrast to

Western nations, which are characterized by high investment and high spending (Sim, 2001: 62).

This model is a feature of the Asian miracle countries: Japan, Korea, Taiwan, Hong Kong and

Singapore. However, careful examination shows that all of these countries do not have a same

pattern of economic drive.

Japan employed a developmental state strategy, combining a semi-bureaucratic democracy with

planned capitalism in the early stages. Economic development guidance was led by the Japanese

Ministry of International Trade and Industry (MITI). Nevertheless, market autonomy was offered

to some private firms that were selected by the government to be champions (Keiretsu) in

various sectors: Toyota, Mitsubishi, Sumitomo, and so on (Miyashita and Russell, 1994; Davis,

2001). Internationally, Japan has been identified as export-oriented, in that its economy has

benefited much from exporting; however, the internal market has been subject to a high level of

protectionism.

This pattern is the same in South Korea. Under its dictatorial regime, the policy was one of

export-orientation and high protection, with government selecting conglomerates (Chaebol):

Samsung, Hyundai, LG, and SK. Following the transformation to electoral democracy, economic

liberalization has increased but many state interventions that support national champion firms are

still obvious (Ferris, Kim and Kitsabunnarat, 2003).

Taiwanl; since the Chinese civil tensions of 1988, had been ruled in a single-party system (Stark,

2010: 199). Kuomintang governments are keenly aware of political corruption, and have thus

concerned themselves with the relationship between politicians and business. Taiwan‟s

government supports the economy through financial incentives and technological knowledge

rather the selection of champions or strong state intervention. SMEs have been promoted and are

the main engine of Taiwanese economy. Taiwan uses export-orientation strategy only in its re-

exporting and services hubs. Domestic consumption is still the primary market on which the

economy relies (Ning 2007: 572).

7


Hong Kong‟s economic strategy is largely different from its neighbors. As a former British

colony, it has employed a market-led approach with a high degree of market liberalization.

Market competition encourages the emergence and growth of huge firms in Hong Kong. The

state also benefits from its geographic location as the gateway to China. Thus, Hong Kong is a

case of a neo-liberalist economy driving under a traditional Asian society.

Politically, these Asian miracle countries, during rapid economic boom, had various kinds of

authoritarian regime: Japan, a bureaucratic democracy; Korea, a dictatorship; Hong Kong, a

British colony; and Taiwan, an authoritarian democracy. Economically, this is broadly referred

to as the Asian developmental model, though there is much variation therein. Hence, the term

“Asian developmental model” is not an appropriate way of defining an economic strategy –

rather, it tends to describe business procedure styles, while demonstrating that patronage, family,

and informal connections are essential. Additionally, consumption, investment and savings differ

from the Western approach. There is no agreed definition of what constitutes the East Asian

model of development (Haggard, 2004). “Different writers select different characteristics, often

depending on what country they are studying, and, at times, in function of their ideological

preferences” (Boltho and Weber, 2009: 268).

8


Democracy and Liberalism

Democracy – probably originating in the Greek era – is a contested concept. Plattner (2010: 83)

contends that it means the rule or power of the people, while Inglehart and Welzel (2009: 44)

concentrate on the involvement and empowerment of ordinary people. Winichakul (2008: 28)

points out that democracy tries to blend a complex society with conflicting interests whereby

individuals with equal rights are able to move along and muddle through together, while Zakaria

(2003: 14) defines it as a shift or downward force of power that breaks down hierarchy.

The rise of democracy in the modern period soared alongside liberalism, which, originally, was a

sociological idea rather a political ideology, and, at first, was neither conservative nor radically

democratic (McClelland, 1996: 439). Nor is it about the procedures for selecting government;

rather, it is a government or society goal that focuses on individual autonomy.

Generally, liberalism addresses a distrust of political power, suspicion of the state, and a

conception of the state as being an extra-societal regulating mechanism. Thus, people keep their

government under constant scrutiny to ensure it does not overstep individual rights (McClelland,

1996: 245). Liberalism as political ideology holds as central the values of liberty, rationality and

individualism. It is concerned about the protection of the rights of minorities and individuals,

guarantees of citizens‟ liberty, and the subjection of the government to the constraints imposed

by the rule of law (Plattner, 2010: 84). By achieving its purpose, liberalism emphasizes the free

choice of individuals, free thought, free speech and the defense of liberty (McClelland, 1996:

478). Hence, in the liberal view, the basis for government should be opinion and participation,

not force.

The dominance of Western hegemony and the rise of neo-liberalism in 1980s have driven the

combination of liberalism and democracy. Modern “democracy“, however, has moved far from

the realm of political thought into a practical way of life (Zakaria, 2003: 14). That is why it is

frequently used as a huge social science framework – encompassing economics, sociology and

politics – rather than only a political framework. Additionally, in liberalism, freedom and

individual rights have transcended merely personal behavior, but have broadened into institution

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culture, traditional procedures and unwritten law. Hence, the classical liberal characteristics of

democracy require a multiplicity of parties representing competing policy agendas and clear

political alternatives, limitations on governmental authority and guaranteed rights of free

expression and association (Inoguchi and Newman, 1997).

Pichit Likitkijsomboon (2012) argues that liberalism and democracy are undivided concepts.

Any “non-liberal democracy” is not democracy; it is just disguised authoritarianism. Arblaster

(2002) claims that authoritarian democracy is just a mask of Fascism, where the power belongs

to elite groups and the majority‟s purpose is denied. Khong (1997) contends that “it is populism,

rather than democratic theory, which explains the nature of Asian politics”. Friedman claims that

Singapore has the form of democracy but the reality is dictatorship (Sim, 2001: 47). This idea of

undivided liberal democracy was formed during the Cold War by a Western society that highly

respected individual rights and reflected this by enabling mass power – via election – that

balances governance with the protection of individual liberty. Since the 19th century, liberal

democracy has spread widely around the world. The collapse of monarchies and communism

seems to be “the end of history”. Also neo-liberalism in the second half of 20th century has

sought deep economic integration and less government intervention. Nevertheless, in reality, the

role of government has not decreased. Centralized and bureaucratic administration still controls a

huge proportion of resources, and has failed to transfer tangible benefits to a public that has little

involvement in decision making (Midgley, 1987).

The ideology of undivided liberalism and democracy does not account for the fact that

sometimes the majority do not want to protect individual – this is now happening in US: “We are

actually in a situation where people are more concerned about having a bit more money than

about ensuring that all people are treated fairly and equally” (Epstein, 2012). Anderson and

Guillory (1997: 66) state that democracy is about winning and losing elections, but democratic

governance is how the political system deals with the winners and losers afterwards. Even if

governments are legitimized by a fully free democratic system, economic failure could affect the

stability of not only the government, but also the whole political system. Conversely, some

people prefer to give their freedom by believing that an authoritarian state would create a better

society – while in Western countries public curious in government‟s actions is normal thing,

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Eastern countries are asking for more action from government. Hence, liberal democratic

universalism was an arrogant and naive attempt to impose the ways of “the West” on “the East”

(Thompson, 2001: 55). Thus, we have democracy and liberalism from another perspective;

however, this will be analyzed separately.

11


Statism

Statism is a very broad concept embodying the idea that the state should administrate as the

centre of politics, economy and society. Measuring statism can be achieved by comparing the

position of the state vis-à-vis the individual (Jessop, 2007). Thus, it could be argued that

Keynesianism and Marxism can be seen as statism (Rapley, 2002). Keynesians believe that

overwhelming market self-regulation can bring economic and social turmoil. The state has a duty

to regulate in crucial areas and sometimes the state‟s interventions are necessary for securing

economic stability (Stiglitz, 2003; Harvey, 2005). Marx‟s theory argues that statism always

exists to some degree in capitalism and this has a strategic meaning in socialist practice by

strengthening the role of the state in order to promote a “revolution from above” for the

transition to socialism (Jessop, 2007). Hence, the core of statism, which opposes liberalism, is

“the concept of freedom and the role of government … statists hold that freedom entails the

government‟s having the power to seize money from people in order to take care of others and to

manage and control economic activity” (Hornberger, 2011).

12


The Political Trilemma

The political trilemma of the global economy is the idea of political economy that was raised by

Dani Rodrik. Rodrik (2002) stated that only two out of three of the following elements – “nation-

state system, democratic politics, and full economic integration” – can exist together. A global

market without global governance is unsustainable, as exemplified by the disaster in Argentina in

the second half of the 20th century when it tried to have all three. In Rodrik‟s analysis, “deep

integration” – the reduction in trade barriers and capital flows, including the technology to

diffuse information across political boundaries – has been an aggressive global agenda, but most

people do not realize that states cannot achieve it without cost (Wolf, 2012: 3). However, Rodrik

showed that “deep

economic integration is

unattainable in a context

where nation states and

democratic politics still

exert considerable force”,

and that is why America‟s

capitalism differs from

Japan‟s (Rodrik, 2002: 2).

“These institutions perform

several functions critical to

markets‟ performance: they create, regulate, stabilize, and legitimate markets” (Rodrik, 2002: 3).

It can be seen that national institutions are not only about government. He gives the example of

“home bias”, where households place their wealth within their borders. Jurisdictional

discontinuities in developing countries and high sets of regulations or standards impose a wide

array of transaction costs in much the same way that transport costs or import taxes do. The

terms of democracy that Rodrik refers to are clearly those of Western-style democracy – a liberal

political regime.

The reason why a nation-state system, democratic politics, and full economic integration cannot

present together is that they are against each other in some cases. Beginning with “Global

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Federalism”, the combination of market integration and democracy cannot bring about a nation

state, as can be seen in the US mechanism whereby regulators cannot overstep into the market or

politics. While the “Bretton Woods compromise” is unsustainable if market integration goes too

far, Japan‟s domestic market and the EU internal system would be in chaos if cheap labor and

goods could access them. In contrast, the institutions will create what is called “missing trade” –

trans-border trade that, even though it has no tax barriers, is still “fall far short of what standard

theories of comparative advantage predict” (Rodrik, 2002: 10). And the Golden Straitjacket can

no longer stand if there is political disagreement because democratic politics will raise suspicions

in economic policy, which is not same as national borders that “stand in the way of deep

economic integration because they demarcate institutional boundaries” (Rodrik, 2002: 13).

As Rodrik described, one solution that could possibly work is to combine deep economic

integration with the nation state by wearing the “Golden Straitjacket”. Yi Feng agrees that we

have to think beyond election legitimacy because of the paradox between policy certainty and

political freedom/political stability (Wijayanto, 2011). Johnson (1987: 143) states that

authoritarianism can solve the main political problem of economic development within capitalist

markets because it is able to mobilize population to work and make sacrifices for developmental

projects. He suggests that, historically, whether democracy is or is not the only factor in

economic development, the state still needs to achieve a specific kind of legitimacy in order to

create internal stability, and acceptability in international economic and political markets; an

“authoritarian developmental state” has much more chance of behaving in an experimental and

undoctrinaire manner than other kinds of state (Johnson 1999: 52).

List-Jensen (2008) summarized why an authoritarian regime can achieve greater economic

development. Firstly, the authoritarian regime is able to direct the mass population to make the

necessary individual sacrifices in the public interest, and suppress mass consumption in order to

produce or consume without argument. Secondly, mass democracy does not always produce

rational decision making from technocrats. The electoral system also can bring political and

economic uncertainty. Authoritarian regimes can be more efficient in achieving the goals when

they need a specific kind of knowledge. Authoritarian governments can create political certainty

and economic credibility, and their power can create public order. Both hard and soft

14


uncheckable power can sustain national discipline, national unity and public peacefulness (List-

Jensen, 2008: 5).

In reality, Singapore was not the first example of a successful authoritarian democracy. Imperial

Germany might be another example; it could be argued that, in the late 19th century, the strong

bureaucratic state of German Empire achieved politically and economically. From a political

point of view, German mass politics had been restricted and Parliament was only for show.

Economically, Bismark‟s welfare policies were also mainly for controlling the working class.

And lastly, “cultural difference” had been raised to support the view that Germany needed to

develop within its own context – this has the ring of “Asian values” to it, does it not?

(Thompson, 2001: 158). Nevertheless, authoritarian power can be seen as a source of economic

growth but, adversely, economic turmoil could bring down political rulers because non-

democratic regime that is heavily influenced by its economy achievements (Norton, 2012: 47).

15


Authoritarian Democracy

Authoritarian democracy (Kampfner, 2010; Xizhen, 2008; Satha-anand, 2004; Mert, 2010) –

which can be named soft authoritarianism (Mutalib, 2000), illiberal democracy (Zakaria, 1997),

semi-democracy, or limited democracy (Case, 1993), authoritarian-style capitalism (Karaganov,

2012), and civilian authoritarian politics (Mert, 2010) – is a political system in which the state

highly influences a society. Bornschier and Lengyel (1994: 324) believe that due to this

“regime‟s lack of legitimacy and weak economic performance, proponents of authoritarian

democracy advocate a less flexible system of political representation”. Nevertheless, this regime

is a kind of democracy that is difficult in Western perception to understand because of the

dominance of liberal democracy – a political system which contains elections, rule of law,

separation of powers, protection of basic individual rights, and freedom of speech. Democracy

has also seemingly flourished, especially when elections have been used mainly to determine the

characteristics of a political system, but where liberalism is a contrasting ideology (Davenport,

2000; Zakaria, 1997). Freedom House (1997) reports that despite the increase in the number of

democratic states around the world, many are still illiberal. It can be summarized that “Western

democracy” – liberal democracy – contains both political rights (election and rule of law) and

political liberties (freedom of expression and political activity). In that case, it is argued that

authoritarian democracy –particularly Asian-style – even if it includes election, a parliament and

leader from the majority – cannot be claimed a liberal democracy (Josept Tamney, 1996).

Throughout history, autocracy has claimed its legitimacy in many ways: royal blood, leader

charisma, or religious belief. In authoritarian democracy, majority support is the root of political

legitimacy. And to achieve that, economic growth and the standard of living have to be

sustained. Many historical cases exemplify economic performance as the key basis of

government legitimacy, and, conversely, economic crisis as a hegemonic crisis, too. The

downfall of dominant governments in Indonesia and Thailand due to economic crises is cited as

evidence that popular legitimacy relies on economic growth. Also, in Eurasia, citizens are not

willing to move to full democracy because they fear that the transition to market democracy

would mean a loss of social security (Dobbs, 1992: 11). Even in the USA, the statistics show that

the economic situation is a very good indicator of the presidential election results (Sim, 2001:

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63). However, despite the legitimacy of the system mainly coming from economic policy, the

public is not empowered in policy-making under an authoritarian democracy regime. Alexis

Tocqueville discussed how democracy can be the tyranny of majority (Horwitz, 1966). The

crowding-out of democratic politics possibly impacts on economic policy-making bodies; the

disappearance of social insurance and the deregulation of national institutions‟ roles – central

banks, fiscal authorities, etc., – that finally in the process of market self-regulation could end in

the disaster (Rodrik, 2002: 15). Nonetheless, that does not definitely happen in authoritarian

democracy. The majority can only select their representative but cannot control them, while a

small group has sovereign power.

Democracy and economic growth are not naturally uniform. Thus, to create a condition for

national development, cultural values need to be addressed (Inoguchi and Newman, 1997). The

“Asian values” and Asia‟s role as a unique culture in economic, social and political development

have been raised in a bid to claim that South East Asia has a unique culture and therefore that

national development should be implemented differently from in the West. As Bremmer (2010)

suggests, since we are all capitalist, the ideology of “Asian values” characterizes the capitalism

under Asian societies; it is an ideology that “combines statism with market economies” (Milner,

1999). Hence, we may consider that “Asian values” are the root of authoritarian democracy in

Far East Asia. On the one hand, Asia is influenced by the Western world in respect of individual

rights, human equality and free-market capitalism. On the other hand, family values, seniority,

and public harmony are still preserved in Far East Asian societies.

Generally, in an authoritarian democracy regime, to prevent opposition parties from winning

elections, liberal participation is parttly restricted. Opposition parties, however, remain

autonomous enough to mobilize reasonable levels of social support and play at least a minority

role in politics (Case, 1996). The authoritarian democratic state usually focuses on

implementation rather than ideology. As Thaksin Shinawatra – former Thai prime minister –

said, “democracy is just a tool, not our goal” (Pasuk and Baker, 2005: 58). He claims its policies

are based on pragmatism (Mutalib, 2000). And Lee Kuan Yew states: “I do not believe that

democracy necessarily leads to development. I believe that what a country needs to develop is

discipline more than democracy” (Inoguchi and Newman, 1997). Because they believe that a full

17


scale of free politics would generate less efficiency than authoritarian an one (Strait Times,

1990), elites in this system serve in strategic positions in state sovereignty for maximized social

harmony and economic outcome (Case, 1996).

Hence, authoritarian democracy is a combination of both democracy and authoritarianism –

strong government with electoral legitimacy (Xizhen, 2008). The main achievement of this kind

of system is to emphasize consensus and harmony, and to pursue economic growth (Inoguchi

and Newman, 1997). This system borrows some of democracy‟s features in order to lay the

foundation for competition, freedom (except that of politics), right of property, and individual

self-interest (Case, 1996). Even though authoritarian democracy produces free and fair elections,

respects individual freedom and ensures private property, it tends to constrain political actors –

politicians, social organizations, social activists, and scholars – forcing them to behave within

government‟s considered space (Case, 1993). Authoritarian democracy, on the one hand, gets

legitimacy: politically, by democratic election, and, economically, by rapid economic growth and

standard of living. On the other hand, government tends to use its power as authoritarian

government. So, it is also a kind of democracy that loses check–balance mechanisms, and where

government priorities are based on political sustainability and economic growth rather than

democratization and development of freedom (Mert, 2010). And, as long as governments can

reasonably deliver rapid growth and social stability, many voters tend to give them absolute

power (Caryl, 2012).

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Singapore Economic Model

In terms of “The political trilemma of the global economy”, Singapore is the example that pushes

against Western ideas of authoritarian democracy‟s limitations – even after being an

authoritarian society and becoming a developed country, the society voluntarily holds onto social

transformation as an ideal for preserving its economic growth and social stability.

Robinson (2004) states the idea of “Two parralell strategy” that divide Singapore‟s strategies

into two pillars. Firstly, they argue that tax incentives ensure foreign investors to not relocate

their capital; and secondly, Singapore has continually transformed its economic structure,

beginning with labor intensive, high-value-added industries, financial services and, later, nano-

industries. Singapore‟s government has also provided a welfare system with its own style that

creates a high level of Singapore‟s human resources (Ng, 2004). The Economic Development

Board of Singapore (EDB) plays vital role in the planning of economic strategy. Schein (1996)

insists that the EDB is a benchmark of how a statutory government committee can organize itself

to have a major positive impact on economic development.

Hence, Singapore‟s economic model can be analyzed as Marlket-led by foreign investment and

state developmental capitalism.

Market-led by Foreign Investment

Singapore‟s economy integrates with the global market in terms of both financial transactions

and global trade; only Hong Kong and Singapore have exports that exceed annual production

(Peebles and Wilson, 1996). Singapore integrates with the global economy because, firstly, it has

no natural resources except human ones, and secondly, the only business it has are entrepots.

Lastly, its neighbors were unfriendly and adopted high levels of protectionism.

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To drive the market, Singapore‟s policy makers have always maintained “competitiveness” as

the top priority. As Singapore‟s growth relies heavily on international trade, and services, the

government has been addressing this through long-run productivity improvements and short-run

market competitiveness (Abeysinghe,

2007). It has been trying various ways

sustain foreign investment and persuade

foreign firms to operate in the country.

And tax incentives in general have always

been successful.

To motivate pioneer firms to invest in

selected sectors, huge tax incentives were

launched. In 1991 these pioneer firms were

a significant reason for economic growth;

they achieved 63% of value added with 48% of employment and 74% of manufacturing export

were achieved (Bercuson, 1995). Afterwards, when Singapore started to relocate manufacturing

to other areas, due to better service systems and higher skilled labor, tax incentives were used to

convince MNCs to remain and establish their headquarters on the island.

Additionally, “friendly labor” is another tool. The National Wage Council (NWC), a central

organization for managing labor relations by gathering labor unions together under centralized

management, is very important agency that prevents serious workforce tension (Cahyadi, et al.,

2004: 6). While entrepreneurs are promised that government will handle labor activities, thus

eliminating workforce strikes, Singapore workers know that wage guidelines and employment

conditions will be set to national standards. That makes Singapore the top worker-friendly and

labor-trustworthy standard; no company can operate without appropriate labor contracts.

Singapore‟s government has used the NWC to support the market several times. In 1985, and in

response to the global recession, the government decided to decrease the employers‟ contribution

rate from 25% to 10% and retain the employees‟ contribution rate at 25%. This policy ensured

that employers did not have to increase the labor wage in tough times (Abeysinghe, 2007). Then,

it sustains a long-term competitiveness that is persuasive to international investors.

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Singapore‟s free market is supported and regulated effectively by institutions – the paradox of

markets is that they thrive not under laissez-faire but under the watchful eye of the state (Rodrik,

2002; Tung and Wong, 2012). Although it seems to be filled by MNCs, Singaporeans have not

preferred to be entrepreneurs; the economy relies heavily on MNCs and this has led to concerns

on the grounds that the country is too reliant on foreign economic powers – it has merely

“ascended to a semi-periphery” state of development in which long-term development is not

sustainable. Nonetheless, Singapore proves the “dependency theory” by showing that the

periphery state can rise up by trading with developed countries (Syed, 2012). Lee Kuan Yew

states, “Anyway, Singapore had no natural resources for MNCs to exploit” (Rastin, 2003: 8).

Singapore is ranked as the world‟s second freest economy and the second in global

competiveness (Schwab, 2012: 11).

State Developmental Capitalism

Economic Plan and Economic Transformation

Even though Singapore can be identified as market-led economy – driven mainly by huge

corporate firms – the involvement of the government in the economy is relatively high. (Rastin,

2003; Peebles and Wilson, 1996; Cahyadi, et al., 2004) Singapore‟s economic plans have been

established to continually direct the economy by the EDB.

Entrepot trade and port services were not enough to sustain the economy. Thus, Singapore

started improving its manufacturing for export-orientation beyond regional markets due to the

unfriendly situation in the Malaya peninsula and high trade barriers arising from the import-

substitute policy in South East Asian countries (Abeysinghe, 2007). By driving economic

development, Singapore needed foreign investment that was persuaded by tax incentive policies

and cheap labor.

21


In the mid-1990s, Singapore achieved middle-income level and, like other middle-income states,

it was losing its cheap labor advantage (Cahyadi, et al., 2004). Government had a vision to

abandon labor-intensive industries. It decided to shift to service industries by upgrading

workforce skills and establishing the National Computer Board (NCB) in 1981 to support

Information Technologies (IT) and motivate business firms to get more involved in IT systems.

In 1991, the knowledge-based economy became an issue for economic development. “Research

and Development” had been prioritized by releasing more than 2 billion Singapore dollars for

infrastructure development. Pioneer firms in selected sectors were offered additional tax

intensives to secure market advantage. Nonetheless, these firms had to share their innovation

with the Singapore government and allow further development (Abeysinghe, 2007).

Tax incentives had been hugely revised because the Singapore government shifted its strategy

from supporting firms widely to more selectively providing benefit schemes and other tax

incentives for MNCs who agreed to set up their headquarters in Singapore (Cahyadi, et al.,

2004). As a result, low-level industries had to relocate to cheaper labor areas. The Singapore–

Johor–Riau (SIJORI) project was created for developing and re-organizing economic

collaboration in the Malaya Peninsular triangle. Low-value-added manufacturing and labor-

intensive businesses were motivated to relocate to Johor in Malaysia and Riau in Indonesia. So,

the country achieved to lift into next position in the global market chain – a hub of services and

managerial parts of multinational firms. While the Johor and Riau were providing labor, the

services sector and managerial parts of firms were operating in Singapore.

Despite it looking to the long term – generally 10 years – Singapore‟s government always

responds quickly to economic change and capitalized very well on the “first-mover advantages”

(Abeysinghe, 2007). The global recession from resulting from the sub-prime and euro crises

have jeopardized the Chinese territory economy. Hong Kong has not transformed its economy

continuously enough. Its economy depends too much on global financial and global trade. Being

22


a financial hub was Singapore‟s plan in 1985 and 1991, but, nowadays, it looks forward to being

a hub for medical hub and nano-technology businesses.

State Capitalism

State capitalism is another issue that distinguishes Singapore from other Asian tigers. While

Singapore has persuaded foreign investors to operate their businesses on the island, originally,

Government Linked Corporations (GLCs) were mainly used for providing infrastructure in areas

that lacked a voluntary private sector (Ramirez and Tan, 2003). Rajaratnam (1997) contends that

the GLCs had to exist because the private sector had no ambition or financial backing to operate

in sectors that are vital to make international trade possible. However, government was careful to

not extend its GLCs to “crowd out” where the private sector could be more efficient (Rastin,

2003). That is, it concurred with by pro-liberalists who believed that state enterprises could

operate to support economic infrastructure and aim to help small local companies by providing

research facilities and technology rather than nationalist supports during “kick start” periods

(Peebles and Wilson, 1996). Nevertheless, in the 21st century, Singapore‟s government has a

vision beyond that. The rise of state capitalism is a new phenomenon, while developed countries

are still intoxicated by free market.

At the start of 1980, GLCs held around 40% of GDP. Nowadays, 60% of Singapore‟s GDP

belongs to GLCs (Peebles and Wilson, 1996; Robinson, 2004). Singapore‟s government uses

sovereign wealth funds (SWFs) as a hub to control state enterprises. Nevertheless, these funds

have a positive combination of state power and private organization – replacing a bureaucratic

system with modern management. Originally, SWF objectives focused on exchange rate

management because a huge amount of foreign reserves is potentially harmful for the global

trade that is at the core of Singapore‟s business (Drezner, 2008: 8). By using this mechanism,

SWFs are able to keep currency fixed or move it somewhere else by transferring to capital flow

for investment rather than converting to local currency (PWC, 2011). Singapore‟s SWFs,

23


however, have another duty: domestic and global investment. In Singapore‟s low-corruption

culture, SWFs are able to operate effectively and sustain profitability – perhaps better than global

hedge funds (Bremmer, 2010: 30; Pekkanen and Tsai, 2011). However, though sometimes these

funds are used as a political tool to sustain public order by providing welfare packages, they are

also used to help out in tough times (Economist, 2009; Ramesh, 2010). In the liberal Western

world, governments and international institutions have always restricted their interventions in

market problems, and private firms always look after their own self-interests. SWFs can bridge a

gap in an uncertain capitalist world. Bremmer (2010) suggests that SWFs are not for maximizing

economic utilities but for maximizing state stability.

24


Background in Politics and Economy in Indonesia, Thailand and

Malaysia

Indonesia

Politics

After a long period under dictatorship, Suharto, former army general Susilo Bambang

Yudhoyono won Indonesia‟s first elected presidential election in September 2004; he also took a

landslide victory in July 2009, a clear statement of his popularity (BBC, 2012a). His selling point

is his image as a corruption fighter. According to Indonesia‟s geographic – it is the world‟s

largest archipelagic state – centralized governance has been proved to not work effectively. The

government moved towards a decentralized state administration (OECD, 2010: 25).

Nonetheless, Indonesia still has a lot of work to do. Firstly, the present government is a six-party

coalition in Yudhoyono‟s second term; the parties are not working well together and are divided

on many issues. The internal crisis seems to be harder when conservative politicians and ethnic

Indonesian tycoons, who are in Yudhoyono‟s purse, have problems with populist right-wing

technocrats who oppose stock-market manipulation and monopolistic companies (Gelling, 2009).

The anti-corruption campaign becomes a “boomerang” for the government. In 2012, a former

Democratic Party treasurer on corruption charges caused embarrassment for the president‟s

ruling party (BBC, 2012a). The public started to question government transparency. The cabinet

is also seen to be a problem. The second-term cabinet contains a lot of doubtful ministers. In

particular, the new economic team has no economic experience at all. The cronyism is beginning

to smell (Gelling, 2009). The decentralized policy has not been as effective as many people

believed. Provincial governments are relatively weak and mismanage public managements. In

the new structure, regional governments receive a much larger proportion of taxes and revenue

sharing from natural extraction activities in their regions, with it being typical for budgets to

25


triple after decentralization. Yet the issues of regional income per capita disparity and the

excessive rate of natural resource extraction remain (Resosudarmo et al., 2009: 6).

Economy

Indonesia had been a strong, directed economy with a high number of import-substituted

policies; most of its neighbors shifted to export-orientation because the transforming process had

been obstructed by political turmoil (OECD, 2010: 24). In the 21st century, the president

announced an economic master plan: “Acceleration and Expansion of Indonesia‟s Economic

Development 2011–2025” to develop the country. In the plan, growth rates have been targeted in

the range of 7% to 9% annually (World Bank, 2011b: 32). Foreign direct investment is seen as a

new engine to drive the economy. The government tries to pursue investors by changing rules to

make it easier to acquire land for infrastructure investment. Healthcare, construction and

electricity generation are the priorities for government development (Belford, 2010). One of the

great achievements is that of the rupiah – Indonesia‟s currency – appreciation which arose as a

result of sustainable investor confidence. Marinescu (2010) claims that, in the 21st century, the

rupiah is the third- best performing currency in Asia. Indonesia, aware of speculative financial

investment, passed rules on government bonds that required foreign investors to keep their

money in the country for longer (Belford, 2010).

Indonesia is becoming a relatively open economy. Despite import tariffs, which have been

planned to reduce steadily since the 1980s, it has seen real progress in the ASEAN Free Trade

Agreement. The free trade commitment increases Indonesia‟s trade – since 2005, it has risen by

about 20%. In the mean time, non-oil exports to non-ASEAN countries expand, too, especially to

China and India (OECD, 2010: 26). It has effectively diluted fossil-fuel dependency. However,

the share of manufacturing in export is not sustainably strong. Other kinds of natural resources

become more important, for example, ores and metals. Even if investment in manufacturing still

26


does not advance as it should, low labor costs could be a great advantage, especially compared

with regional alternatives. “We‟re seeing an increasing relocation of factories by the Taiwanese,

the Koreans and Japanese from Vietnam and China, given their rising labor costs and given the

increased stability that people are seeing in Indonesia from an economic and political standpoint”

(Belford, 2010). Domestic markets play a vital role in the economy – accounting for more than

two-thirds of GDP. The population of 240 million, more market liberalizing, and a government

stimulus program that directly transfers cash to the poor, have kept consumption humming

(Belford, 2010). State-owned enterprises are another vehicle that drives the Indonesian economy

with 9.6 billion USD profit in 2009 (OECD, 2010: 25).

Nevertheless, the long-term economic boom has clearly proved less efficient in terms of

improving the standard of living for the majority. Fifteen percent of the population lives below

the poverty line – 1$ a day – while politicians and business tycoons seem richer every day

(Belford, 2010). Trade integration has been increasing recently; however, the degree of trade

openness in Indonesia is around 53%, somewhat lower than the 133% average from other

ASEAN countries (Kaid and Swindi, 2009). Infrastructure bottlenecks, domestic trade barriers,

restrictive product market regulation and stringent employment protection legislation are factors

that obstruct trade liberalization (OECD, 2010: 26). Despite many sectors are declared as state

security restrictions, the agricultural-based business sector, which in the main is run by ordinary

people, is that which has diminished most barriers. On the other hand, the share of high-

27


technology exports is low compared to other sectors, and, from 2004, the country stopped being

an oil exporter.

The informal sector is much larger than the normal economy, and contains 70% of employment.

Gender inequality is still obvious. Most women are working in the informal sector, while men

are employed in the official economy (OECD, 2010: 26). While this mechanism contributes to

patriarchy – companies tend to hire men rather than women – Indonesian females prefer

entrepreneurship rather than salaried positions.

28


Thailand

Politics

The Asian financial crisis and the IMF-supported program broke down Thailand‟s old “social

contract” between politicians – including civil servants and local magnates – and business

tycoons such that, on the one hand, capitalists were no longer supporting politicians because the

crisis weakened domestic business tycoons. On the other hand, the IMF‟s conditions restricted

the state from involving the market. This worried Thai business tycoons because many of them

had benefited from an imperfect competitive market. However, the agreement between IMF and

Thai government meant politicians could not promise subsidies to business groups any longer.

The idea of strong government showed in the 1997 constitution and Thaksin offered to change

the country under the new social contract.

The “Thai Rak Thai party” – led and owned by Thaksin Shinawatra – changed Thai political

behavior. Most Thai political parties are supported by several business groups, while the parties

were driven by local magnates and professional politicians. However, Thai Rak Thai funds come

from the leader – approximately a billion baht per year (Phongpaichit, 2004: 8). Politics for Thai

people before the Thaksin era was just war among elite groups, so it did not matter to the Thai

people. Thaksin showed up with reversal of participation of Thai people in politics by promising

nationalism, prioritized local business, and a welfare system. To achieve this, he requested

majority seats in parliament in order to avoid “check and balance”. He would enable the

economy to flourish by taking absolute political and public administrative power. However, no

one reckons that is the root of current crisis.

Authoritarianism has been in place for a long time in Thai politics. After political revolution

from absolute monarchy to constitutional state in 1932, Thai politics has mostly been

authoritarian in nature. Even Thaksin, 2001–2006, was an authoritarian governor. With

nationalist and populist economic policies, his popularity has been highly ranked especially

among the poor, whom he calls “grassroots people”. He has expressly supported the idea of

strong government – for the most effective, state administration under a parliamentary system,

29


one-party rule is important for achieving economic growth and civil society. He also exemplified

Singapore and Malaysia “where an opposition exists to give the state democratic credentials, but

where the opposition is too small to have any effect” (Phongpaichit, 2004: 2). Thaksin‟s

leadership style is a combination of authoritarianism and populism (Hall, 2006). Then, many

scholars and political oppositions always blame him that he wants to change Thailand to

presidential system (Tejapira, 2006: 5).

Following his victory in 2001, he had continual problems with juridical power (Hall, 2006). In

his view, the “rule of law” and the juridical system are based on abstract principles and should

not be obstacles to the government, which is elected from majority people.

It‟s strange that the leader who was voted by 11 million people had to bow to the ruling

of the National Counter Corruption Commission and the verdict of the Constitutional

Court, two organizations composed of only appointed commissioners and judges, whom

people do not have a chance to choose. This is a crucial point we have missed (Bangkok

Post, 5 August 2001)

Thus, Thaksin was clearly unwilling to accept the checks and balances that a democratic system

imposes on elected leaders (Rowley, 2006).

As a successful businessman, he tried to use business administration to replace classic

bureaucracy. He called himself a CEO Premier and aimed to convert other officials into CEO

provincial governors and CEO diplomats. Furthermore, in Cabinet and other conferences

presented himself as a dictatorial teacher giving a lecture (Phongpaichit, 2004: 7). Furthermore,

he has said that he wanted to run Thailand like a company (Hall, 2006).

The current political conflict in Thailand is not a general class conflict. Conservatives – royalist

bureaucrats, privy councilors, the military, bankers, the urban middle classes, and public-

enterprise workers – are fighting against Pluto-populists – Thaksin and his business-politician

network – and the rural poor. The landslide win of the election in 2008 could be evidence that

non-Bankokian, low, middle and worker classes would not tolerate a non-democratic system.

While the conservatives hit the opponent by using juridical power to dissolve the people‟s power

party and convincing some members of parliament to shift sides, which was supported by urban

middle class, it provoked Thaksin‟s supporters to protest in the center of Bangkok; this ended in

30


the death of more than hundred people and the burning-down of many huge department stores.

Society was breaking apart faster than the government could hold the power. The election was

arranged and Yingluck Shinawatra – Thaksin‟s sister – became the new prime minister.

Nevertheless, the period of the modern Thai political crisis is not over. “Thai society goes

beyond the turning point, and no one knows where it is going” (Tejapeera, 2011).

Economy

Thailand‟s economy has developed from an import-substitution strategy in 1960s to export-

orientation in 1980s. The progression of neo-liberalization in the Thai economy, however, has

been questioned by the Asian Financial Crisis, and the IMF‟s support policy cannot bail out the

nation. The rise of Thaksin Shinawatra came with “Thaksinomics” that used economic

intervention on both macro and micro economic scales. Initially, economic nationalism was

raised in his political campaign. Thaksinomics is a “dual track policy”: on the one side, domestic

consumption had been stimulated through re-adjusting financial debt, welfare policy and

government spending; on the other, it uses elements of neo-liberalism – privatization and market

liberalization were implemented, but not deregulation.

In the 2001 election, the Thai Rak Thai party had to fight with the Democrat party. While the

opponent still used neo-liberalism and IMF‟s program as an economic campaign, Thaksin raised

nationalism and welfare-populist policies. However, after taking power, some parts of national

economy – mostly outside of his business network – have been liberalized. Ammarn Siamwala

(2011) suggests that most of Thaksinomics policies are populist because of their timeliness with

regards to the political mood of the day. Thaksin‟s governments seem to have more populist

policies, while long-term sustainable welfare policy has been abandoned. Under his sister‟s

government especially, there has been no serious welfare policy, but a lot of populist ones are

flourishing. Thaksinomics also tends to increase consumption to create more capital velocity,

rather than sustainable growth from internal demand, poorer consumption and government

spending in welfare and populist policy, and external capital flow, privatization of state

31


enterprise and exportation. This is while national productivity and economic distribution have

seen no significant progress, and development in infrastructure and education has been ignored.

The structure of Thai economy leads to uneven economic development, high levels of income

inequality, and unequal access to power and resources (Norton, 2012: 46). Tejapeera (2012)

warns that Thailand has to prioritize equality in economic and political power, otherwise the

third wave of the capitalism boom – the first was in the 1960s which finally brought the “6

October” civil massacre, and the second was in the 1990s which created “Black May” political

turmoil – will create another political tragedy because the rise of economy under globalization

without democracy does not make people wealthier equally.

32


Malaysia

Politics

Malaysia is a former British colony that gained independence in 1957. It has huge problems in

social equality, with the ethnic Malay treated better than others. The UMNO, and its Barisan

Nasional coalition, always wins the elections and rules the country along authoritarian lines –

freedom of speech has been partly restricted and, using the tools of electoral authoritarianism,

through court rulings, corruption investigations, and induced defections and scandals, the

opposition‟s voice has been dampened (Case, 2009: 261). Politics in Malaysia is becoming

dirtier and more aggressive. In the press UMNO has been relentless in its assaults on the

opposition. It is not clear whether such slander is still useful but all the canards about these sorts

of groups being in the pay of Zionists, America or George Soros, a foreign financier, have been

trotted out for political purposes (Economist, 2012a). In the 21st century, the first important

change in Malaysia is the stepping-down of Dr. Mahathir Mohamad, who ruled the country for

around 20 years; Abdullah Badawi was chosen as his successor (Foreign and Commonwealth,

2012). Nevertheless, conservatism – the standpoint of nationalist movements and ethnic Malay –

seems to be stronger. The leadership of these “conservative nationalists” mostly comes from the

upper-class Malay aristocrats (Hamid and Ismail, 2012: 383).

Nevertheless, political changes have occurred from the top because, unlike the aggressive

Mahathir, Abdullah showed a willingness to listen and work as a team. Even though Abdullah‟s

reforms were not a radical shift; the law that is a root of unequal ethnic society “Bumiputera” –

the privilege policy that preferably support Malay ethnic - is still untouchable, many liberally

progressive ideas were forming. He brought in young advisors, declared war on corruption, and

attempted to change public administration. Now the conflict began. His reforms created some

protests that were believed to be coming from within his party. His political stability was

uncertain when “bottlenecks” from the old regime started acting aggressively against him. He

confessed that “Reforms are not easy. I have tried so, so very hard and it is not easy” (Hamid and

Ismail, 2012: 395). The strongest hit came when Mahathir rebutted the cancellation of some of

his favored projects that were ignored during Abdullah‟s regime. It was obvious that Mahathir is

33


the one that took down his own successor by convincing voices within Abdullah‟s cabinet to

demand a step-down (Hamid and Ismail, 2012: 396). The internal party coup not only

jeopardized Abdulla but also destroyed the National Front coalition, too. The 2008 election is the

worst election result in decades for the government parties – losing its two-thirds parliamentary

majority and control of five state assemblies (BBC, 2012c). Hence, Abdullah had no choice

except to resign from power. However, it is still not clear what the main reason for the loss is –

whether the opposition is stronger together with Malaysian society structural change and people

need more freedom, or whether the government is weakened by internal conflict (BBC, 2012b).

Mr Najib Razak took power in April 2009 (Economist, 2012a). Political power has been

centralized around old conservative politicians; the revision of economic distributions into state

contracts and re-commissioned megaprojects is evident. However, the political shift as a top-

down hierarchy seems not to be easy. On the one hand, any plans to dismantle the extensive

system of privileges for Malays potentially trigger popular discontent. But the liberal idea amid

youth and non-ethnic Malay people to get some radical change is growing stronger and more

powerful. Additionally, economic downturn is undermining political stability while cutting

public spending is deemed unacceptable (Ahmad and Cheah, 2010).

Economy

Malaysia, unlike typical Muslim countries, has no religious economic model. It is market-led

developmental state with a partly free market dominated by a Chinese minority (Goodhart,

2007). It has a population of about 27 million, which is insufficient to develop a deep domestic

market (Nambier, 2010). The economy relies on a workforce of which four-fifths are educated to

no more than high-school level. Twenty-five percent of local public university graduates remain

unemployed six months after graduation, and the human capital brain-drain seems to be getting

tougher (Quah, 2010).

34


Malaysia‟s 20th century economic boom was highly dependent on foreign investment. But in the

1997 financial crisis, the strategy changed. Many have blamed Western greed for the economic

crisis, and, thus, government

decided to play a stronger role.

Such strong medicine, however,

frightened foreign investors.

Financial transactions have

been frozen since the crisis and

even when the regulations have

been removed, foreign

investors will do not believe in

the free market in this country

any longer.

The result of this has been what is called the lost decade. However, Mahathir, former prime

minister and the most powerful person in the country, still believes that he did the right thing:

“We should not be too

dependent on FDI anymore.

We‟ve come to the stage

when locals can invest. Locals

have now the capital,

technology, and know the

market” (Tarrant, 2011: 2).

So, this is a signal that the

Malaysian ruler believes that

the private sector should drive

the economy.

When Abdulla stepped into

power, he declared he would make a huge change in the direction of economic policy. The state-

led industrialization in Mahathir‟s era would shift to more neo-liberalism. Mahani Zaldal Abidin

35


(2006) summarized the economic differences between Mahathir and Abdulla as follows: in

Mahathir‟s era, he dictatorially controlled all main projects. Government played a crucial role in

economic investment through the private sector and GLCs. Monetary policy was used to manage

inflation and strictly

control export

competitiveness.

Economic

integration mainly

focused on the East

Asian community.

However, Abdullah

Badawi impresses in

the free-market –

both domestically

and internationally,

in that he looked beyond the East Asian boundary – without government intervention and a low

budget deficit. He appointed some experts to form an informal economic strategy committee and

started de-pegging Ringgit and gradually removing energy subsidies.

In 2006, Abdulla announced five pillars in his economic strategy: human capital, agriculture,

income distribution, biotechnology and Bumiputera (Abidin, 2006). Government contracts and

huge public spending projects were decreased in favor of new entrepreneurship motivation

(Economist, 2006; Economist, 2009). Furthermore, GLCs would be less important for economic

drive and would be replaced by a more liberalized market. A free-trade area and minimal tariffs

on trade seemed to be an important issue in his cabinet. However, he also mentioned that foreign

investment and privatization are not the core of his strategy; innovation and creative economy

are the targets for Malaysia. The change is not addressed only in economic ideology; Abdullah

said that advanced agriculture and biotechnology fields would be focused upon in order to

replace essential economic sectors – labor intensive-manufacturing and re-exportation (Economy

Watch, 2010).

36


After the worst election, the leader of the National Front coalition changed from Abdullah

Armad Badawi to Najib Razak. In 2010, new Prime Minister Najib Razak introduced the “New

Economic Model” (NEM), which will be analyzed in next chapter.

37


Why Authoritarian Democracy and Singapore Economic Model

are chosen to embed into These Countries.

First of all, it is believed that an authoritarian regime can create rapid economic growth.

Furthermore, countries in this region have weak political institutions that are necessary in order

to sustain democracy. It is this, in combination with “Asian values”, that explains nature of these

societies. Finally, these factors create an authoritarian paternalism that can be seen as having

evolved from feudalism to a spoil-system society.

The Weak Political Institutions

In Western democratic countries, political institutions such as federal agencies, the juridical

system, political parties and think tanks have been established correctly and respectably.

However, in Far East Asia, political agencies are

generally weak. When political legitimacy and

political power are sought under a democratic

system via mass election, the wins and losses can

bring about political disaster. Thus, political

institutions under a democratic system work to

narrow the gap between political satisfaction and

dissatisfaction, post election, in two ways: firstly,

they support both the majority and the minority

equally; and secondly, they mediate any political

problems in an acceptable way (Anderson and

Guillory, 1997: 66). There is a high probability that

a party system with better institutionalization correlates positively with a more robust democracy

38


(Ufen, 2008: 345). Additionally, intra-party democracy tends to enhance the quality of

democracies (Teorrell, 1999). Therefore, to create stable democracy, democratic ideology at a

macro level is not enough; at the micro level, too, the role of political actors needs to be

embedded in democratic thought.

Although Thailand and Indonesia both have multi-party systems, political parties tend to serve

the masses rather than having grass-roots support based on a specific political or economic

ideology. And the public have to choose their leader based on personal charisma rather than

campaign. Furthermore, both have limitations with regard to internal party democracy. This

weakness makes politics more vulnerable to crises and breakdowns, and renders the nation‟s

democracy more fragile.

Populist electoral regimes make the contestation of meaningful elections weak. Military political

involvement and partisan court rulings are considered acceptable, especially within the middle

class. The public has never pressurized the elites to the extent that they have needed to respond

with even low-grade democratic concessions (Case, 2009: 260). The lower class in Southeast

Asia tends to see democracy as government ruling rather than government serving. Thus, they

choose an elite that seems to rule the country in the way that benefits them rather than electing

those politicians who have demonstrated a reputation for responsibility and trustworthiness.

Hence, the fight between the middle and lower classes obstructs democratization. Political

institutions – think tanks, courts, political parties, and so on – are wielded as political tools

against opponents at any cost rather than instruments of accountability and credibility.

Malaysia‟s and Singapore‟s elites seem to have reached a consensus. They believe that economic

prosperity can calm political tension. However, for the ruling class, single-party dominance,

limits on civil liberties and narrowing the competitiveness of elections are still important goals.

To achieve these objectives, the balancing of public administration has to be twisted. Political

power has to be centralized among government ministers and civil servants, while judicial and

legislative powers have are oppressed.

39


Asian Value

Asian values have been published primarily by Lee Kuan Yew, Singapore‟s prime minister, and

Mahathir, Malaysia‟s prime minister. They have been used to support the idea that Asian culture

is different from that of the West. Thus, by combining economic, political and sociological

science, the concept argues for sustaining economic growth and social harmony in Asian

political systems within an authoritarian framework. Nevertheless, from many aspects –

geography, religion, ethnicity, history – it is clear that there “is no single Pacific Asian culture”

(Thompson, 2004: 1082). As Rajaratnam confessed, “I have very serious doubts as to whether

such a thing as „Asian values‟ really exists. It may exist as an image but no reality” (Rajaratnam,

1977: 95).

Generally, Asian values seem to represent Confucianism as a core of the culture (Sim, 2001: 50).

Confucianism is a combination of religious and philosophical thought that is mostly associated

with Chinese societies (Inoguchi and Newman, 1997). This regional heritage is the foundation of

appropriate behavior for Asian people (Khong, 1997). Furthermore, it is viewed as at the root of

the principles of benevolence, family, community spirit, hard work, and frugality (in contrast to

the Western values of individualism, rationalism, human rights, and legalism) (Lee, 2003: 31).

Asian values stress the community rather than the individual, who is not an isolated being, but a

member of a nuclear and extended family, clan, neighborhood, community, nation and state. Any

action must be taken with the interests of others in mind, and the individual has to balance their

interests with those of family and society. Self-effacement, self-discipline and personal sacrifice

are requested from each individual and should not draw attention to themselves by showing off

their talents (Inoguchi and Newman, 1997). Conflict is to be avoided. Society is viewed as an

extended family whose relationships and obligations are to be preserved. Official position, not

personal stardom, is honored (Hu, 2012). Equality is about duty and responsibility rather than

personal interest (Inoguchi and Newman, 1997). This leads to people being more group

conscious than is the case under liberalism. The cohesion and stability of society, maintaining

harmony and well-being of the larger group, are most important in society.

40


Despite the fact that “good governance” discourse was originally aimed at non-democratic

regimes, there has been a boomerang effect with regards to the meritocracies of Far East Asia

(Thompson, 2004: 1088). Singapore not only achieved rapid economic growth but also the

defense of a paternalistic state following the high living standards that were attained (Thompson,

2001: 155). Generally, the boom of the middle classes seems to undermine autocratic stability by

demanding more liberal society. However, Singapore denies the point. Although the Asian spirit

of Confucianism is still important to ensure the public obey their ruler, the success of sustainable

governance is not merely based on spirituality (Khong, 1997). The Imperial German critique of

Western civilization helps us better understand “Asian values” by showing that the real issue

involved is not “Asia” versus the “West”, but rather authoritarian versus democratic modernity

(Thompson, 2001: 159). Democracy always claims that good governance and the rule of law can

be attained only within a democratic context. But authoritarian regimes are using Asian values to

provide a meritocracy that challenges this view.

Hence, Asian values are based on an idea that contradicts liberal democracy. While the liberal

ideology is based on individual rights and limited government, Asian values hold that a

prosperous society needs to prioritize public benefit rather than protection of the individual. The

elite class supports authoritarianism because it protects political power by not allowing it to be

checked and balanced by the mass population. Historically, feudalism was a social contract

whereby commoners were protected by the nobility in return for handing over their rights.

Nowadays, government promises to create economic prosperity and protect the people in return

for their silence.

41


Provision Rapid Economic Growth

The question about which regime can provide more economic growth is an eternal one. Most

researches cannot provide a definitive answer. Przeworski and Limongi (1993) suggest that

“there was never solid evidence to show which one is better due to the regime influence”. Davis

(2001) also suggests that “at an early stage, proper economic policy in some circumstances may

be more important than whether a regime is authoritarian or democratic”. Despite the fact that, in

systematic historical evidence, authoritarianism buys little in terms of economic growth (Rodrik,

2010), many rulers still believe that an authoritarian regime can bring better economic stability:

“When you do transformation, you cannot achieve big results by democracy” (Tarrant, 2011: 4).

The first reason that supports authoritarianism is that it is not obstructed by majority rule.

“Individuals behave in a collectively suboptimal way as citizens when they organize into interest

groups that pressure governments to transfer incomes in their favor” (Przeworski and Limongi,

1993: 56). So, democracy as the majority decision is itself harmful – governments cannot put

forward the best policy because they always trying to be populist (Wintrobe, 1998: 338).

Authoritarian rulers are less dependent on popular support and do not have to concern

themselves with electoral cycles (Maravall, 1994: 18).

The other reason is the better economies of scale under government‟s guided economy. While

the market-led economy has various directions in which firms can move, authoritarian states can

concentrate their capital where it is most needed. Wealthier dictatorships can invest a larger

share of income, derive more growth from capital input and less from labor input. Or they

employ a lot of labor but pay it little (Przeworski et al, 2000: 412). In contrast, public goods with

higher potential can be invested in (Haggard, 1990: 262). With regard to competitiveness, labor

costs can be reduced and faster transfers of new techniques in actual production can be elicited

(Davis, 2001).

42


43


Authoritarian Paternalism: From Feudalism to the Spoil-system Society

The welfare state has focused fundamentally on the relations between state and citizens – as

individuals and social groups (Leibfried and Mau, 2008). Generally, the concepts of welfare

polict – not potical populist - and authoritarianism sound incompatible. However, the welfare

system was originally implemented under an illiberal regime. The first serious organized welfare

policies as political economic strategy were coined by Bismark in Imperial Germany in 1883.

Fundamentally, the goals of authoritarianism through provision of public goods are: firstly, to

increase loyalty amongst the population; and secondly, to promote economic growth and

increase the revenue of the private sector (Forrat, 2012: 12). Hence, a welfare system that tends

to absorb individual uncertainties is not the inverse of authoritarian democracy. Indeed, it seems

they work well together.

In Far East Asia, the beginning of welfare system was initially targeted at civil servants through

non-contributory pension schemes and other privileges and social benefits. Furthermore, free,

accessible education is provided by most states in the region. However, this is more than about

developing the literacy rate and human capital; public education for all citizens is used as a tool

by the ruler to enable control over ideology, religion, and any thinking that will suit the system‟s

drive towards national unity (Croissant, 2004: 509; Haggard and Kaufman, 2008: 141; Karshenas

and Moghadam, 2006: 4).

Many social safety nets in this region have been provided, more so than in some developed

countries. Public education costs are relatively low and education is available for all. Public

healthcare with lower costs operates widely. Critical, though expensive, medicines have been

produced domestically and are thus available to the poor. Singapore provides the economic

model to be emulated with regard to welfare provision.

Furthermore, the absence of unemployment safety nets is not surprising because Singapore since

independence has not met with a serious unemployment problem – the highest rate is 6.5% in

1985 (Phang, 2007: 16). While Western society discusses the borders between public and private

44


in terms of public good provision, in Far East Asian society another important actor is family.

Confucian values emphasize hard work and earning one‟s keep to provide for one‟s family. And

for those who are not able to earn their own living, it is the duty of the family to step up to the

mark (Ng, 2004: 12; Phang, 2007: 18).

Singapore has a model that Aspalter (2002) called “a welfare state in a class by itself“. It is a

welfare system with its own style: job security, house provision and high educational standards

all serve to generate a society with high-quality human resources. The three achievements of

Singapore‟s welfare system are education, housing and central funds.

The education cost in Singapore public school is nearly free but of high international standard

(Ng, 2004: 6). However, a lot of private schools are allowed to operate with strict regulations

concerning teaching standards. The only barrier to accessing the educational system in Singapore

is a student‟s own performance. Singapore‟s schools do not accept students with poor results.

They have to re-study and parents are forced to get more involved. In higher education,

Singapore‟s government does not certify private universities; however, international universities

are allowed to operate on campus and offer their own homeland degrees. Nevertheless, three

public universities in Singapore have achieved a high international ranking; none are surpassed

by foreign institutions operating within Singapore.

The extensive housing system has played a useful role in raising savings and home-ownership

rates as well as contributing to sustained economic growth in general and development of the

housing sector in particular. Singapore‟s housing policies are “phenomenally successful”

(Ramesh, 2003). Most Singaporeans are guaranteed accommodation.

The management of supply and the criteria-based selection policies underpin the success of the

system. Singapore is a tiny island so to provide affordable residence is a vital task. The

government has built public housing condominium-style to save space. Until 1971, a public flat

was unable to be re-sold on the open market; it had to be returned to the HDB at the original

purchase price plus the depreciated cost of improvements. Later, government accommodation

could be sold if the occupant had been in residence for more than three years. The regulation

45


bases on the resident not the accommodation. The new resident from re-sale had to stay two and

a half years at least; which was increased to five years (Phang, 2007: 23). In 1990 when

Singapore achieved the status of a developed country, the government introduced the Executive

Condominium scheme for the upper-middle class. The government leased a 99-year land

contract by auction to private developers; the developers must take responsibility for design,

construction, pricing, arrangements for financing and estate management. However, buyers have

to satisfy eligibility conditions and abide by re-sale and other regulations governing these units.

In the 1997 financial crisis, the slowing-down of the real-estate market was a catastrophe. The

amount of unsold accommodation was extremely high. The government reacted by changing the

rules that do not allow single people to own public property. Built-to-order regulation was

enacted by the private sector. This didn‟t apply just to new condominiums; the government tried

to re-build and redecorate, on a huge scale, current accommodation by buying from, and

relocating, occupants (Phang, 2007: 27).

In most countries, welfare funding is addressed through social insurance that citizens can access

in tough times, or pension funds for retirement. However, Singapore‟s Central Provident Fund

(CPF) mainly pays for those of working age – its focus is the economic goal of maximizing work

effort. Unlike the pay-as-you-go social security schemes in most countries, CPF is almost fully

funded and provides a comprehensive range of benefits: mortgages for the homeownership

scheme, children‟s education, healthcare and investments (Ng, 2004: 5). Nevertheless, the

government frequently regulates how and where to use the funds in a way that it deems best for

the economy. Actually, the capital in this fund comes from compulsory savings that employees

and their employers contribute from their wages. Government has spent a very low proportion of

this fund, which is very different from other government public funds.

Unlike democratic states in which welfare policies are raised by civil society or social

movements, in authoritarian regimes they emerge from an elite‟s concern or their vision about

the potential social issues: the agenda setting is “top-down policy” not “bottom-up” (Forrat,

2012: 16). The social contract in this regime means “a tacit agreement to trade social security for

political compliance” (Cook, 1993: 1). Thus, while authoritarian governments lack the

procedural legitimacy of their democratic counterparts, they have to maintain their own

46


legitimacy in other ways, and for this the welfare system is useful (Forrat, 2012: 19). Even

though fiscal spending on welfare is low relative to Western welfare countries, regulation has

been heavy and the integration of community and corporate agencies with government policies

has been more intertwined (Ng, 2004: 12). If one characterizes a welfare state by comparing the

ratio of public spending to the private share in basic goods, Singapore falls far outside that

criterion. However, if it is defined by analyzing how significant government involvement is to

the delivery of public goods, then Singapore is one of the most effective and productive welfare

operators.

47


Why It Might Not Work?

To analyze the threats that could prevent Indonesia, Thailand and Malaysia from achieving

Singapore‟s results, this paper will address three factors: human development, corruption and

crony capitalism, and economic transformation plans.

Human Development

Indonesia

Indonesia‟s human capital is relatively weak. Although the literacy rate in Indonesia is nearly

90%, statistically, only 20% of the labor force have a secondary education, 7% have a tertiary

education. Labor productivity is weak as result of the educational standard.

48


This problem comes from a poor educational infrastructure. Domestic transport, electricity,

communication and information networks can strengthen the education and skills of the labor

force, but it has been neglected by the government (World Bank, 2011b: 28–30). Indonesia‟s

performance in terms of educational investment is weak after a strong expansion in the 1970s.

The rate of Indonesia‟s

infrastructural development has

continually declined since the

Asian crisis. The nearly 8% of

GDP that had been spent to

create new facilities has

dropped since the financial

crackdown. Nevertheless,

policy implementation is

another problem for economic

development. The government

has tried to funnel the budget

through individual ministries in

the hope that that each minister would manage the budget more effectively than would have been

the case with centralized spending (under militarist regime, Indonesia had been implementing

central development policies unequally). The allocation of responsibility for infrastructural

development among political officers has turned out to be less efficient than was hoped. A lack

of clear hierarchical authority is the basic issue. “This arrangement is inefficient, as no agency

provides the necessary degree of coordination, leadership and expertise to plan, execute and roll

out infrastructure projects in a timely manner” (Pisu, 2010: 10). Even though the government

created the National Committee for the Acceleration of Infrastructure Provision to be an

intermediate coordinator, insufficient independence of the organization and informal political

power among ministers (which is stronger than bureaucratic authority) have meant the problems

still exist (OECD, 2010: 97).

49


A large majority of Indonesians have low levels of education. The state‟s educational policy,

instead of motivating citizens to take advantage of higher education, instead fails to push

students from primary school to junior high (World Bank, 2011a: 37). Thirty-six percent of the

population in Indonesia are currently 20 years old or younger. This group will decide the

country‟s potential in the future. However, while attainment in primary school has been

improved, low admission rates to secondary and higher-education institutions will jeopardize the

future (OECD, 2010: 25). Not only has the Indonesian government failed to motivate people to

enter higher education; it has also failed to narrow the uneven education gaps in rural areas

(Goujon and Samir, 2008: 34).

This problem is evident in urban areas, too. Many countries have fixed the problem of unequal

educational accessibility by creating public educational institutions or financial supported

programs. However, without more support grants for use in the private education sector, only the

rich can access a tertiary education. In this way, the rich have educated their children with high-

quality education while the poorer families have been left behind.

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Thailand

Education has always been a top priority in Thai developmental policy. Since 1921, institutions

delivering primary education and other human resource skills have been established, primarily

via government policy. The result is that by 1970, 94% of the population were literate, the

highest rate in Far East Asia (Goujon and

Samir, 2008: 33). Education accounts for the

largest share of government expenditure,

approximately 20%; in 2008 the rate was

21.9%. This compares well with Singapore,

which spends 3% on education; Thailand has

never spent below 4% of GDP (Ahuja, 2011).

However, Thailand‟s main problem is around the quality of its education. According to the Swiss

Institute of Management Development, Singapore ranks 13th in educational performance

whereas Thailand ranks 47th (Ahuja, 2011). In the 1980s, Thailand seemed to have progressed

and its education

performance was declared

“good”; later, the rating

dropped to “fair”, and,

since 2000, it has been

considered “poor”

(Khaopa, 2012).

According to

the Programme for

International Student Assessment (PISA) report Thailand ranked 50 out of 65 countries. This

means that, nowadays, Thailand stands in the bottom 25% (Saiyasombut, 2012a).

Ahuja (2011) states that national identity and culture may in part explain the Thai education

problem. Good schools, great universities and a lot of experts cannot drive the educational

system while “Thai-ness” is still so embedded in the society. Questioning things is not something

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Thai students are used to doing; they routinely learn by watching and listening rather than

through more interactive learning. The Thai student is a passive learner who shows respect to

teachers by being quiet, sitting, listening and note-taking. These traditional “rules” of learning

make students hesitant about asking questions or challenging the teacher if they disagree with

what is being taught. In Thai society, it is still considered taboo to openly critique a teacher or

make them lose face by pointing out a mistake (Saiyasombut, 2012b).

Poor standards in education have left

Thailand unable to move up further in

global supply chain. The shortage of skilled

labor increases costs by 15% for Thai

business. Knowledge of “Information and

communication technologies” is one of the

skill sets that Thai labor is lacking. The

service sector, which can potentially

produce 6–7% GDP growth, cannot expand in Thailand because of this obstruction (Jetin, 2012).

English-language competency is another key issue that jeopardizes competitive advantage.

According to an ETS report (2011) in Test of English as a Foreign Language (TOEFL), Thailand

ranked 116 out of 163 countries. The IMD World Competitiveness Report ranks Thailand 54 out

of 56 countries globally for English proficiency, the second-lowest in Asia, while Singapore is

third, and Malaysia 28th (Saiyasombut, 2012b).

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Malaysia

Malaysia has achieved well with regard to educational attainment levels. Rates of return to

education are high at the secondary, upper secondary and university levels (Chung, 2003).

Compulsory primary education was enacted in 2003, together with policies that specifically

support the ethnic Malay,

the poorest group in the

country. The government

has identified education as

important economic

driver. When Malaysia

was stuck in Asian

financial crisis, the

government saw human

capital as the main tool

with which to get through the middle-income trap by pouring a large share of public expenditure

into this sector. Nonetheless, statistics indicate that the Malaysian gross enrollment rates for

secondary and tertiary education are still at 68% and 32%, respectively, which is lower than in

the developed nations. Moreover, most of the Malaysian workforce is unskilled – 77% of have

11 or fewer years of basic education (MOF, 2010).

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Despite Malaysia‟s high standards of education, its problem is how to retain its human capital.

Brain-drain is a global phenomenon due to globalization – more than 215 million people live

outside their motherland (World Bank, 2011c: 84). However, the net workforce inflow/outflow

rates in Malaysia seem to be unusual (Lopez, 2011).

Malaysia‟s population is 27 million but

more than 1.5 million live abroad (Wong,

2010). This trend is flourishing; in past

two decades, the rate has tripled (World

Bank, 2011c: 91). The problem with brain-

drain is not just the numbers; it is also

about the type of workforce a country is

left with. Most outflow human capital has

a tertiary education, while inflow labor is

low skilled – 60% of all immigrants in

Malaysia have primary-level education or

lower. Now, one-fifth of Malaysians with a

tertiary education leave for either OECD countries or Singapore, while Malaysia‟s skilled

expatriate level fell by 25% between 2004 and 2010, largely due to Japanese companies that

relocated to other countries (Lopez, 2011).

Education has been one of

ethnic Malay preference

policies since 1971; the

government imposed

quota systems in favor of

ethnic Malay public

education (Goujon and

Samir, 2008: 33). Non-

ethnic Malays have been

treated unfairly in working

54


place, too. According to a World Bank report, worries over future career opportunities as well as

social injustice, rather than remuneration scales, appear to be key to the decision to emigrate.

There is a deep sense of being

wronged and not feeling welcome in

Malaysia (Wong, 2010). Malaysian

government acknowledges this issue

and has tried to retain and attract the

emigrant to return. However, the

government fails to understand that

unequal social opportunity is the

root cause – even TalentCorp, the

government agency that is supposed

to encourage overseas Malaysians to

return home, is headed by a Malay

manager, with an all-Malay Board

of Trustees (Malott, 2011).

55


Corruption and Crony Capitalism

Indonesia

Indonesia had a serious problem with cronyism during Suharto‟s regime. During that era, the

dictator and his network took advantage of their political power to seek wealth. Corruption only

described the inappropriate behavior of low-level officers, while politicians and the elite got

richer without any legal action being taken. However, the fall of the regime led to huge change in

this country. Susilo Bambang Tudhoyono won the election in his first term in 2004. He came to

office by declaring a zero-tolerance policy on corruption. His primary tool is the Corruption

Eradication Commission (KPK). This was formed in 2002 before the Bambang regime; however,

it began to be useful under his authority with full independence from politicians and

bureaucracy. Since the KPK has been able to work independently, it has received more than

48,000 complaints including many cases that involve high-level government and corporate

corruption. The KPK has successfully investigated and prosecuted 68 members of parliament,

more than 10 government ministers, four diplomats and a number of high-ranking chief

executive officers and judges (Sagalyn, 2011; Tedjasukmana, 2011). Its worthy reputation has

been praised by the public and the international community. Moreover, democracy could be

identified as another factor that has helped Indonesia with this issue. Corruption exists in many

developing countries but some of them cannot bring it into the public arena in the way that

Indonesia does (Schonhardt, 2010).

Although the anti-corruption campaign offers much hope to the Indonesian people, illegal

behavior on the part of politicians and civil servants is still deeply rooted in this country.

“Corruption in Indonesia is just like Coca-Cola. Everyone, every time, everywhere can become

part of the corruption or could be the target of corruption” (Sihite, 2012). KPK officials also

accept that corruption has become worse in recent years. Mochamad Jassin, a KPK deputy

commissioner, said that corruption is “bigger than the Suharto period” and that it usually takes

the form of “mark-ups and abuse of regional budgets” (Tedjasukmana, 2011). These days, that

top governor intends to, and partly succeeds in, diluting cronyism – corruption is more

56


widespread. Decentralization has indeed made state authorities more accountable to local

residents. However, the flip side is that it has enabled the spread of corruption from the capital to

the hinterlands – “having autonomy in all regions in Indonesia has meant that the mayors and

regents have their authority to govern and to allocate the budget, and the result has been that

corruption does occur” (Sagalyn, 2011).

Not only in general day-to-day activities has corruption occurred. Cronyism may have been

broken down by electoral democracy, but business moguls still have a lot of power in both the

national economy and politics. The World Bank and Globe Asia magazine report that a handful

of business tycoons with links to the former dictator are still dominant. Even in an electoral

democracy, wealth remains highly concentrated among a small number of families involved in

business conglomerates. This is the result of no progress with regard to political economy

reform. Politically, people have the power to choose their own government but, economically,

national wealth is still firmly in the hands of conglomerates. As long as the underlying structure

perseveres, patronage and monopoly – regardless of cabinets, politicians and laws – will remain

(World Ban, 2011a: 41; Wijaya, 2012).

The anti-corruption project, which it is hoped will change the country, also faces obstacles.

Following its many successes in capturing corrupt high-ranking politician and state officers, the

elite has begun to worry that the KPK is coming too close. One such breaking point occurred

when Nazaruddin, treasurer of the President‟s Party, was accused of corruption. The situation

clearly hurt the Democratic Party‟s image and also the president‟s (Economist, 2011). Recently,

the KPK has faced opposition from many from the ruling class. The organization needs to

expand if it is to take on the increasing number of anti-corruption investigations, and has asked

for an increased budget. However, parliament has ignored the request. While some believe that

the legislators‟ rebuff is political payback, this is merely latest punch in a continuing battle

between the agency and law makers, many of whom are implicated in cases of wrong-doing

(Schonhardt, 2012). Although the KPK is becoming increasingly isolated from other public

authorities and political actors, Indonesian people recently have come up to support the anti-

corruption department. Social networks have been used to seek donations from the people

57


(Bayuni, 2012). Nonetheless, this situation is not good for the long term. It may be a sign that

class conflict is coming.

58


Thailand

According to the CPI, Thailand ranks 80 out of 183 countries worldwide with a score of 3.4. The

problem of corruption in Thailand has been identified as one rooted deeply in the nation‟s culture

(Warstra, 2004: 3). Thaksin Shinawatra states that “Corruption will not go away in Thailand –

.it‟s in the system” (Beech, 2006). Phongpaichit and Piriyarangsan (2005) explain that the root of

this problem seemingly comes from

the country‟s tradition. “The Thai

value system of merit is derived

from power and in this way forms a

basis for patron client relationship”.

In modern society, presenting gifts

to a state officer can is seen as

bribery; however, under the

traditional patronage system,

regardless of the law, it is

problematic to clearly identify whether such gifts are appropriate or not. Many studies show that

Thai people‟s attitudes towards corruption are inconsistent. Many people still consider payments

to officials as “gifts of good will” and do not see that as a form of corruption (Warstra, 2004: 5).

The 1997 Constitution brought in some major improvements by establishing very strong

institutional arrangements: the independent National Counter Corruption Commission and the

Public Information Disclosure Act. Nevertheless, the main problem is they are too narrowly

focused and do not target broader structural relationships. Corruption in the present is not

unorganized activity; on the contrary, it tends to be cooperative activity between a broader set of

actors – interactions between state organs and private firms, and relationships between the state

and civil society (Huther and Shah, 2000; Larmour and Wolanin, 2001).

Corruption in Thailand is evident in every part of the society, right to the top. Conflict of interest

is a new kind of corruption in this era and emerged with the more liberal electoral democracy,

replacing the old rent-seeking that took place under the old militarist patronage system. Thaksin

59


first served briefly as the information minister, in a role directly responsible for his own line of

business, telecommunications (Mutabi, 2008: 155). In the past, instability in Thai politics was a

primary avenue for the corruption whereby politicians and civil servants shared rent-seeking.

However, the rise of Thaksin and his new social contract brought about change. The

authoritarian regime dilutes political contestability and centralizes administrative power without

checks and balances. Furthermore, the backgrounds of the cabinet members and new members of

parliament are telling – originally they were businessman and still have strong connections with

various business groups. These politicians reduce the transparency of the decision-making

process by using their personal assets in order to gain more power (Warstra, 2004: 4). Also

“black box” policy making enables them to create policy that unethically supports their business.

The roots of corruption are not only at the top; they can also be found among ordinary people.

Many illegal activities can be seen everywhere in Thailand. Bad driving, opening kiosks on

footpaths, and littering in public spaces often take place even in front of concerned officers. Even

though bribery is acknowledged as illegal, many Thais accept the convenience of it over the

immorality. Thus, conflicts of interest among business politicians together with the

embeddedness of patronage in Thai culture result in a system of crony capitalism.

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Malaysia

Levels of Malaysian corruption in the 21st century are fair by global standards. According to the

Corruption Perception Index (CPI), it scores between 5 and 10. However, things seem to have

got worse recently, coinciding with the rise in political tensions. Malaysia‟s anti-corruption

agency was set up in 1967, somewhat before those of its

neighbors. And in 2003, Prime Minister Abdullah Ahmad

Badawi declared fighting corruption his first priority (Siddiquee,

2008: 154).

The Malaysian anti-corruption agency relies on political

administrators – key personnel are appointed by the prime

minister and have no independent authority to proceed with

prosecutions (US DoS, 2011). The idea of creating an

independent agency that is not beholden to politicians is never raised (Siddiquee, 2008: 165).

The result is that anti-corruption activities are only effective when no political intervention is

necessary; naturally, tackling powerful politicians is impossible. Even Abdulah, the former prime

minister, and Najib Razak, current prime minister, have been involved in many scandals

(Siddiquee, 2008: 164; Case, 2008: 48).

Johnson and Mitton‟s (2001) socio-

economic analysis leads them to

label Malaysia as a state of crony

capitalism. Currently, cronyism in

Malaysia is institutionalized. Many

government practices support

business through unfair competition

(Siddiquee, 2008: 168). Severe restrictions on investment in Malaysia are imposed through the

issuance of licenses, approved permits, contracts and the manipulation of regulations. The effect

of crony capitalism is rapid economic boom on the one hand; on the other, it jeopardizes

economic sustainability. Kunio Yoshihara reports that 50 years of Malaysian cronyism have

61


produced an “entrepreneurially weak capitalism” (Roberts, 2010). In Thailand, people always

say money can buy everything, even the legal system, but in Malaysia, political power is the key.

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Economic Transformation

Indonesia

To transform the Indonesian economy, the government released the Master Plan for Acceleration

and Expansion of Indonesian Economic Development (MP3EI) in December 2010; which is a

market-led approach that takes two basic tenets from neo-liberalism – deregulation and market-

liberalization. The Master Plan described how it aims to implement the 2005–2025 Long-term

National Development Plan with the vision of the accelerating and expanding Indonesia‟s

economic development such as to create a self-sufficient, advanced, and prosperous Indonesia

(Nurmandi, 2012: 66). In summary, the Master Plan has two main functions: firstly, to accelerate

the development process by providing the regulatory and connectivity de-bottlenecking efforts

that improve friendly

investment conditions

(Hidayatullah, 2011); and

secondly, to expand the

degree of development

that would enable national

competitiveness and

attract further business

operations. The basic

strategy that would drive

the plan integrates three main elements:

(1) Developing the regional economic potential in six Indonesian economic corridors.

(2) Strengthening national connectivity locally and internationally.

(3) Strengthening human resource capacity and national science and technology.

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To support the acceleration and expansion of economic development in Indonesia,

implementation of MP3EI will initially focus on eight main programs which consist of 22 core

economic activities (Ministry for Economic Affairs, 2011: 22).

Meanwhile, in regard to the economic

corridors through which government

will boost infrastructural development

the emphasis is on the cooperation

between the government and the

private sector – amounting to around

USD 150 billion - due to limitations in

public funding. The government will

play the facilitator, giving fiscal and

financial incentives and providing a

regulatory framework to encourage

confidence and participation from

investors to build core industries and

vital infrastructure. The public–private

partnership (PPP) scheme will be used

to bring together the private sector, state-owned enterprises and foreign capital to invest and run

projects with government support (Ministry for Economic Affairs, 2011: 21). It is expected that

468 billion USD will be needed to finish this Master Plan; 55% for the production sector and

45% for infrastructure. In terms of sourcing the funds, the private sector is expected to pay 51%,

while 18% will come from state enterprises, 10% from government, and 21% will come from

PPP (World Bank, 2011b: 33).

A key feature of success will be the ability to overcome the geographic difficulties and connect

each part of the country (World Bank, 2011b: 32; ADB, 2012). Even though the Master Plan is

governed by the president, it is still doubtful whether projects in the plan can move along

together (World Bank, 2011b: 22). Decentralization makes local governments have some

independent authorities to run policy, and tend to invest the budget and design the projects based

64


on local needs, rather than taking an overall view. It is anticipated that state enterprises will be

involved in the plan. However, many of them are not fully supportive of Bambang‟s government.

Also the enterprises have to prioritize their core business first. So, the projects may end up

supporting their own interests rather satisfying public demand.

It is a welcome idea that government look to replacing the public budget with private investment.

Nonetheless, the target of 50% private participation is seems high. Historically, infrastructural

investment from the

private sector of

between 20% and

25%, even during

economic boom, is

considered peak

(World Bank,

2011b: 38). The

source of capital is

not the only problem

for the budget; the

plan itself is still in

question. For example, the Bali economic corridor, targeted as a tourism gateway, will receive

just 5 trillion Rp (7.24%), 6 trillion Rp (8.6%), and Rp 1 trillion (2.2%) for the construction of

roads, ports and water resources, respectively (Hidayatullah, 2011). The rest of the budget will

be ploughed into irrelevant infrastructure.

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Thailand

Generally, Thailand has been a pro-market country which has driven its economy via foreign

investment and exports. In the past, public policy in Thailand was mainly managed by permanent

state officers – technocrats, the military and civil servants – rather than politicians or cabinets

(Riggs, 1966). The market-led approach had been used in Thai economic agenda; however,

Shino-Thai capitalists seemed to play a vital role in the country (Whitfield, 2011: 35). Many

sectors in Thailand, such as banking, chemical, retailing, and construction, had been protected

from foreign investors.

The event that changed Thailand‟s political economic structure is the Asian financial crisis. Due

to the crisis, the Thai government had inevitably to take the IMF-supported program guided by

the Washington consensus. The main principles of neo-liberalism were pushed rapidly into the

Thai economy. And, as was mentioned previously, Thaksin‟s new social contract came up to re-

balance the Thai political economy mechanism. Beginning with the agenda-setting process,

formerly the Thai economic plan had been set by technocrats in the national economic council.

They avoided touching some sectors that had powerful conglomerates, and their work was based

mainly on academic perception rather political persuasion – political popularity was of no

concern. However, Thaksin decided to use his own economic advisors; who create electoral

campaign. Thus, even though these policies are possibly claimed as public decisions, many of

them are not economically good for the country.

Previously, government economic interventions had been used in soft way. However, in

Thaksinomics, while on the one side, the market-led approach is still the main engine used to

drive the country, on the other, populist policies are needed to sustain political popularity.

Thaksin managed to rescue Thailand from the financial crisis by using “Quasi fiscal policy”. A

lot of government capital was injected via the banking system to enable consumers and investors

to access credit; however, this was shut down on the IMF‟s suggestion (Conroy, 2004: 5). The

2004 Social Security Fund, the universal health coverage, and some other welfare policies

offered Thais a more universal social safety net (Stiftung, 2012: 21). However, most of

government expenditure seems to have been based on political targets rather than economic

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development. The mega project – Bangkok Fashion City, knowledge society, and national rail

system – that was supposed to lift Thai competitiveness did not succeed.

In terms of the economic sector, Thailand has relied heavily on exports and manufacturing. In

the late 20th century, Thailand‟s main industries were manufacturing and wholesale and retail

trade.

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As in most developing countries, crony capitalism and the relations between business tycoons

and politicians do not support economic freedom. Even though Thailand is quite acceptable

when measured in terms of market openness for foreign investors, there are some sectors where

protectionism has occurred. The Trade Competition Act (TCC) had been enacted since 1999,

under pressure from the IMF. However, practically, the numerous exemptions accorded to state-

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owned companies, public agencies and even influential individuals made it ineffective. Pressure

from big business, apparent government indifference, and a lack of adequate enforcement

ultimately hindered TCC efforts (Stiftung, 2012: 17).

According to the UNDP (2010), approximately 60% of the total workforce is employed in the

informal sector, which is responsible for producing over 50% of the gross domestic product

(Stiftung, 2012: 16). This situation initially arose when the late 20th century economic bubble

burst. Many firms closed down and the employees had to turn back to the agricultural sector or to

being small entrepreneurs. But under uneven opportunity in this political economy mechanism,

while the larger firms benefited from immoral support, thus giving them a monopolistic position

within the market, it also obstructed them from expanding their business to create another

national economic engine.

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Malaysia

Malaysia‟s economy rapidly expanded in the late 20th century due to foreign investment.

However, the Asian crisis had changed the economic paradigm. Government investment had

stepped up to replace capital inflow because it believed that global financial speculators were the

cause of the economic turmoil. However, the lost decade of the 21st century together with the

lowest populist rate in UMNO – government collation parties – pressured the government to

create a new strategy to bring the country back on track. Najib Razak established the project to

transform the Malaysian economy – the Economic Transformation Program (ETP). Additionally,

the National Economic Model (NEM) has been developed as a spearheading policy to drive

Malaysia through the middle-income trap and achieve the status of a developed country by 2020.

Basically, the NEM intends to drive the economy through the private sector while government

needs to reduce its role – 92% of investment is expected to come from the private sector. In

detail, foreign direct investment

is expected to account for 27%

while the other 73% will come

from internal private capital

(PEMANDU, 2010: 85).

Danny Quah, economics

professor at LSE, and Council

Member in Malaysia‟s National

Economic Advisory Council,

has presented eight strategic

reform initiatives that should underpin the economic transformation:

Re-energize the private sector so it could lead the process of economic growth.

Develop a high-quality workforce.

Create a competitive domestic economy

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Streamline and make efficient the public sector as facilitator for private enterprise, when

in the past large GLCs had been viewed as competitors instead.

Move to affirmative action that is transparent, market-friendly, merit-based, and

conditioned on need.

Build infrastructure for a knowledge base.

Enhance the sources of growth.

Ensure the sustainability of growth.

He claims that the strategy is just a

general idea for achieving economic

goals. Nonetheless, government has to

focus on how to implement this. First,

it would focus on growth through

enhancements in productivity. Second,

the government needs to let economic

growth be private sector-led and

market-driven, not public investment

via state capitalism. Third, local

autonomy in decision-making has to

be empowered, and the boundary between the local and central has to be defined clearly. Fourth,

the focus must be on high productivity in the long term. Fifth, government supports for

developing innovation, high-value-added goods and services, and infrastructure are still

acceptable. Sixth, talent and skills should have no discrimination with regards to ethnicity,

nationality and any non-economic factors. Finally, the emphasis must be on global economic

change (Quah, 2010).

The Malaysian government has shown willing to transform manufacturing industry, which

contributes around 70% of the Johor – the region in the southern Malay Peninsula, and next to

Singapore, would be transformed into a services sector. Many incentives, such as tax exemptions

and, especially, Bumiputra rules - at least half of company‟s share has to be held by Malays -

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would be unrestricted. Cyberjaya is a project that aims to establish an area as the new Silicon

Valley. The government has invested in the building of a town and many facilities – school,

university, hospital and shopping mall. This project also offers foreign investors a waiver on the

Bumiputra rules, too, and Internet censorship is assured to be removed in this area (Tarrant,

2011: 5).

The NEM gets a lot of support from right-wing scholars and the global community because it

tends to call on neo-liberalism. “The NEM is to grow the economy by making the private sector

the engine of growth” while it admits that Malaysia has too much government intervention and

domination of GLCs (Wan Jan, 2011: 2). Despite it being somewhat vague at to what,

practically, the government will do, based on the plan, the government needs to cut the budget

deficit, which was 7.4% of gross domestic product in 2009 (Ahmad and Cheah, 2010). It does

accept that “a large number of people are dependent on the Government” (Holik, 2011: 8).

Najib, however, was skeptical that Malay elites will allow him to undertake any reform that

would risk their privileges. The conservatives, including UMNO members, saw in Najib‟s plan a

lack of nationalism that would harm Malay society. Mahathir had put forward his own ideas

during his era as to why ethnic tension was expanding. He claimed that his administrative

policies, although strongly in favor of ethnic Malays, gave some government budget to local

non-ethnic Malays. “The moment I stepped down, all the projects were stopped. When you stop

big government projects, a lot of people – well, their businesses will go down” and it create the

tension (Tarrant, 2011: 4). However, it can be inferred that his policies were toxic like Alan

Greenspan‟s US monetary policy. Nowadays, non-Malay people barely tolerate injustice in

society.

In the end, the influence of the Malay nationalists won through. They can exert pressure on

policy makers at the highest level. The concluding part of the NEM – the second part – was

launched in December 2010. It seems to be a tragedy of a right-wing dream – the government

had succumbed to pressure from Malay nationalists by watering down the NEM. “To ensure

fairness and vanish discrimination” in part 1 changed to “targeted special program for certain

groups outside of the bottom 40% should continue” in the part 2; “To espouse a more free

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market economy and the private sector is the driver of economic growth with the government

limiting itself to being a facilitator” turned into “to sustain economic stability, government is

needed to operate in national economy as well as state‟s interventions are necessary” (Wan Jan,

2011: 21). The Equal Opportunities mission and economic liberalization were dying before they

were even born.

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Conclusion

Singapore achieved sustainable economic growth because it has used the two parallel strategies

of market liberalization and state developmental capitalism. On the one side, it attracts MNCs to

drive economic growth by giving tax incentives and friendly business conditions. Tax incentives

have been used simply but effectively in the ways firms want. However, after being a middle-

income country, the incentives have been used more specifically and clearly send the message as

to what kinds of businesses are preferred. Friendly market conditions in particular have provided

infrastructure, and the human resource factor has always been prioritized. Despite labor unions

being prohibited, state central labor institutions handle workforce tensions effectively for both

employees and employers.

With regard to state developmental capitalism, the government has had the vision to plan

economic strategy for long term. It has continually transformed its economy: it was labor

intensive in 1960; service-based and with a financial hub in 1985; by 2000 high technological

industries dominated; and now it is looking to be an investment center, with medical and nano-

technological hubs. In achieving that, it was brave to abandon its old economic advantages, such

as former British enterpots, low-value-added industries and financial service centers, in order to

reach a higher position in the global chain. As Prime Minister Lee Hsien Loong insists,

productivity ensures a steady rate of growth (Saad, 2012).

Authoritarian democracy in Singapore means an electoral system does not allow full

competition; PAP – the government party – clearly gets majority support. Singapore people

expressly support strong government and willingly give up their rights in return for economic

growth and social harmony. Singapore government rules the country with meritocracy rather

than tyranny. The differences between the two are the rule of law and minority rights. The

corruption rate in Singapore is proudly low and the government listens to any argument that aims

to develop the country without undermining society. This system supports economic

development and enables its smooth implementation.

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Amartya Sen suggested that good governance, not less governance, is the key to addressing the

challenges (Abeysinghe, 2007). The model is not about competition between state and private

sector, but about the state showing the private sector how business can be conducted, how

limited resources can be harnessed and applied, and how a strategic location can be of benefit

(Fontgalland, 2011). Singapore‟s economic model is a mixture of different kinds of capitalism,

liberalism and state capitalism, and continually transforming economic strategies. It uses both

neo-liberalism – privatization, liberalization and deregulation – and national monopolies,

extensive regulation and government subsidiaries at different times, in different contexts and for

varying purposes. Finally, even when the government insists that a welfare system creates

laziness, it realizes how capitalism can generate inequalities in wealth distribution (Economist,

2010). It provides a social safety net as a last resort to enable people who have lost current

advantage to gain future opportunity.

That Malaysia, Indonesia and Thailand are trying to adapt Singapore‟s model for themselves is

no accident but rather by deliberate selection, and mainly based on political rather than economic

factors. They see Singapore as a good model because the elite want to protect their privileges –

all rulers are from elite society and care little for social equality. To sustain their position they

realize that handling a boom of the middle classes who will demand a better quality of life and

increased “equality” is important because it will happen from a result of economic expansion.

The Singapore model of authoritarian democracy runs smoothly, and in a way that sustains elite

power, economic prosperity and social harmony. However, it seems that there is much work to

do in these countries.

Malaysia seems to have achieved many successes. Its education system creates high-quality

human capital. Its economy is very stable and advanced. Nonetheless, Malaysia has ethnic

conflicts and society is not harmonious. The tensions are far from what they were but there are

still inequalities. The transformation plan is generally good but has not hit the point. Ethnic

tensions could destroy the transformation goals if the ruler does not choose either to build a more

open, fair society, or to wipe out non-ethnic Malay people. Any alternative solution will have to

be planned wisely.

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Indonesia is far below the standards of Singapore. Its economy is low-development, and relies

heavily on energy and the labor-intensive industrial sector. The Indonesian workforce lacks

knowledge, and education facilities are relatively weak. The economic transformation plan is

highly ambitious but unrealistic. Indonesia‟s anti-corruption strategy has been moving in a

positive way recently; however, any attempt to undermine it could push back the society into the

Dark Ages. Government should focus on the basics – education, transportation facilities, and

corruption – in order to move forward.

Thailand‟s political problems are extremely damaging to the country. As long as they continue,

nothing can move on: short-term populist policies used to gain mass support, rather than long-

term sustainable development, are jeopardizing the country. The economic system is still in good

condition after having diversified industrially, but there has been no progress, not even an idea

about what the next step in transformation might look like. Education standards are the main

problem for the whole society – a lack of high-quality human capital will make it difficult for the

country to rise to developed status. Meritocracy, which is the basis of Singapore‟s prosperity, is

not stable in Thai society. Thai people‟s behavior is killing the society and, without a huge social

paradigm shift, Thailand cannot get through middle-income trap.

_________________________________________________________

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