Essay — Significance of Government Intervention (26/30)

How significant was government intervention to the economic development of theindependent Southeast Asianstates? Every Southeast Asianstate’spursuit of economicdevelopment —definedbyitsthreegoalsof growth, nationalismand equity—involvedsomegovernment intervention, takingtheformof economic planning, policiesandparticipation. Theextent of significancevarieddependingon the regime’s ideological leaning, the specific economic aimand the type of intervention:government intervention was especially consequential in socialist economies. Additionally, itwas consistently essential in the pursuit of economicnationalismandequity, andintheformof planning and policies. Conversely, the significance of other types of interventionfor otheraims —particularly state economic participation to stimulate growth—woulddeclinebythe1980s. While it was not the sole determinant of development, government intervention wasultimately a highly significant factor: it was markedly beneficial or detrimental based on theextent of interventionandthemotivationsunderlyingit. Between capitalist and socialist states, government intervention was more significant in theeconomic development of the latter given their structure of a command economy. Sincesocialism demands the abolition of private property and the free market, the governmentmust become the principal participant in the centrally-managed economy. InBurma, NeWinpassed the 1965 Lawto Invest Powers to Construct the Socialist Economy, legalising statecontrol over all economic activities and resources. Additionally, statecorporationslikeTradeCorporation No. 1 and The People’s Stores held total monopolies on distributing rice andconsumer goodsrespectively. Withthegovernment directlycontrolling60%of manufacturingand 90%of legal trade by 1965, Burma’s average annual GDPgrowth of 4%from1961-80was largely attributable to the state’s economic participation. In North Vietnam, more than90% of the industrial and agricultural sectors were nationalised, making the state’sintervention key to the growth of overall industrial output by 15%per annum. In the Southafter reunification, the government abruptly nationalised all major private enterprises inMarch 1978 and seized privately-owned land, agricultural equipment and livestock. Withnear-complete government control over agriculture and industry, government interventionwas largely responsible for the limited 18.7% and 17.3% increases in agricultural andindustrial output under the 2nd Five-Year Plan. While nationalisation waslimitedtostrategicindustriesincapitalist economies, suchasstatecontrol of oil andshippingunder Article33inIndonesia, direct state participation in all sectors of socialist economies made governmentinterventioncomparativelymoresignificant totheir development.

This greater importance can be further explained by the essential role governmentintervention played in achieving economic nationalism and equity, which constitute largerideological priorities in socialist states. Since no other entity has the incentive and ability toseize and redistribute wealth to locals and the poor, government intervention is oftennecessary to achieve these aims. In Burma, thestateexpropriatedtheBritish-ownedBurmaOil Company in 1963 and enacted “comprehensive restrictive laws” to squeeze foreignersout of Burma’s economy, leading toanexodusof 300,000Indiansin1964. Further, thestateintervened to promote equity: it reallocated land under the 1963 Tenancy Lawandprovidedloans to needy farmers, with agricultural credit ballooning 350% from 1962-73. This didsucceed in narrowing the income gap: the wealthiest quartile made only 5x that of thepoorest quartile. However, capitalist states also witnessed substantial governmentintervention when nationalism and equity were pursued. In Thailand, nationalism wasstate-led: it partially acquired the foreign-owned Siam Steam Navigation Company, andissued a1952directiveforcingtheChinesetoformassociationsfor goldtradingandbankingfor easier state control. In Malaysia, achieving equity under the 1971 NewEconomic Policy(NEP) was highly dependent on state intervention: authorities screened firms for NEPcharacteristics under the 1975 Industrial Coordination Act, while state agencies likePERNAS and PNB funded bumiputera ventures. Consequently, the Malay share of theeconomy increased ten-fold to 20%, indicating progress towards equity. Thus, while moreprevalent in socialist states, government intervention remained important to achievingnationalismandequityregardlessof regimephilosophy. Among different forms of intervention, government planning and policies were the mostsignificant as they jointly created an overarching strategy for growth. As the only actor withextensive political control across all economic sectors, the responsibility of charting andimplementing economic directions to catalyse growth fell on governments’ shoulders. InThailand, the National Economic and Social Development Board introduced regular plansfrom 1959, with export-oriented industrialisation increasingly emphasised from the fourthplan (1977-81) onwards. This was complemented by policies to promote exports: in 1985,the government abolishedseveral export taxesandtheBankof Thailandestablishedspecialcredit facilities for exporters. Further, the state pegged the baht at a low rate against theUSD, keeping Thai exports competitive. Such plans and policies contributed to Thailand’s14%annual export growth in the 1980s, indicating rapid economicdevelopment. InsocialistVietnam, the National Planning Board was established in 1955, producingregular Five-YearPlans. In particular, after the Third Five-Year Plan (1981-85) emphasised decentralisation,accompanying policies were introduced to encourage market forces: state subsidies onconsumer items were abolished, private commerce wasrecognisedinforestry, fisheriesand

retail trade, and import-export corporations were allowed in four major cities. Thesepoliciesledtoannual growthratesof 10%and5%for industrial andgrainoutput respectively. Hence,government planning and policies were critical in both capitalist and socialist economies asthey created and effected strategies that spurred growth, making these the most significantformsof government intervention. However, there are also limits to its significance — the importance of intervention,particularly government participation to promote economic growth, would diminish in the1980s. While extensive state participation was necessary in the early yearspost-independence due to thelackof anindigenousbusinessclass, governmentseventuallyneeded to scale back participation to allow free-market competition to develop efficientindustries for export-orientation. In Malaysia, as statecorporationsaccountedfor 64%of thebudget deficit in the early 1980s, Mahathir introduced the concept of “Malaysia Inc”,contracting out services to private firms and privatising 13 state enterprises by 1992. Thisdecline in government intervention enabled Malaysia’s export volume to increase by aremarkable 20% annually in the 1990s, illustrating the reduced importance of stateinvolvement. In Singapore, the Public Sector Divestment Committee was formed in 1986,and by 1992, state enterprises such as Singapore Airlines, Singapore General Hospital andSingapore Bus Service had been privatised. Hence, it wasmainlythegrowingprivatesectorrather than state participation that drove Singapore’s 7%annual GDPgrowth in the 1990s,making government intervention less significant to Singapore’s later development. Thus, ascountries privatised to develop efficient industries for growth, government intervention —specificallygovernment economicparticipation—declinedinimportance. Additionally, government intervention was insufficient to ensure economic development byitself: it must be complemented by an abundant supply of foreign direct investment (FDI),which spurs growth by boosting industrial output, creating jobs and facilitating technologytransfer. This is best illustrated by the d