Professional Documents
Culture Documents
9280810391
9280810391
The states of East and Southeast Asia constitute a fertile setting for
exploring the links between political and economic development
subjects usually considered in isolation.
The United Nations University Press series on the Changing Nature of Democ
racy addresses the debates and challenges that have arisen as "democratic" forms
of governance have blossomed globally. The march of democracy has defined the
close of the twentieth century; the fulfillment of individual and collective aspira
tions, good governance, and the nurturing of civil society form the benchmark of
political organization. However, democracy defies a universal model, and the
definition of democracy continues to be elusive. Moreover, the performance of
democracy often fails to live up to its promise. This series explores two areas.
Firstly examined is the theoretical discourse of democracy, such as the tension
between procedure and substance, the dialectic between principles and institu
tions, the challenge of reconciliation and peace-building in democratic transition,
the balance between universal and communitarian notions of democracy, between
participation and efficiency, and between capital and welfare. Secondly, the series
explores how these themes and others have been demonstrated, with varying
effect, in a number of regional settings.
�� United Nations
�University Press
TOKYO • NEW YORK • PARIS
©The United Nations University, 1999
The views expressed in this publication are those of the authors and
do not necessarily reflect the views of the United Nations University.
United Nations University Press is the publishing division of the United Nations
University.
UNUP-1039
ISBN 92-808-1039-1
List of acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
5 Taiwan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Hsin-Huang Michael Hsiao and Cheng Hsiao-shih
8 Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Dan King
9 Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Edmund Terence Gomez and Jomo Kwame Sundaram
10 Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Andrew MacIntyre
11 Singapore. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
Khong Cho-oon
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331
13 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Jean Blondel and Ian Marsh
Contributors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Tables and ®gures
Tables
5.1 Taiwan economic indicators, 1952±1996 . . . . . . . . . . . . . . . . . . . . . 111
5.2 Numbers of medium and small enterprises in Taiwan, and
their percentage of all enterprises, 1982±1994 . . . . . . . . . . . . . . . 113
5.3 Medium and small enterprises in Taiwan, by economic
sector, 1982±1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
5.4 Distribution of personal income in Taiwan, by household,
1964±1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5.5 Distribution of the popular vote and seats in Taiwan
elections, 1991±1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
5.6 Distribution of the popular vote in the 1994 Taiwan
elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
5.7 Distribution of the popular vote in the 1996 Taiwan
presidential election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5.8 Taiwan's outward investment in the PRC and the
Southeast Asian countries, 1987±1996 . . . . . . . . . . . . . . . . . . . . . . . 128
6.1 Growth of South Korean GDP and merchandise trade
compared with middle-income oil-importing economies,
1960±1970 and 1970±1980. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
6.2 Results of the South Korean general election, 1996 . . . . . . . . . 147
6.3 South Korean presidential election results by region, 1987±
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
6.4 South Korea's economic performance, 1987±1995. . . . . . . . . . . 158
vii
viii TABLES AND FIGURES
Figures
3.1 Institutional structures for industry strategy in Japan,
Korea, and Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
3.2 Targeted emerging industrial sectors in Japan, Korea,
Taiwan, and Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.3 Targeted services sectors in Japan, Singapore, and Taiwan. 62
3.4 Targeted growth sectors in Japan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
4.1 Party and bureaucratic power I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.2 Party and bureaucratic power II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5.1 The changing pattern of Taiwan's economic structure,
1951±1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
5.2 Composition of Taiwan's exports, 1952±1996. . . . . . . . . . . . . . . . 112
5.3 Patterns of Taiwan's outward investment, 1987±1990 . . . . . . . 129
6.1 The evolution of the South Korean party system after
democratization, 1987±1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
10.1 Accountability and delegation relationships in Indonesia. . . 271
10.2 Average public and private investment in Indonesia as a
percentage of GNP, 1980±1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
13.1 Political parties and economic governance in East and
Southeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
Acronyms
In the late 1980s and the early part of the 1990s, a number of polities of
East and Southeast Asia ®rmly engaged in a democratization process. At
the same time and largely because of this process, a number of prominent
regional leaders asserted that such a development was contrary to ``Asian
values'' and would affect negatively the economic performance of the
countries concerned. As it turned out, the economic performance of the
countries of the region was affected, not by democratization, but by the
globalization of the world economy and in the ®rst instance by the ®nan-
cial consequences of this globalization: thus the downturn struck more a
country such as Indonesia, which had not democratized, than a country
such as Taiwan, which had fully democratized.
At the beginning of the third millenium as at the beginning of the
1990s, whatever the extent of the ®nancial crises, the same question re-
mains, equally urgent and equally daunting: does democratization affect
economic perforamce negatively and, more speci®cally, does it affect
economic performance negatively in the particular context of East and
Southeast Asia? Such a question has not so far attracted the full attention
of scholars, perhaps because too little emphasis was placed, after World
War II, on the weight of political factors in socio-economic development:
as a matter of fact, the converse relationship, that which relates democ-
ratization to previous economic performance, has been studied in an in-
creasingly sophisticated manner since S. M. Lipset ®rst raised the matter
in the early 1960s in Political Man. Now, however, with regional leaders
xiii
xiv PREFACE
Until the ®nancial crisis of 1997, the economic success of the countries of
East and Southeast Asia was widely regarded as the economic ``miracle''
par excellence of the last decades of the twentieth century. This success
had represented the ®rst sustained experience of economic moderniza-
tion by non-Western states. It had occurred at a pace unprecedented in
Western experience. It was associated, in a number of states, with a dis-
tinctive pattern of economic governance. From the late 1980s, democra-
tization was also progressively introduced, renewed, or consolidated in a
number of states: Korea, Taiwan, the Philippines, and Thailand. The
compatibility between democracy and economic development had already
been a lively question because of the publicly expressed views of some
regional leaders, notably Lee Kuan Yew and Dr. Mahathir. The events of
the late 1990s give this relationship new signi®cance. The ®nancial crisis
raises fresh questions about the distinctive patterns of economic gover-
nance that had been adopted in a number of states. It places in a new
context political developments that were already in train in Korea and
Thailand. It reframes the political outlook in other affected states, par-
ticularly Indonesia, but also perhaps Malaysia and Hong Kong.
The question of the compatibility between democracy and economic
development ®rst arose in the context of the extraordinary growth rates
achieved by regional states. Their development up until 1997 surpassed
by far by the rapidity of the ``miracles'' which Western Europe had
known after World War II; it is perhaps even more surprising than the
1
2 JEAN BLONDEL, TAKASHI INOGUCHI, AND IAN MARSH
political model which suited their countries well and that there was no
need to move, indeed no virtue whatsoever in moving, towards the
Western model.
Moreover, the question of ``Asian values'' became to an extent a
screen or an ideological front for the markedly more down-to-earth view
according to which the introduction of liberal democracy in East and
Southeast Asia is incompatible with sustained economic development.
Events of 1997 give this issue an especial edge.
This second, down-to-earth concern is, in reality, a markedly more se-
rious attack against the introduction of liberal democracy than the argu-
ment about ``Asian values.'' The validity of the ``Asian values'' argument
hinges on citizens holding these values and, given that they did hold them
in the past, on their continuing to hold them at present; there is no evi-
dence which ®rmly demonstrates whether these values prevail or not, but
there are indications that they are not, to say the least, universally shared
in the area. For instance, a study undertaken among Taiwanese citizens
shows that liberal democratic values have gained substantial ground and
are becoming markedly more widespread than ``Asian values'' (Parish
and Chi-hsiang Chang 1996, 27±41). Thus, there is some ground for
doubting whether the ``Asian values'' argument can be sustained for long
even in those countries in which it has been put forward by ``authorita-
tive'' sources; this is all the more so given that, in other countries of the
area, the argument has not been put forward or has been, as in Taiwan,
®rmly rejected by the relevant authorities.
The more down-to-earth claim that democratization impedes economic
growth cannot be as easily combatted. Admittedly, the strength of this
argument depends also ultimately on the citizens believing in it, but the
extent to which the citizens are likely to do so does not rest solely nor
even principally on the values held by these citizens: the judgement
passed by citizens on these matters rests primarily on impressions about
the situation in other countries ± for instance in the West ± as well as on
the extent to which there are worries about the uncertainty which tends
to characterize periods of political change. What citizens are therefore
asked to do is to assume either that politics and economics are so distant
from each other that a change in political arrangements will have no effect
on economic life, or that the new politics will produce a group of leaders
who will be as concerned with economic growth and as able to steer the
economy in the direction of economic growth as their predecessors. This
is manifestly asking much of citizens and it is understandable that some at
least should not be willing to accept the validity of either of these two
assumptions.
Given that the view that liberal democracy impedes economic devel-
opment has manifestly important political consequences, it is rather
ECONOMIC DEVELOPMENT V. POLITICAL DEMOCRACY 5
strange that there should not have been systematic efforts to look at the
problem in the East and Southeast Asian context; as a matter of fact, the
problem has been studied primarily in the Latin American context.
Rather than examining whether liberal democracy might impede eco-
nomic growth, most of the work devoted to East and Southeast Asia has
been concentrated on the converse problem, namely whether economic
growth favours democratization or not. There has thus been a study on
the political role of elections in East and Southeast Asia; there is also
much theoretical and empirical literature on the links between economic
governance and economic growth: but there is no recently published
work on the possible in¯uence of democratization on economic perfor-
mance. What the present study attempts therefore to do is to start ®lling
this gap in the literature by looking at the relationship between politics
and economic performance in two of the three groups of countries which
were identi®ed earlier: those countries which did democratize their po-
litical life since the mid-1980s (Korea, Taiwan, Thailand, the Philippines,
and Hong Kong); and those countries which remained relatively authori-
tarian in the context of a formally liberal democratic structure (Malaysia,
Singapore, and Indonesia).
There seemed to be little point in examining the strongly authoritarian
countries in which there was no change at all in political arrangements,
although these may have undergone substantial alterations of the eco-
nomic structure and management; on the other hand, it is essential to
examine both the countries in which a move towards liberal democracy
has taken place and those in which relatively liberal arrangements cou-
pled with a rather authoritarian interpretation of these arrangements
have resulted in little political change. There is manifest scope for an
opening up of these latter political systems and they may well be gradu-
ally affected by the same process of democratization as the countries of
the other group: the events of 1998 in Indonesia suggest that some move
in this direction may indeed be taking place; conversely, not all those
countries in which the process of democratization has taken place may
see this process consolidated. Above all, the comparison between the two
groups will provide at least some of the evidence required to assess
whether the introduction of a liberal democratic system is likely to im-
pede economic growth. Thus this study covers eight countries: ®ve from
the ®rst group, Korea, Taiwan, Thailand, the Philippines, as well as Hong
Kong, which has naturally peculiar characteristics; and three from the
second, Malaysia, Singapore, and Indonesia. Given the serious dif®culties
encountered by the pluralistic Cambodian regime and given that this
regime was installed to a substantial extent at the behest and under the
pressure of the international community and was not primarily the result
of an internal evolution towards liberal democracy, it was not felt appro-
6 JEAN BLONDEL, TAKASHI INOGUCHI, AND IAN MARSH
The view that democracy can impede growth ± indeed, that it does im-
pede growth ± has been based on a number of arguments, typically made
in relation to Latin America and typically more in the form of hypotheses
than of empirically based conclusions (Sirowy and Inkeles 1990, 126±57).
These conclusions are also to an extent contradictory: ``Some empirical
studies have found no signi®cant relationship between economic devel-
opment and democracy. Others have observed a strong impact of de-
mocracy on growth. Yet others have ascertained only a weak positive
effect of freedom on growth, or have discerned a negative in¯uence of
freedom on growth'' (Feng 1997, 393±94). Feng notes that three hypoth-
eses have been put forward, which relate to the dysfunctional con-
sequences of premature democracy; to the inability of democracies to
implement policies for rapid growth; and to the incapacity of pervasive
state involvement (Sirowy and Inkeles 1990, 129; Feng 1997, 392). Feng's
own empirical study, on the other hand, is a systematic attempt to look at
the relationship between growth, democracy, and political stability in 96
countries; but it relates only to the 1960s and the 1970s and it does not
speci®cally identify East and Southeast Asia: it is therefore impossible to
know how far the area behaved at the time in the same manner as Latin
America or Africa. Moreover, the conclusions which Feng draws are
somewhat mixed: on the one hand, it appears that democracy ``tends to
have a negative but weak impact on growth'' (Feng 1997, 403); but it
also appears that ``overall . . . democracy promotes growth indirectly by
inducing major regular government change and inhibiting irregular gov-
ernmental change'' (ibid., 414).
Three further points can be made in favor of the argument that
democracy impedes growth. One is that, at least until 1997, economic
growth has been lower in Western industrialized countries than in East
and Southeast Asia, and that following 1997, the restoration of growth
requires authoritarian leadership. Another is that at least some forms of
democracy are unstable in terms of the personnel which is at the head of
the executive and that there is no way of ensuring that there will not be
instability, as many changes of government result from the vagaries of the
electoral fortunes of the political parties. A third argument has to do with
the inef®ciency of decision-making in democracies which results from the
multiplication of demands, many of them contradictory, and from the fact
ECONOMIC DEVELOPMENT V. POLITICAL DEMOCRACY 7
that decision makers are constrained to take advice and consult widely
because of the prevailing ethos.
The ®rst of these arguments does not constitute a foolproof case that
democracy cannot be associated with rapid economic growth, while the
other two are merely hypotheses which need to be tested. It is true that
Western democracies have had low rates of economic growth in the last
decades of the twentieth century: but it is also true that, apart from East
and Southeast Asia and even if one leaves aside the special cases of the
ex-Communist countries, economic growth tends to be rather low every-
where; it is indeed lower in parts of Africa and of Latin America than in
the West. Authoritarianism is clearly no recipe for growth: as a matter
of fact, as was just noted, empirical studies dealing with Latin America
have come to contradictory conclusions in this respect (O'Donnell and
Schmitter 1986; Feng 1997, 395).
Moreover, while the argument is about rates of economic growth, it
must nonetheless be noted that economic development as a whole is
highly correlated with liberal democracy (Lipset 1983; Lipset, Seong, and
Torres 1993; Marks and Diamond 1992; Moore 1995; Vanhanen 1990;
Vanhanen 1997). The richer countries are also by and large democracies.
There are exceptions, but these are more due to the fact that poorer
countries tend to be democratic (India and many states of the New
Commonwealth) than to the fact that richer countries tend to be authori-
tarian, the only examples of the latter correlation being the states of the
Arabian peninsula. The wealth of democracies may be accounted for in
large part by their past development and by the fact that they exploited
substantial segments of the rest of the world: admittedly, this ®nding
often led to the conclusion that economic development was at the origin of
the move towards liberal democracy and not vice versa; but we are con-
fronted here with a correlation and the direction of in¯uence is problematic.
What is certainly the case is that stable institutionalized democracies are
unquestionably not associated in the main with low living standards.
The question of the relative instability of the political leadership and of
the ministerial personnel in democratic and authoritarian governments
has several facets. As is noted by Feng, succession is more regular in
democracies than in authoritarian states (Feng 1997, 398); on the other
hand, there is noticeable instability in some democratic countries, typi-
cally as a result of the inchoate or undisciplined character of parties in
parliament. Moreover, electoral upsets change both the governmental
personnel and governmental policies: what was done by one team may be
undone by the next, a point which was repeatedly made in connection
with Britain in the 1970s, but which lost much of its validity subsequently
(Kellner and Crowther-Hunt 1980, 211±12).
8 JEAN BLONDEL, TAKASHI INOGUCHI, AND IAN MARSH
in authoritarian regimes are less marked and less troublesome for the
economy than those which occur in democratic polities. One might hy-
pothesize that there are likely to be variations in this respect, given the
well known fact that there are variations among democratic regimes.
Second, it is not clear that economic growth bene®ts necessarily from
speedy decision making. Japan and Sweden are examples of countries in
which decision processes are slow: yet neither the ®rst case nor even the
second constitute instances of low economic growth over the long term. It
may well be more valuable from the point of view of economic growth
that decisions be arrived at after a very careful consideration of alter-
natives and in a climate of consensus than that they should be taken
speedily.
As is well known and as was pointed out at the outset, until 1997 East and
Southeast Asia were the region of the globe in which economic growth
was highest. Over the 25 years between 1965 and 1990, the eight countries
of the area grew by an average 6.5 per cent a year, as against 2 per cent
or less in the rest of the developing world and 2 per cent in the West
(Hughes 1995). This same trend continued into the 1990s. In 1995, for
instance, the growth of GDP ranged from 9.1 per cent in Singapore to
4.9 per cent in Taiwan, with Malaysia and Thailand very close behind
Singapore with respectively 8.8 and 8.5 per cent.
The ®nancial sector collapse that began in Thailand in March 1997 and
progressively spread to Indonesia, Malaysia, the Philippines, and Korea
raises fresh questions about the impact of democratization on growth. The
existence of different political regimes in these states constitutes one rele-
vant fact: two countries were democratizing and two remained authoritar-
ian (or quasi-authoritarian). A more detailed analysis of causality and of
dynamics is required. Meanwhile it could be argued that East and South-
east Asian states continued on the same trajectory which had been theirs
previously out of some kind of inertia, and that growth might subsequently
be impaired as a result of the continuous pursuit of democratization.
To argue along these lines entails adopting one or both of two stand-
points about the relationship between liberal democracy and economic
growth, however. The ®rst standpoint is in turn composed of two parts.
On the one hand, it suggests that liberal democratic arrangements may
have a negative impact on the characteristics and the role of the bureau-
10 JEAN BLONDEL, TAKASHI INOGUCHI, AND IAN MARSH
should have grown so rapidly is that their populations held values likely
to favour economic growth. It could then be argued that, as liberal de-
mocracy is likely to undermine these values, the effect of democratization
would be a decline in economic growth. In such an interpretation, liberal
democracy would not be detrimental to economic growth because of its
structural arrangements, but because of the values which it instils.
This second standpoint is the more insidious because it is almost im-
possible to test its empirical validity. It seems always plausible to suggest
that the values held by sets of individuals have an effect on their behav-
iour, but the connection between the two elements is at best hard to
demonstrate. In fairness, this type of connection has not been made
merely in East and Southeast Asia: it has often been made, for instance,
with respect to those Westerners who had a ``Protestant ethic'' by com-
parison with those who did not. Yet the fact that a similar argument was
made in the West to the one about ``Asian values'' does not make the
latter more acceptable. In reality, it is by now well established, to begin
with, that the determination of what constitute values and what con-
stitutes a prevailing culture in a given country is a highly complex task
(Hofstede 1980). To be able then to assess what impact such values and
such a culture may have on the behaviour of whole populations is mani-
festly highly speculative. It is therefore more appropriate to concentrate
here on the two elements that make up the ®rst standpoint, according to
which liberal democracy may impede economic growth: the possible
negative effect of liberal democracy on the ability of the bureaucracy to
be proactive; and the effect which a proactive bureaucracy may have on
economic growth.
dif®cult to determine whether and, if so, how far the relationship between
liberal democracy and economic performance is likely to be affected. An
extensive empirical and theoretical literature now exists which reviews
the scale and signi®cance of economic globalization and the extent to
which it might induce convergence between the economic strategies of
individual states, and reduce the opportunities for economic governance.
International capital ¯ows impose new constraints on states, as the Mexi-
can experience in 1982 and 1994 and the East and Southeast Asian ex-
perience in 1997 have demonstrated. Pressures for convergence between
states in such areas as competition policy and intellectual property
regimes arise, amongst other sources, from the IMF and the World Trade
Organisation. The OECD has been promoting a standard code for DFI.
Various studies of the Japanese economy suggest that the state cannot
maintain its earlier activist or leadership role (Emmott 1989). The causes
and consequences of the ®nancial crisis for economic governance and for
democratization will be explored in later chapters. Here more general
considerations bearing on the impact of economic globalization on state
sovereignty are brie¯y summarized.
The notion that nation states will be inexorably driven to a common
economic pattern under the in¯uence of international forces seems at
best a half-truth, however. On the one hand, there is indeed convergence
between countries in the goals and purposes of their policies: most want a
minimally successful economic performance; there is also convergence in
some of the economic constraints. Where FDI is a primary element in
economic development, regulatory and prudential arrangements in the
®nancial sector need to retain the con®dence of international investors.
In addition, relations between states and ®rms are shifting. More busi-
nesses, both large and medium-sized, are internationalized (Dunning
1993; Strange 1995). States are faced with more footloose ®rms and they
need to rede®ne their own attractions and to discover new forms of
negotiating leverage. For example, Peter Evans (1996, 465) suggests that
this posed a major challenge for the Korean state.
On the other hand, ``new institutional economics'' is a powerful source
of theoretical arguments against convergence at the institutional or atti-
tudinal level. In this theory, institutions are the key determinants of
longer-term economic performance. These are ``the humanly devised
constraints imposed on human interaction. They consist of formal rules,
informal constraints (norms of behaviour, conventions, and self-imposed
codes of conduct), and their enforcement characteristics. They consist of
the structure that humans impose on their dealings with each other''
(North 1991, 3). Convergence around economic purposes between states
is likely to be associated with institutional diversity. This is because, if
states try to imitate what they perceive to be the successful practices of
ECONOMIC DEVELOPMENT V. POLITICAL DEMOCRACY 13
mocracy on the basis of all the criteria which are typically adopted. Third,
the example of Japan has manifestly been followed, ®rst in East Asia,
and subsequently to a degree in Southeast Asia, as the metaphor of the
``¯ying geese'' pattern so aptly suggests. Finally, Japan's economy was
characterized until the early 1990s by a rate of economic growth which
was of the order of magnitude of the rate achieved by East and Southeast
Asian countries. This shows that liberal democracy is fully compatible
with a high rate of economic growth. Admittedly, the rate of growth has
slowed down markedly in Japan since the early 1990s. But whatever
its causes, such a slowdown cannot be regarded as being due to the insti-
tutionalization of democracy, since it occurred after over forty years of
uninterrupted democratic life and indeed despite two very severe oil
shocks which also markedly affected the economies of Western European
countries.
Given the generally accepted view that a strong state has been a key
element in enabling East and Southeast Asian countries to achieve high
rates of growth, and given that the Japanese example shows that there
exists a path which allows for the combination of democracy and high
growth, a path which may well imply adopting the formula of the strong
state, what has to be determined about East and Southeast Asia becomes
clear: are the states of the area likely to retain their strong state charac-
teristics and yet also maintain their democratic features?
Is there a future for the strong state in East and Southeast Asia?
The strong state is sometimes felt to be at risk in East and Southeast Asia
on the grounds that civil servants will not be able to operate as effectively
in a democratic context as in an authoritarian framework. This conclusion
is far from axiomatic: it is likely to be true only if there is no desire to
achieve consensus between state actors and economic actors. It may be
that such a consensus will be dif®cult to achieve in some of the states of
the area because a tradition of consensus has not existed so far. Bureau-
cracy in Korea is sometimes said to wish to impose authority rather than
to build collaboration, unlike Japanese bureaucracy (Clifford 1997). On
the other hand, such a pattern of behaviour is unlikely to characterize
Malaysia, for instance, as consensus arrangements have typically been in
place in that country. They have even been regarded as a necessity in the
context of the complex ethnic relationships which have prevailed there.
What needs to be investigated, therefore, is whether the strong state
can be expected to remain in place, given either that consensual decision-
making processes already exist, or that the hierarchical mode is likely to
be replaced by consensual types of relationships between the relevant
actors. As our discussion will show, only if and where such a consensual
ECONOMIC DEVELOPMENT V. POLITICAL DEMOCRACY 15
merous: only if this is the case can parties be effective both at the level
of the executive and at that of the legislature in order to support the
government or to oppose it. Unless these roles are ful®lled, the parties
cannot be regarded as ensuring that a liberal democratic system is truly
implemented; if they are ful®lled, on the other hand, the democratic
process will take place in a smooth and regular manner.
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Abbeglen, James (1994), Sea Change: Paci®c Asia and the New World Industrial
Center, The Free Press, New York.
Alagappa, Muthiah (ed.) (1995), Political Legitimacy in Southeast Asia: The Quest
for Moral Authority, Stanford University Press, Stanford, Calif.
Amsden, Alice (1989), Asia's Next Giant: South Korea and Late Industrialization,
Oxford University Press, New York.
Anek, Laothamatas (ed.) (1997), Democratisation in East and Southeast Asia,
Silkworm Books, Chiang Mai.
Bell, Daniel, A. David Brown, Kanishka Jayasurya, and David Martin Jones (1995),
Towards Illiberal Democracy in Paci®c Asia, Macmillan, London.
Berger, Suzanne and Dore, Ronald (eds.) (1996), National Diversity and Global
Capitalism, Cornell University Press, Ithaca, N.Y.
Blondel, J. (1985), Government Ministers in the Contemporary World, Sage, Lon-
don and Los Angeles.
18 JEAN BLONDEL, TAKASHI INOGUCHI, AND IAN MARSH
Cheng, Tun-Jen and Haggard, Stephan (eds.) (1992), Political Change in Taiwan,
Lynne Reiner, Boulder, Colo.
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pore.
Crouch, C. and Streeck, W. (1997), Modern Capitalism versus Modern Capitalisms:
The Future of Capitalist Diversity, Oxford, Oxford University Press.
Drache, D. and Boyer, R. (eds.) (1996), States against Markets, Routledge,
London.
Dunning, J. (1993), The Globalization of Business, Routledge, London.
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Political Science Review 90(2).
Feng, Y. (1997), ``Democracy, Political Stability, and Economic Growth,'' British
Journal of Political Science 27, pp. 391±418.
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Cambridge.
Hofstede, G. (1980), Culture's Consequences, Sage, London and Los Angeles.
Hollingworth, J. Rogers and Boyer, Robert (eds.) (1997), Contemporary Capital-
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talist Economies, Oxford University Press, New York.
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opment?'' Economic Record 71(212), pp. 88±104.
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London.
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A New Look at the Statistics,'' Democratisation 2(2), pp. 1±19.
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Sage, London and Los Angeles.
ECONOMIC DEVELOPMENT V. POLITICAL DEMOCRACY 19
23
24 JEAN BLONDEL
but even often exclusively within the leadership groups. One East and
Southeast Asian exception is Malaysia, perhaps somewhat surprisingly, as
all members of the United Malay National Organisation (UMNO) par-
ticipate in the election of their leader. Moreover, the sharp separation
between executive and legislature which is characteristic of the presiden-
tial system seems also to contribute to reducing party cohesion. In par-
liamentary systems, the cabinet's existence depends on the continued
support of the legislature: this fosters party discipline as it is a big step,
and one which is obviously taken rarely, for the backbenchers of the
majority party or parties to vote against the government when they know
that their vote is likely to bring that government down. Reciprocally, to
avoid trouble, the cabinet is likely to woo the members of the parlia-
mentary majority by all the means at its disposal. The relationship be-
tween government and majority is therefore likely to be close in a par-
liamentary system; on the other hand, since, in presidential systems, the
chief executives and their cabinets do not depend for their survival on
the legislators, their links with these legislators are likely to be more dis-
tant. However, while these tendencies seem true in the American con-
text, lack of party cohesion is not universal in presidential systems: in
Venezuela, Chile, and Argentina, for instance, parties have displayed a
marked degree of discipline in Congress (Mainwaring and Scully 1995,
17±19; Coppedge 1994).
The second way in which the constitutional structure affects parties is
by decentralizing the territorial structure of the state. The impact of this
is particularly large in federations, but it also exists as a result of other
forms of territorial decentralization, at least when that decentralization is
genuine, and speci®cally when local or regional bodies are popularly
elected. Thus, although decentralization is often conceived primarily as
an administrative device, it has inevitably political implications and these
implications cannot but affect parties to an extent, in particular because
candidates for the top positions in the decentralized bodies have to be
selected as well as because these bodies have to take important decisions
concerning local or regional matters. This is likely at a minimum to lead
from time to time to con¯icts with the central organs of the parties.
Federalism is regarded as a particularly strong form of decentraliza-
tion, but in practice, federalism varies widely in content. Some federal
countries leave little scope for the component bodies, whether they are
states, provinces, regions, or cantons. This is in particular the case in Aus-
tria or Venezuela; in the United States, Canada, Belgium, or Switzerland,
on the other hand, the component units are powerful, as are the ``com-
munities'' into which Spain has been divided since the 1970s. The Aus-
tralian federation is an intermediate case, as is Malaysia, which is the only
federal country in East and Southeast Asia. Indeed, while, in the least
PARTIES, PARTY SYSTEMS, AND DEMOCRATIZATION 27
decentralized countries which have just been mentioned, there are iden-
tical parties across the federation, this is not the case in Canada and
Belgium; interestingly, an analogous development has taken place in
Malaysia, where the Sabah and Sarawak parties are different from those
of continental Malaysia. Parties are nominally identical in the United
States and Switzerland, but only because in each component body ± state
or canton respectively ± they are almost entirely independent: in the
United States and to a large extent in Switzerland the autonomy of each
state or cantonal party is such that it is not clear whether it is justi®ed to
refer to these parties as together forming a single national unit.
The part played by these cleavages has been signi®cant across the
world, especially the industrial world. Thus the class cleavage and the
religious cleavage have been at the origin of many parties across most of
Western Europe and the Old Commonwealth, as well as in Japan, Israel,
and some Latin American countries, Chile in particular; the ethnic
cleavage, sometimes associated with the religious cleavage, has also been
in¯uential in many societies. Meanwhile, even the tribal or clientelistic
cleavage of parties of notables has continued to play some part in modern
societies, speci®cally in areas where feelings of local identity have
remained strong and where local leaders are regarded as embodying and
defending forcefully the interests of the area. These ``communal'' cleav-
ages do not automatically lead to the establishment of parties, admit-
tedly, as the conditions described in the previous section must be such
that parties can develop freely and ``naturally,'' but where these condi-
tions obtain, nationwide parties are likely to begin to emerge from these
patterns of relationships.
Yet a second characteristic has to exist for the mass parties to come to
be fully ``in orbit,'' so to speak. The loyalty to the group ± ethnic, reli-
gious, or class based ± has to be gradually transferred to the party so that
the electors come to view the party, and not the ``parent'' group, as rep-
resenting them. Time has therefore to elapse for the legitimation of the
party to occur. If this process is not interfered with, by a coup or as a re-
sult of forms of authoritarian rule, the transfer of legitimacy takes place
and the mass parties acquire a legitimacy of their own independently
of the group from which they originated (Blondel 1995, 133±36). It
is during that period that these parties establish their organization and
acquire ``members,'' a development which does not occur in the more
clientelistic parties of notables as these remain dependent on their local
leaders who do not see the need for and even do not want to create a
formal organization which could constitute a challenge to their own
power.
Leadership
government on its own; they are often, but not always, less powerful and
less autonomous if they are in a coalition, since they have then to strike
compromises with their partners, unless one of the partners in the coali-
tion is dominant as is typically the case in Germany. An example of
strong parliamentary leadership in East and Southeast Asia is provided
by Malaysia, where leadership contests within the major Malay party,
UMNO, have occasionally been tense, but where these contests have in
no way affected the power of leaders once they were elected.
Presidential systems render problems of leadership succession and sta-
bility less dependent on the nature of the parties ± at least, on that of the
party to which the president belongs. Fixed terms thus ensure that the
chief executive remains in of®ce even where parties do not have a na-
tional appeal, for instance if they are divided nationally because they are
clientelistic; ®xed terms also ensure that leadership contests in the party
which controls the executive occur (normally) only towards the end of the
tenure period and not at random intervals. Yet, with localized clientelistic
parties, the number of candidates for the presidential nomination and for
the subsequent presidential election may be very large and none of these
candidates may come to obtain a substantial proportion of the votes, as
has occurred in the Philippines, especially in 1992, at the second election
after the ouster of Marcos: the result may well be a loss of authority of
the chief executive. Thus the presidential system brings about solutions to
only some of the problems resulting from the absence of well-established
and disciplined parties, as a president who cannot rely on the support
of a stable national party base experiences continual dif®culties with the
legislature. In East and Southeast Asia, Taiwan is the one fully liberal
democratic presidential country in which parties are suf®ciently well
established for the chief executive to be able to enjoy strong and loyal
support.
the commonly held view that the era of ideology has ended (Kirchheimer
1966; Bell 1961), but which could perhaps better be termed ``representa-
tive''; and those which have no ®xed policies at all can be described as
``inchoate.'' The ®rst group includes the mass parties as they were origi-
nally conceived, in particular on the Left; the second group is composed
of the representative mass parties; and the third group includes among
others the parties which tend to be clientelistic and within which local
leaders play a major part.
Governmental programmes and policies can suffer where parties are
inchoate, especially in the context of parliamentary systems, but also in
presidential systems. There is likely to be obstruction on their part, or at
least much objection to a strong policy line. On the other hand, parties
which are highly programmatic are often viewed as rigid, a situation
which may arise (and has often been criticized for being likely to arise)
with strongly organized mass parties, in particular those of the Left
(Michels 1911/1962).
As a matter of fact, such a rigidity of programmatic parties in a plural-
istic Western context is more a myth than a reality: while it could be
found sometimes to exist when these parties were in the opposition, it has
always been rare when the same parties came to be in government. To an
extent, the erosion of support suffered by many Western European par-
ties has accelerated the move towards the abandonment of ideological
purity and of programmatic rigidity, but even without their social base
being eroded, indeed well before ideology was said to be in decline, the
mass parties of Western Europe displayed ¯exibility. They did so for two
main reasons. First, as we noted, the leadership of governing mass parties
is typically able to enjoy considerable autonomy, in part because the vic-
tory of the party is often due to the leader's popularity. This feature does
not date solely from the second half of the twentieth century but can be
observed already in the nineteenth century, in Britain for instance, and it
is common in successful mass parties. While there may be internal oppo-
sition and even major con¯icts within these parties, leaders who are vic-
torious at the polls are likely to be able to impose their views. Second,
mass parties have had from very early on to take into account the mood
of the electorate and in particular of that fraction of the electorate which
appeared to have been most instrumental to their victory. This led to
Western European mass parties being viewed as ``catch-all'' instead of
ideological; but, while the expression was coined in the middle of the
twentieth century, the phenomenon had in reality begun to occur earlier.
Representative mass parties, as we have termed the ``catch-all'' parties,
are thus more ¯exible than the programmatic mass parties. They are
therefore valuable instruments for governmental policy-making in the
countries in which the bureaucracy plays a key, if varying, part in eco-
38 JEAN BLONDEL
nomic governance, as in the case of East and Southeast Asia. While par-
ties which are internally divided because of their inchoate or clientelistic
character, and because of the large number of competing leaders and
subleaders which characterizes them, are unable to maintain a consistent
policy line, representative mass parties with highly visible leaders are
most likely to strike compromises designed to secure their global inter-
ests. These interests consist, indeed, in part simply in implementing their
programme; they also consist in ensuring that they stay in power, as this is
a sine qua non if they are to even begin to implement their programme.
Flexible representative mass parties have therefore to become the
norm in East and Southeast Asia if democratization is to proceed
smoothly in the area and take into account at least the broad sentiments
of the population. Such parties cannot be established arti®cially where
broad social cleavages do not give rise to them, however. By the late
1990s, Taiwan was the only country of the area in which the process of
democratization was taking place with parties which had this representa-
tive character. Elsewhere, therefore, dif®culties can be expected to arise.
The only hope would be for clientelism to decline gradually, for localised
parties to ``gel,'' so to speak, as these become less concerned with local
problems and feel obliged to adopt and stick to a national policy line.
This development is perhaps not very likely but it could occur if some at
least of the party leaders were to recognize that, for their countries to
remain stable and democratic, the parties must have a well-developed
structure within the population and endeavour to promote policies broad
enough to appeal to substantial sections of the electorate and yet ¯exible
enough to be realistic. Alternatively, the party leaders might feel that
broad national policies are a way of consolidating their personal appeal
on more secure foundations.
Party systems
The two forms of party competition
Pluralistic party systems depend therefore on the nature and the strength
of the social cleavages in the country, as well as on the structure, leader-
ship, and programmatic standpoints of the parties which compose them.
Yet party systems also differ from each other, and differ markedly, as a
result of both the number and the basic electoral support of those com-
ponent organizations which can be deemed to be ``signi®cant,'' that is,
able to play an effective part in the policy-making process of the country.
Naturally, the more parties there are in a legislature, the smaller they are
in size and the larger is the number of signi®cant parties. Indeed, if the
policies and programmes of very small parties are such that these come to
be strategically placed in the con®guration of the overall system, these
PARTIES, PARTY SYSTEMS, AND DEMOCRATIZATION 41
small parties, too, may be signi®cant even where there are few large ones:
thus small nationalist parties have sometimes bene®ted from such a posi-
tion in Western Europe, Britain, and Spain, for instance. Yet the number
of signi®cant parties remains relatively small in consolidated liberal
democracies: it ranges from two or three to perhaps six or seven.
If number and relative size are taken into account, pluralistic party
systems can be divided into four broad types: two-party systems, two-and-
a-half-party systems, multi-party systems with a dominant party, and
multi-party systems without a dominant party. In the ®rst group, two
more or less equal parties dominate the scene, Britain being a case in
point. In the second, there are two large parties and a much smaller third
one, but this third party often holds the balance of power: this has been
for a long time the situation in Germany. In the third group, there are
four or ®ve signi®cant parties, but one of them is as large or almost as
large as all the others together, a con®guration which has been charac-
teristic of several Scandinavian countries, and in particular of Sweden.
Finally, in the fourth group, there are the same number of truly signi®-
cant parties, but all of them are of about equal strength and are therefore
rather small, Switzerland being the archetype in this category. This four-
fold classi®cation was ®rst developed for Western party systems, but it
has also tended to correspond in broad terms, to party system con®g-
urations not just in Western countries, but in other democracies, in par-
ticular Japan, Israel, and most Commonwealth and Latin American
democracies (Blondel 1968; Blondel 1995, 170±72; Sartori 1976).
Admittedly, in countries in the process of democratization, especially
outside the Commonwealth, and particularly in the early stages of this
process, there has often been a single party or a party which is so domi-
nant that it overwhelms all the others and treats them either as irrelevant
or as satellites: this was the case for a long time in Mexico. As such a
dominant single party should decline before the party system becomes
genuinely pluralistic and comes close to one of the four categories which
have just been described, the democratization process always takes time:
in Taiwan, for instance, the evolution began in the second half of the
1980s and was not complete by the late 1990s. In the intervening period,
during which the strength of the ``controlling'' single party is eroded but
is still large, that party continues to hold an ``abnormal'' position in the
party system con®guration.
In the East and Southeast Asian context, the party systems of the
countries in the process of democratization have remained volatile as the
electoral fortunes of the components of these systems have been subject
to wide ¯uctuations. Taiwan is the exception: it is slowly moving towards
a two-and-a-half-party system or towards a multi-party system with a
dominant party. In Korea, the Philippines, and above all in Thailand, on
42 JEAN BLONDEL
the other hand, the institutionalization of the party system seems still
rather remote: the consolidation of democracy seems therefore also
somewhat problematic in these countries. Admittedly, there were no
signs at the end of the twentieth century suggesting that the democratic
process might be halted; but there were no signs either that a stable party
system was about to be established. This is manifestly due to the fact that,
in these three countries, in contrast to Taiwan, parties have not been
based on a national social cleavage and the bond between some of the
parties and their electors has typically been clientelistic and localized.
Parties are tools: they can be used to foster democracy, but they can also
be used ± and often are used ± to prevent democracy from being estab-
lished. Although they then appear to forge a link between people and
government, this is at best in order to mobilize the population in the full
military sense of the word rather than in order to achieve representation.
Yet lively and functioning parties are needed if democracy is to be
established and consolidated, though the ways in which they help to
consolidate democracy are complex and rather tortuous. Parties cannot
consolidate democracy if they are not themselves institutionalized, that is
to say if they do not have profound roots in the society as a result of
which they come to be genuinely in communication with their electors,
and thus both represent them and are able to lead them. For this to be
achieved, however, parties have to be truly distinct from each other. The
44 JEAN BLONDEL
link between a party and its supporters is strong only if these supporters
are very disinclined to join other parties; they will be disinclined to do so
if they are markedly opposed to these parties. At the same time, liberal
democracy cannot function unless the parties tolerate each other and in-
deed come to collaborate with each other over at least some matters.
Hence the key dif®culty which the question of consolidation of democ-
racy poses: there must be enough opposition among the parties for
loyalties to be strong, but there must also be enough toleration for a
climate of liberalism to prevail.
This contradictory pull is encapsulated in the party system, as this
determines both the differences and the links which exist among the par-
ties. These links can be stronger or looser. The mode may be one of ac-
commodation or one of adversarial politics; but the accommodation must
not be so close that parties form a cartel and come to dominate the
society. Nor should the adversarial practices be so brutal that the party
system is in constant danger of breaking up and of giving way to the
authoritarian domination of one party over the others.
There is an inevitable tension in the process of consolidation of de-
mocracy. This tension is accentuated if another element is present in the
equation, the goal of economic development. For the party system to
enable economic development to take place regularly and at a rapid pace,
a number of constraints have to be imposed on the nature and character
of the battles which the parties ®ght. The parties have to respect certain
policy objectives and they have to be prepared to extend accommodation
to a different organ of the policy-making process, the bureaucracy. As
economic development has been for decades the number one goal which
the polities of East and Southeast Asia have pursued, the democratiza-
tion process is unlikely to be successful in these countries unless the par-
ties truly make that goal their own. We must therefore examine the
characteristics of economic governance in the East and Southeast Asian
context before considering whether there is truth in the idea that liberal
democracy might impede economic development.
REFERENCES
47
48 IAN MARSH
sis. Other ingredients included: the enthusiasm with which ®nancial insti-
tutions lent funds to regional companies and intermediaries; change in
the relative competitiveness of affected states (particularly following
China's 1995 devaluation); and the capacity of states to upgrade techno-
logically in step with rising wage rates (Thurow 1998; Radelet and Sachs
1997; Wade 1998). Later analysis may identify other causes. The imme-
diate consequence is a reduction in the expectations for growth in the
affected states and in the region as a whole (World Bank 1998). The IMF
has required affected states to implement budgetary, ®nancial sector, and
other institutional changes. The medium-term outlook depends on how
individual political systems absorb the twin pressures of recession and
institutional change. More distantly, a Chinese devaluation or a slump in
Japan would compound the dif®culties of adaptation.
Yet productive capacity of East and Southeast Asia remains strong.
The region as a whole has dominated global output of a variety of manu-
factured products. For example, in 1994, regional production amounted
to over 60 per cent of world production of radio±tape players, VCRs,
bicycles, microwave ovens, colour TVs, air conditioners, refrigerators,
watches, and ships, and just under 40 per cent of world production of
automobiles and steel manufactures (Nikkei Weekly, 3 October 1994).
Export-led industrialization has been the engine of economic develop-
ment. In turn, this has stimulated the growth of domestic capital, infra-
structure, and consumer goods markets, culminating in the 1997 bubble.
Save for Hong Kong, government has taken an active part in economic
management in all the states of industrializing Asia (Stiglitz 1996). The
experience of Japan provided a model for Taiwan and Korea (Kim et al.
1995). The different circumstances of Southeast Asian states have cir-
cumscribed Japan's relevance to them. Economic globalization, mani-
fested vividly in the events of 1997, is a constraining element. This is the
context for exploring the links between economic governance and eco-
nomic performance. On the basis of varying perspectives drawn mainly
from economics but also from political science and from such eclectic
approaches as business strategy, a substantial body of empirical work
about economic governance in regional states has emerged. However,
comparison and synthesis is dif®cult, not least because of different prem-
ises and different methodologies. Nevertheless, recent developments in
institutional and evolutionary economics have begun to provide a link,
and a common framework can perhaps be explored. In particular, the
latter theorizes the causal linkage between economic governance and
economic performance, albeit at a high level of generality. Meanwhile, the
empirical literature suggests some of the detailed elements ± although the
events of 1997 suggest its incompleteness.
One threshold difference in economic governance between individual
ECONOMIC GOVERNANCE AND ECONOMIC PERFORMANCE 49
states of the region arises from the duration and level of their economic
performance and the primary source of investment. In this perspective,
the eight states covered in this study fall into three categories. The ®rst
group is composed of Singapore, Korea, Hong Kong, and Taiwan. These
states have enjoyed sustained growth, at least since the seventies; all four
remain signi®cant global competitors in electronics, computing, and in-
formation technology (IT), and are seeking positions in advanced tech-
nology sectors: with the exception of Singapore, indigenous ®rms, not
DFI, have been the engine of development. In this group, Korea alone
was immediately affected by the 1997 crisis. The countries of the second
category, Malaysia, Indonesia, and Thailand, experienced accelerated
development after the Plaza Accords of 1986. To a large degree these
states have become production sites for industries from Japan. They re-
main underdeveloped by comparison with those of the previous group:
even if they sustained growth rates of 7 per cent p.a., it would have taken
Malaysia 17 years, Thailand 22 years, and Indonesia 46 years to achieve
Korea's 1990 per capita income (MacIntyre 1994a, 16). Finally, the Phil-
ippines is in a third category as its experience of development dates from
the early 1990s. All the states in the last two groups were implicated in
the 1997 crisis.
``embeddedness'' (Evans 1992, 1995). These studies deal with state pen-
etration of, or ``embeddedness'' in the surrounding society and speci®-
cally with business-government relations, as well as with ``state steering''
capacities. Broader community mobilization on behalf of developmental
goals has also been mentioned as an additional causal element in longer-
term economic performance (Campos and Root 1996). These concepts
suggest ways in which the abstract notion of economic governance might
be operationalized.
Business-government collaboration
Evans (1995) identi®es at least three criteria for effective collaboration
between business and the state: the forums available for interaction; the
sources of in¯uence at the disposal of the state; and the capacity of busi-
ness to participate in these exchanges. The ®rst criterion is constituted by
the modes of exchange: it refers to the institutional arrangements through
which interaction between government and business takes place. Japan,
for instance, the paradigm case, is characterized by deep formal and in-
formal exchanges (Okimoto 1989; McMillan 1996). Arrangements that
are more or less elaborate and more or less collaborative have been
identi®ed in the other states of the area.
The second criterion is constituted by the resources available to the
state to in¯uence behaviour in its exchanges with business. These include
coercive, indirect, and cooperative instruments. Legal authority provides
coercive in¯uence; the ability to allocate capital or speci®c tax or subsidy
arrangements might constitute indirect in¯uence; and provision of valued
information constitutes the third source of in¯uence. Commentators have
pointed to a move from the former to the latter modes as relationships
develop from a directive towards a more collaborative pattern. States
with collaborative business-government relations possess an array of de-
liberative councils.
The third criterion concerns the extent to which business is organized
in associations. These might be more or less independent from the state,
but organization and representation are essential for effective interaction:
an atomized business sector would not be able to enter into or maintain
ordered relations.
The role of labour, which has not generally been treated as a partner
of equivalent standing to business, might also be noted. For example, in
Japan, after initial unrest, integration was largely accomplished at the
®rm level through enterprise unions. Wage decisions are co-ordinated
through the annual Shunto round (Sako 1997). Analogous arrangements
exist in Singapore, Taiwan, and Thailand. Korean labour relations are
more turbulent, and unions are handled differently in Indonesia and
Malaysia.
ECONOMIC GOVERNANCE AND ECONOMIC PERFORMANCE 53
State autonomy
the idea into a shared belief system so as to affect expectations and hence
behaviour'' (1993, 203±5).
Ideas might be deployed at both national and sectoral levels. At the
national level, the state might champion longer-term socio-economic
objectives and mobilize popular support on their behalf; this might be
expected to in¯uence the expectations of individual citizens and their
understanding of the steps which have to be taken in order that the
desired outcomes be achieved. In particular, linkages between the na-
tional and the global economy might be better understood and the
implications accepted. Meanwhile, the potential positive-sum character of
the national socio-economic project might be articulated and its terms
af®rmed. These points would be expressed in terms appropriate to the
particular political culture or other sources of normative authority; they
would have to be substantiated by technical analysis.
At the sectoral level, these broad purposes would need to be translated
into programmes: similar outcomes in terms of ideas, choice sets, and
motives might be stimulated in this way. The process would have to be
collaborative and reciprocal: commitment would thus be built and the
process of adaptation eased. While unanimity would be neither achieved
nor expected, a majority coalition would be established and maintained.
suggest that Taiwan adopted the principle of shared growth from 1949
(1992, 22). Similar conditions existed in Southeast Asia. In Thailand,
Sarit justi®ed his 1958 coup as essential for both security and develop-
ment; MacIntyre suggests that Suharto also sought legitimacy by promis-
ing economic growth (1994b, 242); in Malaysia's case, Gomez and Jomo
suggest that redistribution has been given priority over growth (1997).
elite agencies
In emulation of Japan's MITI, elite agencies concerned with the strategic
economic or socio-economic outcomes have been set up in every state.
Their effectiveness, however, varies widely. Strong agencies include Sin-
gapore's Ministry of Trade; Korea's Economic Planning Board, and since
1995 the Ministry of Finance and the Economy (Lee 1997); and Tai-
wan's Council of Economic Planning and Development and the Industrial
Structure Bureau in the Ministry of Economic Affairs. Parallel agencies
can be identi®ed in Southeast Asian states, but various studies suggest
they are much less well insulated from political pressures and/or much
less authoritative in the public policy process than those noted above
(Gomez and Jomo 1997; MacIntyre 1994). In Malaysia, strategic policy-
making is concentrated in the Economic Planning Unit in the Prime
Minister's Department. This has a staff of around 80 professionals, of
whom 90 per cent have at least a master's degree. The Institute of Stra-
tegic and International Studies (ISIS) is a quasi-independent think tank
associated with the government; it was particularly active in the devel-
opment of the broader ``2020'' vision, and is also the co-ordinating agency
with the peak national business organization, the Malaysia Business
Council.
Indonesia's strategic agencies include the National Planning Agency
(Bappenas), the Ministry of Finance, and the Investment Co-ordination
Board. An Agency for Strategic Industries was established in 1984; its
role has since expanded to managing state-owned strategic industries in
the areas of transportation, information, telecommunications, and elec-
tronics.
There are four elite agencies in Thailand: the National Economic and
Social Development Board (NESDB), the Bank of Thailand, the Board
of Investments, and the Bureau of the Budget in the Ministry of Finance.
The NESDB was established in 1959 and is directed by a 15-member
committee including key public executives, the governor of the Bank of
Thailand, the secretary-general of the Civil Service Commission, the di-
rector of the Bureau of the Budget, the director-general of the Fiscal
Policy Of®ce, the secretary-general of the NESDB, and nine members
appointed by the Cabinet. There is also a Joint Public/Private Sector
Consultative Committee (NJPPCC), established in 1980 by the NESDB,
ECONOMIC GOVERNANCE AND ECONOMIC PERFORMANCE 57
leadership consensus
Taiwan, Korea, Thailand, Malaysia, and the Philippines all have political
opposition parties, none of which opposes the strategy of economic
growth and all of which support an activist state. In Singapore and Indo-
nesia, the opposition is not signi®cant, as was already indicated in the
previous chapter.
active advocacy
Detailed evidence of the steps taken within each state to mobilize the
society on behalf of developmental objectives remains to be gathered.
Before the ®nancial crisis, and ostensibly at least, Malaysia appears to
have gone furthest by elaborating three components, a ``vision,'' ten-year
outline plans, and a ®ve-year operating plan. In 1991, Vision 2020,
adopted by the government, envisaged the country to be by that year a
fully developed society. This was supported by an Outline Perspective
Plan for the 1990s, covering macroeconomic prospects, sectoral targets,
and human resource development, which identi®ed the major steps
required for the 2020 goals to be realized. This Outline Plan is supported
by a Five-Year Plan, which details the macroeconomic and sectoral tar-
gets needed to implement the larger objectives as well as social balance
and ethnic issues; educational issues, including the needs for professional,
technical, and related workers; and the desired R & D levels (0.5 per cent
in the mid-1990s). Detailed evidence on how popular support is mobilized
for these objectives has still to be gathered.
appropriate outcomes
One of the distinctive features of the region's experience has been the
association of economic growth with diminished income inequality
(Campos and Root 1996; World Bank 1993). The point is to some extent
disputed, however: Evans acknowledges the general participation of the
population in the prosperity in Taiwan and Korea, but suggests that a
cloak of legitimacy has been given in this way to narrower interests and
to ``a kind of Gramscian hegemony in East Asia'' (1992, 181). In Indo-
nesia's case, Mochtar suggests that economic growth ``has bene®ted the
urban and modern sectors considerably while marginalizing the rural and
traditional ones'' (Mochtar 1995, 277). Campos and Root argue about
Thailand that ``underinvestment in postprimary education had a negative
effect on income distribution in the 1980s as the economy shifted to more
skill-based activities'' (1996, 59); a rural movement, the ``Assembly of the
ECONOMIC GOVERNANCE AND ECONOMIC PERFORMANCE 59
Poor,'' mobilized 15,000 people for a camp and vigil in Bangkok (Sydney
Morning Herald, 27 January 1997). In Malaysia, partisan interests have
been especially favoured (Gomez and Jomo 1997). Thus aggregate ®nd-
ings supporting the view that there has been shared growth may mask
signi®cant regional or sectoral variations, and more detailed evidence is
required.
Ideas, choice sets, and motives at the sectoral level
Sectoral mobilization is the second activity through which ideas, choice
sets, and motives might be in¯uenced. Mobilization at this level is
required to implement broader national objectives and it involves selec-
tive intervention. At least four processes contribute to this outcome: the
establishment of appropriate institutional and planning processes; the
establishment of sectoral priorities; the introduction of speci®c incentives;
and business-government collaboration.
sectoral agencies
Except for Thailand, the Philippines, and Indonesia, the states of the area
have institutional arrangements covering the key dimensions of industry
strategy formulation and implementation. In ®gure 3.1, three ®elds
are covered: industrial strategy, technology strategy, and industrial-
cum±trade policy implementation.
In Korea, as in Japan, key strategic agencies are supported by external
policy think-tanks. In Singapore, the Economic Development Board has
played a key part (Schein 1996). It operates as an enterprise, maintaining
22 international of®ces and taking initiatives in identifying gaps in indus-
try clusters or new sectors where investment is desired, discovering suit-
able multinational corporations to meet these needs, and approaching
®rms to solicit interest. It is also the key agency in charge of imple-
menting Singapore's programme of expansion in the region, boosting
the role of local ®rms, and broadening the part played by its SOEs. In
Malaysia, the major co-ordinating bodies are the National Economic
Consultative Council and the National Development Planning Commit-
tee. Large powers are concentrated in the prime minister's hands; indus-
trial policy is the responsibility of the Ministry of Trade and Industry; the
Malaysian Industry Development Authority (MIDA) co-ordinates for-
eign investment.
sectoral priorities
The sectors targeted by Korea, Taiwan, and Singapore (as in Japan) build
from existing activity and re¯ect the linkage between the economic pros-
perity of these states and the growth of global trade in manufactures
(®gure 3.2).
. . . .
Japan Korea Taiwan Singapore
Industry Industrial Structure Economic Planning Board Council for Economic Ministry of
60 Strategy
(Peak
Agency)
. Council
Industrial Policy
Bureau MITI (237
. (Ministry of Finance)
Korean Development Institute
.
Planning and
Development (CEPD)
Nominates strategic
International Trade
and Industry
. staff)
MITI Research
industry/export sectors
. . . .
Institute (46 staff)
Technology Agency of Industrial Ministry of Science and IDB nominates National Science and
Strategy Science and
Technology (AIST ± . Technology (MOST)
Korea Advanced Institute of
development-
targeted lead products
Technology Board
(administers National
3,537 staff, 6
programmes, 25
target ®elds (1995)
.. Science and Technology
9 main research centres
Implementation through
. (69 in 1994)
Industrial Technology
Research Institute
Technology Plan)
± R & D Target 2%
GDP)
HANPs (Highly Advanced (ITRI ± 8 major ± 40 Researchers per
National Projects) subunits) 10,000
± Administers 52 BICC
. . .
R & D Funds
Industry Policy/ Industrial Structure Ministry of Trade Industry Industrial Development Economic Development
Trade Policy
. Council
14 Deliberation . and Energy (MOIE)
Korean Institute of Economics
Bureau (Ministry of
Economic Affairs)
.
Board (22 international
of®ces)
. Councils
MITI
± International
. and Technology
Trade Policy/Export
Promotion by Kotra (100
Trade Development
Board (1995 ± 5
missions, 29 trade fairs)
Trade Policy
Bureau (236 staff)
± Basic Industries
. International Trade Centres)
Major Centres
± Korea Institute of Science
Bureau (208 staff) and Technology
± Industry Location ± Korean Research Institute
(177 staff) of Bioscience and
± Machinery and Biotechnology
Information In- ± Korea Institute of Energy
dustries (200 staff) Research
± Consumer Goods ± Korea Institute of
Industries Machinery and Metals
± Electronic Research Industry
Figure 3.1 Institutional structures for industry strategy in Japan, Korea, and Taiwan
Japan Korea Taiwan Singapore
Microelectronics Biotechnology Communications Aerospace
Biotechnology New materials Consumer electronics Biotechnology
Figure 3.2 Targeted emerging industrial sectors in Japan, Korea, Taiwan, and Singapore (Sources: Thurow 1996, 67 [Japan];
Technical Transfer Week, 26 June 1996 [Korea]; Matthews 1977b, 300 [Taiwan]; Economic Development Board, http://
www.sedb.com.sg [Singapore])
61
62 IAN MARSH
Figure 3.3 Targeted services sectors in Japan, Singapore, and Taiwan (Sources:
Economic Planning Agency, http://www.epa.go.jp [Japan]; Economic Develop-
ment Board Web Site http://www.sedb.com.sg [Singapore]; Council for Eco-
nomic Planning and Development 1995, http://www.cepd.gov.tw [Taiwan])
facturing and service sectors, the outlook for market size and employ-
ment levels being speci®ed for the last two of these.
Malaysia has targeted multimedia as an area for growth in value-added
activity, the focus being the ``Multimedia Super Corridor,'' of which
the prime minister, Mahathir, has been the most active advocate. This is
envisaged to provide an advanced communications infrastructure be-
tween Kuala Lumpur and a new urban centre, Cyberjava. Government
investment of between US$8 billion and US$15 billion had been fore-
shadowed before the ®nancial crisis. The corridor aims at hosting com-
panies to provide multimedia content, such as digitally produced special
effects and video games; by May 1997 (but before the ®nancial crisis had
fully developed), over 900 companies had made a bid to participate in the
corridor (Nikkei Weekly, 5 May 1997).
In Thailand, Indonesia, and the Philippines, the established economic
bureaucracies have sought to manage only macroeconomic aggregates,
although before his downfall, President Suharto had supported family
members and Technology Minister Habibie in favouring particular sec-
tors or activities. In Indonesia, the Pelita VI strategic plan (1994±95)
involved a further relaxation of restrictions on foreign investment and a
reduction of tariffs. Investment has been concentrated on textiles, tour-
ism, shoes, food processing, and timber products.
sectoral incentives
Targeted incentives are a direct method used to in¯uence sectoral activ-
ity. Research and development, automation, training, and new ventures
in particular are thus singled out for special bene®ts and concessions in
the policies of Taiwan, Singapore, and Malaysia (Sicklen 1997).
business-government collaboration
Business-government collaboration can contribute directly to the dis-
semination of ideas, choice sets, and motives; it can also contribute indi-
rectly, as we shall point out later, to the reduction of transaction costs.
This kind of collaboration has been mentioned as a particular feature of
the development process. In Japan, it has been extensively documented,
for instance by Okimoto, who notes: ``Much of the crucial negotiation
that goes into industrial policy-making takes place behind the scenes in
what might be called an intermediate zone between the public and pri-
vate sectors. It would be hard to formulate and implement Japanese
industrial policy if the labyrinth of personal relationships in the inter-
mediate zone did not exist.'' He adds: ``Instead of labelling Japan a strong
state [it would be] more accurate to call it a `societal,' `relational,' or
`network' state . . . whose strength is derived from the convergence of
public and private interests and the extensive network ties binding the
64
Technologies Services Domestic Sectors
Market size Market size Employment
(Y trillion) (Y Trillion) (1000's)
Superconductivity Consumer credit 13.69 24.00 Medical and welfare services: 38 91 3,350 3,690
nursing equipment
Biotechnology Advertising 6.35 10.00 Lifestyle and culture: leisure 8 19 1,220 1,760
and lifelong learning
businesses
Micromachinery Education 3.60 5.40 Urban development: 5 16 60 150
technology development of deep
underground environments
Electronics/information Security 1.75 2.86 Environment: recycling, 15 37 640 1,380
waste disposal
Femosecond technology Temporary staff 0.93 1.59 New energy sources: 2 7 40 130
placement generating electricity from
waste materials
Accelerated biofunction Music 0.56 0.95 Information and 38 126 1,250 2,440
technology communications:
electronic trading
Figure 3.4 Targeted growth sectors in Japan (Sources: AIST, Annual Report 1996 [Technologies]; MIT [Nikkei Weekly, 3 June
1995] [Services]; MIT [Nikkei Weekly, 2 December 1996] [Domestic sectors])
Optical topographic Fitness 0.35 0.60 Distribution 36 132 490 1,440
imaging system
Digital hearing aids Design 0.19 0.33 Employment services 2 8 60 100
Unassisted excretion Homes for the 0.06 0.16 Internationalization: 1 2 60 100
aged convention services and
translation
Stereotactic cancer Home cleaning 0.03 0.12 Business support services: 17 29 880 1,260
treatments technology assessment
Renewable New manufacturing technology 14 41 730 1,530
energy technology
Fossil fuel utilization Biotechnology 1 10 30 150
Energy transfer Aviation and aerospace 4 9 90 150
Environment
management
Transaction costs
[states] can reduce transaction and information costs as well as provide collective
goods. They do this by reducing bureaucratic red tape, by pooling information, by
reducing the need for regulation, and by increasing the ef®ciency of decision-
making. The collective goods produced by these institutions may include market
information, sectoral co-ordination, bargaining leverage, or a myriad of other
factors that have helped to make Southeast Asia internationally competitive in an
expanding range of products and services. (1993, 656)
ECONOMIC GOVERNANCE AND ECONOMIC PERFORMANCE 69
Government failure
(e.g., Laber 1997; Jesudasan 1995; Bell et al. 1995). In this latter case, at
least so far, the established regime has mostly co-opted new groups, or
groups which lack the weight to challenge the dominant order. All these
states will be profoundly affected by the events of 1997 as middle-class
expectations are curbed, elite rent seeking is curtailed, and unemploy-
ment expands.
Questions of social relationships lead to questions of politics; economic
governance is obviously also dependent on politics as public servants can
be helped or frustrated by the actions of politicians. We need, therefore,
to bring together the ®ndings relating to economic governance discussed
in this chapter and those relating to politics examined in the previous
chapter to see how far, in East and Southeast Asia, the links between
politics and economics are likely to continue to result in growth and de-
velopment, whatever constraints may be imposed on the states of the
area by democratization. It is therefore to the character and to the con-
sequences of the links between political behaviour and economic gover-
nance that the next chapter is devoted.
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79
80 JEAN BLONDEL AND TAKASHI INOGUCHI
only natural that, once parties have begun to be in¯uential, the strength
and in¯uence of one side should affect the strength and in¯uence of the
other. Having examined successively in the previous chapters the types of
party characteristics and of party system arrangements, on the one hand,
and, on the other, the kinds of bureaucratic structures which would ap-
pear to be best suited to achieve sound economic governance, we need
now to look at the conditions under which a pluralistic party system and
an active bureaucracy can coexist and thus make it possible for democ-
racy to ¯ourish while economic development is maintained.
Democratization has a number of implications and consequences for
economic governance. It implies an active role for the political leader-
ship: there may even be ``national mobilization'' based on what we re-
ferred to in chapter 2 as ``programmatic'' parties. In any case, democra-
tization at least invites rivals for national of®ce to campaign on equal
terms, and this can be felt to be disruptive of the national consensus.
Moreover, democratization licenses the formation of interests and these
interests may start to create policy networks; indeed, as economic devel-
opment proceeds, a more differentiated civil society can be expected to
take shape, with a well-de®ned middle class and a distinct labour interest.
A ``perfect'' solution of the problems which arise in this way is un-
questionably impossible to ®nd, as such a solution would require that
parties would be in control and yet that the bureaucracy would keep its
area of complete autonomy. What one must look for is an acceptable
arrangement, with each side being prepared (and obliged) to renounce a
fraction of its potential power in order to allow the other side to achieve a
large part at least of what it is essential that it should achieve. Given that
we are looking for partial solutions of this kind, there is likely to be more
than one optimal arrangement, the one best suited to a particular country
being likely to be the one which best ®ts the speci®c societal conditions of
that country.
There is, moreover, another aspect to the problem, for under certain
conditions, a stable democratic political system based on strong parties
can help the bureaucracy to maintain its in¯uence. Economic develop-
ment is unlikely to continue for very long in the face of an indifferent
citizenry. The emergence of distinct interests both among segments of the
middle class and between the middle class and labour will tend to under-
mine the position of the bureaucracy. It is in this respect that the party
system can be of considerable value: it has even been suggested that
consensus can be preserved if the party system adopts, for instance, a
consociational structure, although other forms of party system may also
help (Haggard and Kaufman 1992, 342). The form of the party system is
thus a key feature in assessing the impact of democratization on eco-
nomic governance.
PARTIES, BUREAUCRACIES, AND SEARCH FOR EQUILIBRIUM 81
PARTIES
(II) ``Responsible'' (III) ``Irresponsible'' party:
STRONG
party Bureaucratic state
BUREAUCRACY
(I) Political (IV) Regime of notables;
WEAK machine corporate state;
machine of incumbents
Figure 4.1 Party and Bureaucratic Power I (from Shefter 1994, 62)
PARTIES
#
Embeddedness Southeast #
only Asia
INTERMEDIATE USA !!
Many
continental
European
Britain
countries
Sweden
Implementation
Many Latin
WEAK dif®cult±
American states
impossible
Figure 4.2 Party and Bureaucratic Power II (adapted from Shefter 1994, 62)
these parties have previously devised. The programme need not be radi-
cal ± indeed it is often the case that radical programmes cannot be
implemented ± but a programme there must be, and it should be consid-
ered by both supporters and opponents to be the basis of the action of the
government. Alongside such parties, which were referred to in chapter 2
as ``programmatic,'' there are those which were referred to as ``repre-
sentative,'' and which do not really aim at implementing a programme or
cannot do so as a result of having to participate in a coalition: whatever
programme they may have adopted will be at best partially implemented.
What characterizes these latter parties is more a desire to represent their
electors and to make sure that they obtain bene®ts and suffer as little as
possible from the policies which may have to be implemented as a result
of the actions of other parties belonging to the ruling coalition. Finally,
weak parties are those which are internally very divided, often on a geo-
graphical basis: not being cohesive, the help and bene®ts which they
provide to their constituents are more the result of the action of individ-
ual representatives than of those of the party as such.
On the basis of these characterisations, liberal democratic countries
can be located with relative ease. No country falls in two of the three cells
PARTIES, BUREAUCRACIES, AND SEARCH FOR EQUILIBRIUM 85
early years of the Fifth Republic, after 1958, but also between 1946 and
1958 during the Fourth Republic: throughout that time, the French
economy was steered by the bureaucracy and this steering resulted in
high levels of economic growth (Williams 1964). Thus it may be that, in
the very long run, a decline in the role of the bureaucracy is likely to occur
in a liberal democratic context. It may also be that economic growth will
decline, but at least the French case and even more the Japanese case
show that the process can be slow, indeed very slow; moreover, a variety
of other factors, in particular international ones, can contribute to ac-
count for changes in the way the economy comes to be steered. Thus,
European integration played a signi®cant part in the French case; and we
examined in chapter 1 the possible effect of the globalization of the world
economy on the extent to which national economies can be steered at the
national level.
Second, in the other Western democracies the bureaucracy was not
normally placed in charge of steering the economy at the time when plu-
ralistic party systems developed, typically because the prevailing ideology
was opposed to the very idea that the state should be responsible for
economic development. Thus bureaucratic agencies in these countries
were typically assigned almost exclusively an implementation role and, at
best, a role of advice, not of governance (Kellner and Crowther-Hunt
1980; Strauss 1961, 229±80). It is true that when the question of steering
the economy did arise in the twentieth century in most if not all of these
countries, it was also believed that the liberal democratic ideology
entailed that politicians elected by the people should be those who had
the authority to take the major decisions. But it is also the case that
almost never were the governments of those countries confronted with a
strong bureaucracy; nor was the idea of having such a strong bureaucracy,
at least at the national level, ever seriously debated. In this respect,
France is unique in Western Europe, largely because of the traditions of
the French monarchy which, far from being superseded by the advent of
the Republic (as was to be the case in Austria and in the Federal Re-
public of Germany), were reinforced by the rule of both Napoleon I and
Napoleon III in the nineteenth century (Ridley and Blondel 1969, 28±31;
Kamenka 1989, 97±101). Given that the idea of a strong bureaucracy was
not on the agenda of these liberal democratic Western European coun-
tries, it is not permissible to conclude that a pluralistic party system nec-
essarily implies the absence of a strong bureaucracy in the sense which
was given to the term in this study. Meanwhile, the Japanese example
shows that a strong bureaucracy can be combined with a liberal demo-
cratic system, while the French example suggests that it can at least take a
long time for what was previously a strong bureaucracy to lose some of its
capacity to steer the economy.
PARTIES, BUREAUCRACIES, AND SEARCH FOR EQUILIBRIUM 87
The fact that we simply cannot justi®ably claim that the introduction of
liberal democratic arrangements means the end of a strong bureaucracy
suggests that we should examine, alongside the case of Japan, those of a
number of liberal democracies; this will make it possible to analyse the
conditions under which such a strong bureaucracy can coexist with a
lively party system. If we are to undertake such a quest, however, there is
little point in considering the cases of countries in which parties are
strong in the sense we have given here to the term, such as Britain or
Sweden, since a truly strong party system does not appear logically able
to coexist with a strong bureaucracy: programmatic parties are not likely
to accept that the bureaucracy should be involved directly in economic
governance. Rather, examples drawn from among countries in which
parties are weak or of intermediate strength should be examined. These
parties can be associated with strong bureaucracies; indeed, they may be
of great value to such bureaucracies, because these bureaucracies may be
confronted with major societal pressures and even serious disturbances if
there are no outlets for the population of these countries to manifest their
discontent. Parties which are intermediate in strength and are thus rep-
resentative only, and even parties which are weak and cater to local
interests only through their elected representatives, can thus render
strong bureaucracies more alert to the problems of their societies and can
help, rather than hinder, the actions of these bureaucracies (Blondel
1978; Maisel and Cooper 1978; Katz and Mair 1994).
Moreover, given that some East and Southeast Asian countries are
presidential or semi-presidential (Korea, Taiwan, and the Philippines, as
well as, in a different constitutional context, Indonesia) and given that
some countries are multicultural (Malaysia, Singapore, Indonesia, and
the Philippines), it is most relevant to look at the cases of other presi-
dential or semi-presidential systems and at multicultural consociational
democracies in order to discover whether speci®c institutional or behav-
ioural dif®culties need to be faced if one wishes to see countries with
these characteristics retain strong bureaucracies in a liberal democratic
framework. Yet it is above all most relevant to consider the Japanese
case which is, ostensibly at least, by far the closest to those of the
democratizing countries of East and Southeast Asia. We shall therefore
naturally turn ®rst to an examination of the Japanese case; we shall then
consider the cases of consociational parliamentary systems, speci®cally
the Low Countries, and those of presidential systems, principally the
United States, but also, to an extent, Latin American countries. It will be
possible in this way to discover to what extent the experience of these
types of government can constitute models at a time when East and
Southeast Asian polities move towards pluralistic party systems but also
wish to retain high-pro®le bureaucracies.
88 JEAN BLONDEL AND TAKASHI INOGUCHI
toward the end of the nineteenth century, the policy apparatus remained
®rmly under the control of the bureaucracy. Parliamentarians in the
Imperial Diet and local assemblies were drawn largely either from un-
employed warriors or from overtaxed landlords: they were therefore
regarded by the government as disgruntled upwardly mobile strata who
could be co-opted. The Imperial Diet was a bastion of parliamentarians
of this type until the 1910s when most were obliged to ®t into a frame-
work in which two major parties alternated in power. Meanwhile, policy-
making and implementation rested ®rmly with the bureaucracy: the main
task of parliamentarians was to take care of people's sentiments in their
districts by participating in funerals, wedding ceremonies, business open-
ing ceremonies, and festivals as well as by bringing in pork-barrel projects.
The third turning point came in the mid-twentieth century. After its
crushing defeat by the United States in the Second World War, Japan
was occupied by the U.S.-led Allied powers for seven years. The ancient
regime was meant to be thoroughly destroyed in order that Japan be
transformed into a peace-loving democratic country without military or
industrial might. However, the exigencies of the Cold War led the United
States to occupy Japan in an indirect way, i.e., through the Japanese bu-
reaucracy. All political, social, and economic organizations were more or
less tainted by wartime misconduct and thus eligible for political purge by
the occupying powers: only the bureaucracy emerged more or less intact
from the purge, though the Ministry of Internal Affairs was divided into a
number of ministries such as Health and Welfare, Labour, Home Affairs,
and Construction, and the war ministries were abolished. The Allies ruled
Japan through the Japanese bureaucracy and the latter's power was im-
mensely enhanced as counterbalancing institutions, including political
parties, were almost all destroyed. Especially noteworthy is the fact that
the Allies were at the origin of the dominance of economic ministries
such as the Economic Planning Board (later the Economic Planning
Agency), the Ministry of Finance, and the Ministry of International
Trade and Industry. These were to become the foci of policy-making and
implementing power in much of the latter half of the twentieth century.
Parliamentarians, now elected in a thoroughly liberal institutional
manner, were again given their traditional role of taking care of con-
stituencies rather than the function of designing broad policy lines or
shaping policy itself. This policy role did increase signi®cantly after the
1980s, admittedly, especially as a result of committee memberships; yet
the change was one of degree only. Furthermore, even when newspaper
headlines constantly proclaim scandals in the bureaucracy, the prestige of
bureaucrats remains higher than that of politicians in the eyes of the
public.
Given these three levels of bureaucratic strength over three centuries,
90 JEAN BLONDEL AND TAKASHI INOGUCHI
ment but virtually no one was recruited from outside the bureaucratic
sector as far as the top echelon is concerned. This is in sharp contrast with
France, which is also a society dominated by the bureaucracy: ENA
graduates go to the bureaucracy, to business and to politics; they change
their profession in a far more ¯exible manner.
Japanese political parties have a number of special features. Except for
the Communists, they are not strongly programmatic parties. The basis of
their popular support is not primarily socio-economic; party identi®cation
is not as strong as in the United States. On the other hand, personal
linkages play a decisive role in campaigning: to reach the hearts of con-
stituents and to bring pork to their districts are major tasks of parlia-
mentarians, in which political party headquarters may not have much
to say.
Moreover, the party system has distinctive features. First, the largest
party has been the governing party of the Centre-Right which has cap-
tured a vast contingent of voters. Second, opposition parties are divided
and much smaller than the governing party. They rely heavily on some
special sectors or on some wind blowing against the government because
of its misconduct or of that of well-known individual parliamentarians.
Third, within the governing party, factions play a strong part: they com-
pete while also co-operating to sustain the government. They may not be
states within the state, but they cannot be disregarded where candidate
selection, cabinet composition, and party positions are concerned.
Two elements may induce East and Southeast Asian nations to emulate
the Japanese model based on a strong bureaucracy, one predominant
party, and a few relatively small opposition parties. First, like Japan from
the 1930s to the 1960s, many countries of the region industrialized rapidly
from the 1960s to the 1980s. Japan's state-led industrialization strength-
ened the power of the bureaucracy and especially that of the economic
ministries: countries which are similarly motivated will try to emulate
Japan's approach. From the 1960s and 1970s to the 1980s ``developmental
authoritarianism'' was the key expression in the region, leading to what
might be labelled top-down emulation. It is questionable how successful
this was: indeed, there is some doubt as to whether, even at the height of
developmental authoritarianism, the bureaucracy in most countries had
the political muscle which Japanese economic ministries enjoyed in the
1950s and 1960s. Second, the spread of Japan's vast manufacturing net-
works throughout East and Southeast Asia means that emulation from
the bottom up is also at work as a result of the adoption of Japanese-style
factory management, keiretsu, and business-government practices. Of
course, Japan's manufacturing preponderance is far from absolute; its
institutional in¯uence is far from hegemonic. Yet so long as Asia is in
Japan's embrace in manufacturing sectors, the economic base is bound to
PARTIES, BUREAUCRACIES, AND SEARCH FOR EQUILIBRIUM 93
In Belgium and the Netherlands, some of the cleavages occur also along
geographical lines: this is particularly the case in Belgium, where the lin-
guistic boundary runs approximately east-west, with Dutch being spoken
in the north of the country and French in the south; a geographical divi-
sion also occurs to an extent in the Netherlands as the south of the
country is Catholic while the north is Protestant.
Thus the contrast is sharp between Japan, where there is a profound
cultural homogeneity, and the Low Countries, where means had gradu-
ally to be found to accommodate social cleavages in order to maintain
political order and ensure peaceful progress (Lijphart 1977; Lijphart
1984). Similarly, in East and Southeast Asia, the contrast is also sharp
between Japan (and also Korea) and Malaysia and in a different way
Singapore, which have had to accommodate deep-seated ethnic-cum-
religious cleavages in order to avoid serious social problems. Moreover,
whether Indonesia and the Philippines can long avoid being structured on
the basis of principles of social and political accommodation seems some-
what doubtful, despite the fact that in both countries, and in particular
in the latter, presidentialism, as opposed to the cabinet system, would
appear to make it more dif®cult for the principle of accommodation to be
introduced.
The principle of accommodation led to the development of con-
sociationalism on the political plane, as we noted in chapter 2. This prin-
ciple has been in force not only in Belgium and the Netherlands, but also
in Switzerland since at least the middle of the nineteenth century and in
Austria since World War II (Daalder 1987). Belgium and the Nether-
lands constitute the best basis for a comparison with East and Southeast
Asia, however: in Switzerland, consociationalism is so deep and affects
the whole political system to such an extent that it can scarcely be imi-
tated (except, somewhat surprisingly perhaps, but very logically, at the
level of the European Union) (Blondel 1998); in Austria, on the contrary,
consociationalism has been based almost exclusively on the class cleavage
and it was adopted to prevent a repetition of the violent con¯icts of the
1920s and 1930s, but its impact has gradually been reduced (Gerlich in
Daalder 1987, 61±106).
Consociationalism means setting aside the majority principle, at least
with respect to certain key issues which are deemed to be so fundamental
for the well-being of the society that they need to be handled by means of
arrangements leading to compromises between the political representa-
tives of the major groups in the country. Thus consociationalism prevails
whether a particular group is in the majority or not. This principle has
had two fundamental consequences for the structure of politics in Belgium
and the Netherlands. The ®rst consequence is that the alternation of
PARTIES, BUREAUCRACIES, AND SEARCH FOR EQUILIBRIUM 95
tions take place, the bureaucracy's goals with respect to the economy may
be set aside or modi®ed in order to achieve the accommodation which is
required to maintain political peace.
It is therefore understandable that despite the advantages from which
it ostensibly bene®ts in terms of governmental continuity, the bureau-
cracy may also ®nd its power markedly reduced where consociationalism
prevails. However, the fact that the bureaucracy has not been able to as-
sert its strength in the Low Countries does not entail that it will not re-
main strong in those multicultural polities of East and Southeast Asia
where it might be appropriate to adopt consociational arrangements: to
come to a realistic conclusion in this respect, two profound differences
between the political evolution of the Low Countries and that of the
polities of East and Southeast Asia have to be taken into account.
First, the colonization of the bureaucracy by the political parties has
not been universal in Western European consociational countries, as we
saw: it has occurred on a major scale in Belgium but not in the Nether-
lands. The reasons for this sharp contrast are numerous and range prob-
ably from differences in political culture to differences in the relationship
between the executive and the legislature in the two countries. What
should also be remembered is that patronage does play a large part as
well in some non-consociational Western European countries but not in
all (Blondel and Cotta 1996). What the contrast between Belgium and the
Netherlands does show is that the distribution of favours via the parties is
not an integral part of consociationalism. Moreover, although this may be
regarded as distasteful, favours extracted from the public bureaucracy
play a large part in many of the polities of East and Southeast Asia,
whether these are consociational or not: while it would clearly be wrong
to promote a type of governmental arrangement likely to develop on an
even greater scale the distribution of favours from the public sector to
party supporters, it has to be noted that these practices exist and that they
will be uprooted only gradually. Moreover, as favours are being extracted
from the public sector in a context in which the bureaucracy also pro-
motes rapid economic development, it follows that the two elements are
not incompatible, however unhappy we may be to have to arrive at such a
conclusion. As the experience of the Low Countries shows that favours
are not intrinsically linked to a consociational system, it must therefore
be concluded that the introduction of consociationalism should not be
ruled out on the grounds that it might result in a decline in the strength of
the bureaucracy because favours are distributed from the public sector to
party supporters.
Second, the patterns of behaviour of the leadership groups of the co-
alition parties in consociational systems would seem likely to have a def-
98 JEAN BLONDEL AND TAKASHI INOGUCHI
inite impact on the part which the bureaucracy plays in ensuring that the
progress of the economy is regular. However, with respect to the expan-
sion of the role of the bureaucracy, there is a sharp contrast between the
current situation in East and Southeast Asia and the situation which has
characterized Belgium and the Netherlands since liberal democracy was
introduced in those countries. In Belgium and the Netherlands, the de-
velopment of the party system and the implementation of the accommo-
dation principle antedated markedly the development of bureaucracy,
though in the Netherlands, the bureaucracy did retain the somewhat au-
tonomous status which it had acquired earlier under the constitutional
monarchy even when the executive came to be controlled by the political
parties at the beginning of the twentieth century. This separation may,
indeed, have accounted in part for the fact that the Dutch bureaucracy
was never colonized by the political parties as it was to be in Belgium.
Yet, in neither country was the bureaucracy given the task of steering the
economy or indeed of the general governance of the country. The role of
the bureaucracy was always conceived as lower-key, and it continued to
be lower-key even when the political parties came to be in charge of the
government in the twentieth century. In a situation such as that of East
and Southeast Asia where, on the contrary, the emphasis on economic
development has been dominant, it is not very likely, to say the least, that
any political party which would belong to a consociational arrangement
would challenge the ideology of economic development and the right of
the bureaucracy to take a ®rm lead in this respect.
In East and Southeast Asia, the bureaucracy would therefore be able
to bene®t to the full from the development of consociationalism. These
bene®ts are above all constituted by the fact that the political parties can
provide the representative base which is needed for the political system
to function regularly and without major upheavals. In this way the parties
are able to reduce the tensions which might arise among key groups in
the society and ensure that these con¯icts do not impinge signi®cantly on
the direction which the bureaucracy wishes to give to the economy. The
capacity of the parties to achieve these results is already noticeable in
what must be regarded as the somewhat limited consociational formula
prevailing in Malaysia: were such a arrangement made truly consocia-
tional by being wholly pluralistic at the level of party campaigning and
electoral practices, the effect would be to give full legitimacy both to the
links between the coalition parties and to the relationship between these
parties and the bureaucracy. What could thus occur in Malaysia could
manifestly also occur in the other East and Southeast Asian polities in
which the complexity of the ethnic and/or religious social structure sug-
gests that there is a need for a consociational arrangement.
PARTIES, BUREAUCRACIES, AND SEARCH FOR EQUILIBRIUM 99
While the Japanese model may appeal to a number of polities in East and
Southeast Asia and while the consociational model may serve the needs
of those polities which are multicultural, there are also countries in the
area in which presidential or semi-presidential rule has prevailed for
decades, Korea and the Philippines in particular. These are not likely to
want to move or, if they attempted to do so, to move easily and quickly,
towards a parliamentary system either of the Japanese or of the Belgian
and Dutch variety. There is therefore a case for seeing whether a full-
¯edged pluralistic form of presidentialism is compatible with a strong in-
¯uence of the bureaucracy in steering the economy. One must therefore
examine the way in which parties and bureaucracy relate in those presi-
dential systems which have had a long experience of pluralistic rule, in
particular in the United States.
At ®rst sight, such an examination does not seem reassuring for the
future role of the bureaucracies in East and Southeast Asia. The United
States is the Western country which has probably the weakest political
parties; it is also probably the country in which the bureaucracy, while
ef®cient, has been least able and even least inclined to act on its own ini-
tiative. Both parties and bureaucracy have come to be highly divided
internally. The level of decentralization of the two main American parties
is such that it has often been suggested that there are in reality one hun-
dred parties ± two per state, rather than two in the country as a whole; it
is perhaps even questionable whether there is, or at least whether there is
any longer, a genuine party system in the United States (Ware 1987, 118;
Peele, Bailey, and Cain 1992, 63±82). The bureaucracy is divided among
federal, state, and local authorities; but it is further divided as a result of
the existence of a large number of regulatory and semi-autonomous
agencies (Peele, Bailey, and Cain 1992, 165±89). Thus, not surprisingly,
parties must be described as weak; the bureaucracy may be regarded as
occupying an intermediate position between strength and weakness be-
cause of its ef®ciency, but it is not proactive.
The problems posed by both parties and bureaucracy in the United
States are partly the consequence of the institutional structure. As we
noted in chapter 2, presidentialism has been widely criticized especially
on two main grounds, although the distinction is not always made be-
tween characteristics which are speci®c to the United States and stem
from the nature of American society and characteristics which appear to
result from presidentialism itself. The ®rst ground is that it divides parties
internally rather than unites them because of internal competition among
100 JEAN BLONDEL AND TAKASHI INOGUCHI
presidential candidates of these parties, and the second is the ®xed dura-
tion and the non- or limited reeligibility of the presidential incumbents
(Linz 1990; Shugart and Carey 1992, 273±87).
The ®rst criticism, according to which presidentialism divides parties
internally, stems from the fact that as the survival of the executive does
not depend on the loyalty of the members of the legislature in the way it
does in parliamentary systems, these elected representatives seem likely
to give priority to maintaining their popularity in their districts rather
than to supporting the executive. This conclusion may not be an inevita-
ble consequence of presidential systems, however. In some Latin Ameri-
can countries, for instance Argentina and Venezuela, parties are central-
ized and disciplined: this suggests that other factors are likely to be at
play and/or that the decentralization of parties may be due, in part at
least, to speci®c characteristics of American society (Coppedge 1994;
McGuire in Mainwaring and Scully 1995, 200±248).
Presidentialism is also criticized because of the ®xed duration of the
mandate of the chief executive, which results in lack of ¯exibility; this
®xed duration may also be rather short, especially if it is coupled with the
widely adopted rule according to which incumbents may not stand again
(typical in Latin America, especially before the 1990s) or can stand again
once only (in the United States). The ®xed terms and the non- (or lim-
ited) reeligibility rules result in repeated changes at the top of the exec-
utive: this is allegedly detrimental to policy continuity and, therefore, to
the ability of the bureaucracy to steer the society and in particular the
economy. Thus, even if the same party wins successive elections, changes
at the top of the administration have an effect which may not be mark-
edly different from the effect which results from a different party coming
to power.
This state of affairs is particularly detrimental to the bureaucracy since
presidents, once elected, are able (indeed expected) to choose their im-
mediate subordinates at will: they are not ± especially in the United
States currently, though less so in Latin America and indeed in the
United States in the nineteenth century ± constrained to appoint their
cabinets from among members of the leadership of their parties. As a
matter of fact, presidents often have to reward those who have helped
them during the election campaign by giving them positions in the gov-
ernment. Two consequences follow, both of which have an impact on the
role of the bureaucracy. First, the members of the executive are likely to
want to pursue their own policies and disregard the bureaucracy as much
as possible: one side effect may well be a marked loss of morale among
some of the top public servants. Second, the government is not truly a
team, as its members are appointed for reasons which have more to do
with the personal circumstances of the individuals concerned than with
PARTIES, BUREAUCRACIES, AND SEARCH FOR EQUILIBRIUM 101
the work they might previously have done for the good of the party
(Heclo 1977, 84±112). These characteristics, too, are more marked in
U.S. administrations than in Latin American executives: some of these
are indeed based on party coalitions in which the members of the cabinet
are selected by the leadership of the parties concerned (Coppedge 1994;
McGuire in Mainwaring and Scully 1995, 200±248).
A number of characteristics of the presidential system and in particular
of the U.S. presidential system are thus likely to have a negative effect on
the role of the bureaucracy. But another aspect, which we also noted in
chapter 2, works at least to an extent in favour of the bureaucracy: both
as it developed in the United States and as it developed elsewhere, the
presidential system has one strongly positive value, which is to ensure the
stability of the executive in countries in which parties tend to be ``natu-
rally'' internally divided, for instance on a geographical basis; or in which
the party system is highly fragmented, because it is not based on a small
number of deeply felt and therefore strong social cleavages. When either
or both of these cases obtain, the parliamentary system tends to lead to
unstable governments while the presidential system brings about at least
a substantial degree of executive stability.
Given the weakness of parliamentary executives where the party sys-
tem is highly fragmented and in particular highly localized, the role of the
bureaucracy is likely to be impaired. Admittedly, in France, immediately
after World War II and during the dozen years of the Fourth Republic
before De Gaulle installed a form of semi-presidentialism in 1958, the
bureaucracy seemed paradoxically to have bene®ted from the weak-
nesses of the parliamentary system: as a result of the absence of govern-
mental leadership, the bureaucracy exercised for a while considerable
in¯uence, in particular over the economy. The circumstances were ex-
ceptional, however. The bureaucracy's role was boosted by the imper-
atives of postwar reconstruction and modernisation, and it is doubtful
whether it would have been maintained its great strength for very much
longer had not De Gaulle protected it in turn against the pressure of the
politicians, but in the very different institutional context of the Fifth Re-
public. Above all, the system of the Fourth Republic collapsed in 1958 at
least in part because the instability of the parliamentary executive had
shown the system to be ineffective, had therefore fostered popular dis-
content, and had led to demands for a complete overhaul of political
arrangements. Thus the strength of the bureaucracy in conditions of par-
liamentary instability was temporary; as a matter of fact, it came to be
better established during the ®rst decades of the Fifth Republic, in the
1960s and 1970s, until the party system became more programmatic as a
result of the increased popularity of the Socialist Party from the late
1970s (Frears 1981; Machin and Wright 1985; Wright 1989).
102 JEAN BLONDEL AND TAKASHI INOGUCHI
highly regionalized or even localized, and that there are no strong na-
tional cleavages helping to cement the allegiance of citizens to these par-
ties. On the other hand, while in the United States the electoral structure
and the liberal democratic processes preceded and in effect created the
bureaucracy, in Korea and the Philippines the bureaucratic structure
antedated the introduction of an elected executive, even if one takes into
account the reorganization which took place in the Philippines under
American rule before World War II and in Korea immediately after that
war when the country gained its independence. It is important to note
that in Korea as well as in Taiwan, Japanese in¯uence predominated
previously and had led to the setting up of a strong bureaucracy, while
Spanish rule in the Philippines also had a manifestly bureaucratic char-
acter.
It follows that in Korea in particular, and to a lesser extent in the
Philippines, the reality is that of a kind of presidential system in which
two forces compete within the executive, the presidency and the bureau-
cracy. The power relationships characterizing these two countries are
thus in sharp contrast with the power relationships which characterize the
United States. It seems therefore highly improbable that the strength of
the bureaucracy will be quickly eroded, or at least quickly eroded to a
signi®cant extent, in either Korea or the Philippines. The president and
the cabinet are confronted in both countries with a cohesive and highly
motivated bureaucracy, and the opportunity which a rather transient
president may have to succeed in shaking ± supposing that the president
even wishes to shake ± the prerogatives of such a bureaucracy is very
limited and probably non-existent in practice.
Indeed, a further reason militates in favour of the maintenance of a
strong bureaucracy, especially in Korea, but also, and perhaps by way of
imitation, in the Philippines. In the United States, the basic ideology has
always been the pursuit of the happiness of the citizens, a pursuit which is
expected to be achieved by individual effort and through the exercise of
personal freedom; but the prevailing ideology on which a state such
as Korea has been based has been the goal of economic development
achieved by means of a collective and cohesive effort. Following the success,
not merely of Japan, but of Korea itself and of the other ``Tigers,'' a
similar ideology has come increasingly to be adopted in other East and
Southeast Asian countries, for instance in the Philippines. It is widely
believed ± whether with truth or not is beside the point, at any rate so far
± that such a rapid economic development could not have taken place
without the presence of a strong bureaucracy at the helm. Given this be-
lief, presidents and their cabinets are, to say the least, extremely unlikely
to want to upset pre-existing arrangements; on the contrary, they are
most likely to want to strengthen them. They will therefore tend to sup-
104 JEAN BLONDEL AND TAKASHI INOGUCHI
port the bureaucracy ± and draw some prestige out of this support ±
rather than reduce its power and establish their own strength at the ex-
pense of and against the bureaucracy.
Thus the presidential system does not prevent the bureaucracy from
being strong despite the fact that, in the American case ± though essen-
tially as a result of the historical conditions in which the political charac-
teristics of that country emerged ± the bureaucracy has not been domi-
nant although it has been ef®cient. To the extent that in some of the East
and Southeast Asian countries, the party system displays American fea-
tures of marked decentralization and high localism rather that what can
be regarded as European characteristics of centralization based on broad
national cleavages, the presidential system appears to be the most ap-
propriate formula to adopt. Given its traditional strength in East and
Southeast Asia, the bureaucracy is not likely to be prevented by the ex-
istence of a presidential structure from steering the economy in the
manner which made it possible for these countries to achieve the
``miraculous'' successes which characterized them in the last decades of
the twentieth century.
REFERENCES
Introduction
Taiwan's economy has been growing continuously since the early 1950s.
The gross national product (GNP) rose from US$1.674 billion in 1952 to
US$77.296 billion in 1986. During this period of time, the annual growth
rate of GNP was 9.0 per cent on average. Per capita GNP rose from
US$196 in 1952 to US$3,993 in 1986 (see table 5.1).
In terms of its production structure, Taiwan's economy had been
transformed from an agricultural system to an industrial system. As
clearly shown in ®gures 5.1 and 5.2, the role of agriculture in the Taiwan
economy began to be taken over by the industry and service sectors after
the mid-1960s. Foreign trade, the lifeline of Taiwan's economy, initially
exhibited the same track of industrialization, but from 1966, raw and
processed agricultural products were outweighed as a proportion of
exports by industrial products. In 1952, 52.4 per cent of the total popula-
tion worked in the agricultural sector, but the percentage dropped to 22.1
by 1986 (CEPD 1997, 64).
In terms of ownership, state enterprises played a pivotal role in Tai-
wan's industrialization during the 1950s and 1960s. In 1952, state enter-
prises accounted for 57 per cent of total industrial production and 43 per
cent of domestic capital formation, and employed 17 per cent of Taiwan's
civilian employees. The center of gravity gradually shifted to private
enterprises in the 1970s. By the early 1980s, state enterprises contributed
less than 20 per cent of total industrial production (Hsiao 1995, 81; CEPD
1997, 82). This does not mean that state enterprises' in¯uence on industry
TAIWAN 111
Economic
growth rate GNP GDP Per capita
at 1991 prices (US$ million at (US$ million at GNP
(per cent) current prices) current prices) (US$)
1952 12.00 1,674 1,675 196
1955 8.10 1,928 1,928 203
1960 6.30 1,717 1,718 154
1965 11.10 2,811 2,816 217
1968 9.20 4,236 4,248 304
1969 9.00 4,915 4,921 345
1970 11.40 5,660 5,670 389
1971 12.90 6,589 6,592 443
1972 13.30 7,906 7,904 522
1973 12.80 10,727 10,730 695
1974 1.20 14,458 14,463 920
1975 4.90 15,429 15,517 964
1976 13.90 18,429 18,624 1,132
1977 1.02 21,681 21,816 1,301
1978 13.60 26,773 26,836 1,577
1979 8.20 33,229 33,218 1,920
1980 7.30 41,360 41,418 2,344
1981 6.20 47,955 48,218 2,669
1982 3.60 48,550 48,586 2,653
1983 8.40 52,503 52,421 2,823
1984 10.60 59,780 59,139 3,167
1985 5.00 63,097 62,062 3,297
1986 11.60 77,299 75,434 3,993
1987 12.70 103,641 101,570 5,298
1988 7.80 126,233 123,146 6,379
1989 8.20 152,565 149,141 7,626
1990 5.40 164,076 160,173 8,111
1991 7.60 183,736 179,370 8,982
1992 6.80 216,254 212,150 10,470
1993 6.30 226,243 222,604 10,852
1994 6.50 243,934 240,986 11,597
1995 6.00 262,978 260,175 12,396
1996 5.70 275,144 273,050 12,872
Source: CEPD 1997, 1.
of domestic production
Agriculture
Industry
Services
Agriculture products
Industrial products
Table 5.2 Numbers of medium and small enterprises in Taiwan and their per-
centage of all enterprises, 1982±1994
vidual 700 to 800 ®rms, accounted for 34 per cent of the total GNP, yet
they employed only 4.6 per cent of the labour force (Hsiao 1995, 83).
These groups have heavily concentrated their investments and business
operations in capital- and technology-intensive industries.
A special feature characterizing Taiwan's production structure is the
large number of small and medium enterprises, namely those with turn-
over under US$1.5 million and total assets below US$4.8 million. In 1961,
there were 178,916 such enterprises, or 99.6 per cent of all registered
enterprises (Hsiao 1995, 83±84). In 1986, 98.2 per cent of 751,273 regis-
tered enterprises fell in this category. They contributed 66.4 per cent of
the total value of exports (MSEA 1995, 356, 396; see also table 5.2).
The small and medium enterprises display several salient character-
istics. First, most of them, or around 60 per cent of the total, are in the
commercial sector (see table 5.3). Second, in sharp contrast to big enter-
prises, the small and medium enterprises are export-oriented and rely on
the former for raw materials. There exists a dichotomous or dual structure
in Taiwan's production system, with the big enterprises producing goods
for internal needs and the small and medium enterprises producing goods
for export. Third, most of these enterprises have less than 50 employees.
According to surveys from 1966 to 1986, 80 per cent of all manufacturing
units in Taiwan employed fewer than 20 persons, and 70 per cent fewer
than 10 (Hsiao 1995, 83). Fourth, most of these enterprises, or nearly
60 per cent of the total, operate with independent capital: that is, most
managers are also owners (GIO 1996, 835). Fifth, most enterprises are
family-centered: family ties are the base for employment and ®nancial
114
Table 5.3 Medium and small enterprises in Taiwan, by economic sector, 1982±1994
(per cent)
Housing,
Agriculture, building, and Transportation Social and
®shing, mining Manufacturing constructing Commercial and communication private services Other
1982 2.11 17.32 2.64 61.79 4.08 12.05 0.01
1983 2.49 17.35 2.69 61.53 4.30 11.63 0.01
1984 3.13 16.82 2.57 61.49 4.89 11.10 0.01
1985 0.74 16.63 2.61 62.21 5.51 12.30 0.01
1986 0.75 17.59 2.96 60.89 6.00 11.79 0.01
1987 0.59 19.52 2.97 59.51 6.01 11.39 0.02
1988 0.58 19.76 2.97 58.87 6.19 11.62 0.02
1989 0.59 20.03 3.10 59.30 4.77 12.19 0.02
1990 0.57 19.53 3.33 59.77 4.51 12.27 0.02
1991 0.55 18.66 3.83 60.20 4.24 12.49 0.03
1992 0.53 17.90 4.38 59.96 3.83 13.38 0.03
1993 0.51 17.16 5.33 59.57 3.53 13.86 0.04
1994 0.91 16.45 6.06 58.76 3.45 14.33 0.04
Ratio of highest
Lowest Second Third Fourth Highest ®fth's income to
®fth ®fth ®fth ®fth ®fth lowest ®fth's
1964 7.7 12.6 16.6 22.0 41.1 5.3
1966 7.9 12.4 16.2 22.0 41.5 5.3
1968 7.8 12.2 16.3 22.3 41.4 5.3
1970 8.4 13.3 17.1 22.5 38.7 4.6
1972 8.6 13.2 17.1 22.5 38.6 4.5
1974 8.8 13.5 17.0 22.1 38.6 4.4
1976 8.9 13.6 17.5 22.7 37.3 4.2
1978 8.9 13.7 17.5 22.7 37.2 4.2
1979 8.6 13.7 17.5 22.7 37.5 4.4
1981 8.8 13.8 17.6 22.8 37.0 4.2
1982 8.7 13.8 17.6 22.7 37.3 4.3
1983 8.6 13.6 17.5 22.7 37.6 4.4
1984 8.5 13.7 17.6 22.8 37.4 4.4
1985 8.4 13.6 17.5 22.9 37.6 4.5
1986 8.3 13.5 17.4 22.7 38.2 4.6
1987 8.1 13.5 17.5 22.8 38.0 4.7
1988 7.9 13.4 17.6 22.9 38.3 4.9
1989 7.7 13.5 17.7 23.1 38.0 4.9
1990 7.5 13.2 17.5 23.2 38.6 5.2
1991 7.8 13.3 17.4 23.0 38.6 5.0
1992 7.4 13.2 17.5 23.2 38.7 5.2
1993 7.1 13.1 17.7 23.4 38.7 5.4
1994 7.3 13.0 17.4 23.2 39.2 5.4
1995 7.3 13.0 17.4 23.4 39.0 5.3
Source: Kuo et al., 1981, 34±35; CEPD 1997, 61±62.
support. And ®nally, compared to big businesses, the small and medium
enterprises are less protected and supported by the government.
One other most cherished achievement is that Taiwan has been able to
maintain relatively equal income distribution in the course of rapid eco-
nomic growth. Simon Kuznets and many other economists suggested in
the 1950s and 1960s that as income increases from low levels in a devel-
oping society, its distribution must ®rst worsen before it can improve
(Kuo et al. 1981, 1). Taiwan's experience in this regard is the opposite. As
table 5.4 indicates, the disparity of income distribution decreased in the
1950s and remained fairly stable for three decades. In addition to land
reform, the existence of a large number of small ®rms with signi®cant
capital decentralization has been one of the major structural reasons un-
derlying Taiwan`s relatively equal income distribution (Hsiao 1992d, 21).
116 HSIN-HUANG MICHAEL HSIAO AND CHENG HSIAO-SHIH
What was the nature of the KMT regime during this period? What kind
of role did it play in socio-economic development? And, speci®cally, what
strategies and policies did it adopt for such development?
The KMT had been a Leninist political party with an anti-Communist
ideology. Immediately after moving to Taiwan, Chiang Kai-shek put into
effect a party reform program to create a party-state. Almost all institu-
tions, such as the government, the military, the judicial departments, and
the schools, and social forces, such as workers, farmers, intellectuals,
women, and youth, were penetrated and controlled by the Party (Kung
1995). The Party's ideology became the national ideology, and candidates
in all of®cial examinations were required to be tested in it. As all these
practices were unconstitutional, the KMT suspended the Constitution in
1948 by the Temporary Provisions Effective during the Period of Com-
munist Rebellion, a supplement to the constitution promulgated in the
same year, and a declaration of martial law in 1950. Before martial law
was lifted in 1987, Taiwan was in fact an authoritarian party-state, in
which civil rights were suppressed and no political opposition was
allowed (Cheng 1992; Cheng 1989).
Nevertheless, unlike other Leninist party-states, the KMT regime was
not totalitarian. It did not try to control socio-economic activities in their
entirety, despite its unquestionable dominance in this domain. In this
regard, the KMT's ideology should be taken into account, especially the
Principle of Social Welfare. This principle is basically a developmental
and capitalist doctrine, although it does contain strong socialist elements,
such as land reform and state control of certain enterprises. In general,
however, the adoption of a free economic system that paid due respect to
private ownership and market mechanisms set the keynote for Taiwan's
later economic development.
The lessons that the KMT learned from the defeat on the Chinese
mainland also partly account for certain important policies it pursued in
the 1950s, such as land reform and control of in¯ation and prices. Failure
to implement land reform on the mainland was considered by the KMT
to be a vital factor in the success of the Communists' peasant revolution.
Furthermore, the galloping in¯ation in the late 1940s made the KMT ex-
tremely sensitive to the problem of price controls.
We now turn to the strategies implemented by the KMT government
in the course of Taiwan's industrialization. Generally, Taiwan's indus-
trialization policy can be divided into four phases: (1) the import sub-
stitution phase of the 1950s; (2) the export-oriented industrialization
phase of the 1960s; (3) the second phase of import substitution during the
1970s; and (4) the liberalization and globalization phase since the early
1980s.
TAIWAN 117
in the U.S. economy) and partly induced by the expanding world market,
Taiwan's government made a strategic shift from ISI to EOI. The pri-
mary objective of EOI was to promote exports by developing labor-
intensive industries. In retrospect, export expansion was indeed a decisive
factor for the take-off of the Taiwan economy. In terms of percentage of
GDP, industrial sectors started to outweigh agricultural sectors in 1963
(see ®gure 5.1).
Economic policies favoring export expansion were devised in the late
1950s and implemented in the early 1960s. In the Third Four-Year Plan,
an optimistic growth target of 8 per cent was set for the period 1961±64.
To achieve this goal, various measures were taken to reform the structure
of industry. Most signi®cant of all was the Nineteen-Point Financial Re-
form. Included in the reform package were devaluing of the currency to
make exports more competitive, relaxing control over foreign trade,
allowing the entry of foreign direct investment to set up export manu-
facturing enterprises, and initiating a single exchange rate along with
eliminating import restrictions. Pursuant to these reform measures, the
Statute for Encouragement of Investment was enacted to offer greater
tax reductions to stimulate private investment and exports. A typical case
was the establishment of the Kaohsiung Export Processing Zone within
which no duties were imposed on imports (Hsiao 1995, 78±79; Kuo et al.
1981, 73±77).
In terms of structural change, the EOI strategy dramatically expanded
the small and medium businesses and created a ``dichotomous'' or ``dual
market structure.'' That is, most rising small and medium businesses were
export-oriented, while the domestic market was dominated by big busi-
ness groups and state-owned enterprises. This dualization process can be
traced to the ISI stage. Under the government's protectionist policy and
political maneuvers, the domestic market had been monopolized or oli-
gopolized by the big private and state-owned enterprises by the end of
1950s. The newly emerging small and medium businesses could only turn
to the expanding world market. On the other hand, they were pulled in
this direction, especially to the United States, by the demand for labor-
intensive and low-tech products, such as textiles, garments, and shoes,
from the industrialized market.
In the early 1970s, faced with the loss of its seat in the United Nations,
the devaluation of the U.S. dollar, and the oil crisis, Taiwan experienced
a serious setback in economic performance. The diplomatic setback led to
a legitimacy crisis for the KMT regime, and the drop in business con®-
dence and the out¯ow of capital brought about a temporary halt to ex-
TAIWAN 119
port dynamism. Prices, which had been relatively stable for two decades,
abruptly rose by 22.9 per cent in 1973 and 40.6 per cent in 1974 (CEPD
1997, 1). To deal with these dif®culties, some stabilization measures, such
as a high interest rate policy, a one-shot adjustment of oil prices, and tax
reduction, were implemented. More importantly, the government pursued
a second phase of ISI strategy to restructure the economy by developing
energy-intensive and capital-intensive industries and staging large-scale
infrastructure projects, known as the ``Great Ten Constructions.''
In the course of this phase, state enterprises increased their signi®cance
as leaders of domestic investment. Big private businesses also received a
great boost from the state and formed ``business groups,'' the Taiwanese
version of conglomerates. Small and medium businesses, on the other
hand, also survived the world energy crisis and recession and were re-
energized for further growth and development from the late 1970s.
Under pressure from major foreign trade partners, especially the United
States, to improve the trade balance, liberalization was accelerated in the
1980s. The nominal rate of protection decreased signi®cantly in this pe-
riod, and the average tariff rate was dramatically brought down. Financial
deregulation was another point of emphasis in government policy. After
a decade of preparation, the Banking Law was amended in 1989. All
controls on both deposit and lending interest rates were removed, and
foreign bank branches were permitted to accept long-term saving depos-
its. The establishment of new private banks was also allowed. Further-
more, a signi®cant step in the liberalization of capital movements was
taken in 1987. Foreign exchange controls were largely relaxed to allow
direct transfers of capital by the non-bank private sector.
All these efforts were supported by the Statute for Upgrading Indus-
tries of December 1990 (Howe 1996, 1184±85). After a decade of trial
and error, the success of these efforts was demonstrated by the high
competitiveness of Taiwan's information technology industry, which
yielded a total production value of US$21.3 billion, and made Taiwan the
world's third largest computer hardware supplier in 1995 (GIO 1997,
162).
Based on the above analysis, we may conclude that the state played a
pivotal role in Taiwan's socio-economic development during the period
of the KMT's authoritarian rule. The KMT regime was clearly a ``strong
state,'' dominated by a Leninist-style political party with a basically capi-
talist ideology. The state was predominant and interventionist in the
socio-economic arena, and yet it was development-oriented and non-
market-suppressive; moreover, it adopted effective strategies and policies
120 HSIN-HUANG MICHAEL HSIAO AND CHENG HSIAO-SHIH
As mentioned earlier, the 1947 Constitution had not been fully imple-
mented before 1987, due to the restrictions of the Temporary Provisions
and martial law. After these obstacles were removed, the Constitution
was revamped to create a workable democratic order. Three rounds of
constitutional amendments took place in 1991, 1994, and 1997 respec-
tively. The amendments of the ®rst round were designed to re¯ect the
fact that Taiwan and the Chinese mainland are governed by two separate
political entities. They also provided the legal basis for the election of the
completely new National Assembly and Legislative Yuan. The amend-
ments of the second round laid the groundwork for the popular election
of the president and the vice-president of the Republic and transformed
the Control Yuan (an oversight body) from a parliamentary body to a
quasi-judicial organ.
122 HSIN-HUANG MICHAEL HSIAO AND CHENG HSIAO-SHIH
Table 5.5 Distribution of the popular vote and seats in Taiwan elections, 1991±
1996
Table 5.6 Distribution of the popular vote in the 1994 Taiwan elections
(per cent)
Table 5.7 Distribution of the popular vote in the 1996 Taiwan presidential
election
(per cent)
KMT DPP New Party Independent
Lee-Lien Peng-Hsieh Lin-Hau1 Cheng-Wang
Overall 54.00 21.13 14.90 9.98
Taipei City 38.90 24.34 24.87 11.89
Taiwan Province 56.76 20.13 13.42 9.68
Kaohsiung City 50.62 27.32 12.77 9.29
Kinmen-Matsu 41.31 1.59 30.64 26.45
Source: Tien and Chu 1996, 1162.
1 Lin-Hau was not the New Party's own ticket, but an independent ticket that it
endorsed.
for ``conditional'' independence soon, both parties share the same posi-
tions in maintaining the status quo and actively promoting Taiwan's
international status.
In terms of ethnic composition, most DPP and TAIP key members and
their core supporters are Taiwanese (that is, those who emigrated to
Taiwan from the southeast coast of the Chinese mainland before 1949).
In sharp contrast, most NP members are mainlanders (that is, those who
came to Taiwan after the Civil War) and their descendants. The KMT
claims to have two million members, about 80 per cent of them Tai-
wanese, while the mainlanders account for less than 20 per cent. This
means that the eÂmigre KMT has been indigenized in terms of the compo-
sition of its social base.
Indigenization or Taiwanization of the KMT was initiated by President
Chiang Ching-kuo and completed by President Lee Teng-hui. As Chiang
became a powerful political ®gure in the 1970s, he began to recruit
Taiwanese technocrats and local politicians to some important positions
in the party and the government. Nevertheless, by January 1988 when
Chiang died, political power in the KMT and the state remained pre-
dominantly in the hands of mainlanders. The completion of the KMT's
Taiwanization came several years after President Lee's succession. Since
Lee is a native Taiwanese and did not have a tangible power base of his
own, he was challenged on all sides by powerful old guard mainlanders
in the government, the party, and the military. After a series of power
struggles within the party, Lee successfully forced some of his obstinate
opponents out of power, and marginalized some of those who refused to
leave. Through this process, the KMT was also transformed from an au-
126 HSIN-HUANG MICHAEL HSIAO AND CHENG HSIAO-SHIH
Table 5.8 Taiwan's outward investment in the PRC and the Southeast Asian countries, 1987±1996
Invest-
ment
in the
Total South-
outward east Invest- Individual countries
invest- Asian Per cent ment in Per cent
ment countries of total the PRC1 of total Singapore Philippines Indonesia Thailand Malaysia Vietnam2
1987 102,751 28,874 28.10 14,087 2,640 950 5,366 5,831
1988 218,736 69,300 31.68 16,571 36,212 1,923 11,886 2,708
1989 930,986 347,926 37.37 71,053 66,312 311 51,604 158,646
1990 1,552,206 592,740 38.19 72,980 123,607 61,871 149,397 184,885
1991 1,830,188 781,047 42.68 174,158 9.52 73,811 1,315 160,341 86,430 442,011 17,139
1992 1,134,251 487,952 43.02 246,992 21.78 187,616 1,219 39,930 83,293 155,727 20,167
1993 4,829,346 427,173 8.85 3,168,411 65.61 63,003 6,536 25,531 109,165 64,542 158,396
1994 2,578,973 471,671 18.29 962,209 37.31 174,672 9,600 20,571 57,323 101,127 108,378
1995 2,449,591 369,473 15.08 1,092,713 44.61 75,024 35,724 32,067 51,210 67,302 108,146
1996 3,394,645 593,251 17.48 1,229,241 36.21 170,961 74,252 82,612 71,413 93,534 100,479
Source: IC-MOEA 1997, 2±3, 41±42.
1 Data on investment in the PRC before 1991 are not available.
2 Data on investment in Vietnam before 1991 are not available.
Figure 5.3 Patterns of Taiwan's outward investment, 1987±1990 (Sources: See table 5.8. ``Southeast Asian countries'' are Singa-
pore, the Philippines, Indonesia, Thailand, Malaysia, and Vietnam; data for Vietnam 1987±90 and the PRC before 1991 are not
available)
129
130 HSIN-HUANG MICHAEL HSIAO AND CHENG HSIAO-SHIH
ment in Southeast Asian countries, which had been slackening since 1991,
and to discourage the too rapid expansion of investment in China. To
implement this policy, government of®cials from President Lee down-
ward intensively visited Southeast Asian countries in early 1994. They
were accompanied by a large group of top decision makers in state-
owned and KMT-owned enterprises and by leading private businessmen.
The rationale underlying this policy is both economic and political. Its
®rst objective is to make Taiwan an international communications and
transportation node, or so-called the ``Asia-Paci®c Regional Operations
Center,'' taking the place of Hong Kong after its return to China in 1997.
The second objective is to promote diplomatic relations with Southeast
Asian countries through economic means. Third and most importantly,
this policy is intended to divert investment from China, and thereby to
reduce the political and economic risks of overdependence (Chen 1994;
Ku 1994). Taiwan's anxiety over the unstable relations between the two
sides of the Straits deepened after mid-1995, as China launched several
rounds of military exercises near Taiwan in the autumn of 1995 and the
spring of 1996. On this account, soon after his reelection President Lee
publicly called for a slowdown in investment in China and successfully
persuaded some of the leaders of large private business groups, notably
Wang Yong-ching, president of the Formosa Plastics Corporation, to
suspend their investment projects. In return for Wang's co-operation, in
October 1997 President Lee bestowed on him a medal of honor and
promised to improve the domestic investment environment and promote
the ef®ciency of the bureaucracy. On the other hand, the government is
tightening its control of investment in China by seriously implementing
the Act on the Relations of People across the Taiwan Straits. Those who
invest in China beyond the of®cial maximum amount of money without
registration are liable to serious punishment. In September 1997, over
8,500 applications were ®led for retrospective registration, involving a
total of over US$3.6 billion.
The policy of promoting investment in Southeast Asian countries and
discouraging investment in China seems to be working to some extent, as
®gure 5.3 suggests. Nevertheless, its effectiveness remains uncertain.
Challenges to this policy from the leaders of large business groups con-
tinue to grow. In addition to Wang Yong-ching, Chang Rong-fa, presi-
dent of Evergreen Marine Corporation, also openly criticized this policy
in October 1997. This suggests that the government no longer has the
power over large private businesses that it enjoyed in the authoritarian
era. And the issue of investment in China will continue to stir up debates
concerning the priority of economic development and national security. It
might also change the relations between large private business groups
TAIWAN 131
and political parties. Generally speaking, the DPP supports the KMT's
policy, while the NP has been critical. The position of the two parties on
this issue is a re¯ection of their con¯icting political platforms concerning
the future of political relations between Taiwan and China.
taking measures to care for the elderly and the disabled. Most sig-
ni®cantly, the National Health Insurance program was of®cially imple-
mented in March 1995.
It is also quite important to point out that the liberalized media sector
under Taiwan's democratization process has been also becoming more
and more ``politicized,'' taking polarized positions on various controver-
sial political issues that divide the parties. Moreover, the controversy
over independence vs. uni®cation vis-aÁ -vis China among the political
parties and the general public has further politicized the media: it is easy
to classify Taiwan's major newspapers and TV stations as pro±Lee Teng-
hui or anti±Lee Teng-hui, pro±Taiwan independence or pro±uni®cation
with China. This is not so much a result of the continuing ethnic cleavage
or individual journalists' political orientation as a re¯ection of the re-
alignments of political and economic interests among the media, political
parties, and the state. The political cleavages within the media have
been facilitated and reinforced by confrontational party politics and the
growing political tension between Taiwan and China, two inevitable
consequences of Taiwan's democracy-building process.
Con¯icts over the issue of nuclear power between the new middle-class
liberal intellectuals and concerned environmental groups on the one
hand, and the Taiwan Power Company on the other, intensi®ed after
1986. At ®rst, the anti-nuclear voices mainly came from academic and
social movement circles. But from 1988 onward, residents in the area of
the proposed site of a fourth nuclear power plant on the northern coast
of Taiwan began actively participating in the anti-nuclear movement.
Since then, Taiwan's environmental movement against nuclear power has
become a social movement in which intellectuals from the new middle
class, civil society organizations, and local residents have joined forces.
The main force behind the anti-nuclear movement has been the TEPU
(Taiwan Environmental Protection Union) which since the mid-1980s has
devoted almost all its organizational resources to combatting the pro-
posed nuclear power plant. The TEPU was established by volunteers
from among university professors and students. It also established a local
chapter at the proposed site in order to sustain the mobilization of local
residents. As the years have gone by, the anti-nuclear movement has
turned into a nationwide No Nukes movement to take on the KMT
state's energy development policy and the pro-growth ideology behind it.
The Taipei County Government, controlled by the opposition DPP,
even organized a countywide referendum on the fourth nuclear power
plant plan in 1995, but the result of the referendum was not validated due
TAIWAN 133
ing. In other words, the ®eld of the con¯icts over future nuclear power
generation has now moved from civil society to the political realm.
Conclusion
To summarize, after a decade of democratization, the authoritarian
party-state has been transformed into a liberal multi-party system. Since
the democratic transition took place under relatively favorable socio-
economic conditions, the KMT has been able to remain in power, though
the opposition parties have gained signi®cant popular support. Party for-
mation and realignment are based on political rather than socio-economic
cleavages. National identity is the most important issue in the competi-
tion of political parties. Relations with China have been and will continue
to be a critical factor in in¯uencing confrontations in party politics and
controversies over economic policies. In the path toward democratic
consolidation, the government is going to play a less dominant role in the
economy, and the ruling KMT no longer has the absolute power to con-
trol the economic sector that it did in the authoritarian era. Nevertheless,
the government is still effective in governing and regulating economic
activities, and the continuing consensus on the framework of the devel-
opmental state is re¯ected in the platforms of the different parties. On
major economic policies (except for nuclear power) radical difference
between the KMT and the DPP do not exist.
The impact of the ®nancial crisis of 1997 on Taiwan has not been as
serious as on other countries of East and Southeast Asia. The govern-
ment's various ®nancial policies and measures in response to the crisis
have been rather cautious, and have not become a political issue with the
opposition parties. The economic bureaucracy is considered to be strong
and capable of dealing with the sudden external shock. However, it is
inevitable that the government will face greater pressures and challenges
from both opposition parties, politicians, capitalists, and various con¯ict-
ing forces in civil society.
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Cheng, Tun-jen (1989), ``Democratizing the Quasi-Leninist Regime in Taiwan,''
World Politics 41, pp. 461±99.
Copper, John F. (1996), Taiwan: Nation-State or Province? Westview Press,
Boulder, Colo.
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Haggard, Stephan, and Robert R. Kaufman (1997), ``The Economy of Demo-
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ÐÐÐ (1992c), ``The Rise of Social Movements and Civil Protests,'' in T. J.
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ÐÐÐ (1992d), ``The Taiwan Experience,'' Development and Democracy 2,
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Hsiao, Hsin-Huang Michael and Koo, Hagen (1998), ``The Middle Classes and
Democratization,'' in Larry Diamond et al. (eds.), Consolidating the Third
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Baltimore, pp. 312±33.
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nomic Nexus: Sociopolitical Origins, State-Society Impacts, and Future Pros-
pects,'' Bulletin of Concerned Asia Scholars, 28(1), pp. 3±12.
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Klein, Lawrence R. and Yu, Chuan-Tao (eds.) (1994), Economic Development of
ROC and the Paci®c Rim in the 1990s and Beyond. World Scienti®c Publishing
Co., Singapore.
136 HSIN-HUANG MICHAEL HSIAO AND CHENG HSIAO-SHIH
Introduction
South Korea was one of the poorest countries in Asia up to the early
1960s, with little endowment in resources and few prospects for develop-
ment. From the late 1960s, however, it underwent an economic and social
transformation of immense proportions: for the following quarter of a
century its economic growth was to be among the fastest in the world.
With a rapidly growing economy, it has been hailed by many as a model
for the so-called Third World and a prime example of the ``Asian mira-
cle.'' In social terms as well, a once overwhelmingly agrarian society has
been transformed into a nation of city dwellers with strong middle-class
aspirations: the number of Koreans living in cities jumped from 28 per
cent in 1960 to about 75 per cent at the end of the twentieth century, a
proportion similar to those of the United States, Japan, or France.
Meanwhile, in political terms, until the mid-1980s at least, moves to-
wards democracy lagged far behind the rapid economic and social
changes; since 1987, however, the country made a decisive turn away
from military authoritarianism and South Koreans have been praised for
their success in achieving both economic prosperity and political democ-
racy. Although, by comparison with other nations, elements of uncer-
tainty and major obstacles remain, the pace of change has come to be
regular and positive. Many therefore believe that a reversion to authori-
137
138 AHN CHUNG-SI AND JAUNG HOON
tarianism is out of the question and that factors working for a continuous
process of democratic consolidation are likely to prevail.
After a brief historical survey of the main factors accounting for the
way politics and the economy developed, this paper considers the shape
and characteristics of the party system and its contribution to democrati-
zation. It then looks at the character of economic governance in the
country and examines the changes which occurred in this respect in the
1990s. Finally, it attempts to assess what the impact of democratization
may have been on economic governance.
Before democratization
national security, but also for its ®nancial survival. The government had
to face the challenge of economic reconstruction and of development
under constant threats from the North. The civilian rulers of the 1950s did
not rise to that challenge, however; they failed to steer the economy out
of its age-old poverty. This led to a military coup in May 1961, staged by
General Park Chung Hee, who was to lay the foundation of the ``Korean
miracle'' by adopting an export-led economic growth strategy.
The miracle was a mixed blessing, however. The South did overtake
the North economically by the early 1980s; rapid economic development
also promoted a Korean sense of identity and national pride and accel-
erated the development of a strong civil society better able to sustain
democratic political institutions. Yet these changes had uneven and am-
bivalent effects on the culture and society of South Korea. Social mobility
increased, but social cohesiveness and moral standards among individuals
and groups were steadily eroded. In spite of the rapid modernization pro-
cess, the majority of the Korean people continued to feel unable to exer-
cise control over the society: self-criticism and pessimism coexisted with a
dynamic, highly mobilized, and materialistic society strongly motivated to
seek higher standards in quality of life and economic performance.
Thus, until the mid-1980s, South Korea's political dilemma was essen-
tially characterized by the fact that political change lagged well behind
economic development. Society was controlled by a top political elite and
by governmental institutions which were, on the whole, highly ef®cient
and successful, but authoritarian, coercive, and largely illegitimate. Fea-
tures of radicalism ± such as the prevalence of an extremist political rhetoric
and violent political actions ± were common. Opposition politicians and
other advocates of democracy tenaciously fought for participation and
social justice; student demonstrations regularly clashed with the police;
labour disputes were rampant. Thus the society appeared brittle and chaotic
to outside observers: only in 1987 did South Korea enter an era of signi-
®cant political transformation and adopt democratic patterns of behaviour.
The country has lived under six republics since 1948, each having its
distinctive constitutional arrangements. A peaceful transfer of power
took place for the ®rst time in October 1987 with the advent of the
Sixth Republic. Since then, Korean politics has been characterized by a
search for a political structure aimed at replacing authoritarian, military-
in¯uenced politics. President Kim Young Sam, who took of®ce in February
1993, was South Korea's ®rst civilian president in three decades. The
election of President Kim Dae Jung, the opposition candidate, in De-
cember 1997, marked a new development, in which a peaceful and regu-
lar transfer of government took place from one ruling party to another.
Political life in South Korea has long been centred on the presidency
and on the central administrative branch of the government, while the
140 AHN CHUNG-SI AND JAUNG HOON
National Assembly has not been strong and has remained subordinated
to the presidency. Politicians at the local level have tended to be weak
and dependent on central control and administrative guidance. Cabinet
members, including the prime minister, have been chosen by the presi-
dent, usually from outside the National Assembly. They act principally as
administrative heads, having rarely been allowed to build their own in-
dependent political power base. They have also usually been in of®ce for
short periods: the average tenure of Korea's cabinet ministers since 1947
has been between one year and eighteen months.
An issue that continues to bedevil South Korean society on its road to
becoming a democratic polity has been the primacy of regionalism. Many
Koreans maintain a strong sense of attachment to a particular locality
even though their families may have lived elsewhere for generations.
There are several reasons for this high level of regionalism. One is Con-
fucianism, which has long dominated many aspects of Korean life and
emphasizes family, community, school, and regional ties as the bases of
individual identity and of social action. Even despite industrialization, the
minds, values, and behavioural orientations of many Koreans continue to
be affected by and dependent on the regions, and this affects both their
collective identity and their political choices, especially when regional
identity is stressed by their leaders.
Problems of economic development and of socio-economic discrimina-
tion since the 1960s further increased regional consciousness and regional
cleavages. As a latecomer country aiming at industrializing rapidly,
Korea adopted a strategy of uneven development, which resulted in
strong geographical differences in economic growth and an unequal dis-
tribution of social bene®ts in the various parts of the country. This led to
intense regional con¯icts, which had not abated by the late 1990s.
These con¯icts have been politically mobilized by politicians who have
maintained charismatic leadership over their regions. To the extent that
it re¯ects the high levels of personalization associated with the ``three
Kims,'' regionalism may be less strong when a generational change of
leadership occurs; already the election of Kim Dae Jung in 1997 may re-
duce geographically based con¯icts, for instance between Kyungsang and
Cholla provinces. However, as long as regionalism is associated with
economic and social discrimination, it will remain prominent in many
aspects of Korea's rapidly changing society even after democracy
becomes consolidated.
Table 6.1 Growth of South Korean GDP and merchandise trade, compared with
middle-income oil-importing economies, 1960±1970 and 1970±1980
South Middle-income
Korea oil-importing economies
GDP
(average annual growth rate, per cent)
1960±1970 8.6 5.8
1970±1980 9.5 5.6
Merchandise trade
(average annual growth rate of exports, per cent)
1960±1970 34.1 7.1
1970±1980 23.0 4.1
Source: World Development Report 1982, quoted in Hart-Landsberg 1993, 27, 31.
had led the country for over two decades. The regime's goals were
implemented by a highly ef®cient bureaucracy in which corruption was
limited; there was little interference from the civil society, so that the
state was autonomous. ``Miraculous'' economic successes justi®ed devel-
opmental authoritarianism. The main economic programme had been
de®ned by Park Chung Hee in 1961, as he launched an ambitious plan for
rapid industrialization to compensate for his weak political legitimacy.
While the strategy and priority of the industrialization programme went
through different stages from the 1960s to the 1980s, the basic pattern of
that programme as well as the macroeconomic strategy remained
unchanged for the subsequent three decades.
The results were astounding. Following the beginning of the First Five-
Year Economic Development Plan in 1962, Korea's GNP expanded by
8.6 per cent a year in the 1960s and 9.5 per cent a year in the 1970s, de-
spite the world recession of the period, and by over 8 per cent again in
the 1980s; it grew from US$2.3 billion in 1962 to US$451.7 billion in 1995,
making Korea the world's eleventh largest economy. As table 6.1 shows,
the contrast between the Korean ``miracle'' and the performance of the
middle-income oil-importing economies is sharp: among these, the aver-
age annual growth rate was only 5.8 per cent in the 1960s and 5.6 per cent
in the 1970s. The annual export growth rate showed an even greater
contrast: among middle-income oil-importing economies it was 7.1 per
cent and 4.1 per cent during the 1960s and 1970s respectively, while in
Korea it was 34.1 and 23 per cent for the same periods.
These economic developments led to rapid social change. The propor-
tion of white-collar workers increased from 4.8 per cent in 1965 to 17.1
per cent in 1985, while the working class increased between 1965 and
1983 from 32.1 per cent to 49.5 per cent (Economic Planning Board
142 AHN CHUNG-SI AND JAUNG HOON
1984). Surveys indicated that more than 70 per cent of South Koreans
identi®ed themselves as middle-class.
In the process, society became more pluralistic but also more conten-
tious. There were rising popular demands for political participation and
social equality, which made the continuation of authoritarian rule in-
creasingly costly. None the less, although the middle class and the work-
ing class wanted more democracy, the authoritarian regime was main-
tained for some years, thus rendering the structure of the state seriously
``unbalanced.'' The polity was, in fact, in severe political crisis as a result
of its economic development. There were mounting popular distrust of
political institutions and increasing regional con¯icts over the distribution
of wealth and the sharing of key power positions. Anti-regime move-
ments and civil disobedience reached a peak at the end of June 1987; the
two most prominent opposition politicians, Kim Dae Jung and Kim
Young Sam, mobilized the masses in close collaboration with street
demonstrators. The situation seemed to be leading to a bloody civil war.
At that point, however, the ruling coalition lost its cool, and split between
softliners and hardliners. This provided the opportunity for a democratic
transition to occur, as President Chun came to accept the major demands
of the opposition.
It did take a long time for socio-economic development in Korea
to bring about democracy, seemingly because of the existence of a
``bureaucratic-authoritarian'' structure which, as we shall see later in this
chapter, was able to control economic developments (O'Donnell 1973).
Meanwhile, as the size and complexity of the economy increased, the
private sector and other social groups became more vocal about the neg-
ative aspects of the state-centred development policy: these criticisms
produced pressures for more liberalization. Yet the political opening only
occurred with the dramatic people's uprising in 1987 which ®nally led the
then presidential candidate Roh Tae Woo, through his ``29 June Decla-
ration,'' to initiate the transition to democracy.
The nature of party politics is perhaps what poses the most serious chal-
lenge to Korean democracy. During the authoritarian period, the party
system was based on a dominant party, which had close relationships with
the bureaucracy. Post-transition Korea has led to a move from the one-
dominant-with-one-opposition-party system toward a multi-party system.
But all political parties suffer from lack of institutionalization and Korea
has a long way to go before it achieves a viable, pluralistic party system.
Parties have very limited in¯uence in economic governance, which has
long been dictated mainly by the state. In addition, standards of political
behaviour and the quality and background of the elected of®cials have
also remained more or less unchanged.
The rules and practices of the electoral system also restrict the develop-
ment of parties. The Constitution gives the people the right of free ex-
146 AHN CHUNG-SI AND JAUNG HOON
pression and the right to form political associations freely, but party laws
and electoral regulations vastly limit these rights. For instance, the for-
mation of new parties and in particular of parties organized by industrial
workers is overtly discouraged, as industrial workers are not allowed to
form any political organizations, including parties; labour unions are also
prohibited from donating political funds to political organizations. The
linkage between people and parties is thereby distorted since the
demands of industrial workers are scarcely articulated. There is a para-
dox here: Korean politics has become increasingly contentious and con-
frontational as industrialization has developed, but the cleavage between
workers and employers cannot easily be translated into party con¯ict be-
cause of legal constraints. Furthermore, despite constitutional freedom,
the existing parties use various tactics to discourage new parties from
coming into existence. As a result, even after a long period of democratic
transition, the country's party system continues to be dominated essen-
tially by conservative parties, many of which have been re-named or re-
formed since 1987 without having appreciably altered their old ways of
doing politics under the authoritarian system (Jaung 1996).
The mechanics of voting have introduced further obstacles to party
system development, as since 1988 elections have mainly been conducted
on the ®rst-past-the-post system with single-member constituencies: only
46 of the 299 seats in the National Assembly (15 per cent) are ®lled by a
kind of proportional representation formula. This has resulted, as in
other countries using the same system, in a substantial ``bonus'' for the
largest party. Thus at the 1996 election, the governing NKP received 34
per cent of the votes but obtained 47 per cent of the seats; the second
party, the National Congress for New Politics (NCNP), obtained a pro-
portional share, 26 per cent of the seats for 25.3 per cent of the votes; but
the third and fourth parties, the United Liberal Democrats (ULD) and
the Democratic Party (DP), were at a disadvantage: the ULD obtained
16.5 per cent of the votes but only 10 per cent of the seats while the DP
received 3 per cent of the seats for 10.9 per cent of the votes. The
``bonus'' in seats for the governing NKP was thus 13 per cent, while the
``de®cit'' for the ULD and the DP was 5.5. and 4.9 per cent respectively.
However, the NCNP and the ULD did succeed in obtaining a sizeable
number of seats because of their strength in the Honam and Chungchong
areas (see table 6.2).
Moreover, the ®rst-past-the-post system, in Korea as in other countries
which have adopted this system, makes it dif®cult for new parties to suc-
ceed, fundamentally because such parties experience problems in build-
ing grassroots organizations which can mobilize substantial numbers of
electors. The dominant parties tend therefore to be traditional and rather
conservative, while those which have different sets of goals, and espe-
SOUTH KOREA 147
cially those which do not have a strong regional base, are markedly
penalized.
Finally, the rise of media politics provides challenges as well as oppor-
tunities for the development of the party system in democratic Korea. In
most advanced democracies, the mass media have played an increasing
role in electoral and party politics in recent years. A similar phenomenon
is just beginning in Korean democracy. This was evident in the 1997 pres-
idential election. The three major candidates had several television
debates which were watched by millions of voters. The candidates also
relied heavily on political advertising via television and radio. As the new
election laws prohibit outdoor mass rallies, the mass media became criti-
cal to electoral success.
There is abundant evidence for the increasing signi®cance of media
politics in Korean democracy. For instance, a signi®cant portion of survey
respondents indicated that television debates would in¯uence their voting
choice. Within political parties, more power and campaign funds than
before were allocated to those who managed media campaigns.
The increasing in¯uence of the media is likely to affect the future of
political parties and electoral politics in democratic Korea in several
ways. First, it will strengthen the in¯uence of party leaders. As election
campaigns rely more upon media than upon party organizations, the rel-
ative signi®cance of party organizations, including local and provincial
148 AHN CHUNG-SI AND JAUNG HOON
These external constraints account only in part for the fact that Korean
parties are scarcely institutionalized, which is primarily due to three fun-
damental aspects of their structure. The ®rst and most obvious of these
aspects is volatility: splits and mergers have been legion (an overview is
provided in ®gure 6.1). Second, Korean parties are dominated by popular
leaders who treat them as their own property. Third, and perhaps above
all, parties are so regionally based that it is questionable whether they can
be described as forming truly a national system.
Ever since the republic was installed after World War II, Korean ruling
parties have been primarily set up to provide organizational support
for the national leader, the president, and for the inner group gathered
around him. In such a context, the key requirement for participation in
politics at the highest level of power has been to place personal loyalty
above institutional loyalty when the two have been in con¯ict. It is
therefore not surprising that the parties of the three dominant presidents
of the authoritarian period of Korean politics, Syngman Rhee's Liberal
Party, Park Chung Hee's Democratic Republican Party, and Chun Doo
Hwan's Democratic Justice Party (DJP) should have risen and fallen with
their leaders.
Figure 6.1 The evolution of the South Korean party system after democratization,
1987±1997 (Source: compiled from Chosun Daily. ``X'' indicates dissolution of a
party; for explanations of party acronyms, see the text of this chapter and the
List of Acronyms, p. ix)
cratic Party gained 83 per cent of the seats in Kwangju, 92 per cent in
South Cholla, and 98 per cent in North Cholla; but it did not win a single
seat in the two metropolitan communities of Pusan and Taegu or in the
®ve provinces of Kangwon, North Kyungsang, Chaeju, and North and
South Chungchong (Ahn and Back 1995). Local elections were held
again in June 1995 for the municipal and provincial assemblies and for
heads of local governments: the Cholla provinces were won by Kim Dae
Jung's Democratic Party, the Chungchong provinces were taken by Kim
Jong Pil's United Liberal Democratic Party, and Seoul was divided be-
cause of its mixed regional composition.
With regionalism being the social base for the parties, national institu-
tionalization has not even begun to occur. Leaders can use their regional
support in whatever way they wish: when political leaders form or dissolve
coalitions as a result of changed circumstances, their parties merge or split.
When a popular leader launches a new party for reasons best known to
himself, his region swiftly changes its support toward the new party.
This pattern both leads to and is reinforced by the weak internal
structure of parties. Party organizations are dominated by the top leaders;
these are typically wholly responsible for managing the affairs and ®-
nances of the party, as well as for elaborating political tactics, nominating
candidates for elections, and running electoral campaigns. So long as re-
gional cleavages remain the social basis for electoral mobilization, and so
long as personalized leadership with a monolithic regional identi®cation
dominates the party system, there will be little party institutionalization.
The internal conditions for a stable party system can therefore be said to
be absent in South Korea at the end of the twentieth century.
The success of the South Korean economy has owed a great deal to the
``strong state,'' with its ability to formulate ``proper policies'' and to
154
Table 6.3 South Korean presidential election results by region, 1987±1997
(per cent)
Seoul/Kyunggi Chungchong Kangwon Honam Kyungbuk Kyungnam National total
19871
DJP (Roh Tae Woo) 33.7 32.2 57.9 9.6 66.8 35.9 36.6
RDP (Kim Young Sam) 28.2 19.5 25.5 1.2 26.1 52.8 28.0
PPD (Kim Dae Jung) 28.0 11.6 8.6 86.2 2.4 6.8 27.0
NDRP (Kim Jong Pil) 8.1 33.7 5.3 0.5 2.3 2.6 8.1
19921
DLP (Kim Young Sam) 36.0 36.2 40.8 4.2 61.6 72.1 42.0
DP (Kim Dae Jung) 34.8 27.3 15.2 90.9 8.7 10.8 33.8
NRP (Jeong Ju Young) 19.8 23.8 33.5 2.3 17.0 8.8 16.3
Others 9.4 12.7 10.5 2.6 12.7 8.3 7.9
19972
Share of votes by candidate
Region Provinces/metropolitan cities Lee Hoi Chang Kim Dae Jung Rhee In Je Turnout rate
Chungchong Taejon 29.2 45.0 24.1 78.6
North Chungchong 30.8 37.4 29.4 79.3
South Chungchong 23.5 48.3 26.1 77.0
Cholla Kwangju 1.7 97.3 0.7 89.9
North Cholla 4.5 92.3 2.1 85.5
South Cholla 3.2 94.6 1.4 87.3
North Kyungsang Taegu 72.7 12.5 13.1 78.9
North Kyungsang 61.9 13.7 21.8 79.2
South Kyungsang Pusan 53.3 15.3 29.8 78.9
Ulsan 51.4 15.4 26.7 81.1
South Kyungsang 55.1 11.0 31.3 80.3
Others Seoul 40.9 44.9 12.8 80.5
Kyunggi 35.5 39.3 23.6 80.6
Inchon 36.4 38.5 23.0 80.0
Kangwon 43.2 23.8 30.9 78.5
Cheju 36.6 40.6 20.5 77.1
Total 38.7 40.3 19.2 80.7
Source: National Election Management Commission 1987, 1992, 1997.
1 For explanations of party acronyms, see the text of this chapter and the List of Acronyms, p. ix.
2 The presentation of data for 1997 re¯ects the changes made by the National Election Management Commission in the orga-
nization of election data for 1997 as against previous elections.
155
156 AHN CHUNG-SI AND JAUNG HOON
channel both public and private resources effectively for dynamic indus-
trial growth. The state oversaw labour relations and the ¯ow of human,
capital, and natural resources; it could mobilize investment funds through
forced savings via taxes and in¯ation, foreign borrowing, and ®nancial
intermediation, and then channel these funds selectively to a number of
projects. The state created public enterprises and manipulated provisions
of loans and incentives to the private sector as well. In brief, it played a
dominant role in almost all aspects of economic life in South Korea
(Jones and Sagong 1980; Deyo 1987; Amsden 1989; Choi 1989; Woo
1991; Haggard and Moon 1993; Ahn 1994). Yet the very success of the
strong state planted the seeds of its undoing. As the economy grew in
size and complexity, the effectiveness of state intervention decreased.
Increased industrialization and increased market dependency led to fur-
ther interference in both economy and society to a point where this
interference became impossibly costly and counter-productive.
The process of industrialization enhances the power and in¯uence of
society and of civic organizations relative to that of the state and public
organizations, while limiting the state's ability to in¯uence society and
thus eroding its freedom of intervention. The state has therefore to adjust
its methods and its manner of acting on society. This occurred in Korea
when economic growth and industrialization created the social and polit-
ical preconditions for democracy. With deepening industrialization, pro-
democratic forces were strengthened and acquired increasing political
in¯uence, although this did not guarantee their success.
As has been argued for Latin America, and as has indeed occurred in
the newly industrializing countries of East and Southeast Asia, authori-
tarianism appears to be necessary or even inevitable for a capitalist
developing economy to bring about the changes in its production struc-
ture which are necessary for its industrial deepening. Studies of East
Asian newly industrializing countries (NICs) also tend to argue that the
``soft'' authoritarianism of the ``capitalist developmental states'' has a
certain advantage over purely socialist or capitalist policies in providing
ef®ciency in economic resource mobilization, especially during the early
stages of industrialization. In effect, these theories end up saying that
Korean society needed (or condoned) lack of democracy in order to
achieve rapid economic development (Amsden 1989). Perhaps, however,
Korea's rapid economic development was made possible not only be-
cause of the authoritarian ``strong state,'' but also because of other
factors; likewise, Korea's non-democratic past is due more to speci®c
factors in Korean politics than to the urge for economic development,
such as its unique strategic position in the capitalist world system as well
as the absence of a countervailing elite based on an institutionalized party
system.
SOUTH KOREA 157
To examine the Korean case more closely, let us begin by considering the
macroeconomic performance of Korea between 1987 and 1995. As table
6.4 shows, that performance has been mixed during the transition period.
There was an economic downturn during the early period under Roh Tae
Woo; the economy then appeared to recover under Kim Young Sam,
albeit with weaknesses in some sectors.
Prior to the democratic transition, the performance of the Korean
economy was good: in 1987, for instance, the last year of the Chun Doo
Hwan regime, the economy grew by an impressive 12.3 per cent; the
current account balance was US$9.9 billion in surplus; in¯ation was 3 per
cent and unemployment 3.1 per cent. In the early democratic period, on
the other hand, the economy began to slow down. The growth in GNP
fell from 12.3 per cent in 1987 to 6.9 per cent in 1989 and to 5.0 per cent
in 1992; the current account plummeted to US$5.1 billion in 1989 and was
in de®cit both in 1991 (US$8.7 billion) and in 1992 (US$4.5 billion);
in¯ation rose to 5.7 per cent in 1989 and to 9.3 per cent in 1991. Thus,
by several indicators, the Korean economy seemed to have been paying
a price for the transition.
However, that economy began to revive with the Kim Young Sam
government. The GNP grew by 5.8 per cent in 1993, by 8.2 per cent in
1994, and by 8.7 per cent in 1995. In¯ation was reduced to 4.8 per cent in
1993 and 4.5 per cent in 1995, while unemployment was kept at 2.8 per
cent in 1993 and 2.0 per cent in 1995. The balance of payments continued
to deteriorate, however, except in 1993 when there was a small surplus of
US$380 million; the de®cit returned in 1994, when it was US$4.6 billion; it
increased to US$8.8 billion in 1995 and to US$20.1 billion in 1996. By late
1997, when the economy suffered a serious ®nancial crisis, it seemed that
the ostensibly sound performance of the economy during the Kim Young-
Sam government may have been in part due to these vast de®cits.
On the basis of these ®gures it is therefore not permissible to pass a
clear judgement on the impact of democratization on economic perfor-
mance. When the economy began to show signs of recovery in the early
years of Kim Young Sam's presidency, some felt that the Korean econ-
omy might have been paying the price of the democratic transition
(Cheng 1995; Ahn 1996) There were indeed a number of positive, if not
rosy, signs; as a matter of fact, Korea's economy had the highest growth
rates among the new democracies even during the most dif®cult period of
transition under President Roh Tae Woo (1987±92). By 1995, per capita
income exceeded US$10,000; in December 1991, South Korea became a
member of the ILO and in the course of the democratization process,
both labour and management had started to overcome their con¯icts: the
158
Source: Compiled from National Statistics Of®ce, Major Statistics of Korean Economy (Seoul, 1996), quoted from Moon and Kim
1996, 15.
1 Annual per cent change at 1990 constant prices.
2 In current US$ billions.
3 In current US$.
4 In US$ billions, BOP basis.
5 Annual per cent change at 1990 constant prices.
6 Percentage of GNP.
7 Percentage of GNP.
SOUTH KOREA 159
number of disputes was signi®cantly reduced from its 1993 level; ®nally,
the country joined the OECD at the end of 1996.
However, the prospects for sustained growth and for economic matu-
rity came to be further in question as the economy was hit by another
downturn in 1996 and by the explosive events of 1997. The growth rate of
the GDP was reduced to 6.4 per cent in 1996; the current account de®cit
swelled. The Hanbo Steel scandal led to massive economic turbulence in
early 1997, only to be followed by a series of bankruptcies of scores of
ranking business ®rms including a few leading chaebols. By late 1997, as a
result of mounting external debts, South Korea was close to national in-
solvency, and had to rely on the ®nancial support of the International
Monetary Fund.
Given these ups and downs, there is apparently no clear association
between democracy and economic performance in Korea. The concept of
political democracy is too broad to be closely related in a general manner
to economic performance. It might therefore be better to look for a more
limited concept that will enable us explore the association between the
two variables.
We noted earlier that while democratization has proceeded speedily
and successfully, the institutionalization of the party system has been de-
®cient: it may therefore be that economic mismanagement has been
caused by the gap between the democratization of the polity and the
weakness of the party system. In countries where pluralistic parties com-
pete on the basis of policy platforms, economic governance is more likely
to become transparent, democratic, and performance-oriented. As Mar-
avall argues, ``to achieve successful economic reform, democratic gov-
ernments need to listen, to negotiate, and to persuade'' (Maravall 1994,
23). Moreover, a democratic regime can more easily gain the popular
trust required for long-term planning and for economic reforms. The le-
gitimacy of democratic regimes also provides leaders with strong political
mandates enabling them to launch effective economic reforms. Thus a
case can be made for the view that when a new democracy has a stable
and institutionalized party system, it can also be economically ef®cient as
well as less vulnerable to economic crises.
The changing role and capacity of the state in economic governance may
be a further intervening variable linking democracy and economic per-
formance. In the course of the democratization process, the Korean state,
which had been the dominant actor in economic decision-making, under-
went signi®cant changes. Democratic transition caused a moderate de-
cline, though not a serious undermining, of a number of elements of the
160 AHN CHUNG-SI AND JAUNG HOON
Conclusion
REFERENCES
Moon, Chung-In, and Kim, Song-min (1996), ``Democracy and Economic Perfor-
mance in South Korea,'' paper presented at an international conference on
Consolidating Democracy in South Korea, Korea University, Seoul, 19±20
June.
Moore, Barrington, Jr. (1966), Social Origins of Dictatorship and Democracy,
Beacon Press, Boston.
National Election Management Commission (1987, 1992, 1997), The Presidential
Election Data, Seoul.
ÐÐÐ (1996), The 1996 General Election, Seoul.
O'Donnell, Guillermo (1973), Modernization and Bureaucratic Authoritarianism,
Institute of International Studies, Berkeley, Calif.
ÐÐÐ (1994), ``Delegative Democracy,'' Journal of Democracy 5.
Pei, Minxin (1994), ``The Puzzle of East Asian Exceptionalism,'' Journal of De-
mocracy 5(4), pp. 90±103.
Przeworsky, Adam (1992), Democracy and the Market: Political and Economic
Reforms in Eastern Europe and Latin America, Cambridge University Press,
New York.
Randall, Vicky (1995), ``Parties and Democratisation in the Third World,'' paper
presented at an international conference on Party Politics in the Year 2000,
Manchester University, U.K., 13±14 January.
Ruschemeyer, Dietrich, Stephens, Evelyn H., and Stephens, John D. (1992),
Capitalist Development and Democracy, University of Chicago Press, Chicago.
Sagong, Il (1993), Korea in the World Economy, Institute for International Eco-
nomics, Washington, D.C.
Sartori, Giovanni (1994), Comparative Constitutional Engineering, Macmillan,
London.
Stepan, Alfred (1986), ``Paths toward Redemocratization: Theoretical and Com-
parative Considerations,'' in Guillermo O'Donnell, Philippe C. Schmitter, and
Laurence Whitehead (eds.), Transitions from Authoritarian Rule: Comparative
Perspectives, Johns Hopkins University Press, Baltimore, pp. 64±84.
Woo, Jung-en (1991), Race to the Swift: State and Finance in Korean Industrial-
ization, Columbia University Press, New York.
7
The Philippines
Renato S. Velasco
167
168 RENATO S. VELASCO
Historical background
position against the regime which included the Catholic Church, business
groups, and disgruntled military leaders. In February 1986, the ``people
power'' revolt deposed Marcos, and Corazon Aquino, the widow of the
slain senator, became president.
tution restored the pre-1972 presidential system but replaced the two-
party system by ``a free and open party system'' which encouraged the
setting up of a multi-party system and led to the emergence of a number
of parties in post-1986 elections. The introduction of a party list system
for the election of some representatives in Congress further resulted to
the strengthening of the multi-party system.4
The framers of the 1987 Constitution preferred a multi-party system as
they wished to avoid the return of the oligarchical tendencies of the pre-
1972 two-party system under which electoral contests tended to be con-
®ned to a few wealthy political families. This prevented the emergence of
really democratic politics. Under a multi-party system, it was believed,
elective positions would be open to a large number of political groups.
According to the Constitution, the three branches of government, ex-
ecutive, legislature, and judiciary, are equal, as in the United States.
Presidents are popularly elected for a ®xed single term of six years. They
have considerable power: this enables them to attract large numbers of
representatives and to be supported by a majority in Congress, even if
this was not the case before the election. The pre-1972 adage, that it is the
Filipino president who creates his party and not the party which creates
the president, is still applicable today.5
Congress is bicameral. The 24 members of the Senate are elected na-
tionally for a maximum of two consecutive terms of six years each. 200 of
the 250 members of the House of Representatives are elected by legisla-
tive districts, based on population size except for some very small ones,
for a maximum of three consecutive terms of three years each. The ®rst-
past-the-post system applies in these cases; but the other 50 members of
the House are elected from party lists on a proportional basis. For these
seats, the lists are closed and election depends on the candidate's place-
ment on the party slate. The limitation on tenure is prescribed by the
Constitution to discourage the revival of pre-1972 political dynasties and
promote a more equal access to representatives of other parties.
Elections are regulated by the 1987 Constitution and the OEC; amend-
ments to this code were incorporated in electoral reform laws following
the 1987 and 1992 elections. The provisions of the Constitution in this
respect are that there shall be no literacy, property, or other discrimina-
tory quali®cations restricting the right to vote.
The task of enforcing election laws rests with the Commission on Elec-
tion (COMELEC). Members of this body are appointed by the president
with the consent of Congress. It exercises exclusive jurisdiction over the
quali®cations of candidates, the accreditation of parties and citizens'
election groups, and canvassing. It sets the dates of opening of campaigns
(60 days for the president, and 45 days for House members and local
of®cials); ensures that candidates are provided free, equal, and publicly
THE PHILIPPINES 173
hand, many candidates feel they do not need the support of a party to
make sure that the count is done honestly: citizens and church-based
electoral watch groups such as the National Movement for Free Elections
(NAMFREL) and the People's Pastoral Council for Responsible Voting
(PPCRV) have promoted popular participation, but the role of parties
has diminished in the process.
Perhaps the most important feature of the system, however, is the fact
that the ®rst-past-the-post system is in force for the election of the presi-
dent and vice-president. This means that a candidate may be elected with
a small minority only, if there is, as has been the case since 1987, a large
number of relatively strong candidates. Thus Fidel Ramos was elected
with only 24 per cent of the votes in 1992, and in the 1998 elections,
Joseph Estrada was elected with 38 per cent of the votes. Not surpris-
ingly, there have been repeated calls for the return of the two-party system.
table 7.1)10 Their mass membership is low and their organizational struc-
ture limited. As before 1972, the parties are loose coalitions of provincial
and regional political clans and families mainly put together to contest
elections. They are parties of notables whose main support is drawn from
the politically active elite, and hence they are highly decentralized.
Intraparty democracy is weak or non-existent. Rank-and-®le members
are seldom consulted or involved in policy-making: the most important
policies are formulated by a national executive committee or national
directorate composed of a few party leaders and personalities. Although
their highest policy-making body is deemed to be the national party con-
gress, the role of that body is largely ceremonial: it consists in reaf®rming
the decisions of the national executive committee or directorate.
Being dependent on and controlled by bosses, the parties tend to be
set up mainly to serve the ambitions of a few people, and in particular of
presidential candidates. These leaders control party positions and activ-
ities, both as founders, in the case of two of the three parties, and as
major recruiters and ®nanciers. Hence the view that in the Philippines
there are no real parties, only politicians: for the parties are primarily
instruments for mutual aid for the capture, retention, and exploitation of
public of®ces.11
The social base of the parties is naturally determined by the geo-
graphical or ethnic origin of the top leaders. This support often stems
from the fact that a prominent politician's family has dispensed favours
locally ± ®nancial or in kind. This obviously occurs mostly in remote and
poor rural areas where the lack of alternatives reinforces the role of
bosses, patrons, and overlords.
The three parties are essentially concerned with vote-maximizing, and
their platforms therefore have a catch-all character. They claim to sub-
scribe to liberal democracy and seldom articulate class, sector, or geo-
graphically speci®c interests. As vehicles for seekers of elective of®ces,
they espouse popular principles to please as many voters as possible and
antagonize the least number, or if possible none at all. Linkages with
organized religious and ideological groups are often transient, tactical,
and opportunistic.
There is therefore little programmatic diversity and political differen-
tiation among the main parties. To an extent, this is due to the fact that
the party elites recognize that the newly restored representative institu-
tions are fragile and need nurturing before being subjected to major
con¯icts over policy positions. Three political events played a key part in
the development of such a low-con¯ict approach: the 1986 ``people
power'' revolt which rejected authoritarianism and restored democracy;
the 1987 rati®cation of the new Constitution which laid down the liberal
foundations of post-1986 democracy; and the 1987 and 1992 elections
Table 7.1 Basic indicators of party institutionalization in the Philippines
which reaf®rmed public support for political forces espousing the ideals
of the 1986 revolt. Thus, the platforms of the main parties point to a
consensus on major issues, notably with respect to the promotion of de-
mocracy and economic growth, the superiority of liberalization over pro-
tectionism, and the leading role of the private sector in the economy.
Lakas
Lakas came to be the largest party after the election of Fidel Ramos to
the presidency in 1992. (For the comparative strengths of the main par-
ties, see table 7.2.) It was established in 1992 by a handful of former
Laban ng Demokratikong Pilipino (LDP ± Struggle of Democratic Fili-
pinos) members to be Ramos's vehicle for the presidential election, as
Ramos was then partyless, having resigned from the LDP when that party
did not nominate him for president.
In accordance with the adage about the president creating parties and
not vice versa, Lakas was quickly transformed from a minor party to the
majority party as many followers of defeated presidential candidates left
their parties to join Lakas. Thus, its small membership in Congress and
local authorities before 1992 increased dramatically, ®rst after Ramos's
victory at the 1992 election, and again after a Lakas-led electoral sweep
at the 1995 midterm elections. After four years of the Ramos presidency,
Lakas came to control the majority of seats in the House and held most
provincial governorships and city mayoralties.
The political base of Lakas is in two large and strategic provinces which
are the strongholds of its top leaders. One is Pangasinan, the home prov-
ince of Ramos and former speaker of the House Jose De Venencia. This
is one of the 10 biggest provinces, with over a million voters or over half
the electorate of Northeast Luzon. Cebu is the other power base, being
the stronghold of Emilio Osmena, Ramos's defeated vice-presidential
running mate: it is another large province with more than a million voters
in the southern region of Eastern Visayas, which has produced two of
the past ten presidents of the country. The province is considered to be
second only to Metro Manila, the National Capital Region, in terms of
economic and political strength.
Lakas has strong links with big business because its leaders were in
power under Ramos and because of its pro-business policies. Apart from
frequent business conferences and joint government-business workshops
which bring Lakas and business leaders together, these close links are
underscored by the fact that many leaders of big business groups were
also top Lakas campaigners and ®nanciers during the 1992 presidential
elections: among these are Peter Garrucho of the Management Associa-
tion of the Philippines, Roberto Romulo and Roberto Del Rosario, Jr., of
Table 7.2 Party af®liations of members of Congress and governors in the Philippines, 1992, 1995, and 19971
1992 1995 1997
Senate House Governor Senate House Governor Senate House Governor
The LAMMP is a coalition of two major and one minor opposition parties,
namely the Laban ng Demokratikong Pilipino, the Nationalist People's
Coalition (NPC), and the Partido ng Masang Pilipino (PMP ± Party of the
Filipino Masses). It was set up in October 1997 to consolidate the oppo-
sition and increase its electoral chances against Lakas. The LAMMP is led
by Senator Edgardo Angara, former head of the LDP, and the secretary-
general is Senator Orlando Mercado, former president of the PMP.12
The victory of its presidential candidate, Joseph Estrada, in the May
1998 elections has made the LAMMP the new ruling coalition, with many
members of Lakas-NUCD and other parties defecting to its camp. There
were talks and preparations with a view to transforming the coalition into
a formal merger to be called Labian ng Masang Pilipino (LAMPÐ
Struggle of the Filipino Masses) with Angara, Estrada's defeated running
mate, as president and Estrada himself as chairman.13
Before the LAMP merger, the LDP was the largest opposition party. It
was the ruling party during the Aquino administration, having been set
up in 1988 by prominent anti-Marcos politicians led by the then Senate
President Neptali Gonzales, House Speaker Ramon Mitra, and Con-
gressman Jose Cojuangco, purportedly to organize legislative and politi-
cal support for the Aquino administration. Despite repeated efforts to
recruit her into the party, Aquino refused to join. This proved to be a
major factor in the decline of the party, especially when Aquino endorsed
the candidacy of Ramos and diverted the administration's resources and
bureaucratic machinery to Lakas. The LDP lost much of its political
credibility soon afterwards when its presidential candidate, Speaker
Mitra, lost the 1992 election and many LDP members resigned to join the
president's party.
The organizational problems of Laban were made worse by factional-
ism. The strife was between the so-called ``pro-coalition'' (``pros''), headed
by Senator Gonzales, who wanted to continue the alliance with Lakas,
and the ``anti-coalition'' (``antis''), led by Senator Angara, who wanted to
break away from the coalition and ®ght Lakas.
This division was the result of a complete U-turn as the Gonzales-led
pros had at ®rst opposed the coalition with Lakas while the Angara-led
antis were the ones who engineered it. Eventually, in®ghting within the
THE PHILIPPINES 181
LDP reached such proportions that it lost the Senate presidency in 1996.
Despite an LDP majority in the Senate, the NPC president, Senator
Ernesto Maceda, defeated Gonzales as Angara, the LDP president, allied
with him and other Lakas senators.
The party was further demoralized by a situation in which its own
president had contributed to the defeat of an LDP Senate president by a
non-LDP leader. Not long afterwards, many of the party's noted and
longtime leaders resigned from it, among them Senators Gonzales,
Alberto Romulo, Gloria Macapagal-Arroyo, and Orlando Mercado,
House Deputy Speaker and Laban Secretary-General Hernando Perez,
and Laban's founding secretary-general, Rep. Jose Cojuangco, Jr. In
October 1997, the Angara-led LDP faction allied with the NPC and PMP
to form the LAMMP.
The NPC was the second biggest opposition party before its coalition
with LDP and PMP. It was akin to Lakas in having been formed in 1992
primarily to support the presidential campaign of its candidate, Eduardo
Cojuangco, Jr., a wealthy Marcos crony and cousin of President Aquino.
Conjuangco lost the presidency but the party won some seats in the Sen-
ate, the House of Representatives, and local governments. Its strength
was further reduced after the Lakas-led coalition victory in the 1995 mid-
term elections.
Cojuangco resigned the leadership which went to Senator Ernesto
Maceda, and Maceda's shrewd manoeuvres proved successful in building
up the NPC's role in party politics despite its weak base. He won the
Senate presidency by aligning with the Angara faction and the PMP, the
minuscule party of then Vice President Joseph Estrada. He consolidated
the alliance by forming it into LAMMP, but resigned from LAMMP
when Angara was chosen over him as Estrada's vice-presidential running
mate in the May 1998 elections. He then ran for mayor of Manila and
lost; and on 11 June 1998 the NPC dissolved itself as a party. Its members
are expected to join LAMP which is set to replace Lakas as the ruling
party.
The geographic strongholds of LAMMP are identical with the zones of
in¯uence of its top leaders. Except for Negros, the home province of the
NPC's founder, Cojuangco, the LAMMP bases are mostly in medium-
sized and small provinces with small voting strength and little economic
power. What seems to be the compensating factor is the fact that these
provincial bases are scattered in strategic parts of the country. These
include the Ilocano provinces (Maceda), Aurora in Southern Tagalog
(Angara), as well as the bailiwicks of close allies of Angara such as Bohol
182 RENATO S. VELASCO
The third main party is the Liberal Party, the only remaining pre-1972
party. During the Aquino administration, this party controlled the Senate
and exercised in¯uence in the House. Like the LDP, it suffered a major
setback in the presidential and congressional elections in 1992. On the
whole, the party has tended to hold left-of-center views and it has
been credited with being responsible for the rejection of the Philippines-
America Co-operation Treaty which led to the withdrawal of the U.S.
military bases in the country.
Although it has only a few members in the Senate and the House, they
hold important leadership positions in Congress, such as chairman of the
Senate Committee on Ways and Means, House senior deputy speaker,
and House assistant majority ¯oor leader. As a coalition partner of
Lakas, the LP has been given more positions and access to government
resources by the ruling party.
The strongholds of the LP are also in medium-sized and small prov-
inces. These include Samar (Rep. Raul Daza), Marikina (Rep. Romeo
Candazo), Batanes (Rep. Florencio Abad), Capiz (Rep. Manuel Roxas
II), and Bataan (Rep. Felicito Payumo). The party has no direct support
from or close links with big business although some of its leaders, notably
Roxas and Daza, are known to have extensive business interests. It is also
linked to a number of cause-oriented groups.
rights and limited state intervention'' are similar to those of the other
main parties. In its 1995 revised party program, it reiterated its support
for a free-market economy and downplayed nationalist protectionism.
The main parties tend to support similar standpoints for a number of
reasons. First, the social background of post-1986 party leaders differs
from that of the pre-1972 leaders. The latter constituted a narrow elite,
which was closely associated with the landed oligarchy whose rent-
seeking interests were anchored on state patronage and intervention.
With a broader economic base and diverse career backgrounds, the post-
1986 party elites are more disposed towards free enterprise and limited
government.
Second, the new elite has in common the fact that its members all ex-
perienced the Marcos dictatorship and were allies during the 1986 ``peo-
ple power'' revolution. They are more aware, if not convinced, of the
virtues of democratic politics because of the negative consequences of
authoritarianism and other modes of political extremism. Their support for
liberalization stems from their awareness of the ¯aws and costs of economic
protectionism before 1972 and its more parasitic form of crony capitalism
during the Marcos regime. They favor elections and other peaceful and
democratic modes of change after having witnessed repeated public rejec-
tion of military coups and other violent means to settle con¯icts.
Finally, the professional and material interests of party elites have
grown during the post-1986 democratic regime. If the status quo has been
generally good for their careers, why change it?
There are drawbacks resulting from the similarity of standpoints and
platforms, however. First, only mainstream policy positions and interests
are accommodated. Alternative programs, especially those from marginal
groups, are seldom articulated. Second, party loyalty and ideology have
little weight. Erratic personal styles and ambitions rather than ®rmer
policy positions become the driving force of most parties. This explains
the frequent changes of party by leading politicians, a practice that is rare
in more developed democracies. Pre-1972 ``political butter¯ies'' who
were thought to have ceased to exist in the ``new politics'' of the post-
1986 political era have made a comeback. Lakas chairman and former
president Ramos was an LDP leader before he set up Lakas; likewise,
LAMMP chairman and president Joseph Estrada was an LP leader prior
to his LAMMP af®liation.
Despite these drawbacks, the fact that parties have broadly similar views
has a positive impact in the transitional phase of redemocratization when
THE PHILIPPINES 185
major parties. Despite the fact that their institutionalized features are
weak and much criticized, and that they have strong personalistic ten-
dencies, the main parties, and especially those which formed part of the
growth coalition (Lakas, the LDP, the LP, and the PDP) have been
assessed markedly more positively than most of their critics had antici-
pated (see table 7.3)
As was pointed out earlier, the post-1986 state elites, especially since
1992, have had a different social background from and therefore weaker
ties with the old oligarchy and the landed families. This relative auton-
omy from dominant classes, as well as from dominated social groups,
increased the state's capacity to play a strategic role in forming the
growth coalition and in leading the members of that coalition to under-
take profound structural reforms.16
The traditional landed elites, as well as the labour unions, depended on
protectionism and state patronage for their privileges: they therefore
tended to block efforts designed to liberalize the economy. For decades
they frustrated industrialization and growth policies. This was altered by
the 1986 revolution as new political forces came to the fore; with the 1992
presidential elections, these forces became dominant and old elites were
marginalized. The ability of the political system to transform, or at least
expand, the social base of its elites, among other factors, has led to a
positive public evaluation of the country's democratic polity. As table 7.4
shows, satisfaction ratings of Filipinos vis-aÁ-vis their political system have
been high ± higher, indeed, than those of the citizens of such developed
democracies as Belgium, Italy, France, and the United Kingdom.
At the root of the electoral defeat of the old oligarchy were important
changes in the economic structure which in turn led to the erosion of the
oligarchy's in¯uence. The traditional export crops which used to sustain
its hegemony became less signi®cant as the economic share of new sectors
like garments, electronics, and the service industries expanded. The share
of export crops in total exports dropped from 54 per cent in 1980 to 23
per cent in 1988, while during the same period, the share of new sectors
rose from 46 per cent to 77 per cent. Between 1980 and 1995, the demo-
graphic pro®le and class composition of the country were also markedly
altered: the urban population rose from 36 to 48 per cent of the popula-
tion, while the rural population dropped from 74 per cent to 52 per cent.
There has also been a signi®cant expansion of overseas Filipino workers
(OFWs), of the urban lower middle class and service workers.17 Mean-
while, an increasing number of Filipinos receive secondary and tertiary
education.
Globalization and information technology, which have made possible
instant movement of capital and a 24-hour stock market, have led to
growth in many sectors and integrated these sectors to the global econ-
188
Table 7.3 Net trust ratings of Filipino political parties, July 1991±June 19971
(percentage difference between those saying that they trust and those saying that they distrust each party)
July 1991 April 1992 August 1994 December 1994 June 1995 June 1997 Average
Lakas 23 23 23 20 38 25.4
LDP 1 11 10 13 5 29 11.5
PDP 5 28 16.5
PMP ÿ5 3 6 11 0 24 6.5
LP 7 2 3 ÿ7 20 5.8
NPC ÿ1 ÿ4 ÿ3 ÿ2 19 1.8
KAMPI 19 9.0
NP 3 ÿ2 ÿ2 17 4.0
PRP ÿ5 16 ÿ1 1 ÿ2 17 4.8
KBL ÿ10 4 16 3.3
PNB 2 2.0
Source: Social Weather Stations, June 1997.
1 For explanations of party acronyms, see the text of this chapter and the List of Acronyms, p. ix.
THE PHILIPPINES 189
Table 7.4 Satisfaction with democracy: The Philippines compared with European
countries, 1993
Belgium 49 46
Denmark 81 18
France 41 56
Greece 34 65
Italy 12 88
Luxembourg 72 24
Netherlands 68 30
Philippines 58 42
Portugal 54 43
Spain 41 55
UK 49 46
Source: Social Weather Stations, 1993; Eurobarometer, 1993, pp. 1±4.
Staff Arnulfo Acedera refused to stop talking after he had been asked to.
When asked the reason for his de®ance, he said: ``I do not yield to a
Pepsodent salesman'' ± obviously referring to the committee chairman,
Senator Orlando Mercado, a former media personality who had adver-
tised toothpaste products.
Thus bureaucrats usually withhold data and information, especially on
economic and ®nance matters, because they consider them to be too
technical and complicated for the lawmakers: cases of irrelevant ques-
tions and demands for unrelated documents by legislators sometimes
justify this charge. Bureaucrats also use the expectation of foreign loans
or the IMF seal of housekeeping as a leverage to compel Congress to pass
the economic measures they propose.19 Congress is often forced to ap-
prove the economic proposals of the administration as these are usually
tied to the release of the much-needed loans or of required tax revenues.
Congress may have the power of the purse, but this power is useless if the
purse is empty.20
Bureaucrats also undermine the implementation of policies passed by
Congress, if they consider these to be contrary to the priorities of the
administration. This has been the case with the way the Department of
Budget Management (DBM) releases funds for projects, especially those
which have a pork-barrel character, such as the Countrywide Develop-
ment Fund (CDF). Lakas members, especially those close to President
Ramos or DBM of®cials, often see their CDF projects released early
while those in the opposition parties like NPC and Laban receive their
appropriations late. But the early release of funds by the bureaucracy
does not only take place in order to placate certain politicians: it is also
used to induce Congress to pass the pet bills of the administration.
Finally, bureaucrats try to appease or control Congress by means of
monitoring and co-option. The Presidential Legislative Liaison Of®ce
regularly scans legislative activities. The PLLO is composed of Legisla-
tive Liaison Of®cers from various line departments who are assigned to
monitor, co-ordinate, and assist their respective counterparts on the
standing committees of Congress. In this way, the bureaucracy is regu-
larly apprised of the activities of Congress and can exert in¯uence on the
policies initiated by legislators.
The power of the bureaucracy is further boosted by the co-option of
politicians. Leading members of Congress from various parties are
appointed to the Cabinet: thus, President Aquino appointed to her Cab-
inet Senator Raul Manglapus as foreign affairs secretary and Reps. Oscar
Orbos and Florencio Abad as executive secretary and agrarian reform
secretary, respectively. The same technique was adopted by President
Ramos who appointed to the executive branch Senator Teo®sto Guin-
192 RENATO S. VELASCO
The ®nance and economic agencies, speci®cally the Central Bank, the
Department of Finance, the Department of Trade and Industry, and the
National Economic Development Authority, appear to be exceptions in
the otherwise the bloated, expensive, and inef®cient bureaucracy. These
agencies are least affected by electoral politics and maintain a critical
core of competent of®cials who are strongly inclined towards export-
oriented growth and economic liberalization. Their free-market orienta-
tion and rapport with business groups and creditors have provided a good
foundation for increased state capacity and for a remarkable economic
dynamism since the late 1980s.
These ®nancial and economic civil servants ®rst gained prominence
during the Marcos regime. Known as ``the technocrats,'' they constituted
the most productive of the so-called ``three pillars of the regime,'' the
other two being the military and the cronies of the president. They were
recruited by Marcos in order to inject ef®ciency and add prestige to his
regime. Their apolitical and corporatist background and dislike of the
policy paralysis and irrationalities of pre-1972 democratic politics made
them attractive to Marcos.
With graduate degrees from noted American schools and as former
bankers, professional managers, academics, or consultants of the World
Bank, the IMF, and multinational companies, these technocrats were
critical of protectionism and adhered to free-market principles as the best
formula for economic growth. They had extensive training and experi-
ence in research and were quite adept in management and economic
planning. They were familiar with the language of global trade and in-
ternational ®nance and they also knew the key players. These character-
istics and credentials rendered them useful to the regime, especially in
securing much-needed foreign loans. Their technical expertise combined
with the support they enjoyed from foreign creditors helped them to be
somewhat insulated from political pressures. They brought greater ratio-
nality to government and improved the state's administrative apparatus
by introducing sophisticated modern management techniques, notably
development planning and statistical analysis for effective policy and pro-
gramme monitoring and evaluation. The World Bank itself recognized
the competence of these civil servants when it described the Philippines
as a model of economic development and made it one of its largest aid
recipients.23 The combination of this generous external assistance and
bureaucratic competence resulted in impressive growth rates in the sev-
194 RENATO S. VELASCO
When the growth coalition was put in place, the economic technocrats
were protected against political pressures and were better able than be-
fore to formulate and implement market-oriented reforms. These liber-
alization measures opened up the economy, led to greater investments,
and brought back the country on the growth path that characterized East
and Southeast Asia at the time. The gains resulting from post-1986 eco-
nomic policy-making are shown in table 7.5.
Except for 1992, the growth rate hovered between 4 and 7 per cent
THE PHILIPPINES 195
Table 7.5 Macroeconomic indicators at the end of the Marcos regime and during
the Aquino and Ramos administrations, 1985±1996
during 1986±96. This growth rate is rendered even more signi®cant be-
cause it was export- and investment-led and was accompanied by a single-
digit in¯ation rate, increased employment, and a reduction of poverty
incidence. The only negative indicator was the balance of trade which
showed a de®cit increasing from US$1.08 billion in 1988 to US$11.4
billion in 1996. However, a large part of the import bill was due to capital
expenditures such as machinery, raw materials, chemicals, and power
plants. These could be expected to result in higher ef®ciency and greater
productivity. Meanwhile, exports also grew from US$8.2 billion in 1990 to
US$13.5 billion in 1994 and US$20.5 billion in 1996. Indeed, the Philip-
pines had the highest growth rate of exports among the Asian countries
between 1993 and 1996. During this period, the country's exports
exceeded those of such Asian export leaders as Taiwan, South Korea,
and Thailand. If it sustains this growth rate in exports, the trade gap
could be wiped out by the year 2000.
The export performance is in part the result of improved investor con-
®dence, as is shown by the fact that investment steadily increased from
US$15.83 billion in 1990 to US$20.3 billion in 1996. There is also a good
balance between portfolio and foreign direct investment in¯ows: this
minimizes the potential for a sudden economic downturn if an abrupt
¯ow reversal occurs. The share of net portfolio investments declined from
196 RENATO S. VELASCO
In the context of the 1997 ®nancial turmoil in East and Southeast Asia,
the Philippines seem to be in a better position than other countries of the
region which succumbed to the crisis. Some indicators suggest, indeed,
that the economic performance of the country is on ®rmer foundations
than in the past. First, previous growth records were mainly induced by
external factors such as U.S. quotas, a boom in export crops in the 1950s
and 1960s, and low-interest foreign loans in the 1970s: they did not result
from substantial changes in the Philippine political economy. On the
other hand, the growth of the 1990s was preceded by bold reforms and
structural adjustments. These have resulted in more competition and in
greater ef®ciency in the liberalized sectors and rendered the economy
more resilient.
These reforms are also more stable than previous measures. They be-
came law in a democratic context and enjoyed the support of a broad
coalition of political and social forces. This combined with the bene®ts
which they produced to render them ®rmly grounded. They will remain in
force as it would be dif®cult and unpopular for any political party or
group to revise or abolish them in the near future.
The sustainable character of Philippine economic dynamism is
enhanced by its broad geographical base: all regions, including poor and
remote ones, have experienced real growth in gross regional domestic
product. Region 1 which includes the Cordillera Autonomous Region in
Northeastern Luzon, and Region 5 or the Bicol region in Southern
Luzon, had growth rates of over 7 per cent and 2.9 per cent respectively
between 1993 and 1995.27 Previously, economic expansion took place in
Metro Manila only: post-1986 growth led to the emergence of robust
growth in the special economic zones in Subic in Zambales and Clark in
Pampanga, and in industrial and manufacturing parks in Cavite-Laguna-
Batangas-Quezon in the Luzon mainland, Cebu and Iloilo growth centres
in the Visayas, and in the Cagayan de Oro, General Santos, and Davao
growth areas in Mindanao.
These achievements have provided good protection against the regional
currency crisis of the late 1990s. The turmoil did cause an economic
slowdown, but the Philippines is expected to come out of it relatively
well. First, the country experienced a series of boom-and-bust cycles in
the 1970s and 1980s and this experience is valuable. As the former ``sick
man of Asia,'' it learned to be modest; its public also learned to discover
THE PHILIPPINES 197
both the short-term costs and the long-term bene®ts of ®scal discipline
and austerity measures. Being a latecomer can also be an advantage. It is
possible to learn from both the negative and the positive experiences of
early starters. This is the case, for instance, with the ceilings imposed by
the Central Bank on bank loans in real estate and property development,
as well as with its close monitoring of exposures in car loans and credit
cards: these measures have been effective in checking bankruptcies from
property glut and bad loans.
Investors and analysts have noted the strengths of the Philippine
economy. While it has the smallest foreign reserves among the ASEAN
countries, it has had the least currency depreciation. Not only has it not
asked for a ®nancial rescue package from the IMF and the World Bank,
but it has completed an exit agreement with the IMF. Exports have
increased and the depreciation of the Philippine peso is expected to make
the country's exports cheaper and more competititive. The World Bank
hailed the country's adjustment measures while Credit Lyonnais Secu-
rities Asia, one of world's largest brokers, said: ``The Philippines is ahead
of the game. By no means is it going to suffer as badly as Thailand and
Indonesia.''28
Finally, the country's macroeconomic fundamentals are supplemented
with good political fundamentals. The country's democratic politics pro-
motes growth by providing fairness and predictability in the system
through the rule of law, transparency in decision-making, and other
democratic principles and procedures. In two important respects, de-
mocracy, for all its oft-cited ¯aws, is superior to authoritarianism in
attaining growth and stability: ®rst, democracy has built-in feedback
mechanisms in the form of competitive elections and freedom of expres-
sion for self-regeneration and reform; and second, democracy requires
public consent and consensus in governance, which are critical for long-
term stability and better policy formulation and implementation.
Conclusion
As the opposition parties are likely to adopt critical positions, policy dif-
ferentiation will increase and a more issue-oriented type of politics may
emerge, giving rise to a wider range of alternatives. Meanwhile, on the
economic front, the growth which the country enjoyed in the 1990s has
been healthier. It has been based on structural reforms which have
increased competition and improved ef®ciency in many sectors: the ex-
pansion has also taken place broadly across the country.
In the Philippines, economics and politics have gone hand in hand in
the 1990s. Democracy has promoted growth and has proved superior to
authoritarianism. Although the country has had to travel a rocky road, it
has so far surmounted all dif®culties. The great challenge is to sustain
both political vibrancy and growth momentum. There are encouraging
signs that the Philippines can meet this challenge successfully.
Notes
1. Francis Fukuyama, ``The End of History,'' The National Interest Winter 1989±90; 18:
pp. 12±35.
2. Samuel P. Huntington, The Third Wave: Democratization in the Late Twentieth Century
(Norman: University of Oklahoma Press, 1991).
3. Larry Diamond, John Linz, and Seymour M. Lipset (eds.), Democracy in Developing
Countries: Latin America, Vol. IV (Boulder, Colo.: Lynne Rienner, 1989), pp. 20±21.
4. 1987 Philippine Constitution, Art. XII, Sec. C.
5. For a historical account of the powers and role of the Filipino presidents in government
and politics, see Alex B. Brillantes and Bienvenida M. Amarles-Ilago, 1898±1992: The
Philippine Presidency (Quezon City: CPA, University of the Philippines, 1994). The
critical role played by U.S. presidents in the rise and fall of major American parties is
discussed in Martin P. Wattenberg, The Decline of American Political Parties, 1952±1994
(Cambridge, Mass.: Harvard University Press, 1996) esp. pp. 73±124.
6. Philippine Daily Inquirer, 11 October 1997.
7. Dennis Arroyo and Gerardo Sandoval, ``Do The Mass Media Really Affect Public
Opinion?'' Social Weather Bulletin May 1993, pp. 3±4. See also ``Media in the Present
Crisis,'' Kasarinlan First Quarter 1990; 7: pp. 90±99.
8. Randy David, ``Media Education Challenges in the 1990s,'' in Media Expo '91 (Manila:
Metro Times, 1991), p. 13.
9. The author, as former chief of staff of House Assistant Majority Leader Manuel Roxas
II and consultant to Senate President Edgardo Angara and Senator Gloria Macapagal-
Arroyo, has personally seen the clout wielded by public relations teams in many of®ces
of legislators in both houses of Congress.
10. A high degree of institutionalization achieved by major parties is considered to be
an important element in the institutional resilience of democracy. Samuel Huntington
devised a formula which identi®es coherence, complexity, autonomy, and adaptability as
indicators of party institutionalization. See Samuel P. Huntington, Political Order in
Changing Societies (New Haven, Conn.: Yale University Press, 1968), pp. 10±32.
11. Carl H. Lande, Leaders, Factions and Parties (New Haven, Conn.: Yale University
Press, 1965), p. 69.
THE PHILIPPINES 201
26. These post-1986 economic bureaucrats include: former World Bank senior of®cer and
Development Bank of the Philippines president Roberto Ocampo, Department of Fi-
nance secretary; lawyer and long-time Central Bank deputy governor Gabriel Singson;
former professional manager and businessman Cesar Bautista, Department of Trade
and Industry secretary; University of the Philippines economics professor and Harvard
Ph.D. Cielito Habito, National Economic Development Authority director-general. See
Aiichiro Ishii et al, National Development Policies and the Business Sector in the Philip-
pines (Tokyo: Institute of Developing Economies, 1988), esp. pp. 206±58.
27. ``Highlights of Trends in Gross Regional Domestic Product, 1993±1995,'' Regional
Development Digest July 1996; 1(3), pp. 1±3.
28. Today, 7 November 1997 and 3 April 1998.
8
Thailand
Dan King
Introduction
Thailand has been blamed for starting off the meltdown of Asian markets
and currencies in mid-1997, an assessment which may be partly true since
the 2 July 1997 devaluation of the baht began a chain reaction throughout
the region. The central bank, the Bank of Thailand, has since come under
intense scrutiny and heavy criticism for having depleted its foreign
reserves and lent just over Bt 1 trillion to ailing banks and ®nance com-
panies, more than the entire national budget for ®scal year 1997.
Yet only a year or two previously, the general view of Thailand's bu-
reaucracy responsible for economic policymaking was quite different:
Thailand was said to bene®t from experienced technocrats at the key
ministries and agencies, including the Bank of Thailand, and these tech-
nocrats were credited with keeping Thailand's own version of the Asian
economic miracle on track. Indeed, meddling on the part of elected poli-
ticians was the danger that had to be guarded against, as, otherwise, the
politicians and their pork-barrel politics might affect adversely the coun-
try's rate of economic growth which was so admired around the world.
Most members of the political elite would have agreed that it was better
to let the technocrats do their work unencumbered by political consid-
erations. It is suf®cient to remember that in 1996 the World Bank
declared Thailand the top growth country in the world for the decade of
1985±94, ahead of China or South Korea.
203
204 DAN KING
After a brief historical survey, this essay will focus ®rst on the nature of
democratization in Thailand and in particular on the character of the
parties. It will then examine economic governance and the relationship
between the parties and the party system and the bureaucracy. It will ®-
nally consider the prospects for the future of the relationship between
parties and bureaucracy and between democratization and economic de-
velopment.
Since the fall of the absolute monarchy in 1932, Thailand's pursuit
of political democracy has been at best uneven. Prior to World War II,
neither the Constitution nor Parliament succeeded in resolving the com-
petition between the military and the bureaucracy: to seize power, polit-
ical leaders declared new rules of the political game and penalized
opponents. From 1945 to 1973, there were only a few short periods of
democratic reform interspersed among long-lasting military-led govern-
ments which suppressed political participation and manipulated electoral
processes.
A crucial change occurred between October 1973 and October 1976,
however, when democratic and antidemocratic forces engaged in forceful
competition (Morell and Chai-Anan 1981). After student demonstrations
had been crushed by a massive show of force on 14 October 1973, young
King Bhumiphol Adulyadej dismissed the prime minister, who ¯ed the
country together with other government leaders. What followed was a
period during which the student movement ¯ourished, public discussion
of political and social liberalization expanded, and the Communist Party
developed rapidly. In 1975, after the military factions had regrouped and
observed the dominoes of Vietnam, Laos, and Cambodia fall, right-wing
elements and students clashed more frequently and with greater acri-
mony. A coup took place in October 1976, which was characterised by
massive violence and acts of torture against students at the hands of right-
THAILAND 205
wing groups and of the security forces: these events remain a stain on
Thailand's collective conscience.
A new constitution was proclaimed in 1978 by the military-led govern-
ment with the aim of introducing a limited form of democracy. Elections
were held in 1979, parties which had survived the 1970s re-emerged,
and parliamentary democracy was re-introduced (Girling 1981). Under
the tutelage of Prime Minister General Prem Tinasulanond, former army
commander-in-chief, Thai democracy, however limited, became more
stable: it was not interrupted by coups d'eÂtat. Prem presided over several
successive cabinets and three parliamentary elections (1983, 1986, and
1988), and attracted the respect of the elites, the press, and the Royal
Family. Being tired of the manoeuvrings of Cabinet politics, however,
Prem announced his retirement after the 1988 elections: he had been
eight years in power, without having led a political party or competed for
election. He was succeeded by Chatichai Choonhawan, head of the then
largest party in Parliament, who built a coalition government and thus
became Thailand's ®rst elected prime minister in 12 years.
Meanwhile, since the 1950s Thailand's leaders had focused on indus-
trialization, with a good record of overall success. Except in the aftermath
of the oil crises of the 1970s and the recession of the early 1980s, Thai-
land's economy grew rapidly. The growth rates for agriculture averaged
4.4 per cent for the period 1970±80, and 3.8 per cent for the period 1980±
93. Manufacturing growth rates were most impressive, reaching 9.7 per
cent in the 1970s and 11.0 per cent between 1980 and 1993. The propor-
tion of Thais living in poverty fell from 57 per cent in 1962 to just 13.7 per
cent in 1992, although the population rose during the same period from
29 million to 57.3 million (World Bank 1996). During Chatichai's admin-
istration growth rose to new records and was regarded as sustainable:
the NESDB's National Five Year Plan for 1997±2001 was based on the
assumption of 8 per cent growth per annum.
However, under Chatichai allegations of corruption against members
of the Cabinet became widespread; as in the 1950s, 1960s, or 1970s, co-
alition partners battled amongst themselves for payoffs and power, while
disaffected military factions demanded changes in the Cabinet. This
eventually led to a coup which toppled the Chatichai government in
February 1991. This type of instability derived from the weakness of Thai
political parties is key to a well-accepted view of Thai politics: the ``vi-
cious cycle'' outlined by Chai-Anan Samudavanija (1982).
Periods of Thai democracy, Chai-Anan has argued, have been short-
lived because of the failure of elected governments and the political
institutions that supported them. In each cycle, a new constitution was
written, political parties were legalized, open debate was allowed, elec-
tions were held, and a cabinet was formed. After a short time, that cabi-
206 DAN KING
net was widely regarded as corrupt and unable to manage the affairs of
the nation; the military eventually intervened to end the democratic ex-
periment in the interests of political stability. Usually, political parties
were banned and civil liberties restricted in the retrenchment that fol-
lowed. In this view of Thai politics, the parties themselves sowed the
seeds of their own destruction because of their inherent weaknesses
(Chai-Anan 1982, 1±5).
Between February 1991 and September 1992, the coup leaders, headed
by General Suchinda Kraprayoon, sought to bring back old-style politics.
The 1978 Constitution was replaced by a more authoritarian one; pro-
motions in the military and the police were manipulated to ensure sup-
port for the coup leaders and their followers; a new political party was
created which was expressly designed to buttress General Suchinda in the
prime ministerial of®ce. Meanwhile, former Cabinet members had their
assets frozen until they could prove themselves innocent of the charge of
having become unusually wealthy. These moves were challenged, how-
ever, as pro-democracy groups became active in opposing the revised
Constitution and mobilized the public against the return to a managed
form of democracy led by a general turned prime minister. After the
March 1992 elections and Suchinda's subsequent appointment to the
post of prime minister, a coalition composed of political parties, pro-
democracy activist groups, and students started to demonstrate against
the prime minister. These demonstrations were joined by middle-class
citizens, workers, and managers who formed what came to be known as
the ``mobile phone mobs.''
The movement against the prime minister reached its peak on 17±20
May 1992 when government forces struck and a bloody crackdown
ensued. The repression was halted by the king on May 20: Suchinda was
forced to resign, the jailed demonstration leaders were released, and new
elections were scheduled for September 1992. The alignment at that
election was between those parties which had and those which had not
supported the Suchinda government, two camps which the press dubbed
``devils'' and ``angels'' (King 1992, Surin 1992). The angels won a slim
majority and formed a coalition government which lasted from Septem-
ber 1992 to July 1995 under the leadership of Chuan Leekphai.
Chuan was replaced in July 1995 by opposition leader Banharn Silapa-
archa, who remained prime minister for just a year and four months up to
the November 1996 election. At that election, Banharn was replaced by
retired General Chavalit Yongchaiyuth, who in turn resigned in Novem-
ber 1997, having lost the support of his coalition; Chuan Leekphai be-
come once more head of the government. Thus electoral democracy had
prevailed in Thailand throughout the 1980s and 1990s, except for one
year in 1991±92; in general, governmental crises had been the result of
THAILAND 207
tion. Chuan Leekphai became prime minister for the second time on 8
November 1997. Although initially the strength of this coalition govern-
ment was questionable, a transition has occurred successfully and the
prime minister even began speaking of scheduling the next elections for
as late as 2000 or 2001.
Although it was only Thailand's second largest party at the time, the
Democrat Party led the coalition government formed by Chuan Leekphai
at the end of 1997. It is Thailand's oldest party, its roots dating back to
1945. With solid bases of support in the southern region and in Bangkok,
it is probably the party best aligned with the capital's elite public opinion.
Known somewhat derisively as a ``party of professors,'' its leadership
includes a number of Ph.D.'s and respected bankers and diplomats, as
well as lawyers and former academics. The party also has a rural wing
212 DAN KING
consisting of MPs who have often been accused of vote buying and vari-
ous other types of corruption. With over 150 registered branches and
over 300,000 members in 1996, the Democrats may be Thailand's most
extensively organized party, but little systematic effort has been made to
recruit or register new party members (McCargo 1997). Although the ®-
nancial markets and business leaders have praised the party's approach
to solving Thailand's economic woes, questions have been raised about
the future of the party after the next few years of painful economic policy
choices that certainly must be made.
The NAP, led by General Chavalit, was formed in 1991±92 after Chavalit
retired from active military service in the army's highest positions. Cha-
valit's new party was being organized just as the 1991 coup occurred; it
was initially thought to bene®t from the coup since many military leaders
had been close to Chavalit. Chavalit did oppose the takeover, however,
and the coup leaders were instead supported by the Samakhitham Party,
which was formed with their help. Chavalit continued to develop the
NAP in opposition. From a core of ex-military and academic party
founders, Chavalit's party grew in strength to win 72 seals in the March
1992 election. In the September 1992 campaign, in spite of being dubbed
an ``angelic party,'' the NAP shrank to 51 MPs but was able to join the
government coalition. The party eventually defected to the opposition
over a dispute concerning decentralization policy, and grew in the 1995
and 1996 elections to 125 MPs, thus being able to form the core of the
post±1996 election government and in particular to give Chavalit the
opportunity to ful®ll his long-held dream of becoming prime minister.
Chavalit's administration survived one year only; it fell four months
after the devaluation of the baht in July 1997, having been widely criti-
cized for foot dragging with respect to the implementation of important
economic reforms and ineptitude in responding to the economic crisis.
Although many business leaders supported Chavalit while Bangkok
voters did not, neither the NAP, nor indeed any other Thai party, can easily
be linked to particular social groups or social cleavages. On a regional
basis, the NAP has included a southern and a northeastern wing. In 1996,
the party won 22 seats in the central region and 20 in the north, but had
its greatest success in the northeast with 78 seats.
The CPP was formed in the wake of the May 1992 violence and the res-
ignation of Prime Minister Suchinda. The core of that government was
the Samakhitham Party which had, prior to the March 1992 election,
proclaimed its support for Suchinda. Defectors from that party, along
with former CTP party leader Chatichai Choonhawan, formed the CPP.
The CPP has grown to a mid-size party by winning 52 seats in the 1996
parliamentary elections. Its main strength has been in the north and
northeast, although it has won seats in other regions as well. When
Chatichai was at the helm, the party's key election approach was support
for an eventual Chatichai bid for the post of prime minister on the
grounds of his expertise in economic policy and his skills in international
diplomacy. After joining the Chavalit government in 1996, Chatichai
accepted only a minor economic advisory role and the CPP's Cabinet
members did not distinguish themselves in economic policy-making or in
diplomacy. With Chatichai's death in May 1998, the party leadership has
been passed to his son-in-law Korn Dabaransi and a younger generation
of leaders.
It is dif®cult to say whether the CPP or other Thai parties represent
214 DAN KING
In the course of the second half of the twentieth century, there has been
greater support in Thailand for democratic ideals and a greater under-
standing of the complexities that result from attempts to govern in ac-
cordance with democratic precepts than at any other time in Thai politi-
cal history. Surveys indicate that support for democratic ideals is rather
widespread and strong, as against earlier ®ndings that found that few
Thais understood the concept or even the Thai-language word for de-
mocracy (LoGerfo 1995; Wilson 1962). Support for parties is typically
tempered by suspicion. Few would argue that democracy could function
without parties or that parties are unnecessary, but their history of frac-
tiousness and of electoral spending violations has resulted in parties
having a bad reputation. The actions of the 1991 coup leaders indicate
that they understood the need for parties: parties were not banned, and a
party was set up as a political vehicle for post-coup consolidation. But
their actions also clearly indicate a common attitude among political
THAILAND 215
An elected Senate
reject the available candidates. This opportunity was already given from
the March 1992 election onwards, and 2 per cent of votes were cast in this
way in the 1995 and 1996 elections.
The new ballot-counting arrangements are designed to reduce vote
buying which is considered to constitute the bulk of campaign spending
and is estimated in the billions of baht. Counting the ballots at each
polling station (there were over 62,000 polling stations used in the last
election, or approximately one polling station for every 250 votes cast)
allowed candidates to check whether their network of canvassers down to
the sub-village level had been effective. By removing the opportunity to
do such checking, the constitution drafters hoped to make vote buying
less attractive: it will be more dif®cult to check not only that votes bought
were actually cast, but also which canvassers were effective and which
might have simply kept the money for themselves. Other anti±vote buy-
ing measures include the use of larger single-member districts which will
make it more expensive for candidates to pay off a majority of voters.
Even more signi®cant than these measures is the provision for the
separation of Parliament and the Cabinet. Under the new Constitution,
MPs or senators must give up their seats on accepting a Cabinet post. It
has been frequently argued that since holding a Cabinet of®ce is a highly
prized opportunity for corruption, a signi®cant number of politicians run
for election to Parliament in the hope of being offered a Cabinet post. As
the bene®ts to be reaped by a Cabinet minister are limited only by
imagination and skill, it appears highly rational to invest in a House seat
by buying votes in order to secure a return on one's investment through
corrupt activity. In order to avoid a cascade of by-elections, it is assumed
that the parties will select Cabinet members from among party-list MPs
and not from those elected in single-member districts.
Some new requirements for candidates and MPs relate to the future of
Thai political parties. Formerly, MPs expelled by their party automati-
cally lost their seat and a by-election was held; under the new Constitu-
tion, such MPs have been given the right to retain their seats if they
join another political party within 30 days. This provision may tend to
weaken party discipline. For example, in 1993 an MP from the Social
Action Party was expelled for frequently criticizing the coalition govern-
ment to which his party belonged and refusing to heed the party's order
to cease making comments to the press. Although this member was
reelected on the Chart Thai Party ticket, the party to which he previously
belonged was at least able to obtain a degree of discipline from its MPs.
Parliamentary candidates will also be required to have at least a bach-
218 DAN KING
Even before a new political party law is enacted, two changes have been
introduced by the new Constitution. First, a party can be established by
as few as 15 persons instead of 5,000 as previously; second, parties which
nominate candidates for parliament but fail to win seats are no longer
automatically disbanded. These provisions could lead to a proliferation of
parties and in particular to more small parties competing in parliamen-
tary elections.
In contrast, the new provisions relating to single-member districts and
the existence of party-list voting with a 5 per cent threshold clause should
reduce the number of parties elected in the House. Overall, therefore, the
new Constitution is likely to have a series of rather contradictory effects
on parties and on electoral practices.
culties as an occasion for national unity since the currency and capital
markets usually react negatively to political debate about the IMF-led
US$17.2 billion economic rescue package.
A few years before the 1997 crisis occurred, MPs had already started to
serve in key economic posts. Previously, ®nance or commerce ministers
might be selected from among respected non-parliamentarians and were
often non-partisan. Subsequently, MPs gradually came to hold positions
such as those of economic ministers and deputy ministers so long as their
experience and background seemed adequate in the eyes of the business
community.
Under the military-led governments of the late 1970s and early 1980s,
parties appeared ready to leave the administration of the economy to
experts and to popular prime ministers such as Prem. After the oil crisis
of 1978±79, Prem's government instituted austerity measures, brought
in¯ation under control, and devalued the baht in 1984. Both these aus-
terity measures and the currency realignment are usually regarded as
having given Thailand a solid macroeconomic base by the time Chatichai
became prime minister in 1988 and the Thai economy grew at its most
rapid annual rates. It was then commonly pointed out that Prem had
relied heavily on technocrats and that they had been able to administer
national affairs quite autonomously. Thailand was thus called by some a
``premocracy'' (Likhit 1988; Neher 1988; Yos 1989).
As in many other countries, Thailand's central bank, the Bank of
Thailand, is formally independent although the ®nance minister has the
power to name the bank's governor. A long-standing tradition has placed
the Bank of Thailand, the Ministry of Finance, the Bureau of the Budget,
and government economic and planning committees above political inter-
ference. Parliament has historically had few powers and fewer resources
to in¯uence the details of the government's budget or to challenge eco-
nomic policy-making. Thailand's Westminster-type parliamentary system
resulted in Cabinet government, and therefore, no government would
purposely endow Parliament with powers that might subsequently be
used to challenge or defeat the government.
Beyond the current structural characteristics which bolster the role of
bureaucrats in economic policy-making, the history of the Thai bureauc-
racy's in¯uence and power can be traced back to the formation of the
Thai state and to the apparatus developed under King Mongkut and King
Chulalongkorn from the mid-1800s. The state bureaucracy has been con-
sidered the choice career track for prestige-conscious elites who pre-
ferred honori®c positions to better-paid opportunities in private business.
In the Thai language, civil servants are known as khaa ratchakarn or
``servants to the monarchy.'' Until the fall of the absolute monarchy in
220 DAN KING
1932, state business was considered to be the king's business, and an aura
of honor and prestige has remained.
Cabinet ministers as political appointees have gradually sought to con-
trol, or at least in¯uence, the state bureaucracy. Yet, until the mid-1970s,
most Cabinet members were selected either from the bureaucracy or
from the military. The military-led and military-dominated governments
from 1932 to the mid-1970s were strongly associated with the bureaucracy
(Riggs 1996). The Prem cabinets from 1980±88 included signi®cant rep-
resentation from the bureaucratic and military elites, not the least of
which was Prem himself. The Chatichai government (1988±91) constitutes
perhaps the most signi®cant attempt by elected politicians to control the
affairs of the state (Robertson 1996).
In terms of ``embeddedness'' as de®ned by Evans (1992), or the ca-
pacity of the state to penetrate society, Thailand does indeed exhibit the
characteristics required at the basic level. The state is able to create the
conditions necessary for a market economy: law and order prevail, an
infrastructure is provided, the administration is competent. Corruption
does exist, as does clientelism, but not to the extent of unduly under-
mining economic activity.
Evans (1992) identi®es at least three elements in what he terms ``ela-
borated embeddedness'': the forums available for interaction between
the state and business; the sources of in¯uence available to the state; and
the capacity of business to participate in these exchanges. The ®rst crite-
rion refers to the institutional arrangements through which interaction
between government and business takes place. In Thailand since the mid-
1980s, business groups have been increasingly organized into business
associations, and these associations are increasingly functioning with ef-
fectiveness in negotiating with the state (Anek 1988). The second ele-
ment refers to the resources available to the state to in¯uence behaviour
in these exchanges. The Thai state has the taxation and legal regulatory
powers needed to force compliance to some degree by means of laws
frequently designed to direct economic activity. Thus the Bank of Thai-
land began in 1995 to discourage lending to the property sector, ®rst by
classifying that sector as ``unproductive'' and subsequently by requiring
higher levels of provisioning against risk assets. Through the state's
Board of Investment which doles out over half of the privileges at its
disposal to domestic investors, and its Exim Bank, among other institu-
tions, the state can arrange capital to be made available, allocate funds,
or grant subsidies. However, the Thai state does lack the third element
which Evans associates with elaborated embeddedness, namely sophisti-
cated sources of information (aside from information on state contracts
or concessions) and a broad array of deliberative councils.
THAILAND 221
The following examples illustrate the changes that have occurred in the
Thai bureaucracy, in its status and reputation, and in its effectiveness and
relative insulation in administering economic affairs in Thailand. First,
Dr. Amnuay Viravan, who can be considered a quintessential Thai tech-
nocrat, served most of his professional life in a variety of positions in both
government and private-sector banking. He became ®nance minister in
the ®rst Chuan administration (1992±95) under the New Aspirations
Party's quota of Cabinet seats. Despite high marks from the business
community for his experience and expertise, Amnuay came under pres-
sure from NAP MPs who preferred to see elected MPs ®ll the party's
quota of Cabinet posts. Amnuay was forced to abandon his previously
valued neutrality and join the political fray by resigning from the Cabinet
and setting up his own political party, the Nam Thai (Thai Leadership)
Party.
The Nam Thai Party self-consciously portrayed itself as a party of
technocrats who could, because of their superior training and experience,
serve in public of®ce for the common good of the nation. However, al-
though a number of respected bureaucrats and academics joined
Amnuay's party, in order to grow quickly, the party was faced with the
same dilemma other Thai parties face, namely to accept rural politicians
who could deliver House seats or to be true to its founding principles and
only endorse candidates who met the party's high standards. Unfortu-
nately for Amnuay, the Nam Thai Party won only 18 seats, half of them
rural, while it failed to win a single seat in Bangkok. Amnuay's view that
voters would support highly educated and experienced technocrats was
dashed by electoral competition realities, namely the lack of grassroots
support networks, as well as the shortness of time to prepare for the next
election. Amnuay joined the Cabinet but later abandoned his party to
join the NAP. He was reelected in 1996 and led Gen. Chavalit's economic
``Dream Team.'' However, Thailand's economic slowdown and the polit-
ical ambitions of coalition partners resulted in Prime Minister Chavalit
overruling an important economic policy line advocated by Amnuay who
subsequently decided to resign.
The Chuan government's (1997± ) ®nance minister, Dr. Tarrin Nim-
manhaeminda, and its commerce minister, Dr. Supachai Panichpakdi,
have similar backgrounds to Amnuay. Both belonged to the top levels of
management in Thailand's banking system before accepting cabinet posts
in the ®rst Chuan government (1992±95) as unelected non-partisan out-
siders with strong technocrat quali®cations. Both men subsequently
abandoned their non-partisan status, joined the Democrat Party, and won
222 DAN KING
seats in Bangkok. They both thus made the transition from unelected,
neutral technocrats to elected politicians.
Aside from the transformation of the Thai bureaucracy from
technocrat-led to elected politician±led, perhaps the most important fac-
tor that has changed the power ¯ows between the elected politicians and
the bureaucrats has been the actions of the Bank of Thailand itself. As
the nation's central bank, it is supposed to operate independently from
the government, administer the nation's monetary supply, and regulate
the banking and ®nance sectors. Before 1995, it was regarded as the best
example of Thailand's technocracy working for the good of the nation,
but the actions of the bank in relation to the Bangkok Bank of Com-
merce (BBC) dented this shining armor. The BBC's ®nancial health
began to deteriorate prior to 1995. Through venality or simple neglect by
the Bank of Thailand, the BBC had to be rescued to stave off bankruptcy.
In the investigation which ensued, BBC of®cials were accused of granting
loans without adequate collateral, including to in¯uential politicians,
lending large amounts to the bank's top management through a maze of
holding companies, and falsifying documents. In view of the Bt 75 billion
price tag (then approximately US$3 billion) to clean up the BBC mess,
the reputation of the central bank as a bastion of expert technocrats was
markedly impaired.
Following on the heels of the BBC ®asco, from late 1996 to August
1997, the Bank of Thailand provided Bt 430 billion in liquidity loans to a
total of 58 ®nance companies. This information was not made public until
the IMF package was almost approved in August 1997. Generally, a ®rm
would only borrow from the central bank if it was having liquidity prob-
lems to the point of insolvency. Despite the fact that most of these ®rms
were teetering on the brink of bankruptcy, the bank continued to extend
its loans to them until it had lent an astonishing U$12.3 billion, equivalent
to nearly half of the government's ®scal budget. To complicate matters,
the bank and the Ministry of Finance suspended operations at 16 ®nance
companies in June 1997, and then at another 42 ®rms in August 1997.
After allowing these ®rms to submit rehabilitation plans, the bank even-
tually closed 56 of the 58 ®rms in December 1997 and later went into the
process of liquidating their assets. In March 1998, the bank admitted to
having lent over Bt 1 trillion to banks and ®nance companies since 1996.
In addition to the BBC ®asco and the ®nancial sector rescue costs, the
Bank of Thailand also came under intense criticism for its failed defense
of the baht. From the devaluation of the baht in November 1984 to July
1997, the bank administered a de facto ®xed exchange system which
pegged the baht to a basket of currencies. Although the exact speci®ca-
tion of the basket was a closely guarded secret, it was widely known that
the U.S. dollar, the yen, and the mark constituted the core elements, the
THAILAND 223
Apart from domestic economic and political events that reshaped the
power relationship between Thailand's elected politicians and its bu-
reaucracy, globalization of the Thai economy has produced new forces
and new challenges. The impact of globalization can be traced back to the
government's decision in the mid-1980s to adopt an export-led growth
strategy. Although heightened export activity brought with it more rapid
economic growth, Thailand was also subject to the ¯uctuations of the in-
ternational trade markets as its production base was forced to respond to
international market demand and to foreign competition. Under the
WTO agreement of which Thailand is a member, most of Thailand's
protected industries have had to be liberalized progressively. Given the
severe economic problems experienced in 1996±97, and the widely held
expectation that the Thai economy will not turn around until 1999±2000,
the extent of the commitment of Thai policy makers to the WTO liber-
alization plans is in question, as these plans were agreed upon when
224 DAN KING
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THAILAND 229
Somsakdi Xuto (ed.) (1987), Government and Politics of Thailand, Oxford Uni-
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Affairs, 1989, pp. 317±35.
9
Malaysia
Edmund Terence Gomez and Jomo Kwame Sundaram
Parliamentary and state elections are held regularly. These are run on
a ®rst-past-the-post basis in single-member constituencies. There is no
230
MALAYSIA 231
Electoral divisions
Media
UMNO has a majority stake in Utusan Melayu Bhd which publishes the
in¯uential Malay newspapers, Utusan Malaysia, Mingguan Malaysia, and
Utusan Melayu. Businessmen closely associated with UMNO deputy
president Anwar Ibrahim have controlling interest in TV3 and The New
Straits Times Press Bhd, which publishes the English newspapers, the
New Straits Times and Business Times, and the Malay newspaper, Berita
Harian. An investment arm of the Malaysian Chinese Associates (MCA),
Huaren Holdings Sdn Bhd, has a controlling interest in Star Publications
Bhd, which publishes the popular English tabloid, The Star, while The
Sun, another English tabloid, is controlled by Vincent Tan Chee Yioun,
who has strong ties with the UMNO elite. Most of the Tamil press is
controlled by leaders of the Malaysian Indian Congress (MIC), while
some leading Chinese newspapers, including the Nanyang Siang Pau,
are controlled by the Hong Leong Group, which has business ties with
UMNO-linked companies. Sin Chew Jit Poh, the country's best-selling
Chinese newspaper, is controlled by a Sarawak-based tycoon who was
also a BN senator (Gomez 1994).
Given the ownership of the mainstream media, it is not surprising that
opposition members have repeatedly complained that they are unable
to get their manifestos publicized during campaign periods, while their
statements are usually taken out of context when carried by the press.
The opposition has also claimed on numerous occasions that press
reports of their activities have been blatantly false. Major newspapers
are, however, used to carrying full-page ± usually colored ± advertise-
ments of the BN's manifestos and accomplishments, while the views of
government leaders are given wide and favourable coverage (Sankaran
and Hamdan 1988; Khong 1991; Gomez 1996a).
MALAYSIA 233
Campaigns
The manner in which campaigns are conducted heavily favours the BN.
The major in¯uencing factors have been commonly termed the ``3Ms'' ±
money, media, and machinery. There have been complaints about the
BN's excessive use of funds, abuse of its control of Malaysia's leading
newspapers as well as television and radio networks, and misuse of gov-
ernment machinery (Chandra 1982; Sakaran and Hamdan 1988; Khong
1991; Gomez 1996a).
Other factors which bene®t the party in power include the shortness of
the election campaigns, a ban on open rallies, and the application of state
funds. The Election Commission decides the length of the campaign pe-
riod and ensures that it is kept very short ± normally just over a week ±
ostensibly in the interests of maintaining ethnic harmony. Open rallies
have been banned since the 1978 general election. Yet, BN leaders bla-
tantly campaign at huge rallies while ostensibly of®ciating at government
functions. Finally, through their control of federal funds, BN leaders
often promise new development projects, threaten ®nancial cuts, or dis-
tribute state largesse just before and during the campaign period.
Compared to the opposition parties, the BN's campaign machinery,
especially that of UMNO, is ef®ciently and effectively run during elec-
tions. The effectiveness of the BN's machinery is partly attributable to its
easy access to funds. Since public rallies are banned, door-to-door can-
vassing is the most common form of campaigning, which requires much
manpower; most BN campaign workers are well remunerated, while the
opposition relies heavily on unpaid voluntary help. Since the number of
campaign posters and vehicles used during the campaign period is not
speci®cally limited by law, this tends to bene®t parties with greater access
to funds, invariably the BN parties.
The most common allegation made during elections is that funds are
used to buy constituency support. Before the 1990 poll, the BN was
reportedly prepared to spend an average of RM 1 million in each
parliamentary constituency (Far Eastern Economic Review, 5 July 1990).
Vote buying was still rampant during the 1995 general election. There were
numerous allegations by the opposition that votes were secured through the
distribution of funds and gifts in Kelantan, Terengganu, and Kedah, and in
some urban constituencies in Perak and Kuala Lumpur. In Kelantan, the
opposition alleged that there were candidates who spent almost RM 5 mil-
lion to secure support, with voters paid between RM 500 and RM 1,000 each
(Gomez 1996a). Although all candidates are required to ®le the total funds
used during the campaign with the Election Commission following the
election, they are not required to divulge the sources of their funds.
234 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
Election outcomes
All the ten federal-level elections that have been held since 1955 have
been won by the UMNO-led Alliance or BN coalitions. On all occasions,
except in 1969, a two-thirds majority was secured in Parliament (table 9.1).
Alliance 51 74 89 74
BN2 135 130 132 148 127 162
PAS3 1 13 9 12 5 5 1 7 7
DAP 13 9 16 9 24 20 9
Socialist Front 8 2
PPP4 4 2
P. Negara 1
P. Malaya 1
UDP 1
PAP 1
Gerakan4 8
USNO 13
SCA 3
SNAP4 9 9
SUPP4 5
Pesaka
Semangat 8 6
Pekemas 1
PBS 14 8
Independent 3 1 2 8 4 4
TOTAL 52 104 104 144 154 154 154 177 180 192
Source: New Straits Times, 23 April 1995.
1 For explanations of party acronyms, see the text of this chapter and the List of Acronyms, p. ix.
2 The Alliance was enlarged and renamed the BN from 1973.
3 PAS was part of the BN for the 1974 general election.
4 These parties joined the BN after the 1969 election except for SNAP which joined after the 1974 election.
235
236 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
UMNO
UMNO's hegemony is attributable to its size, its national presence, and
its extremely ef®cient party machinery. UMNO has approximately 2.765
million members, spread out among 17,355 branches in all parliamentary
constituencies in the peninsula and Sabah (New Straits Times, 6 Septem-
ber 1997; table 9.2). UMNO's party structure is organized hierarchically,
with the branches forming the base, followed by the divisions, the State
Liaison Committees and the Supreme Council. In UMNO's system of
MALAYSIA 237
Patronage
Patronage politics has long been the primary means through which a
strong grass-roots base is created in the party. The distribution of eco-
nomic favours also contributed to growing ties between business and
politics. The development of this phenomenon, popularly referred to as
``money politics,'' has also involved distributing cash and gifts and offer-
ing expenses-paid trips to members in return for votes (Gomez 1990,
1991a, 1994).
238 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
which was dividing the party against itself (New Straits Times, 20 October
1994).
After the 1993 UMNO election, very pronounced pro- and anti-Anwar
factions emerged. While the pro-Anwar faction mainly comprised a
younger group of politicians eager to displace senior politicians, the anti-
Anwar factions were generally led by more senior politicians wary of
Anwar's meteoric rise in the party. Anwar, who had only been recruited
into UMNO in 1982, had been a prominent critic of the BN and the long-
time president of the nongovernmental organization, Angkatan Belia Islam
Malaysia (ABIM ± Malaysian Islamic Youth Movement).
Anwar's supposed recruitment of old ABIM colleagues into his UMNO
inner circle had led to growing anxieties, even from within his own ``Vi-
sion Team.'' Its rapid disintegration con®rmed widespread speculation
that its basis was political. Its demise has led to the emergence in UMNO
of several overlapping factions.
Mahathir consolidation
Although Mahathir was not challenged for the presidency during the
1993 UMNO election, it was widely believed that Anwar was emerging as
the most powerful politician in the country, subtly laying siege to the
prime minister. It was believed that Mahathir, unlike Anwar, had not
spent enough time cultivating the grass roots, leaving a vacuum that had
been ®lled by the energetic Anwar and his ambitious younger men. From
l993, however, Mahathir moved decisively to consolidate his presidency.
Before the 1995 general election, Mahathir despatched some Anwar
allies in the Federal Cabinet to the state level, or vice versa, and sent
some of his own loyalists to contest state constituencies, which would
enable them to be appointed as Mentri Besar later. A number of Anwar's
associates were sidelined ± including some from ABIM who had hoped to
be ®elded instead of other UMNO members. In the post-election Cabinet,
Anwar's rivals were promoted to senior portfolios while his allies were
restricted to unin¯uential ministries or to the backbenches.
Mahathir also brought about changes within UMNO to protect his po-
sition, even proposing changes to the party constitution. Mahathir pro-
posed that the bonus votes provision be reviewed and that a code of
ethics to curb money politics be drawn up. This code was designed to be
used against those who threatened Mahathir's position. Half a year before
the 1996 UMNO election, a new rule was introduced, requiring candi-
dates wishing to contest party posts to declare their intentions well in
advance, thus blocking a possible late challenge. As the elections
approached, even campaigning was banned. Mahathir justi®ed this as
``the party's way of ensuring fairness to all because there are some can-
MALAYSIA 241
Other BN members
Although the MCA, MIC, and Gerakan have rather similar organiza-
tional structures, their respective party machineries, although active, are
much less effective than that of UMNO, due primarily to their much
smaller membership base and ®nancial power. The MCA has approxi-
mately 715,000 members in 2,917 branches, in all states except Sarawak.
The MIC has almost 350,000 members in 2,500 branches in only the
peninsula. The Gerakan has about 250,000 members in 1,259 branches
(New Straits Times, 8 April 1996, 1 August 1996).
The leading Sarawak-based BN component party, the PBB, is a Bumi-
putera-based party led by Abdul Taib Mahmud, Sarawak's long-standing
chief minister and a former Federal Cabinet member. PBB is the domi-
nant party in the Barisan Tiga (Tripartite Front), also comprising two
other Sarawak-based BN members ± the Chinese-based Sarawak United
People's Party (SUPP) and the Iban-based Sarawak National Party
(SNAP). Though a BN member, the Parti Bangsa Dayak Sarawak (PBDS
± Sarawak Dayak People's Party), a Dayak-based breakaway from the
SNAP, had the unique position of remaining an opposition party at state
level. The PBDS subsequently sought and gained admission into the state
ruling coalition after faring badly in the 1991 state elections. None of
these parties has any in¯uence outside Sarawak.
In Sabah, the turnover of parties from the BN has been high. The for-
mer BN component members which once led the Sabah state government
but are now in the opposition include the United Sabah National Orga-
242 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
nization (USNO) (1963±76) and the Parti Bersatu Sabah (PBS ± United
Sabah Party) (1985±94); the Bersatu Rakyat (BerjayaÐUnited People),
which ruled Sabah from 1976 to 1985, is nearly defunct, though techni-
cally still a BN member. Among the current Sabah-based BN members
are the Dusun-based Angkatan Keadilan Rakyat (AKAR ± People's
Justice Movement) and the Chinese-based Liberal Democratic Party
(LDP), both minor parties with little in¯uence. In 1994, several newly
formed Sabahan parties were accepted into the BN ± the Chinese-based
Sabah Progressive Party (SAPP) and the Kadazan-based Parti Bersatu
Rakyat Sabah (PBRS ± or United Sabah People's Party) and the Parti
Demokratik Sabah (PDS ± Sabah Democratic Party). All these parties
are led by former PBS leaders, most of whom defected in 1994 when it
became clear that the PBS was losing control of the state government.
The opposition
The two main opposition parties are the Democratic Action Party (DAP)
and the PAS. There are two smaller opposition parties, the PBS and the
Parti Rakyat Malaysia (PRM ± Malaysian People's Party).
of basic human rights and the creation of greater social injustices; the
party has also argued that concentration of power has contributed to sig-
ni®cant inequality in the distribution of wealth (see Lim 1978).
of the Islamic-based PAS and the DAP to ®nd common ground. The
DAP was opposed to PAS's intention to form an Islamic state, while PAS
was not willing to renounce this goal. When both coalitions were formed
just before the October 1990 general election, it was the ®rst time in the
history of Malaysian politics that all opposition parties were united and
led by an established ex-UMNO Malay leader, Razaleigh. Midway
through the campaign, the PBS joined the opposition, giving the Gagasan
Rakyat control over Sabah even before it contested its ®rst election.
The new opposition coalitions proved formidable adversaries to the
BN. The APU resoundingly defeated the BN in Kelantan, securing vic-
tory in all the state's parliamentary and state seats. The Gagasan Rakyat
narrowly failed to secure control of the Penang state government. The
BN's performance in the other states, however, was much better,
enabling it to retain its two-thirds majority in parliament, albeit by a
mere seven seats. But it was indisputable that the BN's victory was due to
its effective use of funds, government machinery, and the leading news-
papers as well as television and radio networks (Khong 1991).
Subsequently, federal funds to the Kelantan and Sabah state govern-
ments were reduced. This led some PBS leaders to advocate closer ties
with the BN, ostensibly to secure more federal funding, but probably also
for personal reasons. After the PBS's defection to the opposition, some
party leaders, including Kitingan's brother, were detained under the ISA.
Kitingan was charged and found guilty of abusing his powers to channel a
RM 1.4 million construction contract to family members; he was ®ned for
the offence (Far Eastern Economic Review, 27 January 1994).
The PBS left the Gagasan Rakyat and attempted to return to the BN;
its application was rejected and the BN secured control of the Sabah state
government following the 1994 state election through questionable
means, although the PBS had narrowly secured victory (Gomez 1996b).
Despite the PBS's reduced electoral support in this election and the de-
fection of key leaders to the BN, the results of the 1995 general election
showed that the PBS still commanded sizeable non-Muslim support, es-
pecially among the Kadazans and Chinese (Gomez 1996a). This sequence
of events revealed UMNO's use of federal government in¯uence to
undermine leaders at state level.
The withdrawal of the PBS from the Gagasan Rakyat signalled the
latter's decline despite the serious electoral threat that the Semangat-led
opposition coalitions had posed to the BN in 1990. Semangat was in-
creasingly unable to sustain co-operation among the opposition parties
due to political differences, while the DAP, Semangat, and IPF were
themselves encumbered with internal problems. The latter two were
wracked by defections to the BN. In 1995, the DAP also exited from the
Gagasan Rakyat, claiming that continued membership in the coalition
246 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
was being construed by its supporters as tacit support for the PAS's idea
of an Islamic state. In the 1995 general election, these opposition parties
competed under their own banners (Gomez 1996a).
Meanwhile, Semangat struggled to sustain support among the elector-
ate, performing far less well in the 1995 polls than in the 1990 general
elections. As Semangat's problems with the PAS in the Kelantan state
government mounted, Razaleigh returned to UMNO in 1996. The ambi-
tious Razaleigh was probably aware that he would be unable to make
further political progress, let alone secure the premiership, from outside
UMNO by seeking the co-operation of opposition parties professing dis-
parate ideologies. Semangat had dif®culty sustaining its membership, as
many members, denied access to state rents, defected to UMNO. With
the deep rifts within UMNO, by transferring Semangat's supposed
200,000 members to the party Razaleigh hoped to strengthen his own
chances of making a political comeback within UMNO.
Since the smaller parties in the APU were dwarfed by PAS and since
the Gagasan Rakyat depended primarily on Razaleigh's leadership to be
seen as an effective alternative to the BN, both opposition coalitions are
unlikely to sustain themselves and will probably disappear with Semangat.
The founding of the multiracial Gagasan Rakyat was the result of its
component members knowing that they would be unable to broaden their
support independently. Thus, the leaders of the DAP, professedly multi-
racial in outlook, found it imperative to work with the Malay-based
Semangat and the Indian-based IPF, whose heads were former leaders of
the BN, and with whom they differed greatly in terms of political orien-
tation. Although the Gagasan Rakyat fared rather well in the 1990 gen-
eral election, the disparate interests of its component parties, especially
their leaders, eventually contributed to its collapse.
Economic governance
From 1957 until 1970, the average annual GDP growth rate in Peninsular
Malaysia was 6.4 per cent, mainly due to export earnings from tin and
rubber (Khor 1983). To enhance diversi®cation, oil palm and cocoa pro-
duction were encouraged, while import-substituting industrialization
(ISI) was actively promoted. This attracted much foreign capital invest-
ment, although most foreign companies participating in ISI merely
established subsidiaries for assembling, ®nishing, and packaging goods
produced with imported materials. Furthermore, since the materials and
technologies used were generally imported from parent companies
abroad, they were poorly linked to the rest of the national economy.
MALAYSIA 247
mid-1980s when the economy slipped into recession and of®cial revenues
fell. Falling oil prices between 1982 and 1986, the collapse of the tin
market in 1985, as well as the declining prices of Malaysia's other major
exports ± rubber, cocoa, and palm oil ± contributed to the economy reg-
istering an unprecedented negative 1 per cent growth rate in 1985. Capi-
tal ¯ight increased as private investment continued to decline from the
mid-1970s, and unemployment rose steadily when the government could
no longer afford to raise public spending after 1982.
Heavy industrialization strategy
Another factor contributing to the economic malaise in the mid-1980s
was the government's heavy industrialization strategy, actively promoted
by Mahathir. In an attempt to diversify the industrial sector and to com-
pensate for declining private investments with increased public invest-
ments, Mahathir launched his (import-substituting) heavy industrializa-
tion program in the face of widespread criticisms and protests, even from
within his own Cabinet. Understandably, there was much reluctance on
the part of private capitalists to make massive investments in heavy
industries given the huge capital investments required, the long gestation
periods involved, the lack of relevant technological expertise, and the
expected heavy reliance on government protection and subsidies; with
the NEP-inspired practice of ``ethnic bypass,'' the government seemed
reluctant to involve the Chinese in these projects (Jomo 1994).
Thus, the Heavy Industries Corporation of Malaysia (HICOM) was set
up to pursue the heavy industrialization program by collaborating with
foreign, mainly Japanese, companies to develop a variety of industries,
ranging from steel and cement production to the manufacture of a national
car. To ®nance these initiatives, the government resorted to massive
borrowing from abroad, mainly from Japan (see Malaysia 1986, 1989).
Between 1980 and 1987, accumulated public-sector foreign debt grew
from RM 4.9 billion to RM 28.5 billion. Including loans from domestic
agencies, total public-sector borrowing increased from RM 26.5 billion in
1980 to RM 100.6 billion in 1986 (Jomo 1990, 186). By 1987, public
enterprises accounted for more than a third of the public sector's out-
standing debt, and more than 30 per cent of total debt servicing (Jomo
1990, 186).
The impact of the recession contributed to a turnaround in government
policy. In¯uenced by neo-liberal Thatcherism and Reaganomics, Maha-
thir actively sought to liberalize the economy, promote privatization,
augment support for the private sector, and increase investment incen-
tives, even going so far as to relax some requirements of the NEP.
To encourage foreign investment, the Investments Promotion Act was
enacted, which provided generous tax holidays and pioneer status for
250 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
Agriculture 40 31 23 19 16
Mining 6 6 10 10 8
Manufacturing 9 13 20 27 30
Other 45 50 47 44 46
Source: Gomez and Jomo 1997, 20.
MALAYSIA 251
In spite of the rapid changes of the two NEP decades, some features of
the economy persisted. For instance, although the NEP helped to develop
a signi®cant Malay middle class, Bumiputeras still dominate peasant ag-
riculture and increased their domination of the public sector. Poverty is
still widespread among Bumiputeras. Government attempts to redistrib-
ute ownership of corporate stock have been effective ± several studies
argue considerable underestimation of the actual Bumiputera share of
corporate wealth ± but wealth concentration has increased (see Jomo
1990; Gomez 1990, 1994; Gomez and Jomo, 1997). Income inequality and
wealth differences among all communities have also increased. The Chi-
nese continue to dominate wholesale and retail trade, despite consider-
able inroads by Bumiputeras (Malaysian Business, 16 January 1991).
Indians have failed to achieve any signi®cant increase in their share of
corporate stock (table 9.4).
Vision 2020
Political outlook
Middle-class activism
UMNO factionalism
posts. Some leaders even use the argument of the need for greater trans-
parency to justify their decisions to contest party posts. During the 1996
UMNO election, Siti Zaharah Sulaiman successfully challenged the
party's women's wing leader; she claimed that her decision to do so
stemmed from her belief that the movement needed a clean and trust-
worthy head. The incumbent, Ra®dah Aziz, had been embroiled in a
scandal in which she allegedly abused her position as minister of inter-
national trade and industry to channel to her son-in-law RM 1.5 million
worth of shares in a publicly listed company reserved for the Bumiputera
community under the government's Bumiputera share allocation scheme
(Asiaweek, 21 July 1996).
Second, the ambitions of those in the middle and business classes vying
to climb the UMNO hierarchy may compel them to use their business
in¯uence, especially control over the media, to expose various types
of transgressions, both moral and legal, to discredit their opponents.
Already, there have been numerous exposeÂs in the mainstream press of
corruption and con¯icts of interest involving UMNO leaders, particularly
those not aligned with Anwar. The scandal involving Ra®dah is believed
to have been highlighted by the Anwar-controlled media. Ra®dah retali-
ated by alleging similar allocations to family members of equity reserved
by the government for Bumiputeras, on the part of Anwar, Mahathir, and
other senior UMNO leaders and pro-Mahathir ®gures, including the for-
mer head of the judiciary. Ra®dah's expose revealed how UMNO leaders
have been channelling state-controlled rents to themselves.
This series of events suggests that such UMNO factionalism may in-
crease demands in UMNO for greater change, changes in the leadership,
increased political participation, and more transparency and account-
ability. Some of those who feel marginalized believe that they can oper-
ate better on a more level playing ®eld. Thus, they may desire to alter
intra-ethnic allocation to enhance their access to state rents. In that case,
in the event of an economic downturn, which may greatly reduce the rents
that can be distributed, UMNO factionalism may be dif®cult to be contain.
The Malaysian case indicates that there is no simple causal link
between development and democracy. Different levels of economic
development do not necessarily explain why democracy has, or has not,
developed as in other parts of East and Southeast Asia. Apparently, the
continued institutional viability of ethno-populism has been a major
impediment to democratization. However, given UMNO's hegemonic
position, political and business rivalries among UMNO members may
give rise to situations that may enhance democratization in Malaysia. The
government may also have to concede some political liberalization in the
interests of further economic growth and political stability.
258 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
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Jomo K. S. (1990), Growth and Structura1 Change in the Malaysian Economy,
Macmillan, London.
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Jomo K. S. and Todd, Patricia (1994), Trade Unions and the State in Peninsular
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Khor Kok Peng (1983), The Malaysian Economy: Structures and Dependence,
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Lee, H. P. (1995), Constitutional Con¯icts in Contemporary Malaysia, Oxford
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Milne, R. S. (1986), ``Malaysia ± Beyond the New Economic Policy,'' Asian Survey
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Munro-Kua, Anne (1996), Authoritarian Populism in Malaysia, Macmillan,
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Noda Makito (1996), ``Research Institutions in Malaysia,'' in Tadashi Yamamoto
(ed.), Emerging Civil Society in the Asia Paci®c Community, rev. ed., Institute
260 EDMUND TERENCE GOMEZ AND JOMO KWAME SUNDARAM
261
262 ANDREW MACINTYRE
sons for these established preoccupations are not hard to grasp. None-
theless, the ®eld is ripe for change and this essay represents an initial step
in that direction.
Overall, my concerns here are to explain how the key elements of
Indonesia's so-called ``New Order'' political framework ®t together, to
examine their consequences for economic growth, and to consider some
of the implications of democratization in Indonesia at some future time.
I begin by focusing in particular on political parties and the electoral
system, and then broaden the empirical scope in the second section to
provide a complete account of the overall policy-making architecture by
dealing with channels for interest representation and the structure of
government. The third section draws upon various strands of the theo-
retical literature on political and economic institutions to re¯ect upon the
political foundations for economic growth. The ®nal section offers some
a priori re¯ections on the possible implications of democratization for
economic policy-making and economic performance in Indonesia.
political party, Golkar, and two small non-government parties, the Partai
Persatuang Pembangunan (PPP ± United Development Party) and the
Partai Demokrasi Indonesia (PDI ± Indonesian Democratic Party). It was
not always thus. In the 1950s, during the period of parliamentary democ-
racy, Indonesia had a highly ¯uid multi-party system, with nearly thirty
parties being represented in the legislature. The number of parties began
to decline following the country's swing to increasingly authoritarian
politics when its ®rst president, Sukarno, introduced what he termed
``Guided Democracy'' and proceeded to outlaw several parties opposed
to his increasingly dictatorial style. This trend intensi®ed under the next
president, (former General) Suharto, who came to power in 1966 in the
context of widespread political violence. With the strong support of the
armed forces, Suharto purged the organized Left from the political land-
scape, and set about establishing a ``New Order'' in the late 1960s and
early 1970s by building up the military-linked corporatist body, Golkar,
into a dominant state political party and forcing the remaining ten parties
to merge into two fractious amalgams.1
There are also formal exit controls on political parties. The president is
legally empowered to dissolve any party not compatible with state goals
(as de®ned by the president) or any party representing less than 25 per
cent of the population. Comparable entry and exit controls apply to
individuals wishing to stand as candidates for a party at election time.
Under electoral laws, all candidates are subject to an approval process
administered through the General Election Institute. This means that the
government can readily prevent strong critics from entering the legisla-
ture, and can eliminate any incumbent legislator at the following election.2
Informally, the government has been able to exercise entry and exit
controls on party leadership positions. Although there is often internal
competition for party leadership posts, the government is able to ensure
through a blend of subtle inducements and threats of blunter coercion
that only individuals who are willing to accede to government wishes
secure these posts. The eruption of turmoil within the PDI during 1995
and 1996 over Megawati Sukarnoputri's bid for the leadership repre-
sented a striking partial exception to this pattern. Megawati, the daughter
of former president Sukarno, enjoyed a substantial mass following both
inside and outside the PDI, and was viewed as a threat by the govern-
ment. When normal suasion and coercion tactics failed to remove her
from the party leadership, the government engineered a violent internal
party takeover by those sections of the party willing to co-operate.
If entry and exit controls are one basic means by which the government
manages the party system and the electoral process, a second centres on
the strong formal and informal pressures that are brought to bear on
public-sector employees ± in the civil service, the state enterprise sector,
264 ANDREW MACINTYRE
``stability.'' The net effect of this is that there is little in the way of real
ideological or policy differentiation among the parties; Golkar is loosely
associated with authority and economic success, the PPP is linked with
segments of the Islamic spectrum and perhaps a vague critique of cor-
ruption, and the PDI has come to be loosely identi®ed with former pres-
ident Sukarno and perhaps with a vague critique of authoritarianism and
inequality (notwithstanding the fact Sukarno was himself authoritarian in
his ®nal decade in of®ce). Consistent with the implied notion of some-
thing approaching ideological unanimity is the implied principle that the
non-government parties are not ``opposition parties,'' but rather amal-
gams of legislators representing different segments of society that work in
partnership with the executive branch of government.
A further important variable is the systematically unequal resourcing
and media access of the parties. All political parties receive public fund-
ing to support their operations. The non-government parties in particular
depend heavily on this support to ®nance their campaign rallies. The PPP
is able to raise modest ®nancial support through the mosque and other
Islamic institutions from devout members of the Muslim community
(Liddle 1996, n. 16). Not surprisingly, businesses have little interest in
giving money to parties that have no chance of winning elections, espe-
cially if they run the risk of angering the government by doing so. Where
the PDI and PPP struggle for extra resources, Golkar is supported by
secret off-budget public monies and large slush funds managed by shadowy
social or charitable foundations that collect money from business groups
with close ties to the government (MacIntyre forthcoming-a). In addition,
of course, Golkar is able to draw upon the infrastructural resources of the
entire state, from national-level institutions down through the provincial,
district, and local levels of administration.
Paralleling the resourcing imbalance is the differential access to the
media among the political parties. Television coverage has become much
more important in recent years, as rising living standards have translated
into more and more households owning television sets. It is estimated
that TVRI, the state-owned broadcasting channel, now reaches around 65
per cent of the population (Cohen 1997). Special television programs
during election campaigns are dedicated to the three parties, giving equal
time to each. But these programs are highly formalistic, closely stage-
managed, and probably of limited campaign value. More signi®cant is the
total coverage given to the parties in other programs, particularly news
programs. According to one survey conducted from April to June in 1995,
the state television channel, TVRI, reported on Golkar 98 times during
its news programs, on PPP 10 times, and on PDI just twice. And although
the recently launched private television stations are growing quickly,
these licenses were awarded only to those associated with Golkar,
266 ANDREW MACINTYRE
®ction'' which helps to legitimate the regime and provide scope for mass
participation, albeit heavily stage-managed. Moreover, as will be argued
below, in view of the institutional structure of government in Indonesia,
the electoral process has little direct bearing on control of the executive
branch of government.
In democratic political systems, parties play a crucial role: they provide the
institutional link between voters and the machinery of government. As
part of the process of competing for voter support, parties aggregate public
interests and campaign on the basis of contending packages of policy
proposals. In Indonesia there is indeed competition between parties, and
voters are for the most part free to cast their ballots as they please; the
difference is that the electoral process has little effect on government
policies. This is a pattern typical of many countries in which elections
take place within a more or less authoritarian framework (Hermet 1978).
That the PPP or the PDI have little impact on the policy-making pro-
cess should be evident from the previous section; they have little inde-
pendent political life or policy agenda, attract little support from either
business or labour, and never attract more than a modest share of the
vote. More remarkable is the fact that even Golkar is not a major player
in the policy process. Golkar is neither a signi®cant generator of ideas
or policy preferences nor, more fundamentally, a locus of power in the
268 ANDREW MACINTYRE
little more than a rubber stamp, since the president appoints most of the
people who then appoint him and has very substantial in¯uence over
the behaviour of those whom he does not of®cially appoint. In short,
the president is usually viewed as having very weak lines of accountability
to the assembly.9 More meaningful constraints on the president perhaps
come from the informal but very real requirements that he maintain the
support (or at least acquiescence to his continued rule) of the armed
forces and, ultimately, the population at large. Even true dictators cannot
survive in the face of sustained and widespread violent public protest, or
focused opposition from within the upper echelons of the armed forces.
However, both of these political constraints rely on extra-constitutional
and probably very violent action.
Finally, it is important to consider the president's very wide-ranging
and absolute powers of appointment. Without the need for con®rmation
from the legislature, he can hire and ®re at will Cabinet members, all
senior bureaucrats, all senior military commanders, all senior judges, and
all senior state enterprise managers. Unambiguously then, within the
executive branch all accountability lines trace back to the president. Not
only is this power critical to Suharto's maintenance of authority over the
armed forces, but of greater interest for present purposes are its implica-
tions for economic policy-making. Unlike in the U.S. presidential system,
there is no issue of the loyalty of bureaucrats being divided between the
presidency and the legislature.
To summarize, the preceding discussion has highlighted a number of
features of the institutional framework of Indonesian politics. First, both
the party system and the corporatist system of interest associations serve
primarily to limit and contain group- or mass-based interest representa-
tion. Second, although there is a nominal constitutional separation of
powers, in practice neither the legislature nor the judiciary constitutes a
veto gate in the policy process. Third, the electoral college to which the
president is formally accountable, the Consultative Assembly, has in fact
constituted only a very weak constraint on presidential behaviour. And
fourth, by contrast, the president enjoys very clear lines of authority over
his agents in the executive branch: bureaucrats, military of®cers, and state
enterprise personnel.
Understanding who is accountable to whom for their jobs (or, in the
language of collective action theory, agency relationships) provides vital
information about the distribution of power among different actors and
institutions within a political system. Figure 10.1 condenses much of this
information in simpli®ed schematic form. It shows the presidency at the
centre of the polity, and subject to no strong accountability relationship.
The Consultative Assembly is depicted as exercising only nominal au-
thority over the president, whereas the president has clear authority over
INDONESIA 271
it (by virtue of his appointing 60 per cent of its membership, with the re-
mainder coming from the House). The ®gure does indicate, however, that
to survive the president needs to maintain acquiescence to his rule on the
part of the armed forces (and other civil servants) as well as, ultimately,
the public. By contrast, the judiciary, executive branch employees, and
272 ANDREW MACINTYRE
even members of the legislature (both elected and appointed) have quite
clear accountability relationships to the president.
In the two preceding sections, we have examined the nature of the party
and electoral system, as well as the framework of interest representation
and the structure of government. In this section we seek to link these
institutional factors to economic outcomes. In so doing, we are operating
on the basis of an assumption that national economic policy settings have
an important bearing on aggregate economic outcomes: that is, that gov-
ernment policy is a large part of the explanation of a country's economic
growth rate.
Within the broad institutionalist literature pertaining to political econ-
omy, two separate but strong theoretical currents stand out. Reduced to
their essence, one focuses on what might be termed decisiveness, and the
other on what might be termed commitment. Both have important con-
sequences for economic policy-making and economic performance.
The former body of literature is concerned with the extent to which
political institutions promote qualities such as ef®ciency in policy-making
and implementation or the ability to make and carry out dif®cult policy
decisions that are necessary to maintain an environment conducive to
economic growth. The literature concerned with state ``autonomy,'' ``ca-
pacity,'' and ``strength'' falls into this category (see, inter alia, Katzenstein
1978; Johnson 1982; Deyo 1987; Wade 1990; Haggard 1990; MacIntyre
1994a). This macro-institutionalist literature all relates directly to the
experiences of the high-growth economies of Asia. A logically parallel
body of literature has been concerned with the ef®ciency of political
institutions in advanced industrial democracies, but rather than being
pitched at a macro level (the state) it has focused on the consequences of
variables such as the division of governmental powers, the type of elec-
toral system, and bureaucratic delegation for policy-making (see, inter
alia, Weaver and Rockman 1993; Cox 1987; Cox 1997; Moe and Caldwell
1994; Kiewiet and McCubbins 1991; Shugart and Carey 1992) Typically,
the political economy implications of the institutional framework have
not been the primary concern of this literature, though recently this has
begun to change (Haggard and McCubbins forthcoming).
Uniting this diverse literature is its attention, on the one hand to the
way in which institutional design can facilitate or hinder decisiveness in
the policy process, and on the other, to the way in which decisiveness can
facilitate economic policy management. For instance, a polity in which
there is a separation of powers between the executive, legislative, and
INDONESIA 273
high level of decisiveness. The party and electoral systems, the corpora-
tist framework, and ultimately, the existence of a potent coercive capa-
bility in the armed forces has served to reduce greatly the scope for
organized demand-making by societal groups. In practice there is only a
weak division of governmental powers, with the executive branch thor-
oughly dominating the legislature and the judiciary. Lines of executive
accountability are very clear, with bureaucrats being responsible only to
the presidency. And the presidency itself is only weakly accountable to
the Consultative Assembly.
This has meant that the president and his ministers have not had to
bargain with any other branch of government over economic policy; that
the bureaucracy has (relatively speaking) been a compliant administra-
tive tool; and that there has been little real scope for public resistance to
government action. As a result, when economic challenges or crises have
arisen, the government has been able to move swiftly, take dif®cult and
unpopular policy decisions, and implement them. There is no need to re-
produce the history of the New Order's successfully overcoming the eco-
nomic chaos of, for instance, the late 1960s, or the sharp downturn of the
mid-1980s arising from the collapse of international commodity prices;
that story has been told already in many places (Hill 1996; Booth 1992;
Battacharya and Pangestu 1993; Woo, Glassburner, and Nasution 1994;
Azis 1994; MacIntyre 1992). Suf®ce it to say that the relative autonomy of
the political executive and the decisiveness of the policy process have
greatly facilitated the task of maintaining a generally sound macro-
economic framework as well as liberalizing trade, investment, and ®nan-
cial regulations when this became necessary.
This much is not surprising. But what of commitments? How has In-
donesia managed to sustain investor con®dence if the political authority
has been so centralized, so unconstrained? As ®gure 10.2 shows, levels of
private investment in Indonesia have indeed been high, indicating that
uncertainty about commitments from unconstrained government has not
been a major deterrent to investors. Even if we allow a very substantial
discount for expectations of high rates of return, it seems likely that there
is still a residual puzzle to be explained. I have argued elsewhere that the
explanation for this lies on the one hand with the government's long-
established track record of sound macroeconomic management, and on
the other, with speci®c policy measures (most notably an open capital
account since 1970) which, in effect, constituted an unbreakable commit-
ment on the part of the government to that most fundamental investors'
interest ± the ability to get money out of the country at will (MacIntyre
forthcoming-b).
In sum, although the predominant institutional characteristic of the
Indonesian case is, without question, decisiveness, it is important to rec-
INDONESIA 275
ognize that there have also been factors providing a signi®cant counter-
vailing effect. That is to say, while decisiveness has been the predominant
feature, this has not been to the complete exclusion of commitment. The
net effect has been a policy environment suf®ciently ¯exible to respond to
exogenous economic shocks when necessary, and suf®ciently stable to
provide longer-term con®dence for investors.
For many years this combination has proved very conducive to eco-
nomic growth. And yet this unusually long-lived framework for success
has, from the outset, been vulnerable to change. This has been powerfully
and dramatically illustrated by the collapse in value of the Indonesian
rupiah in 1997 as part of the wider Asian currency crisis, and the eco-
nomic destruction this has unleashed. In the early months of the crisis
Indonesia fared relatively well, with the government moving quickly to
take decisive pre-emptive measures, before calling in the IMF once it
became clear that the scale of the crisis was such that Indonesia could not
manage it alone. However, because Indonesia's institutional framework
concentrates so much authority in the of®ce of the president, when he was
reluctant to cut back on the business privileges enjoyed by relatives and
276 ANDREW MACINTYRE
Postscript
This chapter was completed in early January 1998. In the ®ve months
since then much has happened in Indonesia: Suharto's New Order regime
has collapsed, amidst turmoil a process of political reform is underway,
and the country's economy has been utterly devastated. Happily, the
analysis in the body of the essay has stood up well. This short postscript is
intended to review brie¯y the main developments over the past ®ve
months and to re¯ect on where this may lead.
Suharto resigned the presidency on 21 May as it became clear that one
after another of his key supporters was abandoning him. The proximate
causes of this were large-scale student demonstrations (including student
occupation of the parliament) and, more destructively, an orgy of mob
rioting and looting which left parts of Jakarta in smoking ruins. Behind
these events, however, lay the collapse of the country's economy and with
it the evaporation of any remaining legitimacy the regime enjoyed. And
behind these developments lay the institutional framework of the regime.
Although Indonesia's (and Asia's) economic crisis was ignited by events
in Thailand and fuelled by a number of economic policy problems, the
extraordinary degree of damage that has descended upon Indonesia's
economy is largely a function of the way in which the government man-
aged the crisis from late 1997 onwards, and this in turn, re¯ected the
institutional trade-off between decisiveness and commitment. Following
the initial depreciation of the rupiah in mid-1997, it plummeted to eco-
nomically devastating levels in late 1997 and through 1998 because local
and foreign investors lost con®dence in the government. In essence,
investors believed that the president was no longer suf®ciently committed
to maintaining the sort of policy framework necessary to promote pro®t-
ability. Con®dence in his leadership was undermined ®rst by the stroke
he suffered in early December, and then by mounting concern that he was
not committed to implementing reform measures agreed upon with the
IMF as members of his family and other close business associates suc-
ceeding in exempting themselves from austerity measures. These fears
were reinforced in early 1998 by a budget which was seen to be out of
touch with economic realities, and by ensuing presidential manouvers
280 ANDREW MACINTYRE
no doubt re¯ects the fact that it is the state elite which is dominating the
redesign process.
It will be some months before the outcome of the process of political
reform becomes clearer. Further, it is no doubt very likely that this will be
only the ®rst step in a longer process of democratization which is likely to
stretch over a decade or more, re¯ecting long-term processes of socio-
economic change. In the near term, however, a critical factor bearing
upon the success of this ®rst round of democratization will be the coun-
try's economic fate. Indonesia has suffered a truly devastating economic
setback. The most optimistic scenarios now suggest that it will be three to
®ve years before the economy again ®nds its feet. Quite apart from the
governance consequences of the new con®guration of political institu-
tions to emerge from the current reform process, and quite apart from the
coalitional character of the government that Habibie (or a successor)
constructs, investors are likely to be very wary of the risk of further po-
litical instability in Indonesia. The longer it takes for Indonesia's political
framework to stabilize, the further off economic recovery will be. Com-
pounding this problem is the fact that Indonesia's economic fortunes are
now also seriously constrained by developments elsewhere in Asia ± most
notably Japan. The danger for democracy in Indonesia is that the longer
the country's economy remains depressed, the more social and political
instability is likely to result, and thus the greater the probability of some
form of military coup in the name of restoring order and progress. This
seems a quite remote prospect at the time of writing, but if the economy
continues to slide the political landscape is likely to deteriorate with it.
Indonesia has now entered a period of major political ¯ux, the outcome
of which is as yet far from clear. Our understanding of the pattern of
governance and economic performance under the New Order regime and
of the collapse of this regime has been powerfully aided by an analytical
focus on the underlying political institutions. Similarly, a careful analysis
of the institutional framework of the newly emerging environment will
powerfully illuminate our understanding of its politics and economics.
Notes
1. The PPP comprised several rivalrous Muslim parties and the PDI comprised a number
of nationalist and Christian parties. Not coincidentally, the natural ideological and per-
sonal divisions within these arti®cial amalgams helped to keep them from developing
into more potent political organizations.
2. This can be achieved in more or less subtle ways, depending on the urgency of the situ-
ation. Because Indonesia uses the closed-list proportional representation system, party
leaders determine the rank order of all their candidates for each district ± and thus also
determine which ones have a high probability of being elected, or are placed in an un-
winnable position. The government can thus bring pressure to bear upon party leaders
282 ANDREW MACINTYRE
to place critics low on the candidate list, or if necessary, the government (through the
General Election Institute) could declare the person un®t to stand as a candidate for
election. In extreme cases, sitting members of the legislature can be removed, as hap-
pened in 1996 to Sri Bintang Pamungkas.
3. Taken literally, Pancasila (the Five Principles) is quite benign. The principles are: belief
in God, humanism, nationalism, popular sovereignty, and social justice. In practice, this
seemingly inclusive set of ideas is used as an instrument for political control as the gov-
ernment requires that everyone be ``for'' Pancasila, and that anyone deemed by the
government to be operating outside its hazy parameters (e.g., a militant Muslim or trade
union leader) is in breach of the law.
4. During the 1997 election an independent volunteer election watchdog committee, KIPP,
was established to watch for irregularities. Despite government objections, KIPP was
able to monitor activities in at least some voting districts (Van Klinken 1997, p. 5).
5. The share of appointed seats reserved for the armed forces was reduced from 25 per
cent to 20 per cent in the early 1990s.
6. Personal communication from Daniel Lev.
7. Interestingly, the fact that the legislature is directly involved in choosing the president
(by virtue of its making up half of the Consultative Assembly) means that Indonesia's
system of government cannot, strictly, be considered presidential. (I am grateful to Mat-
thew Shugart for drawing this to my attention.) This taxonomical dilemma is intensi®ed
once we recognize that the legislature can, technically, shorten a president's term by calling
a special session of the Consultative Assembly to review the president's performance.
8. Technically, the president does not personally or directly appoint all of the remaining
500 members of the Assembly (i.e., those not from the House). Under Law no. 16 of
1969, as amended in 1975 and 1985, the president is authorized personally to appoint
100 delegates to represent social and functional groups. Each province is entitled to 4±8
delegates (depending on its population). In 1997 the number of provincial delegates to-
talled 149. The remaining delegates ± 251 in 1997 ± are divided among the political
parties and the armed forces, based proportionately on their numbers in the House.
Although, technically, the president selects only the 100 delegates from the social and
functional groups, in practice he also has control of the remainder by virtue of the for-
mal and informal authority the executive branch has over the political parties and pro-
vincial governments. (I am grateful to Bill Liddle for a number of these points.) For a
breakdown of the 1997 membership of the Assembly, see Suara Pembaruan Daily, 20
September 1997.
9. It may be that this relationship deserves closer investigation. An interesting point of
comparison here is with the relationship between the leadership of the Communist Party
and the Central Committee in both China and the former Soviet Union. The Central
Committee is formally responsible for selecting the party leadership, but is itself chosen
by the party leadership. Susan Shirk (1992) has argued that this is less lopsided than
often realized, and that while the party leadership does hold the upper hand, its activ-
ities are nonetheless constrained by the re-election imperative. Philip Roeder (1993)
tells an equivalent story for the former Soviet Union. Two notable points of difference
that seem to separate the situation in Indonesia from that in China (or the former Soviet
Union) are that the Consultative Assembly meets very rarely, and that it is a much
larger body (and thus less hospitable to collective action). This is a topic that requires
further investigation.
10. There is now a sizeable scholarly literature on issues pertaining to democratization
in Indonesia (Morley 1993; Alagappa 1995; Rodan 1996; Taylor 1996; Anek 1997;
Uhlin 1997; Djiwandono and Legowo 1996; Kristiadi 1997; Siagian 1997; Sihbudi 1997;
Schwarz 1994).
INDONESIA 283
REFERENCES
Alagappa, M. (1995), Political Legitimacy in Southeast Asia: The Quest for Moral
Authority, Stanford University Press, Stanford, Calif.
Anek L. (ed.) (1997), Democratization in Southeast and East Asia, Institute of
Southeast Asian Studies, Singapore.
Azis, I. (1994), ``Indonesia,'' in J. Williamson (ed.), The Political Economy of
Policy Reform, Institute for International Economics, Washington, D.C.
Battacharya, A. and Pangestu, M. (1993), The Lessons of East Asia: Indonesia's
Development Transformation and Public Policy, World Bank, Washington, D.C.
Booth, A. (ed.) (1992), The Oil Boom and After: Indonesian Economic Policy and
Performance in the Soeharto Era, Oxford University Press, Singapore.
Cohen, M. (1997), ``On-Air Campaigning: Politicians Reach out to Voters via
Television,'' Far Eastern Economic Review, May 15.
Cox, G. (1987), The Ef®cient Secret: The Cabinet and the Development of Political
Parties in Victorian England, Cambridge University Press, New York.
ÐÐÐ (1997), Making Votes Count: Strategic Coordination in the World's Elec-
toral Systems, Cambridge University Press, New York.
Cox, G. and McCubbins, M. (forthcoming), ``Structure and Policy: Institutional
Determinants of Policy Outcomes,'' in S. Haggard and M. McCubbins (eds.),
Structure and Policy in Presidential Democracies, Cambridge University Press,
New York.
Deyo, F. (1987), The Political Economy of the New Asian Industrialism, Cornell
University Press, Ithaca, N.Y.
Djiwandono, S. and Legowo, T. (eds.) (1996), Revitalisasi Sistem Politik Indonesia
[Revitalizing Indonesia's political system], Centre for Strategic and Interna-
tional Studies, Jakarta.
Haggard, S. (1990), Pathways from the Periphery: The Politics of Growth in the
Newly Industrializing Countries, Cornell University Press, Ithaca, N.Y.
284 ANDREW MACINTYRE
``Is there any point to which you would wish to draw my attention?'' ``To the
curious incident of the dog in the night-time.'' ``The dog did nothing in the night-
time.'' ``That was the curious incident,'' remarked Sherlock Holmes.
± Sir Arthur Conan Doyle, ``Silver Blaze''
Politics in Singapore ticks over with the ef®ciency of the proverbial Swiss
watch. Technocrats scan the horizons of the global economy; ministers
read the entrails, pronounce their pragmatic policies, thereupon swiftly
implemented by an ef®cient bureaucracy; and a covey of government-
sponsored committees chivvies the public in support. Singapore, as one of
the original ``Asian Tigers,'' must, on the face of it, be an exemplar of the
connection between the political management of the economic system on
the one hand, and the legitimation of the ruling political regime by an
impressive rate of economic growth on the other. It is also, apparently, a
practice of politics so inimitable that Singapore must constitute a unique
test-bed for political ideas, at a time when political regimes everywhere
are having to measure up to the challenges of globalization, liberaliza-
tion, and a new revolution in technological advancement.
Yet, while politics across Asia is in turmoil, the political system in Sin-
gapore lies quiescent. What accounts for this condition? What led growth
to assume its central importance within that political system, what were
287
288 KHONG CHO-OON
the political elements that needed to be put in place to ensure the deliv-
ery of growth, and what have been the subsequent rami®cations of that
growth?
In any comparative study of the relationship between democratization
and economic growth, Singapore would be an intriguing case ± marked by
many seemingly inexplicable paradoxes in the way its political processes
function.
Historical origins
Lee Kuan Yew and his People's Action Party (PAP) came to power
in 1959, in a newly autonomous, though not yet quite independent Sin-
gapore. The Singapore society of the time was economically extremely
divided, and communally fragmented and inchoate, with a multitude of
political groupings, each representing a speci®c economic or ethnic iden-
ti®cation. These groups manoeuvred, plotted, and struggled against each
other in a protean political soup, creating the semblance of democratic
discourse, while each secretly aimed to seize power for its own exclusive
use and to eradicate its rivals, in what was in reality a Hobbesian political
struggle. As it turned out, it was Lee Kuan Yew who came to power at
the head of a small Western-educated group of intellectuals, quite atypi-
cal of the Singapore society of the time, and with a mass following of
workers and Chinese middle-school students gained only through a tacti-
cal alliance with Communist forces. On attaining power, Lee ®rst dis-
tanced himself from his radical populist support, and then proceeded to
cut his links from and then to eliminate his erstwhile Communist allies.
Yet Lee himself shrewdly observed at the time:
The mass of the people are not concerned with legal and constitutional forms and
niceties. They are not interested in the theory of the separation of powers and the
purpose and function of a politically neutral civil service under such a constitu-
tion. . . . if the future is not better, either because of the stupidities of elected
ministers or the inadequacies of the civil service, then at the end of the ®ve-year
term the people are hardly likely to believe either in the political party that they
have elected or the political system that they have inherited.1
Lee Kuan Yew's words re¯ected the political conditions of the time
and the particular circumstances of his ruling party. Yet his words pro-
vide a revealing insight into his political beliefs. They set out a political
creed that was to inform the process of creation and construction on
which Lee was then to embark, a process whose end result is the modern
city-state that is Singapore today. In his relentlessly unremitting drive to
SINGAPORE 289
improve the material circumstances of his people, Lee Kuan Yew in his
practice of politics has not allowed himself to be bound by the principles
or prejudices of any particular political model, democratic or otherwise.
Instead, he has drawn ideas, in eclectic fashion, from whichever political
model suited his purposes at any one time, upholding those ideas pas-
sionately and persecuting opponents of them with ruthless zeal; yet dis-
carding those ideas without compunction in favour of something else,
should circumstances so dictate.
Without a mass base of populist support, and confronted with the need
to gel together his disparate populace, Lee Kuan Yew turned to the civil
service, an organization imbued with an elitist ethos and a technocratic
bias against political bargaining and compromise. These technocrats were
like-minded in seeking economic growth, and like Lee, the civil service
was suf®ciently removed from, and indeed above, the demands of ordi-
nary people, that it could maintain its autonomy to act and to implement
policies with little or no popular support. Lee and his civil service allies
had a window of opportunity to act, but they had to move quickly and to
show results rapidly if they were to secure their position in power. As a
governing elite, they could secure their political survival only by per-
suading the people that, despite their composition being distinctly differ-
ent from that of Singapore in general, they nevertheless represented the
people's interests and could ensure their material welfare.
The conditions of the time were extremely turbulent, with social unrest,
high unemployment, and uncertainty over the nature and dimensions of
the state. The political factions squared off against each other at the time
of Singapore's joining the new Malaysian Federation in 1963, and again
after its ejection in 1965, with political arguments over its ability to forge
an independent course as a separate and distinct nation state. Such tur-
bulent conditions provided the grounds for the PAP leadership to sup-
press destabilizing political opposition in the interests of securing political
stability.
Other former colonized states may have secured their independence,
perhaps after bitter struggle against their colonial masters, in a burst of
euphoria, later to be dampened as the hard realities of economic develop-
ment dawned on leaderships and peoples. Singapore became an indepen-
dent nation state in polar-opposite conditions. Independence was neither
sought nor fought for, but rather thrust upon a reluctant and fearful state
on 9 August 1965, when Singapore was expelled from Malaysia. The
political tears of frustration and fury which Lee publicly shed on that day
were shared by both leadership and people, faced with an uncertain polit-
ical future as an island nation state and enclave within Southeast Asia.
Politically, the imperative was to secure social cohesion in the face of per-
ceived external threats, and the path chosen was a nation-building pro-
290 KHONG CHO-OON
The major indices of social strati®cation in the late 1980s were education
level, citizenship status, sector of the economy where employed, and the
number of employed people in each household.2 Here, sharp differ-
entiations open up, for example, in levels of education. In 1980, 44 per
cent of the population aged 25 and over had no educational quali®cations
whatsoever, 38 per cent had a primary school education, 15 per cent had
a secondary school education, and only 3.4 per cent had a tertiary educa-
tion. While these ®gures must obviously have improved since then, there
will for many years continue to be a signi®cant proportion of the adult
population with only an extremely limited education ± this in a society
where wages are fairly closely correlated with educational attainment.
The stress on individual competition, rather than inherited status, makes
education a keenly prized good in Singapore society, which is seen as the
key to upward social mobility.
The uppermost levels of Singapore society are occupied by an elite
group comprising high-level civil servants, business managers, and pro-
fessionals, many working for large foreign-owned companies, together
with a coterie of wealthy Chinese businessmen, leading the various asso-
ciations which represent the Chinese-speaking community. The former
have an extremely cosmopolitan outlook, apparently distinctively differ-
ent from the bulk of society, and both groups tend to vigorously sup-
port values of competition, economic advancement, and social mobility
through education.
There has, however, been signi®cant alleviation of poverty, which by
one measure fell from 19 per cent of households in 1953±54 to 0.3 per
cent in 1982±83. In part this is a consequence of the general economic
growth over the period ± though a leading direct cause of poverty allevi-
ation must surely have been the increased participation of women in the
workforce, as households typically improved their material circumstances
through having more than one wage earner (and also fewer children to
support). Whatever the cause, household income distribution in Singa-
pore in 1982±83 was roughly equivalent to that of the United Kingdom ±
a country which in the 1980s prided itself on encouraging individualistic
values, led by a prime minister who stated publicly her disbelief that
there is any such thing as ``society'' ± and very much more equal than in
Latin American countries such as Brazil and Mexico, though signi®cantly
SINGAPORE 291
The conditions from which Lee Kuan Yew and his PAP sprang were such
as to lead him and his party away from what they viewed as the degen-
erate compromises of ``Western-style'' liberal democracy, so inimical to
economic development, and also away from blatant appeals to populist
sympathies. Indeed, rather in the manner of an oriental Churchill, Lee
pledged his equivalent of blood, sweat, and tears ± establishing political
order through an extremely ef®cient and relatively incorrupt government,
and securing material welfare for the citizenry through a benevolent, if
not entirely benign, paternalistic government. Any measure in the politi-
cal and economic armoury that suited these purposes was taken without
compunction, and applied without reservation. National survival and
political survival for the PAP (for by then the two were inextricably
interlinked in the minds of the ruling elite, as they are indeed now in the
minds of many of the populace) brooked no half-measures.
These governing measures were tempered from the 1980s by the
grooming of a successor political generation, chosen from the ranks of the
technocrats within the bureaucracy, socially and politically cosseted, and
to some degree rather like the mandarins of yore, without the close ties to
the grass roots that many of their predecessors in the founding political
generation possessed. This change took place at a time when the general
populace was becoming noticeably af¯uent, with the spread of greater
material comforts. And, in the face of continued unremitting pressure
292 KHONG CHO-OON
from the political leadership to strive even harder, these people were
beginning to raise demands which were seemingly for a more tolerant
liberal political practice, and exhibiting behaviour patterns at odds with
the austere living style exalted by the political leadership as the appro-
priate model to follow.
The leader of that successor political generation, Goh Chok Tong,
formally assumed the prime ministership in November 1991, and seized
the opportunity to show a more human face by adopting a more common
and sympathetic manner. This different style of leadership, it was believed,
would help check the rising alienation by bridging the gulf between rulers
and ruled. Goh had earlier declared his intention to work toward a
``kinder, gentler society'' and to introduce policies that have ``a human
face,'' though adding that ``this does not mean that the society under
Mr. Lee has not been kind and gentle.''5
The experience of this successor political generation has been mixed.
Opening up a political ``discussion space'' in society has inevitably
entailed the ¯owering of a diverse range of views and expectations of
governance, not all of which could be met, or indeed were deemed de-
sirable. And while exercises in consultation have an air of contrivance
about them, the government remains closely aware of political opinions
``on the ground.''
In thinking through the key elements of politics in Singapore, a number
of puzzling contradictions present themselves. For a start, we need to
move away from the conventional notion that increasing economic af¯u-
ence somehow leads to social change, which in turn compels a move from
authoritarian to more democratic structures, cognisant of individual
human rights. Having made that point, neither can we assert that the re-
verse is strictly true ± that material af¯uence and globalizing trends have
not led to increasing tensions between individuals and the state. Global-
ization challenges the adaptability of traditional patterns of hierarchy and
elite status. The Singapore picture presents elements which seemingly
support both notions, so how do we reconcile such contradictory trends?
To begin with, we need to make the point that what you see is not
necessarily what you get. In form, if we accept a minimal procedural
de®nition of democracy, we may identify a structure of democratic pro-
cedures in the Singapore polity, with political parties competing for
power (albeit one dominant over the others, hence the term ``one party
dominant system'' or ``hegemonic party system'' applied by a leading
political scientist),6 in elections held periodically, in which the govern-
ment pledges that the ballot is secret. In turn, there is widespread accep-
tance of governmental authority. Yet these procedures have been so
constrained by a range of restrictions and limitations ± and, perhaps even
more important, by a fear, held by many in society, of actively supporting
SINGAPORE 293
In elections through the 1980s and early 1990s, the PAP steadily lost
ground, ®rst losing its parliamentary monopoly in a by-election in 1981,
and then seeing a steady fall in its share of the vote in subsequent general
elections. The turnaround in the PAP's electoral fortunes only came with
the general election of January 1997, when Goh Chok Tong explicitly
repudiated a more liberal political line and set out a much less com-
promising political style. In this most recent election, the PAP's share of
the vote in constituencies where there was an electoral contest (less than
half of parliamentary seats was contested, so the PAP was already
returned to power at the start of the election campaign), rose from 61 to
65 per cent7 ± not a substantial rise, but nevertheless signi®cant in the
face of what many had expected would be a continuation of its earlier
electoral decline. Why the PAP, and Goh Chok Tong's coterie in partic-
ular, should have recovered political ground by threatening tougher gov-
erning measures, is an issue which must hold signi®cant lessons for the
future direction of politics in Singapore.
To take one example, there was supposedly a fear that ``unsophisti-
cated'' Singaporean voters, unschooled in democratic practice, would
somehow come to believe that their vote could be traced back to them-
selves.8 The voting system in use in Singapore derives from the British
model, with numbered ballot papers linked to voters' names on the elec-
toral register (though the number on the ballot paper is different from the
identity card number of the voter recorded on the electoral register). The
government claims that all votes are sealed and destroyed after counting,
and has invited opposition representatives to witness the process. In-
creasingly, over successive elections, the fear of traceability of the vote
has gradually diminished. Nevertheless, it may well be that a residue of
that fear still remains. The critical issue is therefore not one of the secrecy
of the ballot, but rather of the perception of the voter that there remains
a possibility that his or her vote can be traced if the authorities so decide.
This fear was heightened during the 1997 elections, when Goh Chok
Tong declared that with vote counting being decentralized (in the inter-
ests of giving out the results more rapidly), it would then be possible to
quickly establish how individual precincts voted (each with around 5,000
votes) and to reward those who most strongly supported the government.9
Certainly, Singapore's political evolution has not gone down the trail-
blazing democratic path set by Taiwan and South Korea. But to the
294 KHONG CHO-OON
question, why did the dog not bark? The answer (as Sherlock Holmes
made clear) is that it was in perfectly familiar surroundings and that it
recognized the object of its actions. It is not that the government for-
mulated communitarianism in order to deny democracy; on the contrary,
what is clear in the practice of politics in Singapore today, is the serious-
ness with which the government treats the exercise of formal democracy,
where every percentage point lost in electoral support (from what is, at
over 60 per cent of the vote, a very high level of support) is worried over
by the government precisely because it rests its claim to power on a
communitarian ideology. If this government claims to embody the col-
lective interests of society, such a claim to power would sit uneasily with
an apparently increasing dissension within the ranks of that society.
What Goh Chok Tong did, in the January 1997 elections, was to turn
around this general expectation of the electorate, by spelling out his in-
tention to link government public-spending programmes to the extent of
voter support of the government, not just in individual constituencies, but
also in individual wards within constituencies.10 Rather than the govern-
ment being accountable to the people, the people were now explicitly
made accountable to the government.
What, then, of the constraints which the Singapore government places
on the mass media and on the voluntary associations of civil society?
Rather than being symptoms of a transitional political phase to full de-
mocracy, these constraints are instead the means by which the govern-
ment imposes its view of what the communitarian consensus should be.
Communitarianism may have a soft centre ± the desire to build and to
live in stable communities, and consideration and responsibility for the
wider community to which one belongs viewed as a social virtue (shades
of Francis Fukuyama) ± but it also has a hard edge, emphasizing duties
and responsibilities rather than rights. Illiberal measures which restrict
the public expression of individual interests are part of the expression of
this hard-edged communitarianism. People have to recognize that they
may need to make sacri®ces for the greater good, rather than pander to
their own individual grati®cation.11
values did indeed underpin popular support for the government's initial
decision to legitimize its rule through economic growth. The government
and civil service had to have in place mechanisms and institutions which
the disparate elements making up Singapore society could believe would
spread the bene®ts of growth. Only then did a groundswell of support
build up which created suf®cient socio-political stability to sustain the
economic policies that were put in place. Without this communitarian
reassurance, it would be safe to say that there would not have been
the co-operation between groups which would have allowed the social
stability to give these policies time to take effect.
One striking feature of politics in Singapore is the way that ideology
has been de®ned by the government so as to reinforce its claim to power
and the duty of citizens to obey. Motivated by concern that people were
being overly in¯uenced by ideas seeping in from abroad, in¯uences that
were dif®cult for the government to monitor and control, the government
directed a lengthy public debate over the relative merits of ``Asian values''
(good) versus ``Western values'' (bad). The ``Asian values'' espoused
were the alleged values of Confucian high culture, to which the cultural
distinctiveness of Asian politics is nowadays fashionably attributed. Asian
politics has everything to do with the Asian spirit, de®ned as a belief in
strong authoritarian control, respect for bureaucracy, and emphasis on
the group at the expense of the individual. Lee Kuan Yew, incidentally, is
often characterized as advancing this view, but a close reading of his
public pronouncements shows a rather more sophisticated appreciation:
disclaiming that an ``Asian model'' exists, accepting that value systems do
change, and criticizing Western society, interestingly enough, for a per-
ceived erosion of individual responsibility and for an over-reliance on
government to solve social problems.12
The ideas propagated by Confucius and the school of thought he
established were ideas for a governing elite, at a time when cities were
being built and states being established in China. It took centuries ±
almost right down to our own time ± for these ideas to percolate down to
the common people, and in doing so they became mixed in with all sorts
of local folk traditions and practices. This is not the popular Confucian
ethos innate in that part of Singapore's population that is immigrant
Chinese. What we see at this populist level is not the high Confucianism
of the intellectual elite (actually extremely sti¯ing towards entrepreneu-
rial initiative and innovative ideas), but the vulgar Confucianism of ordi-
nary people (best exempli®ed in the networking of overseas Chinese). It is
this lower form of Confucianism which shapes the values and the political
choices of many ordinary people from among the immigrant Chinese
community in Singapore. At this level, the ponti®cating of Asian elites
296 KHONG CHO-OON
and asserts that responsibilities to the wider community coexist with in-
dividual rights. In any society where there is a range of personal moral
and religious beliefs (and in Singapore, this range is even wider than is
usually the case, given the plural nature of its society), any assertion of a
common standard of behaviour must involve a measure of coercion. The
Singapore government might presumably assert that all states (even the
most supposedly liberal) coerce, but the question is: to what end is that
coercion addressed?
In the case of Singapore, the aggregate effect of the government's
communitarian style, however illiberal it may be characterized as being,
is to consolidate the politics of the middle ground, deliberately excluding
what are perceived to be political extremes. Goh Chok Tong's own
declared intention has been to enlarge the middle ground through a more
accommodating and participatory style of government, and he has clearly
moved to include the greatest number of Singaporeans in the political
process, rather than to exclude them from it.
Indeed, communitarian ideology renders the Singapore government,
despite its authoritarian tag, even more vulnerable to electoral rebuff
than so-called democratic governments elsewhere. If communitarianism
is de®ned in terms of a common national will, any dissenting political
activity must call into question the extent of that common will. The
Singapore government must therefore constantly be acutely sensitive to
the varying shades of public opinion, and act quickly to deal with contrary
views, either through suppressing them or through going some way to
meeting them. Fully conscious of the position the government is in,
Singaporeans are perhaps even more sophisticated than their Western
counterparts in exercising their voting rights. Because opposition parties
recognize the general sentiment that there really is no practical alter-
native to keeping the PAP in power, and therefore do not contest the
majority of seats in general elections (giving these general elections a
by-election ¯avour), Singaporeans vote, not to change the government,
but to register dissatisfaction with its policies ± and to express their ex-
pectation that the government, precisely because of its communitarian
legitimizing ideology, will act to redress the grievances raised.
``You want to go into the world and you are going empty-handed, with some
promise of freedom, which men in their simplicity and their innate lawlessness
cannot even comprehend, which they fear and dread ± for nothing has ever been
more unendurable to man and to human society than freedom!''
± The Grand Inquisitor in Fyodor Dostoyevsky, The Brothers Karamazov
Fire is ®erce, and people feel fear at the sight of it. So they seldom die of it. Water,
on the other hand, is gentle, so that people are inclined to play in it. As a result,
many of them drown.
± Traditional Chinese saying
haps, from their immigrant origins. As writers like Robert Putnam and
Francis Fukuyama assert, a high level of interpersonal trust in society
provides a critical competitive advantage, and leads to high rates of eco-
nomic growth.19
A corollary to the strategy of playing as a ``competing nation'' in the
global economy is the need for periodic acts of symbolic nationalism ±
to reinforce national cohesion and purpose, against the dissolving in¯u-
ences of global internationalism on the loyalties of the domestic popula-
tion. Hence, Singapore has emerged as a strident champion of Asian
Confucian values in the global ideological debate, neutered since the
collapse of Soviet communism. The advocates of Asian values point to
the inherent cultural advantages of countries such as Singapore, imbued
with Confucian values, over a declining and degenerate West.
Political tensions will persist, and we will see a new younger generation
of voters make increasing demands on a not too ¯exible political system.
But as bene®ciaries of the steely-eyed paternalism which characterizes
that system, they will generally seek to maintain the status quo, as change
is threatening and uncertain. A few may take upon their shoulders the
mission of acting as a conscience for their society, asserting individual
rights and calling for a greater sense of responsibility towards the dis-
advantaged. But the majority have made a pragmatic calculation, and will
continue to uphold it, that swings the other way, toward calculated inac-
tion. However enticing ideas of liberal individualism may be, why rock the
boat when it is moored in such comfortably familiar waters? It would take
a tropical typhoon to strike sparks off these people, to galvanize them into
attempting to shift Singapore politics onto a completely different course.
Notes
1. Lee Kuan Yew, Text of a Speech by the Prime Minister, Mr. Lee Kuan Yew, at the Of®-
cial Opening of the Civil Service Study Centre (Singapore government press statement,
15 August 1959).
2. Measures cited in U.S. Library of Congress document addressed hup lllcweb2 loc gov/
cgi-bion query D/cstdy:2:./temp/-ffd_MKZf, from which the ®gures for educational levels
come.
3. Data from World Bank, World Development Report 1997 (New York: Oxford University
Press, 1997).
4. Straits Times, 12 December 1992.
5. Ibid., 27 September 1990.
6. Change Heng Chee, The Dynamics of One Party Dominance: The PAP at the Grassroots
(Singapore: Singapore University Press, 1976); and ``Political Parties,'' in Jon S. T.
Quah, Chan Cheng Hee, and Seah Chee Meow (eds.), Government and Politics of
Singapore (Singapore: Oxford University Press, 1987), pp. 146±72.
304 KHONG CHO-OON
Introduction
1983 when the government had to peg the Hong Kong currency to the
U.S. dollar at a ®xed rate to maintain economic stability.
According to the 1984 Sino-British Agreement on Hong Kong's future
and the constitutional arrangements in the form of the Basic Law, Hong
Kong's political and economic system are to be preserved. Some have
argued that Hong Kong is merely being transferred from one type of
authoritarian rule (in the form of British colonialism) to another (in the
form of Chinese communism). Economically, given the integration of the
Hong Kong and mainland China economies, many have maintained that
the economic situation in Hong Kong would not be affected by the
handover. In fact the SAR administration uses the expression, ``business
as usual'' to describe post-handover Hong Kong.
This chapter suggests that internal political developments in Hong
Kong since the mid-1980s have made a signi®cant impact on economic
management in the territory, and that this trend will be accentuated in
Hong Kong's search for a post-colonial order after China's resumption of
sovereignty. Although the democratization process which began in the
1980s was temporarily reversed when colonial Hong Kong became a
Chinese SAR, the political system in Hong Kong had already undergone
important changes prior to the political handover. This chapter examines
the impact of democratization on Hong Kong's economic governance and
the implications of such changes for post-colonial Hong Kong.
in 1984. He would, presumably, prefer the return of the old political order
which was characterized by ``administrative absorption of politics,'' with
the top echelon of government working closely with the business elite,
and a restoration of the pre-Patten colonial government's laissez-faire
approach to economic governance. In fact a few months after the rever-
sion of sovereignty the SAR administration under Tung Chee-hwa
insisted that things had remained unchanged in Hong Kong. If that is the
case the departure of the British simply represents the replacement of
one business elite group by another. The only difference would be that
instead of having a pro-British business orientation, the SAR would shift
towards a more pro-mainland orientation.
While the business community cannot expect the same degree of dom-
ination in Hong Kong's economic governance as it had in colonial times,
it has regained its prominence as a central political force in the SAR. The
chief executive is a former businessman. His closest advisers in the form
of the Executive Council are also dominated by people from the business
community and professionals. Among the members only Tam Yiu-chung,
a trade unionist and member of the Democratic Alliance for the Better-
ment of Hong Kong, comes from a grass-roots background. Many execu-
tive councillors also have close connections with the mainland.10
Beijing loyalists were also able to dominate the provisional legislature
established by the Beijing government following the collapse of the Sino-
British talks regarding the Patten reforms. While a majority of the
Provisional Legislative Council members served in the 1995 Legislative
Council under the former colonial administration, political dynamics have
undergone signi®cant changes. The Democratic Party, the largest political
force in the 1995 Legislative Council, was out of the provisional legisla-
ture. Political parties and other groups such as the Democratic Alliance
for the Betterment of Hong Kong, the Hong Kong Progressive Alliance,
and the Liberal Party, which had good relations with the leadership in
Beijing during the territory's transition, became dominant forces in the
legislature.
While pro-democratic forces returned to the ®rst SAR Legislative
Council following the May 1998 elections, the number of Democratic
Party councillors has been reduced by 6 from 19 to 13, and the overall
political strength of pro-democracy forces is short of one-third of the
legislature (see table 12.1). The electoral arrangements for the ®rst legis-
lative elections in the SAR had the effect of ensuring that the Democratic
Party and other pro-democracy groups such as the Frontier would be only
a minority in the ®rst Legislative Council in 1998. Of the 60 council seats
only 20 were to be ®lled by direct elections based on geographical areas.
Thirty seats, or half of the total, were to be ®lled by professional and
business groups which were formed into functional constituencies, and
312 JAMES T. H. TANG
a key question is: will various state enterprises from the mainland and
other business ventures funded by mainland China±related organizations
become the new hongs ± ®rms owned and managed by British interests,
which dominated the territory in colonial times? Chinese state enterprises
had a long history of business activity in Hong Kong when the China
Merchants Corporation was established. From 1949 to the late 1970s
most mainland enterprises in Hong Kong were primarily trade agents
without local business interests. By 1978 there were only 122 mainland
enterprises in the territory. Their number expanded dramatically during
the 1980s when a large number of provincial governments, major cities,
and ministries set up companies in Hong Kong. By 1989 mainland enter-
prises registered in Hong Kong reached over 2,500. Between 1989 and
1991 the central government weeded out those considered not to have
the necessary management and business capacities and the number was
reduced to 1,500, before rising steadily to 1,830 in 1996.11
By the mid-1990s the mainland had already become a signi®cant eco-
nomic force in Hong Kong. In 1995 the gross asset value of mainland
enterprises was estimated to be more than HK$1,300 billion (US$170
billion). Altogether there were 11 mainland conglomerates in Hong Kong
with over HK$10 billion (US$1.2 billion) gross assets. Since May 1994 the
Bank of China also become a Hong Kong dollar note issuing bank. With
11 sister banks, the Bank of China group has become the second largest
banking group in the territory after Hongkong Bank. In addition to
the ®nancial sector, mainland enterprises have also penetrated into all
the other major sectors of the Hong Kong economy, including trading,
transportation, construction, real estate, hotels, retailing, and tourism.12
Many mainland enterprises also made use of the capital market in the
territory by seeking public listing in the stock market. By mid-1997 the
63 listed enterprises, with a total share value of almost HK$390 billion
(US$50 billion), were popularly referred to as ``red-chip companies.''
The red chips achieved record highs in the run-up to the handover. In
fact share prices for blue chips also went up whenever rumours about
the injection of capital from mainland enterprises were reported. Some
observers are referring to such companies as ``pink chips.'' The expansion
of mainland businesses in Hong Kong and their penetration of the econ-
omy have been extensive.
Representatives from major mainland enterprises are becoming not
only more in¯uential in the boardrooms of Hong Kong's corporate
world, but also in public institutions. One example is the Exchange Fund
Advisory Committee. The Exchange Fund reserves are a key element in
maintaining Hong Kong's ®nancial stability. On 17 October 1983 the
Hong Kong government adopted a linked exchange rate system at a ®xed
rate of US$1 to HK$7.80. The core feature of the arrangement is the full
314 JAMES T. H. TANG
seats. The steep decline of the British businesses and their political in-
¯uence re¯ected structural changes in the Hong Kong economy. A num-
ber of local Chinese ®rms have become immensely successful. The struc-
tural diversity of the Hong Kong economy, which consists of international
businesses, a number of large Chinese ®rms, numerous small and me-
dium-sized enterprises, and Chinese enterprises which are in turn diver-
si®ed in nature, means that business interests are not always coherent,
and this would make it hard for mainland Chinese enterprises to acquire
the kind of dominance that the hongs once possessed.15
Moreover, the political elite from the pro-Beijing business community
may also encounter resistance from the ranks of the bureaucracy. Unlike
their counterparts elsewhere, as the elite of an administrative state Hong
Kong's top civil servants have been both politicians and administrators
responsible for formulating and implementing policies. Therefore they
have had power to make policy choices as well as to explain govern-
ment policies to the public. The rise of the new elite is threatening their
positions.
Although pro-China and pro-business interests will be in¯uential forces
in shaping the economic governance of the Hong Kong SAR, the diverse
economic structure and fragmentation of business and pro-China inter-
ests as well as resistance within the administration are likely to limit their
in¯uence. The introduction of electoral politics in Hong Kong also means
that labour and welfare interests cannot be easily brushed off. While the
institutional machinery which serves the new political elite in the SAR
has become more powerful, Hong Kong's democratization in recent years
has injected new elements into government-business relations as the ter-
ritory transforms into a SAR within the PRC.
Only a few days before the political handover, on 25 June 1997, the
Legislative Council hastily passed new labour laws to provide workers
with the right of collective bargaining and better conditions of work. The
government was opposed to the introduction of such laws, arguing that
they had not been properly discussed in the normal consultative channels
such as the Labour Advisory Board. The secretary for education and
manpower, Joseph Wong, suggested that the laws would adversely affect
industrial relations in Hong Kong with far-reaching consequences. The
members of the Liberal Party, which represents business interests,
walked out of the council meeting in disgust when their opposition to the
bills was ignored by other legislators representing grass-roots and labour
interests.16
Major chambers of commerce in Hong Kong expressed their opposi-
tion to the new labour laws in a joint newspaper advertisement, and many
expect the SAR government to repeal the laws. Chairman of the Hong
Kong General Chamber of Commerce James Tien wrote on 29 June 1997
316 JAMES T. H. TANG
that Hong Kong had been polarized by labour issues and policies under
the last colonial administration. Tien, who is also a member of the Liberal
Party, expected that ``In the SAR era, employers and employees, instead
of resorting to collective bargaining, strikes, union militancy and private
members' bills will resolve their differences through reason, dialogue and
compromise, and work towards a common goal ± maintaining stability
and prosperity for Hong Kong.'' He further maintained that ``we need to
ensure the executive administration is not overwhelmed by populist poli-
ticians who entice voters with free lunches and welfare promises. The
representation in the legislature needs to be more diverse and re¯ective
of the wide range of views in our community.'' He predicted that ``In the
SAR era, with economics taking precedence over politics, we will return
to a more orderly and productive environment which we had during the
time when our GDP growth was double what it is today.''17
When the SAR government introduced the Legislative Provisions
(Suspension of Operation) Bill 1997 to freeze seven laws passed by the
former Legislative Council, including those related to labour matters,
members of the Provisional Legislative Council raised objections.18 The
government's unprecedented move to suspend ordinances already in op-
eration was seen as a departure from usual practices.19 The Provisional
Legislative Council supported the administration's position on four ordi-
nances related to labour matters with 40 votes, but not the other ordi-
nances. The council also extracted a promise from the government not to
extend the freeze beyond 30 October 1997 without its approval.
There is little doubt that the business community has maintained its
in¯uence and indeed reasserted itself as the central political force under
the Tung administration. This is demonstrated by the reversal of the de-
mocratization process with the establishment of a more pro-business and
pro-Beijing Provisional Legislature. Pro-Beijing political forces continued
to dominate the ®rst SAR Legislative Council, helped by the new elec-
toral arrangements, and pro-democratic political forces were left with 19
seats following the elections.
Unlike in the old colonial days, the legislature will not be dominated by
the business elite alone. Not only will a signi®cant minority voice in the
form of the Democratic Party be likely to persist, but some of the pro-
China groups such as the Democratic Alliance for the Betterment of
Hong Kong, and the Hong Kong Federation of Trade Unions, are also
strongly oriented towards labour and grass-roots interests. The labour
laws passed by the Legislative Council were the result of a coalition
among groups with different positions on the Beijing government. Fur-
thermore, according to the Basic Law additional directly elected seats
will be gradually introduced in the legislature: half of the 60-member as-
sembly will be returned by direct election by 2004. With the introduction
HONG KONG 317
. The Hong Kong SAR shall have independent ®nances. It shall use its
own ®nancial revenues without contributing to the central govern-
ment. The central government also cannot levy taxes in the SAR.
. (Article 106.)
The SAR shall practise an independent taxation system and continue
. The Hong Kong SAR shall maintain its status as a free port, remain
as a separate customs territory, and pursue a policy of free trade.
(Articles 114, 115, and 116.)
In a study of the legal order of the SAR, one of Hong Kong's most
prominent public law experts states that ``the intention in the Basic
Law was to entrench the existing capitalist system.''25 The reference to
previous/existing practices and policies suggests that the SAR govern-
ment would have to operate within the economic framework that was in
place prior to the signature of the Joint Declaration between the two
sovereign governments. While the legal framework stipulated in the Basic
Law has guaranteed the independence and liberal orientation of the
economic system in Hong Kong, the SAR would still be able to pursue
broad economic objectives using different instruments and with varying
degrees of involvement in macroeconomic management.
Hong Kong's 1997±98 budget, which is a product of joint Sino-British
consultation, con®rmed that the capitalist system will remain unchanged,
and the commitment to Hong Kong's role as an international business
and ®nancial centre was demonstrated by the administration's decision
not to increase business and pro®t taxes. In 1998, when the ®nancial sec-
retary announced tax cuts and increased bene®ts for the public in the ®rst
budget that was prepared wholly for the SAR, he also maintained that
the SAR government remained small and ef®cient, with total public ex-
penditure kept below 20 per cent of GDP.26
At the time of the political handover, the administration was set to carry
on the laissez-faire tradition of the previous administration. The SAR
inherited a very strong economy. In 1997 Hong Kong was the world's
®fth largest banking centre for external ®nancial transactions, the ®fth
largest foreign exchange market, the seventh largest stock market, the
seventh largest trader, and the busiest container port. It was ranked as
the second most competitive economy in the world in 1997 after Singa-
pore by the World Economic Forum, and reclassi®ed as an advanced
economy by the International Monetary Fund. In Financial Secretary
Donald Tsang's words, ``Hong Kong is already the best place in the world
in which to do business. The Government is totally committed to ensuring
that it remains so.''27
In February 1998, outlining some of the economic problems Hong
Kong could have to weather in 1998 and 1999, the ®nancial secretary
remained optimistic about the SAR's economic situation. Acknowledging
the economic pain resulting for the SAR from a sharp decline in stock-
market and property-market values, he nevertheless remained optimistic
about Hong Kong's economic outlook. While the government recognized
320 JAMES T. H. TANG
that the ®nancial turmoil would damage the territory's external trade
growth and that unemployment would likely rise, the ®nancial secretary
forecast a modest yet positive GDP growth of 3.5 per cent for 1998. He
also predicted a solid 4.8 per cent growth in exports of goods and a 3.5
per cent growth of exports of services, as well as an in¯ation rate at
around 5 per cent.28
In choosing ``Riding Out the Storm: Renewing Hong Kong Strengths''
as the title of his speech, the ®nancial secretary maintained that he was
guided by two principles: assurance of continuity matched with incentives
for new growth. The chief executive has also repeatedly af®rmed that ``we
practise a sound macro-economic policy of small government, with strong
support for the free market.''29 This seemed consistent with the economic
policy of previous administrations. In short, the new SAR government
indicated that it would continue a pro-business and laissez-faire economic
policy, i.e., ``business as usual.''
But as Norman Miners has pointed out, the government's belief in the
free market is not absolute. Sir Philip Haddon-Cave, ®nancial secretary
of the territory during the 1970s, who coined the term ``positive non-
intervention'' to describe the government's approach to economic man-
agement, clearly felt that the administration did have a role in the man-
agement of Hong Kong's economy. His view was that the government
would provide the basic legal framework and infrastructure to facilitate
the operation of market forces.30 From the 1970s onward, however, the
growing sophistication of the Hong Kong economy, and rising protec-
tionism in the form of non-tariff barriers in the industrialized world as
well as the intensi®cation of competition from neighbouring countries,
have eroded the liberal economic ideology of the administration.31 In fact
the business community, which had in past always endorsed the liberal
economic ideology of the government, has urged the government to pro-
vide more support to business.
While the government has continued to adopt a hands-off approach to
economic management, a number of economic crises have forced the
government to step up regulatory actions and provide more direct sup-
port to local industries. For example, the government established the
Securities and Futures Commission in 1989 to regulate the trading of
securities, futures, and leveraged foreign exchange contracts in response
to the exposure of de®ciencies of regulatory framework following the
market crash of 1987.32 Re¯ecting growing pressure on the government
to assume a more active role in regulating economic activities and pro-
viding more support to local businesses, the Hong Kong 1997 yearbook
proclaimed that the government's policy was ``minimum interference and
maximum support.''33 In fact the market crash of 1997 prompted the
government to conduct a comprehensive review of the ®nancial markets
HONG KONG 321
in Hong Kong. Although the report maintained that the economic system
in the territory was sound and the regulatory mechanism had worked
during the ®nancial crisis, it also made speci®c recommendations to
tighten the regulatory framework further.34
In his ®rst policy speech as chief executive of the SAR, Tung Chee-hwa
suggested that under his leadership Hong Kong's development strategy
would be based on a free-market economy and a prudent ®scal policy.
But he obviously considered that a new strategy would be required to
push Hong Kong forward. He announced that a commission on strategy
development would be set up to ``conduct reviews and studies on our
economy, human resources, education, housing, land supply, environ-
mental protection, and relations with the Mainland, to ensure that our
resources are well used, and that we keep up with the world trends in
competitive terms, and that we maintain the vitality of Hong Kong's
economic development.''35 Thus while Tung preaches the same funda-
mental economic philosophy as previous administrations, he obviously
also wants to adopt a more proactive approach in developing a new eco-
nomic strategy for the SAR.
From a different direction, the introduction of a more representative
Legislative Council since the early 1990s has also generated more pres-
sure for the promotion of labour and welfare rights, which in turn has led
to more intense pressure on the government from the business commu-
nity to protect business interests in Hong Kong.
In general, the number of public institutions involved in developing
government economic policies, maintaining the regulatory framework for
the economy, and promoting economic growth and better opportunities
for Hong Kong businesses has grown steadily in recent years.
The Hong Kong state has been described as weak not because it has an
ineffective administration or one with limited autonomy vis-aÁ -vis society,
but because it has kept government involvement in the economy to a
minimum in the past. The weakness of the Hong Kong state was there-
fore the result of a policy choice guided by a liberal economic ideology
and other political considerations. In terms of resource and capacity the
bureaucratic machinery of Hong Kong is by no means weak.
The chief executive of the SAR took over a powerful bureaucratic
machinery when he assumed of®ce on 1 July 1997. Under colonial rule,
political power was always concentrated in the hands of the governor.
The governors were advised by the Executive Council and implemented
government policies through the policy branches which were in turn
322 JAMES T. H. TANG
trialists and traders observe the textiles control policy in accordance with
the World Trade Organisation Agreement on Textiles and Clothing. It
also imposes licensing control for pharmaceutical products and medicines
on health and safety grounds, and ensures the availability of essential
foodstuffs for emergency situations. It exercises licensing control over
local consumption of controlled substances as agreed under the 1987
Montreal Protocol on Substances that Deplete the Ozone Layer. The
department also imposes licensing control over strategic commodities to
prevent Hong Kong being used as a conduit for the proliferation of
weapons.39
The Industry Department is responsible for facilitating the further de-
velopment of manufacturing and service industries. While the department
has declared that its commitment to promote manufacturing and service
industries will not lead to interference with market forces, it has become
more active in developing closer relationships among government, busi-
ness, education and training institutions, and industrial support bodies. Its
priority areas include ``physical, human and technological infrastructure;
productivity and quality; applied research and development of products
and processes; technology upgrade and transfer; and monitoring and
informing industries of world-wide developments that may impinge on
their competitiveness in the global market.''40
Although the government does subscribe to a liberal economic ideol-
ogy, it is clear that the government cannot be truly laissez-faire as the
Hong Kong economy becomes increasingly complex and sophisticated. In
recent years the Hong Kong government's role in macroeconomic man-
agement has become far more visible. A large number of government
departments and other public corporations have been set up to regulate
the economy and provide more support to local industries, to ensure the
territory's compliance with international agreements.
One example is the Intellectual Property Department. As intellectual
property has become an important element in the world trade regime, the
government established the department on 2 July 1990. It is the focal
point in the review and enforcement of Hong Kong's intellectual prop-
erty legislation. The department also administers the system of registra-
tion of trade marks and patents.41 Of the numerous institutions estab-
lished in recent years in economic governance, the most important is the
Hong Kong Monetary Authority. It was established on 1 April 1993, by
merging the Of®ce of the Exchange Fund with the Of®ce of the Com-
missioner of Banking. The primary monetary policy objective of the
HKMA is to maintain exchange rate stability within the framework of the
linked exchange rate system which is set at the rate of approximately
US$1.00 to HK$7.80. The authority is also required to promote ``the
safety and stability of the banking system through the regulation of
324 JAMES T. H. TANG
banking business and the business of taking deposits, and the supervision
of authorized institutions; and to promote the ef®ciency, integrity and
development of the ®nancial system, particularly payment and settlement
arrangements.''42 In defence of the Hong Kong currency in October
1997, the HKMA adopted measures which led to increased interest rates
in the territory. The attack on the Hong Kong currency has prompted
debates in Hong Kong about the link system. While a majority of Hong
Kong analysts and the public support the system, some economists have
argued that the HKMA should not rely solely on interest rates to defend
the Hong Kong currency. But after the HKMA's review of the currency
defences, the government decided to continue with the existing linked
exchange rate mechanisms.43 In August 1998, however, the government
decided to intervene in the stock market to prevent ``speculators'' who
were engaged in double play ± selling Hong Kong dollars to force a
higher interest rate and selling short in the stock market anticipation of a
fall in stock prices as a result of an interest rate increase.
The government's more proactive approach to economic management
is re¯ected by the establishment of organizations such as the Hong Kong
Industrial Technology Centre Corporation, the Hong Kong Industrial
Estates Corporation, a Software Industry Information Centre and Cyber-
space Centre, and efforts in promoting research and development as well as
the establishment of the Government Task Force on Services Promotion.
The ®nancial secretary in the 1997 budget reaf®rmed the proactive
approach. He identi®ed government efforts in four areas: manufactur-
ing, services, the ®nancial sector, and infrastructure. In his speech he
announced the government's plans in support of the manufacturing sector
which included: HK$410 million earmarked for Science Park Phase I;
planning for a second industrial technology centre; planning work started
on a fourth industrial estate; applied research and development schemes
to support technology ventures with HK$250 million seed money. In the
area of services promotion, the government announced the formation of
a new Services Promotion Strategy Group, bringing the government and
the private sector together. The government also concluded negotiations
on all major air services agreements and issued six new licenses for per-
sonal communications services. The Export Credit Insurance Corporation
is to introduce a speci®c insurance policy for small and medium enter-
prises. Through the Services Support Fund, the government committed
HK$28 million to help 14 projects. The Trade Development Council is to
spend another HK$30 million in 1997±98 to promote exports of services.
The ®nancial sector is supported through the introduction of legislation
to permit development of a captive insurance industry. A Mortgage
Corporation is to commence operation in 1997. The government is also
HONG KONG 325
Conclusions
Political developments in Hong Kong since the 1980s have altered the
framework of economic governance which once served the colonial state
well. Towards the end of Hong Kong's colonial days, its liberal economic
ideology had already been eroded not only by a deteriorating inter-
national economic environment and increased competition from neigh-
bouring economies, but also by a more politicized domestic environment.
While the government still maintained a policy of minimum interference,
positive non-interventionism was re-de®ned. The institutions involved in
326 JAMES T. H. TANG
Notes
1. A comparative study of the different paths of economic and political development in
East Asia is Anek Laothamatas (ed.), Democracy in Southeast and East Asia (Singa-
pore: Institute of Southeast Asian Studies, 1997).
HONG KONG 327
17. James Tien, ``Playing to Our Strength,'' South China Morning Post, 29 June 1997.
18. Protection of the Harbour Ordinance 1997; Employment (Amendment) (No. 4) Ordi-
nance 1997; Occupational Deafness (Compensation) (Amendment) Ordinance 1997;
Employment (Amendment) (No. 5) Ordinance 1997; Employees' Rights to Repre-
sentation, Consultation and Collective Bargaining Ordinance 1997; Trade Unions
(Amendment) (No. 2) Ordinance 1997; and Hong Kong Bill of Rights (Amendment)
Ordinance 1997.
19. Press release by the government, 8 July 1997.
20. The discussion here is inspired by Jagdish Bhagwati, Protectionism (Cambridge, Mass.:
MIT Press, 1988).
21. The Heritage Foundation, 1997 Index of Economic Freedom.
22. Hong Kong 1997 (Hong Kong: Information Services Department, 1997), p. 64.
23. Michael J. Enright, Edith E. Scott, and David Dodwell, The Hong Kong Advantage
(Hong Kong: Oxford University Press, 1997), p. 30.
24. See, for example, Yasheng Huang, ``The Economic and Political Integration of Hong
Kong: Implications for Government-Business Relations,'' in Warren I. Cohen and Li
Zhao (eds.), Hong Kong under Chinese Rule: The Economic and Political Implications
of Reversion (Cambridge: Cambridge University Press, 1997), pp. 96±113.
25. Yash Ghai, Hong Kong's New Constitutional Order: The Resumption of Chinese Sover-
eignty and the Basic Law (Hong Kong: University of Hong Kong Press, 1997), p. 152.
26. Donald Tsang, The 1997±98 Budget: Continuity in a Time of Change, 12 March 1997
(Hong Kong: Hong Kong Government, 1997); The 1998±99 Budget: Riding Out the
Storm, Renewing Hong Kong Strengths, 18 February 1998 (Hong Kong: Hong Kong
Special Administrative Region Government, 1998).
27. Tsang, The 1997±98 Budget.
28. Tsang, The 1998±99 Budget, pp. 8±9.
29. Speech by the Chief Executive, Mr. Tung Chee-hwa, at a lunch hosted by the Hong
Kong Trade Development Council and the Conseil National du Patronat FrancËais In-
ternational (French Employers' Association), in Paris, Wednesday, 11 March 1998.
30. Miners, The Government and Politics of Hong Kong, 5th ed. p. 47.
31. For an analysis of the impact of protectionism on the world trading system, see Jagdish
Bhagwati, The World Trading System at Risk (Princeton, N.J.: Princeton University
Press, 1991).
32. For a brief of®cial history of the Hong Kong Securities and Futures Commission see
the Commission's website: http://www.hksfc.org.hk/eng/about/backgrnd.htm, ``Historic
Background to the SFC,'' June 1997.
33. Hong Kong 1997, p. 64.
34. Report on Financial Markets Review (Hong Kong: Hong Kong Special Administrative
Region Government, April 1998).
35. Building Hong Kong for a New Era: Address by the Chief Executive, the Honourable
Tung Chee-hwa, at the Provisional Legislative Council Meeting on 8 October 1997 (Hong
Kong: The Hong Kong Special Administrative Region of the People's Republic of
China, 1997), para. 16.
36. Broadcasting, Culture and Sport Bureau; Civil Service Bureau; Constitutional Affairs
Bureau; Economic Services Bureau; Education and Manpower Bureau; Finance
Bureau; Financial Services Bureau; Health and Welfare Bureau; Home Affairs Bureau;
Housing Bureau; Planning, Environment and Lands Bureau; Security Bureau; Trade
and Industry Bureau; Transport Bureau; Works Bureau.
37. Agriculture and Fisheries Department; Architectural Services Department; Audit
Department; Auxiliary Medical Services; Buildings Department; Census and Statistics
Department; Civil Aid Services; Civil Aviation Department; Civil Engineering Depart-
HONG KONG 329
ment; Civil Service Training and Development Institute; Companies Registry; Correc-
tional Services Department; Customs and Excise Department; Drainage Services De-
partment; Education Department; Electrical and Mechanical Services Department;
Environmental Protection Department; Fire Services Department; Government Flying
Service; Government Laboratory; Government Land Transport Agency; Government
Property Agency; Government Supplies Department; Health Department; Highways
Department; Home Affairs Department; Hospital Services Department; Housing Au-
thority; Housing Department; Immigration Department; Industry Department; Infor-
mation Services Department; Information Technology Services Department; Inland
Revenue Department; Intellectual Property Department; Labour Department; Lands
Department; Land Registry; Legal Aid Department; Legal Department; Management
Services Agency; Marine Department; New Airport Projects Co-ordination Of®ce
(Hong Kong Airport Core Programme); Of®cial Language Agency; Of®cial Receiver's
Of®ce; Planning Department; Post Of®ce; Printing Department; Public Records Of®ce;
Radio Television Hong Kong; Rating and Valuation Department; Regional Services
Department; Registration and Electoral Of®ce; Royal Hong Kong Police Force; Royal
Observatory; Social Welfare Department; Student Financial Assistance Agency; Tele-
communications Authority; Of®ce of the Television and Entertainment Licensing Au-
thority; Territory Development Department; Trade Department; Transport Depart-
ment; Treasury; Urban Services Department; Water Supplies Department. Airport
Authority; Hong Kong Broadcasting Authority; Consumer Council; Employees Re-
training Board; Equal Opportunities Commission; Hong Kong Arts Development
Council; Hong Kong Council for Academic Accreditation; Hong Kong Council on
Smoking and Health; Hong Kong Examinations Authority; Hong Kong Export Credit
Insurance Corporation; Hong Kong Industrial Estates Corporation; Hong Kong Indus-
trial Technology Centre Corporation; Hong Kong Monetary Authority; Hong Kong
Productivity Council; Hong Kong Sports Development Board; Hong Kong Tourist As-
sociation; Hong Kong Trade Development Council; Hospital Authority; Independent
Commission against Corruption; Independent Police Complaints Council; Kowloon-
Canton Railway Corporation; Legal Aid Services Council; Mass Transit Railway Cor-
poration; Occupational Safety and Health Council; the Ombudsman; Port Development
Board; Privacy Commissioner for Personal Data, Of®ce of the Public Service Com-
mission; Securities and Futures Commission; Standing Commission on Civil Service
Salaries and Conditions of Service; University Grants Committee; Vocational Training
Council.
38. The of®cial description of the various roles of the bureau is at its website, Hong Kong
Government Information Centre: http://www.info.gov.hk/fb.
39. Details of the Trade Department's work are at the department's website, Hong Kong
Government Information Centre: http://www.info.gov/trade/department/.
40. Industry Department website, Hong Kong Government Information Centre: http://
www.ingo.gov.hk/id/.
41. Hong Kong Monetary Authority website, Hong Kong Government Information Centre:
http://info.gov.hk/hkma/.
42. Hong Kong Monetary Authority website, Hong Kong Government Information Centre:
http://info.gov.hk/hkma/.
43. For a discussion of the issue by Joseph Yam (Chief Executive, Hong Kong Monetary
Authority), see The Hong Kong Dollar Link (Speech at Hong Kong Trade Develop-
ment Council Financial Roadshow in Tokyo) 3 March 1998.
44. Tsang, The 1997±98 Budget.
45. The 1997 Policy Address: Policy Programmes (Hong Kong: Hong Kong Special Ad-
ministrative Region Government, 1997), p. 308.
13
Conclusion
Jean Blondel and Ian Marsh
By the end of the 1990s, East and Southeast Asia were sharply divided
between those countries which had experienced a major political change
and had moved, in some cases repeatedly, from authoritarianism to lib-
eral democracy, and those which had experienced no change and had
been for a period ± often a long one ± partly democratic and partly au-
thoritarian. There was little ground for suggesting that change was about
to occur in this second group of countries, except perhaps in Indonesia,
though there was also little expectation that changes which have begun to
occur in that country would quickly bring about a genuine form of liberal
democracy.
To this extent, the countries of the region were providing only limited
evidence for the prevailing view in the political science literature accord-
ing to which socio-economic well-being was highly likely to be connected
with political liberalization. This relative ``exceptionalism'' of East
and Southeast Asia has perhaps not been given the attention which it
deserves, although exploration of the roots of this state of affairs could
well provide an indication as to what tends to occur at the border of the
area in which liberal democracy is strongly and even permanently asso-
ciated with socio-economic well-being.
However important such a problem may be, another was felt to be
more pressing, given the strength of political opinion on the subject, in
some quarters at least: namely whether liberal democracy, achieved by
whatever means and in particular independently or not from socio-
333
334 JEAN BLONDEL AND IAN MARSH
respect to the second party. The end of the single-party system did not
result in a variety of rather inchoate political groupings emerging in the
society: it resulted, on the contrary, in the growth of a major party, the
Democratic Progressive Party, which rapidly gained ground and, unlike
the opposition in Malaysia, has appeared poised to win power at the
centre, as it already did at the local level in the late 1990s. Taiwan politics
has come to be ``adversarial'' rather than consociational. This adversarial
system may not be a ``pure'' two-party system, but few two-party systems
are pure: they tend to be often of a ``two-and-a-quarter'' variety, as in
Britain, New Zealand, or Australia.
What rendered the Taiwan party system strong and consolidated has
been, in an analogous manner to that of Malaysia, the existence of a
cleavage between the indigenous Taiwanese part of the population
and the part of the population whose roots are on the mainland. As in
Malaysia, the main cleavage is not based on class, and in Taiwan it is not
even based on religion: instead, it has an ethnic or pseudo-ethnic charac-
ter. As in Malaysia, too, this cleavage is suf®ciently profound to lead to a
genuine sense of difference, and this sense is likely to be long-lasting.
However, in part because the general political framework is freer than in
Malaysia, the basic political cleavage which characterizes Taiwan has led
to the emergence of two blocs: as in Britain and other ``two-party adver-
sarial countries,'' the battle is fought on the lines of ``ins'' and ``outs,''
with the bulk of the population being associated with one or the other
camp. For a polity which lived under a single-party system with strong
military undertones as late as the early 1980s to have been able to move
rapidly and peacefully towards a lively competitive party system is almost
as ``miraculous'' as the economic development of that country has been
``miraculous.''
This ``miracle'' contrasts with the markedly more limited progress of
party development in three of the other six countries, and with the lack of
any progress at all in at least two of the remaining three. The countries
which have made limited progress are those in which liberal democracy
has been introduced or restored in the mid-1980s, Korea, the Philippines,
and Thailand. The countries where there has been no or almost no
progress in the strengthening of the bases of the party system are Indo-
nesia and Singapore, and also Hong Kong, where the party development
which had begun to occur came to be in question when the area ceased to
be a British colony.
In Korea, the Philippines, and Thailand, the installation or restoration
of liberal democracy has not been accompanied by the development of a
well-structured party system as in Taiwan. What has emerged or re-
emerged, on the contrary, has been a number of inchoate bodies, as the
340 JEAN BLONDEL AND IAN MARSH
chapters relating to these countries clearly show. Parties are tied to the
support of presidential candidates in Korea, and this support is neatly
circumscribed geographically; parties in Thailand and the Philippines lack
even minimal permanency. Clientelism prevails, in the absence of any
national social cleavage broad enough to override localism. The parties of
all three countries have more in common with French parties before the
advent of the Fifth Republic in 1958 than with parties in other Western
countries; they have even little in common with Japanese parties, as the
parties of that country, despite their divisions, are national in character.
This was not the case in France, at least among parties of the Right and
Centre before World War II and even to an extent before 1958. The lack
of a national party system in the three countries, as indeed in pre-1958
France, should not be regarded as being due to the absence of a feeling of
national identity, however. As a matter of fact, Korea is a highly homo-
geneous country; Thailand and the Philippines are less homogeneous, but
the feeling of national identity of both of these countries dates back for
centuries. Yet this is associated in all three cases with a high degree of
local or parochial ``patriotism'' which determines the patterns of political
allegiance.
Thus liberal democracy cannot be said to be consolidated in these three
countries; nor can it be even said that it is undergoing a process of con-
solidation. The political game is open, but it takes the form of a drama in
which there are many minor parts, but no major ones; indeed, those who
have the minor parts replace each other rapidly and in an obviously un-
predictable manner. Thus these countries are not consociational in the
true sense, despite efforts in this direction which have sometimes been
made, as in the case of the ``growth coalition'' which emerged in the
Philippines in the middle of the 1990s and lasted about a year. But poli-
tics in these countries is not adversarial either, as there are no party
alignments analogous to those of Taiwan. The structuring which parties
could provide being non-existent or almost non-existent in these three
countries, the form which politics takes is likely to oscillate sharply
depending on circumstances.
The lack of national party structuring suggests that liberal democratic
life in the three countries has not found a ``natural'' equilibrium: many of
its characteristics ± and perhaps its very maintenance ± depend on acci-
dents, such as the emergence of a strong leader. This is what may render
a presidential or semi-presidential system appropriate, as was suggested
in chapter 4. That system is indeed better able than the parliamentary
system to provide both leadership and policy consistency where both
would otherwise be lacking as a result of the weakness of the parties. The
contrast between Korea and the Philippines, on the one hand, and Thai-
land, on the other, is illuminating in this respect. Ostensibly at least, pol-
CONCLUSION 341
itics has been more coherent in the ®rst two countries than in the third,
while the only partial remedy for the absence of strong leadership in
parliamentary Thailand is the fact that the monarch can and indeed does
play a part in situations of real emergency; but this remedy is more in the
nature of a medicine designed to lower the temperature than one that
eliminates the causes of that temperature.
Yet the presidential system provides a temporary solution only: in both
Korea and the Philippines it buttresses liberal democracy somewhat
arti®cially. Whether the presidential system will give these countries a
breathing space during which a well-implanted party system will emerge
is doubtful. Parties in the Philippines have not shown any noticeable
tendency to become more solid, quite the contrary; and parties in Korea
seem to continue to be appendages of presidential candidates. The con-
sequences of such a situation may well be serious. In the 1990s, the global
political environment has been broadly unfavourable to coups and to
authoritarian rule in general, but if this were to change, parties might not
be suf®ciently consolidated in Korea, the Philippines, and Thailand to
prevent a return to authoritarianism.
Meanwhile, parties are so superimposed on the political system in the
last three countries, Indonesia, Singapore, and Hong Kong, that it is dif-
®cult to regard them as being more than marginal and symbolic elements,
as the chapters relating to these countries indicate. Of the three, Hong
Kong is the closest to being a pure ``administrative state,'' but an admin-
istrative state in which the bureaucracy is rather low-key, as we shall see
shortly. Singapore is in all but name an administrative state as well, and a
strong one at that, and the dominant party is little more than a mecha-
nism aiming at formally legitimizing what the administration does, without
in fact having the authority to provide real legitimacy. Parties are a little
more alive in Indonesia, in part because they are of®cialized and include
an opposition whose (tiny) role is formally recognized. Yet the apparently
solid structure of the main party is so arti®cial and its capacity to hold the
nation together is so problematic that that party has to be regarded as
little more than a symbolic superstructure which, like its counterpart in
Singapore, though in a different manner, formally but not really legiti-
mizes the regime. Following the collapse of the Suharto regime, parties
have now proliferated in Indonesia. The political outlook remains un-
certain. Indonesia is likely to encounter major political dif®culties if only
because of its size, as the Soviet Union did. Meanwhile, Hong Kong
might have gradually acquired a well-implanted party system on the
model of Taiwan, based on the distinction between the indigenous popu-
lation and the population coming from China proper. But the end of the
colonial period stopped this development and made an administrative
state formula the only practical solution.
342 JEAN BLONDEL AND IAN MARSH
The eight country studies survey economic governance, the roles and
effectiveness of the bureaucracy in this area, and the institutions through
which policies are devised, co-ordinated, and implemented. These data
allow patterns of economic governance in the countries concerned to be
evaluated and compared. The picture that emerges is extremely varied
and, as a result of the ®nancial crisis of 1997, extremely volatile, particu-
larly in the affected states of Korea, Indonesia, Thailand, and Malaysia.
The ®rst contrast between the eight states concerns the scope of eco-
nomic, industry, and technology policy. Economic policy covers the role
of the state in ®scal, monetary, and trade policy; industry policy the de-
gree to which the state attempts to manage industrial structure outcomes;
and technology policy its programs to foster productivity and the progres-
sive development from wage cost±based industrialization, through catch-
up, to innovation. At least three factors in¯uence the experience of indi-
vidual states: their expressed economic ambitions; the duration of their
experience of rapid growth; and the relative roles of domestic and foreign
capital in the initiation and maintenance of growth. The ®rst factor affects
the overall complexity of bureaucratic policy-making and implementation
tasks; the second affects the precise nature of these tasks; and the third
affects technology strategy and business-government relations.
In terms of these three variables, the eight states fall into three broad
groups. The ®rst is constituted by Korea, Taiwan, Hong Kong, and Sin-
gapore. These countries progressively entered the world production sys-
tem from roughly the 1960s. With the exception of Hong Kong, they have
all attempted to in¯uence industrial structure outcomes. The state con-
ceived and initiated a growth strategy and mobilized, at least initially, the
resources ± capital, human, and technological ± to implement that strat-
egy. This initial role coloured the subsequent development of economic
governance. The state has continued to aspire to a catalytic role in rela-
tion to markets. While Singapore and Hong Kong have drawn heavily on
DFI, Taiwan and Korea, but Korea up to the 1990s only, have relied
primarily on domestic capital mobilization.
The challenge for these states has been to adapt to their changing ex-
ternal and domestic contexts. Externally, they have become progressively
more implicated in global production, and save for Taiwan, in global
®nancial systems. Domestically, they have had to integrate at least busi-
ness and labour interests and to move from catch-up technology strat-
egies towards innovation. For example, the crisis in Korea re¯ected,
among a number of factors, the progressive weakening of that state's
ability to manage the integration of labour, to curb the power of the
chaebols, and to progressively augment catch-up technology strategies
CONCLUSION 343
Party
formation
STRONG INTERMEDIATE WEAK highly
Programmatic Representative Internally divided constrained
STRONG
embeddedness state steer- TAIWAN
ing (e.g. focus on industrial SINGAPORE
structure outcomes: technology Japan(?) KOREA
policy; co-ordinate investment; France
Economic Governance
INTERMEDIATE
Britain Most
3 3 HONG KONG
(e.g. central bank indepen-
dence; open ®nancial system; continental United f PHILIPPINES
neutral ®scal and monetary Sweden European States THAILAND
policy; liberal trade regime; INDONESIA
limited collaboration with MALAYSIA
business and/or labour)
3
WEAK Many Latin
( implementation dif®cult) American
Figure 13.1 Political parties and economic governance in East and Southeast Asia
347
348 JEAN BLONDEL AND IAN MARSH
between the two sides. Parties and politicians may have to accept to ex-
ercise a degree of self-restraint in terms of their own involvement in
economic policy-making if a high level of economic performance is to be
maintained; bureaucrats may have to agree to involve parties and politi-
cians in policy-making, and indeed to bow to the desires of these parties
and politicians, in order to reap the bene®ts of the legitimizing umbrella
which parties and politicians can open above them.
1. On the ®rst point, a mixed answer can be given for East and South-
east Asia. The role of the bureaucracy remained unchanged in two of the
four countries which moved towards liberal democracy, Taiwan and
Thailand, while some changes occurred in Korea and the Philippines. The
differences between Taiwan and Thailand, in the involvement of admin-
istrators in policy-making, pre-dated liberal democracy: in Taiwan, the
involvement of administrators in sectoral economic management con-
tinued; the fact that the bureaucracy was only basically concerned with
macroeconomics in Thailand is a re¯ection, not of the change in the
political regime in the country, but of the fact that the civil service never
was deeply involved in microeconomic initiatives, perhaps because of its
more limited capacity.
In the Philippines the involvement of the bureaucracy in micro-
economic management which characterized the second period of the
Marcos dictatorship was markedly reduced when liberal democracy was
restored and a policy of privatizations and economic liberalization was
adopted; but that change followed a period during which the economy
had ceased to grow and had even gone into decline. Moreover, the policy
of microeconomic management which had been introduced by Marcos
during the second phase of his dictatorial rule was more designed to
enable the president and his close business associates to exploit the
economy than to give the bureaucracy a key role in the management of
the economy. Thus the failure of the policy was perhaps due, in part at
least, to the predatory aims of the Philippine power elite, although it may
also have been the case that, as in the rest of Southeast Asia except Sin-
gapore, the bureaucracy did not have the required technical competence
to undertake successfully a detailed supervision of the different sectors as
its opposite numbers in Korea or Taiwan had been able to do. Thus the
Marcos policy of sectoral intervention had analogous characteristics to
that of Suharto in Indonesia: in both cases, it is dif®cult to dissociate the
microeconomic aims from the desire to provide bene®ts to the immediate
entourage of the leader. The change of policy after the return to democ-
racy is not therefore an indication that the role of the bureaucracy was
being ``ideologically'' reduced.
However, while democratization may not be regarded as having
``caused'' a decrease in the involvement of the bureaucracy in three of the
350 JEAN BLONDEL AND IAN MARSH
four countries of the area which did democratize, the same does not
appear to be the case in Korea. Admittedly, the strengthening of some of
the non-state economic actors, businesses in particular, was not due to
democratization, but to the increase in the power of the chaebols. Yet the
loss of in¯uence which the bureaucracy suffered as a result was not com-
pensated by an increase in the ability of parties to channel demands
coming from these bodies; nor did demands from employees and in par-
ticular from manual workers come to be channelled by the parties either.
The rather limited extent to which the presidency can compensate for the
inability of parties to play a part in the polity is thus manifest in the
Korean case. Korea constitutes therefore an instance in East and South-
east Asia where democratization may have contributed to a reduction in
economic performance, while this cannot be deemed to have been the
case for the other three countries of the area which became liberal
democracies.
2. Second, there appears to be a consensus on the part of parties and
politicians in the countries in which liberal democracy was installed or
restored about the need to pursue policies of economic growth. As a
matter of fact, in the speci®c case of the Philippines, as we just saw, the
authoritarian regime of Marcos proved increasingly unable to bring about
economic growth. Thus, in this respect at least, liberal democracy did
in¯uence economic development positively. Moreover, in all the four
countries which installed or restored liberal democracy, a consensus has
existed among parties and politicians on maintaining the policy of eco-
nomic growth. This has been particularly manifest in the Philippines,
where a ``growth coalition'' brought together most parties in the mid-
1990s; and in Korea, where successive presidents, including the president
elected in 1997, have been at pains to state and prove that they believed
in continuing existing economic policies. However, in both countries, as
well as in Thailand, the weakness of parties means that a commitment to
growth on their part has little signi®cance. As parties in these countries
count for very little, it cannot be claimed that these would have been in
any real sense in a position to affect the impact of the bureaucracy on
policy-making even if they had wanted to. But as we noted in the Korean
case, the weakness of parties may indirectly have contributed to a reduc-
tion of the general role of the state in supervising economic actors.
The only one of the democratizing countries of the region where the
position of parties on the question of economic growth could be said
to have a real relevance is Taiwan, since it is the only one in which the
parties have acquired genuine strength: on coming to power, the DPP
might be able to introduce different policies, if it wished to do so. Yet this
does not seem likely, not merely because the views of the DPP on eco-
nomic policy do not appear to differ markedly from those of the KMT,
CONCLUSION 351
but also because the DPP has begun to represent to a substantial extent
the interests of the large group of small businessmen on which the eco-
nomic performance of Taiwan has been based. Admittedly, it might be
that the coming to power of the DPP would have such consequences
for foreign policy developments that the economic performance of the
country would be adversely affected, but this means going beyond the
economic area proper and therefore outside the parameters of this study.
Overall, there is thus consensus among parties and politicians in the
region on the need to pursue a policy of strong economic growth, but
except for Taiwan, there remains some doubt as to whether parties are
suf®ciently alive to be regarded as reliable agents in this respect. It may
therefore be that, if parties were to become stronger, or if new and
stronger parties were to emerge and be successful, a challenge to the
policy of economic growth would also emerge and the consensus would
be broken. All that can be said is that there are no signs that any party is
about to take such a line, as there are no signs that any party (except in
Taiwan) will be in a position to adopt, let alone maintain, a de®nite and
coherent policy line.
3. If it is unclear whether parties might emerge which might challenge
the policy of economic growth, it is even more unclear whether bureau-
crats will develop attitudes which would be antagonistic to liberal demo-
cratic parties and politicians: for what needs to be determined to give
de®nite answers to such a question is evidence about what the reactions
of civil servants might be if confronted with situations in which the eco-
nomic performance of their countries was impaired under a liberal dem-
ocratic regime. To an extent, the crisis of 1997 constitutes an instance of
such a situation, and its potential consequences in terms of the impact of
liberal democracy on the economy will shortly be examined; but there
could be other circumstances in which the problem might arise since
there could be many situations leading civil servants to mistrust liberal
democratic parties and politicians and to favour a return to authoritarian
rule.
In the absence of detailed studies of these potential attitudes of civil
servants in each country, the points which can be made have to be gen-
eral. Three of these appear to be particularly important. First, if what is
feared by civil servants is undue manipulation of economic policy by the
political masters, it is not clear that there is less of this kind of manipula-
tion under authoritarian rule than under liberal democratic rule. The
cases of Marcos in the Philippines and Suharto in Indonesia have already
been mentioned; in Singapore, Lee Kuan Yew has more than occasion-
ally acted over and above his civil servants; the part played by Malaysian
political leaders, above all Mahathir, in economic policy-making has been
very signi®cant. In contrast, liberal democratic leaders are likely to be
352 JEAN BLONDEL AND IAN MARSH
Independently from its importance for the region as a whole and indeed
for the world, the ®nancial crisis of 1997 constitutes a test case of the re-
lationship between politicians and civil servants in both a liberal demo-
CONCLUSION 353
pounded by the fact that the autonomy of the bureaucracy had come to
be somewhat hampered by the actions of Suharto in favour of his busi-
ness associates. As a result, the Indonesian presidency had ceased to
provide help to the politico-administrative system and had come to be a
handicap. Indonesia appears therefore to be the polity of the area least
likely to surmount the crisis.
In the other countries, the risk represented by the crisis would in the-
ory seem to be greater as a result of legitimacy being low than as a result
of the weaknesses of the administrative apparatus, since, in East and
Southeast Asia, the administration is always at least able to see its deci-
sions implemented relatively ef®ciently. Thus the countries in which par-
ties display intermediate strength (Taiwan and Malaysia) would appear
more likely to control the effects of the crisis than the countries in which
parties are weak (Korea, Thailand, and the Philippines) or almost non-
existent (Singapore and Hong Kong).
Two points modify this conclusion, however. First, in relation to a cri-
sis, the ``accidental'' coming to power of a president has the effect of
increasing, albeit perhaps only temporarily, the capacity of the political
system to resolve the crisis or at least reduce its impact, since a crisis, ®-
nancial, economic, or otherwise, is itself an event or a situation of an
``accidental'' character which is by its very nature ``abnormal.'' The rea-
soning which can be made in this context is analogous to Max Weber's
reasoning about charismatic leadership:3 in a crisis, if a truly popular
leader happens to come to power, the society may be able to overcome
the problem and return to ``normalcy.'' This means, in practice, that not
only should Taiwan be able to surmount the crisis ± as it might in any case
be able to do given that its party system is relatively strong ± but that
Korea and the Philippines may also be able to do so, if and so long as
these countries are ruled by a strong and popular president who is willing
to support the bureaucracy and protect it if it comes under attack because
of the severity of the measures which are taken. We noted earlier that
there was some doubt in this respect in the case of Korea; yet the country
most at risk in the group of those which have become liberal democratic
seems to be Thailand, as parties in that country are inchoate and the
parliamentary system does not provide ``arti®cially'' and automatically
mechanisms through which to build as strong a leadership as the presi-
dential system.
Second, while Singapore and Hong Kong would appear to be politically
weak because they lack the legitimizing impact of parties, the special
characteristics of these two polities renders them appreciably less vul-
nerable. They may be both almost pure administrative states, but they
appear nonetheless able to surmount without great dif®culty any crisis
which they will have to face, as, in sharp contrast with Indonesia, they
CONCLUSION 355
Notes
1. See Yi Feng, ``Democracy, Political Stability and Economic Growth,'' British Journal of
Political Science 1997; 27: 391±418.
2. For references on the role of parties see chapter 2.
3. Max Weber, The Theory of Social and Economic Organization (New York: Free Press,
1947).
4. Jean-Jacques Rousseau, The Social Contract (London: Penguin, 1974).
5. See Feng, ``Democracy, Political Stability and Economic Growth.''
Contributors
357
358 CONTRIBUTORS
the Asia Foundation and other local James T. H. Tang, Professor at the
®nancial ®rms. He holds a Ph.D. Department of Politics and Public
from the University of Wisconsin- Administration, University of Hong
Madison. Kong.
359
360 INDEX
Kim Dae Jung [South Korea] 139, 140, 142, of South Korean political parties 150
149, 152, 163, 164 within political parties 35±36
Kim, Hyung-Ki 55 LEDAC (Legislative-Executive
Kim Jong Pil [South Korea] 149, 151, 152, Development Advisory Council)
153 [Philippines] 185
Kim Young Sam [South Korea] 139, 142, Lee Hsien Loong [Singapore] 300
152, 157, 160±161 Lee Kuan Yew [Singapore] 1, 3, 288±289,
KMT (Nationalist Party) [Taiwan] 291, 295, 300
control of state enterprises by 111±112 Lee Teng-hui Complex [Taiwan] 126
economic development and authoritarian Lee Teng-hui [Taiwan] 125, 126, 130
ideology of 110, 116, 119±120 Legarda, Loren [Philippines] 175
economic policies of 131±132 Legislative Council [Hong Kong] 307,
following Civil War 109 311±312, 315, 321
ISI and land reform by 117 liberal democracy. see democratic
liberalization limited by 120 governments
media control by 30±31 Liddle, R. W. 266
Southward Investment Policy by 127, 130 Lijphart, A. 42
see also Taiwan Linz, John 168
Korea. see South Korea Lipset, S. M. xiii, 151
Korean telecommunications industry 67±68 Liu, Hong 68
Korean War (1950±1953) 138, 308 Low Countries 93, 94, 95, 96±97, 98
Korn Dabaransi [Thailand] 213 LP (Liberal Party) [Philippines] 170, 182,
Kramol Tongdhamachart 211 183±184
Krause, Lawrence 300
Kuala Lumpur [Malaysia] xiv McCubbins, M. 278
Kuomintang. see KMT (Nationalist Party) Maceda, Ernesto [Philippines] 181
[Taiwan] MacIntyre, Andrew 56, 69, 344
Kuznets, Simon 115 Mahathir Mohammad [Malaysia] 1, 3, 63,
238±239, 240±241, 244, 255, 256
labor Malaysia
business-government collaboration and authoritarianism political climate of 2,
52 338
Hong Kong's new laws regarding bureaucracy of 14, 252±253
315±316 business-government collaboration in 66
Singapore economic policies and economic governance in 246±247
299±300 bureaucrats, think tanks, and 252±253
Lakas-LDP coalition [Philippines] 186, heavy industrialization strategy and
189±190 249±252
Lakas [Philippines] 178, 180, 183, 185, 186 political economy (1970±1990) and
LAMMP [Philippines] 180, 181, 182, 183 247±249
Latin America Vision 2020 and 253±254
bureaucracy and presidentialism of elections and the electoral system of
99±104 230±234
party structure in 31 campaigns 233±234
strength of bureaucracies in 85 ®rst-past-the-post system of 29, 230
studies of economic growth in 7, 334±335 parliament election results 235
LDP (Laban ng Demokratikong) role of media in 232
[Philippines] 180±181, 183, 185, 186 elite agencies of 56
leadership employment/occupation by ethnic group
in consociational systems 97±98 in 251
economic performance and consensus of NEP (New Economic Policy) of
58 247±248, 250±251, 252, 254
366 INDEX
Tiananmen square (1989) [China] 310 party system and constitutional structure
Tokugawa rule (1603±1858) [Japan] 88 in 25
transaction costs University of Malaysia xiv
economic performance practice and University of New South Wales xiv
67±69 University of Siena xiv
institutional economics on 50 University of Tokyo xiv
Tsang, Donald [Hong Kong] 319, 320
Tung Chee-hwa [Hong Kong] 310±311, values
321 Confucian 140, 295±296, 303
TVRI (Indonesian broadcasting channel) role in economic growth and governance
265±266 9±11
two-and-a-half-party systems 41 Singapore debate over Asian vs. Western
two-party systems 41 295
Western Protestant ethic 11
ULD (United Liberal Democrats) [South see also Asian values
Korea] 146 Veneroso, F. 72
UMNO (United Malay National Venezuela 26
Organization) [Malaysia] 26, 36 Vietnam con¯ict 299
campaigns of 233±234 Vision 2020 [Malaysia] 58, 253±254
deputy presidential election of 1993 and
239±240 Wade, Robert 53, 54, 72
election results for 235 Wang Yong-ching [Taiwan] 130
factional crisis of (1987) 238±239 Weingast, Barry 54
impact on bureaucracy by 253 Western Europe
Mahathir consolidation and 240±241 consociationalism in 94±97
membership breakdown (1997) of 237 mass parties of 37
overview of 236±237 pluralistic party systems of 41
patronage of 237±238 social cleavages in countries of 93±94
political outlook and factionalism of strength of bureaucracies in 85±86
255±257 World Bank
rural support of 231, 232 on competence of Filipino civil servants
ties between media and 232 193
see also Malaysia Filipino requests of 197
United States response to 1997 crisis by 345, 346
bureaucracy and presidentialism in the World Trade Organization Agreement on
99±104 Textiles and Clothing 323
federalism of 26, 27 WTO (World Trade Organization) 12, 69,
foreign aid to Taiwan from 117 223