THE EXPERIENCE OF THE ASEAN - 3

Singapore's experience with industrialization, as well as the more recent experiences of Malaysia and Thailand, has proven that an MNC-led industrialization strategy can lead to rapid ascent up the technology ladder. This experience disproves the Marxist-inspired development economics of the 1950s and 1960s which harped on the dangers of exploitation by MNCs and a dependency on foreign agents. What the early development economists failed to foresee was the global nature of MNC operations and the tremendous opportunities provided by the international division of labour.

Although it cannot be denied that the ASEAN-3 are dependent on MNCs to generate growth, this dependency has proven to be mutually beneficial. While MNCs benefit from low-cost production bases, the host countries have found that, through MNCs, they have ready access to capital resources, technological know-how, up-to-date products, modern managerial and technical expertise, and global markets. This chapter analyses the manner and extent to which this was achieved in the ASEAN-3. Apart from examining the flow of technology from the more advanced countries to the host ASEAN countries, an assessment will also be made of the intra-ASEAN technology flows based on the experience of the MNCs studied.

Technology is defined here in its broadest sense to include knowledge of modern scientific methods that can be applied to the production and distribution of goods and services. Defined this way, technology is embodied both in the hardware of machinery and equipment and in the “software”, that is, the people who operate, maintain, adapt and develop these machines.

A number of studies on technology transfer in ASEAN have been done by Nathabhol, Osman-Rani et al., Ng et al. and Chng et al. Chng et al. lists three distinct components of technology that can be transferred:

1. 1. physical assets, such as plant, machinery and equipment;

2. 2. information, both technical and commercial, relating to such matters as process know-how; choice of technology; engineering design and plant construction; organization and operating methods; quality control; and market characteristics;

3. 3. human skills, especially those possessed by specialized professionals and engineers.

Chairman:

Ladies and Gentlemen, the ever tighter schedule threatened to squeeze out the question and answer session. We have a few questions which the President has offered to meet. So, can I ask questioners to be brief, state your name, and get to the point quickly, please.

Question

Mr President, the trend towards closer economic interaction within regions — with Europe forging a single market and the United States, Canada and Mexico moving towards a North American Free Trade Area — will grow in momentum in the 1990s. How in your opinion can we ensure that these trends do not result in inward-looking economic blocs? How can APEC as a body promote greater economic openness and counter these inward-looking trends?

Bush:

First, help us reach a successful conclusion to the GATT round. Therein lies the most important single step that can guarantee against trading blocs. Second, accept my word that nothing in the North American Free Trade Agreement wants to contribute to dividing the world into trading blocs that shut out other people's goods. That is not what it is about. If we are successful in NAFTA, that will increase markets for Asian goods in South America, which has been an area that needs economic help. So, the first answer is help with GATT, successful conclusion of the Uruguay Round. And the second answer is, please understand that NAFTA — I can only speak for American participation therein, but I am sure it is also true of President Salinas of Mexico and Brian Mulroney of Canada — has no intention of having that free trade between ourselves be a bloc to ASEAN goods. Stop worrying about that! That isn't going to happen.

Question:

Mr President, I believe that most countries in the Asia-Pacific region want to see the United States continue to play a major economic and security role in the Western Pacific. But many are worried that Japan may become the leader in the economic competition, especially in trade and investments in the Asia-Pacific region. Will the United States respond to this Japanese economic challenge and stay in the competition? If Japan does eventually become the pre-eminent investor and trader in the region, will the United States be engaged in the economies and the security of the region?

The complexity of Japan's interaction with its Asia-Pacific neighbours defies easy categorization and analysis, but understanding the interrelationships is crucial to assessing the broader implications of Japan's growing role. This chapter first examines Japan's overall regional economic strategy and its interaction with individual countries or sub-regions. Then it considers the overall systemic and functional linkages in order to better appreciate the profound impact of Japan's rapidly rising aid and investment on the wider political economy of the Asia-Pacific region.

“Flying geese” and the new division of labour

Flush with growing self-confidence, a number of Japanese academics, bureaucrats and political leaders have openly articulated new concepts for the organization of production and trade in Asia. These notions are based on implicit acceptance of the superiority of Japan's production system and the explicit desire to integrate those countries of the Asia-Pacific region that have favourable economic policy and labour conditions into a greater Japanese economy. Over the longer term, Japanese economic managers appear to seek a “division of labour” that maximizes each country's comparative advantage, thus fostering complementary rather than competitive patterns of industrialization.

One notion, popularized a decade ago by Dr Saburo Okita, foreign minister under the Ohira government in the late 1970s, is the concept of the Asian countries as part of a formation of flying geese. Japan, with its larger economy and higher technological level, is in the lead position. Ranged behind it in order of their economic strength and levels of technological sophistication are the NIEs, the ASEAN countries and, finally, the lower income countries of South Asia and Indochina. As seen by Okita, the successive waves of “geese” will gain from the experience of the leaders and tend to close the technological gap, leading to the eventual horizontal integration of the Asia-Pacific region. This outcome is viewed as a direct result of the pro-investment, marketoriented, export-led growth policies followed by the most economically dynamic Asian countries.

Introduction

The issue of migration to Australia has become controversial at both ends of the migration chain. One argument used by some who oppose such immigraton to Australia is that many of these newcomers are of “low quality” in terms of occupational skills that are in demand in Australia, and that many migrants become tax burdens because of the unemployment benefits that they consume.

Concern about migration has also been expressed in some of the sending countries. Political leaders and the mass media in these countries have suggested that those emigrating are most likely to have high educational attainment and business skills, and are therefore the people most needed to promote economic development in their own countries. In Hong Kong, Malaysia, Singapore and the Philippines, press reports have suggested that migration is responsible for the shortage of people in various occupational categories (for example, Straits Times, 4 December 1988, p. 15; 14 December 1988, p. 12; 27 September 1988, p. 5; 10 October 1988, p. 7; 9 January 1989, p. 16; 19 January 1989, p. 9; Lee 1987). In this chapter the validity of these arguments is examined from an empirical viewpoint. The question of whether or not there is a “brain drain” from Southeast Asia to Australia is also investigated, by looking at the occupational skills that immigrants from Southeast Asia and Hong Kong bring to the Australian labour force.

The first section provides background information to the “brain drain” — “brain gain” discussion which follows and establishes baseline data from which an evaluation of immigration from these source countries can be made. The rate of migration from these sending countries in recent years is ascertained and some of the methodological difficulties in determining the flow of Asian immigrants to Australia from available sources of data are discussed. This is followed by a brief review of the criteria for admission to Australia under the various categories of the immigration programme and the proportion of immigrants from Southeast Asia and Hong Kong which fall into each category.

At the third Summit of the Association of Southeast Asian Nations (ASEAN) on 15 December 19877 Prime Minister Noboru Takeshita delivered a speech entitled “Japan and ASEAN: A New Partnership Toward Peace and Prosperity;”, in which he stressed three policy goals: (1) to strengthen the economic resilience of ASEAN; (2) to promote political co-ordination between Japan and ASEAN; and (3) to promote cultural exchanges. The third ASEAN Summit heralded the advent of a “special” relationship between Japan and the ASEAN countries by the fact that Japan was the only guest country among the dialogue partners of ASEAN to be invited. Since this event deserves particular scrutiny, in the pages that follow we will delve into the origins and development of this “special” relationship between Japan and Southeast Asia.

Japan's active involvement in the region can be traced back to the Fukuda Doctrine enunciated by the former Japanese Prime Minister Takeo Fukuda in August 1977. Since then, Japan's policy has been flamed systematically in order to resolve the problem of Indochina and to help Southeast Asian countries develop their economies. At the same time, the Japanese Government has been trying to forge closer links with ASEAN as a viable regional organization. It is these changes brought about by Japan's first doctrine that led Takeshita to attend the third ASEAN Summit. As a result, for the first time in the history of Japan–Southeast Asia relations, Japan has come to be regarded as a bona fide actor in this part of the world. This rare “success” in Japanese foreign policy can be readily recognized against a background of historically trouble-ridden relations.

SOUTHEAST ASIA IN JAPANESE FOREIGN POLICY

Consummating the Meiji Restoration in 18687 a newly unified Japan engaged in a vigorous aggrandizement in foreign policy epitomized in the slogan; Fukoku Kyohet (a rich nation and a powerful army).

By midnight of 13 September 1992, Sunday — the day when Thailand's nineteenth general election was held — euphoria reigned the country when it was clear that the pro-democracy parties had won a simple majority in the House of Representatives and would be able to form the next government. The four so-called “angelic” parties — Democrat, New Aspiration, Palang Dharma, and Solidarity — together commanded 185 seats out of 360 seats in the Lower House. The Democrat Party won the most number of seats, 79, while the New Aspiration Party, the Palang Dharma, and Solidarity won 51, 47, and 8, respectively. The rest of the seats went to the most “satanic” party, Chart Thai, with 77 seats, and to Chart Pattana, 60 seats, Social Action, 22, Seritham, 8, Muan Chon, 4, Prachakorn Thai, 3, and Rassadorn, 1 (see Appendix Table 1). The voter turn-out was the highest in the history of Thailand's elections — 62 per cent nation-wide.

This snap election — within a period of six months — was held under very special political circumstances. It was held as a means to break a political impasse caused by a division between the pro-democracy and the pro-military forces following the election in March and the military crackdown on the demonstrators in May. The election was indeed a referendum to deny the military outright involvement in politics. The military, after having seized power from a civilian government in February 1991, indicated that it was not hungry for power by appointing a well-respected former technocrat, Anand Panyarachun, as prime minister. But that was contradicted by a military-constructed constitution that effectively put the military in firm control of politics; the military-appointed senate was given overwhelming power, and a non-elected person was eligible to assume the premiership. The public's fear of the military dominating politics was confirmed when General Suchinda, the then Supreme Commander and Commanderin-Chief of the Army and a key person in the military junta, took up the premiership in early April without having stood in the election, despite his promise late in 1991 that he would not accept the top job.

Introduction

Since World War II, Australia and other countries on the Pacific Rim, such as Canada, the United States and New Zealand, have again become important destinations for Asian migrants as they were during the earlier parts of the present century. The composition and volume of the recent migration stream have, however, shifted significantly. Australia, like the other major destinations on the Pacific Rim, has thus experienced quite dramatic changes in the origins of its settlers. The volume and composition of new migrants have important implications for policy as well as for theory and research.

What is occurring in Australia is observable in other major destination areas as well although it is by no means clear that the impact on the destination nations would be the same. In Australia, the new wave of migration has a number of characteristics. Increasingly, the migrants are the skilled, the professionals and the entrepreneurs. Like other countries, Australia has a programme to attract business migrants with a specified minimum investment. In other words, the migration stream involves both human and financial resources flowing from the Asian nations to Australia. The number of migrants are known but the size of the financial resource transfer is less certain. The social implications of the new migration flow is also important not only because of the historical antipathy towards Asians in Australia, but also because of the new pattern of “sojourners” among the new migrants. In a reversal of the “sojourner” who left his family behind in the place of origin and wanted only to save enough money in order to go home financially secured, the new sojourner leaves his family in the destination country and often ventures back to the place of origin to carry on his business there. Hence, it is important to delve in detail into the new migration behaviour in order to establish the characteristics of the new migrants.

The four major Pacific Rim destination areas for Asian migration are Australia, Canada, New Zealand, and the United States. By the late 1960s and certainly by the early 1970s, the composition of migrants to these countries had exhibited extraordinary changes.

In this chapter we will look at how Japanese policy-makers perceived the interests and positions of the major actors, and interacted and shaped the process of policy-making. Two specific questions will be posed in evaluating the relationship between the ideas of the decision-makers and the outcomes of the policy-making process: (1) why did Japan adopt the Fukuda Doctrine in 1977 rather than earlier or later? and (2) why did it include the three provisions rather than other possibilities? Focusing on a process of “reasoning”, this chapter will shed light on how policy-makers saw the old ideas as no longer appropriate, and then on how they came up with different ideas. Since idea formation is closely related to the actual process of policy-making, we are going to delineate, first of all, each policymaker's ideas, and then examine the dynamics of policy-making.

IDEAS OF THE POLICY-MAKERS

Each of the perspectives employed thus far identifies an element of the policy-maker's situation as an influence on policy change. The fourth and the last perspective, then, focuses on the substantive ideas held by top policy-makers as necessary or sufficient elements of explanation for behaviour sometimes depends on policy-makers, perceptions, beliefs, and values; as well as objective situations. How did the idea of the “Doctrine” emerge, which Japan had never before proclaimed? What did the Doctrine intend to achieve? Where did the idea come from and who promoted it? To answer these questions, we now turn to the concept of ideas because the cognitive perspective will shed some light on the content of policy change.

In the process of forging the Doctrine, the four MFA officials and Prime Minister Fukuda, supported by his secretary, Hisashi Owada, informally constituted the final decision-making unit within the Japanese Government. Of the four Foreign Ministry officials directly involved in the policy-making process, Yosuke Nakae and Takehiko Nishiyama seem to have played a central role at all stages of policy formulation.

POLICY SHIFTS AND SINGAPORE'S “DEMONSTRATION EFFECT”

The recent foreign investment boom in Malaysia and Thailand has brought the economies of the ASEAN-3 much closer together, at least in their openness to foreign investments and in their reliance on MNCs as agents of export-led development. All three countries now welcome foreign companies and offer a roughly similar range of tax incentives and other privileges. In Malaysia's case, the policy changes of 1986, after the shock of the 1985-86 recession, were a major factor. The main change was to allow MNCs 100 percent ownership of their subsidiaries, which led to a deluge of foreign investments. In the case of Thailand, the boom appears to be the result of active promotion at a time when Japanese companies were increasingly looking for low-cost offshore production bases. Of the ASEAN-3, Thailand has been the biggest beneficiary of the recent outflow of investments from not only Japan but also the United States, Europe and the NIEs, in particular Taiwan.

There is also evidence that Singapore's earlier experience with an MNC led policy played a part in the convergence of the ASEAN-3's strategies. In fact, this was a factor behind the policy shifts by the Malaysian and Thai authorities who had to look for new engines of growth and new ways to diversify their economies. By the mid-1980s, the benefits of Singapore's policy of playing host to MNCs were unambiguous. It had rapidly acquired the latest technology and a capability to produce up- to-date and high-value products and services. For two decades its economic performance surpassed that of Malaysia and Thailand which had adopted inward-looking policies that relied on their own resources and inputs. In other words, Singapore's policy had a “demonstration effect”: it proved that a dependency on MNCs did not result in a one way outflow of benefits to foreign agents but instead led to benefits that were mutual and considerable. It also showed that through MNCs, a developing country could readily plug into world markets, tap managerial and technical expertise, and have access to foreign capital.

The quality of infrastructure was cited by MNCs as being a big factor in their investment decisions. This includes: utilities and telecommunications; land and industrial estates; seaports and airports; and land transport. This chapter compares the adequacy of infrastructure in the ASEAN-3 and the part this played in the investment decisions of MNCs. The results are based on interviews with the thirty selected MNCs and other independent research. The conclusions are presented at the end of the chapter.

UTILITIES AND TELECOMMUNICATIONS

Utility supply in Singapore was rated as well-developed and reasonably priced. Breakdowns or disruptions in the supply of power and water are infrequent and this has helped to ensure smooth factory operations. Statistics compiled by the Public Utilities Board show that Singapore's electricity rates are comparable to those in Malaysia and cheaper than those in Thailand.

Singapore's water supply situation is, however, an area of concern. A large portion of Singapore's potable water is sourced from Johor. Large industrial consumers of water, such as refineries, and paper and pulp factories, indicated that this might impose constraints on their long-term growth. Companies said that where feasible, they tried to recycle water to optimize its usage.

Singapore's telecommunications facilities were rated as excellent, with international direct dialling (IDD) facilities to almost all countries. The outgoing IDD rates charged by the Telecommunication Authority of Singapore (Telecom) are generally lower than incoming rates. Several MNCs indicated that they were considering setting up regional data and communications centres in Singapore to co-ordinate the electronic transmission of data and information to their various operations in the region.

In the case of Malaysia, its utility supply and telecommunications facilities were considered adequate. The need is for continual upgrading and expansion of these services, especially with the large number of new operations coming on-stream.

Japan's record suggests that while its ability to translate its economic power into influence increasingly appears unarguable, a number of deeply rooted problems still limit its capacity to exert global or even regional leadership. Among the more prominent are: uncertainties about the purposes of Japanese activism and its ability to lead; internal political weaknesses; cultural and value system gaps between Japan and other Asia-Pacific countries; the inherent limitations of its aid diplomacy and negative attitudes stemming from Tokyo's past effort to militarily dominate the region.

Uncertainty about Japan's goals and ability to lead

To date, Japan's Asia-Pacific foreign policy initiatives have tended to raise doubts about the purposes of Japanese activism rather than confirm Tokyo's status as a bona fide regional leader. Analysts still question whether Japan really has a clear sense of how it wants to use its growing power. Probably most Japanese would still judge their country as “bereft of a sense of direction, and uncertain about the future”. A minority view is that “Japan is beginning to show a subtle but powerful leadership”, but that a perception gap has opened up in the ways that Japanese and foreigners see the country. Former Foreign Minister Dr Saburo Okita wrote in 1989 that “things are changing very abruptly, and it is important to recognize that Japan is in a transitional phase”. A number of powerful LDP leaders, including Foreign Minister Michio Watanabe, former Secretary General Ichiro Ozawa, and Prime Minister Kiichi Miyazawa have taken outspokenly activist positions regarding Japan's international role.

Lack of credibility of Asia-Pacific political initiatives

Despite its greater activism, Japan's efforts at regional leadership have not borne much fruit thus far or significantly enhanced Tokyo's credibility. Overall assessments of Kaifu's 1989 South Asian tour were not flattering. At the time, commentators concluded that the complexities of regional disputes, and reluctance to appear to take sides, would continue to make Japan more relevant as an aid giver than as a mediator or leader.

Since the late 1970s, reflecting the growing concern about distributional and poverty issues, quantitative studies of East Asian developing economies have investigated the effects of government policies on absolute and relative poverty using empirical models of the “computable general equilibrium” (CGE) type. 14 The need for such studies is not hard to justify. Non-modelling studies can provide broad perspectives and useful insights on the determinants of poverty and income inequality but not empirical estimates of the impact of specific policies. Partial equilibrium approaches, on the other hand, are inherently deficient in view of their inability to take into systematic account the multitude of explanatory factors that operate simultaneously in an interactive fashion, many of which are difficult to anticipate. The growth and distributional effects of development policies are preferably analysed within a general equilibrium framework.

Based on the Walrasian general equilibrium structure, CGE models give emphasis to the consistency of intersectoral linkages in production, consumption, and trade, and the endogenous determination of relative prices subject to relevant macroeconomic and institutional constraints. 15 Assessment of economy-wide effects of government policies is based on comparisons between the model's counterfactual equilibrium solutions and the base-period or base-run values. A seminal contribution is the work of Adelman and Robinson on the South Korean economy, in which a dynamic CGE model is developed

The economy is disaggregated into twenty-nine producing sectors and four firm sizes within each sector. Several categories of households are distinguished: wage-earning (with seven professional sub-categories), self-employed (in manufacturing and services), capitalist, and agricultural (differentiating among labourers and four household classes distinguished by farm size). The time frame of the model is one year to nine years, providing scope for policy effects to work themselves out in the short-to-medium run.

The Association of Southeast Asian Nations (ASEAN) has announced that it will create a free trade area in 15 years. This decision, made in January 1992 at the Fourth ASEAN Summit, is seen as a bold decision, despite the fact that ASEAN is regarded as one of the most successful regional groupings among developing countries. All of the papers in this volume agree that although ASEAN's accomplishments in the political arena have been significant, its achievements in the area of economic co-operation have been limited. Neither its preferential trading arrangements nor its attempt at industrial co-operation have done much to increase intraregional trade and investment. In fact, until a few years ago, open discussion of the possibility of a free trade area was discouraged by ASEAN leaders.

What are the factors responsible for the remarkable transformation? And will ASEAN be able to integrate their economies although other developing countries generally have not? Are there any changes in the institutional structure of ASEAN that will contribute to the success of the ASEAN Free Trade Area (AFTA)? What actual mechanisms are being used and are these appropriate and workable? These questions are discussed in the papers in this volume and at the annual ASEAN Roundtable where they were first presented.

In answering these questions, it is appropriate to start with Rolf J. Langhammer's contribution entitled, “Shaping Factors and Business Conditions in the Post-Fourth ASEAN Summit Period”. The paper provides a comprehensive panorama of the international political economy and ongoing developments — exogenous and endogenous “shaping factors” — that are impinging on rapid economic changes within the ASEAN region. Global and social economic issues including the increasing trend toward regional rather than multilateral trading systems, world-wide disarmament, capital shortages in the world economy, new markets in Eastern Europe and former Socialist Asia, international migration, environmental problems, and technological innovations in communication industries, have all had an effect on ASEAN.