Special Economic Zones in Laos and the Factory Asia Paradigm


Alors, I am back from:

Walsh, John, “Special Economic Zones in Laos and the Factory Asia Paradigm,” Invited Intervention at the Research Week for Development 2014 held at the Institut Français, Vientiane (October 13th-15th, 2014).


The Lao government will supplement its current economic policies with the Factory Asia paradigm (import-substituting, export-oriented, low labour cost competitive manufacturing) which will mostly be guided to certain special economic zones. This presentation examines the implications of this change.

Economic development in Laos has historically relied upon resource extraction (i.e. mining) and hydroelectricity generation. This has led to an outbreak of Dutch disease (success in one economic sector inspires negative consequences such as inflation for all sectors) and little extra employment.

To counter this, the government has begun the country’s trajectory along the Factory Asia paradigm : this involves import-substituting, export-oriented manufacturing based on low labour cost competitiveness. Low labour costs are ensured by moving workers from agriculture to manufacturing and when the point of equality between supply and demand for labour is passed (i.e. the Lewisian point) through suppression of workers’ rights, collective bargaining and right to organise.

This paradigm has been followed or is in the process of being followed by all other members of the Greater Mekong Subregion and the leader in this regard, Thailand, has reached the limits of what it can provide and is now seeking different means of exiting the Middle Income Trap (although the new government seems to be retreating from this change).

Most if not all of the activities of the paradigm take place in special economic zones (SEZs), which are time and space-limited geographical areas where different laws and regulations exist as a means of encouraging domestic and international investors to locate manufacturing activities there. A number of SEZs already operate in Laos and more are planned. They act as magnets for migration and are mostly located near the capital Vientiane and where good transportation infrastructure allows convenient linkages between places of production (SEZs) and places of consumption (markets such as cities).

Building SEZs like this has significant implications for Lao society generally : the creation of an industrial working class, changes in gender relations as women enter the labour force in large numbers and potential alienation among workers as well as conflicts with investors and the state (which may be expected to side with the investors, at least most of the time).

Ultimately, this manufacturing paradigm will work to lift the country from low income to middle income status. However, i twill not be sufficient to lift the country to high income status. Asian countries which have escaped this trap, such as South Korea, did so by trusting the people and democratization. This will pose a threat to a monolithic government which will need to be negotiated. Effective political management of a high income state has been effected in Singapore but this needs careful planning.

SEZs more tightly bind a country with international markets and this will be intensified by the continued construction of the Asian Highway Network. Once these connections have been created, they will be difficult if not impossible to halt in the future.


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