Assessing the Impacts of Positive and Negative Externalities Generated by Special Economic Zones in the Southern Mekong Region

extended

This is the paper that I plan to present at this SEPSA conference at Ubon Ratchathani in July this year:

Assessing the Impacts of Positive and Negative Externalities Generated by Special Economic Zones in the Southern Mekong Region

Abstract

Industrial estates, one form of special economic zones (SEZs), have been used in Thailand for several decades as a means of concentrating important economic activities in specific areas, thereby leading to decentralization of industry away from Bangkok and concomitant regional development. SEZs generally link places of production with each other and with places of consumption through different aspects of connectivity: hard and soft infrastructure; virtual and telecommunications links; inter-personal and inter-organizational connections. With the assistance of the Asian Highway Network, principally supported by the Asian Development Bank, cross-border connectivity has also been increased, through the various friendship bridges across the River Mekong and prospective connections with Dawei SEZ in southern Myanmar and with those industrial estates in the Cambodian border region and Oknha Mong port at Sihanoukville. As SEZs proliferate throughout the region, therefore, they come to have an impact on more and more communities, which are transformed as both positive and negative externalities are generated within their boundaries. This paper uses a case study approach to identify the different types of externality produced. First, SEZs in the southern Mekong region are identified and classified and then examples of each are provided. Second, the concept of the Triple Bottom Line is used to analyse the various externalities arising from the SEZs. With the impacts noted, the paper then seeks to provide means of mitigating negative externalities while trying to ensure the benefits of positive externalities are distributed equitably.

 

Advertisements

Mandalay Address: Incorporating Myanmar into the Global Economy

I am back now from the conference in Mandalay: the 10th Inter-University International Conference on ASEAN Cooperation. This is my keynote address (somewhat adjusted because of the differences between writing and reading out an address):

[I have deleted the various dedications to dignitaries and organisers that was included here, as well as the couple of jokes I introduced to cover the gap when the presentation equipment had been closed down for a while.]

Please allow me to begin by thanking the organizers for giving me the opportunity to speak to you here today. I should perhaps introduce myself at this point as John Walsh from Shinawatra University in Thailand; if anyone is interested in Thai politics, you might recognise the name Shinawatra as being the same name as now two former Prime Ministers of the country. Well, whatever I say, please understand that these are my opinions only and not those of the university as a whole – I always try to remember to say that in case I say anything that will get me into trouble.

It is always a pleasure for me to visit Mandalay, although it is a pleasure tinged with the knowledge of what my ancestors did here in extinguishing Burmese independence, with implications that continue until the current day. I am reluctant, therefore, to stand here and try to tell anybody what they should be doing. The field of studies in which I most commonly situate myself, management studies, draws upon a body of knowledge that has been developed from mostly western practice as part of a capitalist system that is now rapidly driving the world towards environmental disaster. This is not something, therefore, that should be imposed on the rest of the world unquestioningly. However, I have been asked to make a few observations to you here today and so I do so here as a colleague and a faculty member seeking to create and sustain a meaningful career at a time of rapid and sometimes inexplicable change.

So, I would like to speak to you today about the country we find ourselves in and what practical issues that may be taken to try to improve the lives of the people who live here. I will speak principally from the perspective of economics and will not focus too much on cultural or social issues, apart from when these come into the economic sphere. Myanmar is a country that is now moving into openness and embracing globalization and capitalism to a much greater extent than it has ever embraced before. In doing so, Myanmar is following a similar path to those of the other Mekong region countries. Thailand, Vietnam, Laos and Cambodia, as well as Yunnan province of China, have all entered or are in the process of entering the Factory Asia economic paradigm. This involves intensive manufacturing of goods that are import-substituting and export-oriented. Competitiveness is provided by low labour costs that are ensure by two factors: first, workers can be drawn from the agricultural sector into the industrial sector and the availability of these new workers helps to keep the wage low; second, the suppression of workers’ rights in terms of freedom of speech and association and collective bargaining and association. We have seen state-level violence used against workers in all countries of the Mekong region (and elsewhere, of course) and we can expect something of the same kind here.

In the special economic zones of Dawei and Thilapa, among others, numerous factories will be opened to process the resources of the nation and send the profits either overseas or to a small number of members of the establishment elite. There will be an increase in the overall or aggregate level of income within the country but at the level of individuals and households the situation will be very mixed, with the characteristic creative destruction of capitalism ensuring that there will be both winners and losers. The losers are likely to be drawn to a considerable extent to those vulnerable people least able to cope with disruptive change.

What can be done to make this process of change less painful and more equitable for society as a whole? Considering only the economic sphere, as previously noted, I will highlight three areas where it will be possible for people to have a chance to work in jobs which are alternatives to those provided by the Factory Asia concept. If better jobs are available, then this will help to ensure that decent working conditions and salaries are more likely to be maintained – there is still scope for low cost competitiveness without exploiting people or jumping onto the drive to the bottom. The three areas I will discuss here are tourism, regional development and entrepreneurialism and I will argue that these three areas are linked by one factor: the presence of genuine social capital. Where such social capital does existm it both belongs to the people who help to create and sustain it and belongs to a specific place where it is made and from which it cannot be removed without damaging it.

When I talk about social capital, I mean any form of social relations that came into being at some stage in the past and which had an intention that was primarily not market-driven. It can take many forms, therefore: the production of what is now known as handicrafts would be a form of social capital because initially these items were made for use and exchange and not for sale. In Phnom Penh, the capital of Cambodia, the willingness of people to promenade along the banks of the river is another form of social capital. It is a way for people to meet and mingle with each other and enjoy a variety of socially-inclusive activities. Similar phenomena may be found in parks and areas of scenic beauty throughout the Mekong Region. In Chinese societies, the group Tai Chi activities that are held in mornings are another form of social capital. So these are phenomena that exist and have existed for a while, which involve some form of interaction and which are not based on market principles. This does not mean that they cannot be used for market activities – according to the jargon, they can be ‘monetized’ – but they would continue to exist whether or not money is being made. That these activities will continue whether or not money is being made is crucial to what is considered to be the concept that is central to the experience economy – authenticity. Being in the presence of something that can be considered to be authentic marks the difference between a positive and a negative customer experience. Authenticity can be created and fostered but it takes a few years before it is conferred – there is no specific length of time involved. The Naga fireball festival on the River Mekong in Laos took off as a tourist attraction very rapidly, although it had been taking place before, and there does not appear to be an authenticity deficit there. People now travel to watch the apparently magical fireballs shooting into the air and they may do so for free. According to the myth, the fireballs would continue to be launched into the air whether there is anyone there to observe them or not. Yet around the central activity, a large number of business opportunities exist and because they are in the presence of authenticity, people are generally quite happy to spend their money on such things. People will buy popcorn at the cinema and eat pies when watching football – in Britain and Australia at least – other traditions can be invented and facilitated.

Here, then, is where I see the role of tourism, regional development and entrepreneurialism working together to provide opportunities for activities and jobs outside of Factory Asia. Not all these jobs will be high paying, since the tourism industry in particular is known for featuring a large number of low-skilled and low-paid positions in the service sector and these are not always very helpful for genuine economic growth.

The research that I have done at various locations in Thailand has persuaded me that there are three factors that define whether a specific destination can become a success in tourism or not. The first of these is the genuine social capital that I have discussed already. The other two factors are the stable allocation of resources and connectivity. I say that the allocation of resources should be stable and not necessarily high – with a low level of resources it is possible (at least in some cases) for the private sector to take the place that the public sector is usually expected to take – people throughout the Mekong Region tend to look first to the state to generate development activities. For example, my research on Koh Mak in the Gulf of Thailand showed me that private sector interests were primarily responsible for stimulating tourism activities there. They operate the ferry services, build and maintain the piers and operate the resorts nd hotels where people stay. Of course, the public sector is responsible for the principal infrastructure issues and for connectivity overall. Still, state-led development is not the only model that is possible.

When it comes to connectivity, the ideal is for it to become invisible: that is, the ability to move from place to place and from activity to activity is so straightforward and pervasive that people scarcely need to think about it. Examples of this include Singapore and Hong Kong, which have extensive public transportation networks including trams, buses and ferries, with single card payment systems that remove the barriers to mobility. Singapore, also, has numerous convenience stores which sell just about every daily household item that can be imagined. Living there requires money, of course, but normal chores have been made so easy to complete that people can maximize the time they spend on more rewarding and productive activities.

In terms of tourism, therefore, it is possible to identify the central elements required for success. Let us briefly consider Mandalay in these terms. First, there is plenty of genuine social capital, which centres on the historical sites and the places of religion. People, especially Buddhist people, will make pilgrimages to visit these special temples and their attractions. When it comes to connectivity, this is clearly improving rapidly now that the country has begun to open itself and there are direct flights from Bangkok and a serviceable land transport system. Internet and mobile telecommunications services are improving in availability and quality. The visa system is needlessly cumbersome and could easily be changed to a visa-on-arrival approach but presumably this will arrive in due course. Considering how difficult it was to visit Mandalay at all even a few years ago, the improvement in connectivity that have taken place are really remarkable.

Finally, in terms of resources, it is evident that capital available for investment in worthwhile projects – capital is capital when it comes to investment and it does not matter if it is domestic capital, Chinese capital or capital from anywhere else. As the Roman Emperor noted when he proposed to put a tax on public toilets, ‘money as no smell.’

So, there would appear to be the elements of success already in place or being put in place here in Mandalay.

How can we ensure that more of the money remains in the region? One of the main problems of a model of development that focuses on inward investment and of tourism is that the place where income and jobs are generated is not necessarily the place where the benefits of that income and jobs are retained. My own research in different parts of the region has shown me that most money generated is subsequently repatriated to a capital city such as Bangkok or outside the country altogether. It is very easy to see this with tourism, especially when the tourist stays in an internationally owned hotel and spends most of her or his money on imported food and beverages.

In the past – and maybe even in the future in some areas – the attempt to keep the capital in the place where it was generated would have fallen to the state – Asia is, after all, overwhelmingly a state-led continent. This would at once have established an antagonistic relationship between the host state and the investors as to who gets to decide where profits are stored and invested. This is a fight that, under the prevailing global conditions of neoliberalism, the state can no longer win in the long-run.

Indeed, secret negotiations taking place to pave the way for new and more comprehensive trade partnerships in the Asia-Pacific will, if implemented, make it next to impossible for states to prevent corporations doing whatever they want in any territory in which they decide to be active.

In place of antagonism, therefore, it will be necessary to build up relationships on a different basis. In practical terms, this is based on the concept of industrial deepening – that is, making the points of interaction between the central business and its local stakeholders occur on more levels. In the case of industry, this means encouraging the development of more local suppliers – probably small and medium sized enterprises (SMEs) – so that they can become part of the value chain. Investors with a willingness to look openly around themselves will be likely to welcome such an approach and will take steps to let local suppliers develop the quality and reliability of their goods and services because this will reduce their own costs and encourage the growth of the local economy in which there will be individuals and organisations willing to take a few years to complete and research indicates that it will require state intervention – perhaps through the use of international non-governmental organisations (INGOs) because the private sector lacks the competencies and resources to organize itself. It is this kind of market failure – that is, the inability of supply to meet demand – that has historically caused inward investor-host state relationships to be problematic.

Industrial deepening is one of three inter-related factors that help to provide a sustainable state-inward investor relationship. Sustainable in this context means both long-term in nature and one which strengthens itself for the foreseeable future.

The second factor, after industrial deepening, is technology transfer and this is, to some extent, its mirror image. If deepening represents the state’s efforts to help insert local actors into international supply chains, then technology transfer represents the actions of investors to the same end. It involves transferring some part of the investor’s technology, knowledge or competency to the local partners. In other words, transferring some part of the company’s competitive advantage to partners who might one day become the allies of competitors or competitors in their own right. In other words, this is not an act to be undertaken lightly and it requires a significant amount of trust that this act is not going to be abused.

The third factor is part of the means of trying to encourage the requisite level of trust is possible. It is social policy. That is, it represents all the different areas of government policy – as also including planning policies and subsequently implementing and monitoring them – related to the presence of an industrial sector to society.

The term ‘social policy’ is used to describe all those governmental policies that influence and govern the ways in which people live their lives in society. It includes the welfare state, the provision of housing, education and public health facilities and it also plays a part in how people may and should treat each other in a heterogeneous society. I will also include in this category the means by which people will make the transition from the education system to the labour force or, as we may better understand its workings, the labour market. In western countries, in Britain in particular, we have I think moved too far towards the functionalist approach to education which values overwhelmingly in the context of jobs (and incomes) that it can subsequently provide. At the other extreme, the Kingdom of Saudi Arabia sees the gresat majority of its doctoral students studying religious topics which may prove to be spiritually satisfying but for which there is only limited demand in a modern economy. In between the two extremes, it must surely be possible to find a way to give young people the opportunity to become rounded and well-educated citizens with incentives to direct them towards gaining the kinds of skills that will be prized in the future jobs market. Of course, that first means we should be able to identify what skills and knowledge and competencies will be likely to be required in the future.

Finally, I would urge people not to despair. While there may appear to be some insoluble problems and immovable objects blocking the way, sometimes more change is possible from the bottom-up than would appear possible. At the ceasefire that put a stop to the Korean civil war, South Korea was one of the ten poorest countries in the world and its principal export was wigs produced by women growing their hair long. Now, it is one of the most advanced countries in the world and a leader and inspiration for all of us in East and Southeast Asia. Much of its progress from middle income status to high income status was achieved through the facilitation of connectivity at low levels of society and everyone was then able to benefit from the fruits of the creativity and innovation thereby created. The move to high income status was the result of giving people the opportunity to work the way they want to work and as a result of trusting young people. We should follow the same path.

Thai Workforce- Ready for ASEAN Economic Community 2015?

logo

THAI WORKFORCE- READY FOR ASEAN ECONOMIC COMMUNITY 2015?

Abstract

ASEAN countries are moving briskly towards the launch of the ASEAN Economic Community (AEC) in 2015. Together with monetary and technological resources, human resources are also vital for ASEAN countries stay competitive in the single market of AEC. Taking the case of Thailand, this paper evaluates the readiness of the Thai workforce in preparing for the integration.  It brings to light several fundamental issues of the Thai workforce: (1) the quality of labor in Thailand remains moderate; (2) productivity continues to stay behind other ASEAN countries such as Singapore. The failure of the Thai educational system and the workforce skill mismatch are primary attributes to the workforce’s relatively low skill levels and productivity. Based on the empirical analysis, the paper suggests renewing the role of the Thai government in restructuring the national education system as well as cooperating workforce skill planning into the master development plan.

Keywords       workforce, labor, workers, Thailand, ASEAN, ASEAN Economic Community

Nancy Huyen Nguyen and John Walsh

Prospects for Workers under the ASEAN Economic Community

My book chapter has been accepted for publication:

Walsh, John, “Prospects for Workers under the ASEAN Economic Community,” in Dr.Panchanatham and Mrs.Jayalakshmi, eds., Occupational Hazards and Welfare Measures – A Labor Perspective (Bangalore: Archers and Elevators, 2013 forthcoming).

Abstract:

The ASEAN Economic Community (AEC) is due to be inaugurated in 2015 and will provide greater cross-border mobility for skilled workers in some categories of employment. To what extent will this and other changes have an impact on the workplace conditions for workers in all categories across the region of Southeast Asia? This paper seeks to identify the basic patterns of change in employment conditions in ASEAN and use these to highlight prospective future changes.

Following in South Korea’s Footsteps? Trajectories of Southeast Asian Labour Markets in Seeking High Income Status

I am back from Korea now, where I gave a keynote address at the 8th International Inter-University Cooperation Program Conference held at Kyung Hee University and organised by Chiang Rai Rajabhat University. It went well,  I thought. Here is the abstract:

East Asian states that have achieved rapid industrialization and modernization have done so in a variety of different ways. The states vary in terms of important categories (e.g. large/small, weak/strong institutions, resource-rich/poor) and also in terms of global conditions and the external environment. A Neo-Gramscian analytical framework is employed to examine the nature of conditions in Korea, Japan, Malaysia, Singapore and Taiwan as a means of understanding previous trajectories of development and what lessons they might provide for countries such as Thailand, Vietnam and China which are following in their footsteps. Particular attention is paid to Korea and its movement to the high income bracket through embracing the creative economy and knowledge economy. This involved not just adjusting the economic conditions but in opening the country to a more intense form of democratization, permitting greater freedom of expression and, hence, encouraging innovation. The question is put as to whether countries such as Thailand are ready to make this same leap of faith. Finally, the implications of both changing and not changing are discussed for labour markets in the countries concerned.

East Asian Labour Market Regimes in the Context of Global Economic Crisis: Do the Advanced Nations Offer Trajectory Paths for Those Following?

I presented this paper at the XIIIth Annual International Conference of DPSR on Saturday successfully enough. Here is the abstract:

The global economic crisis caused by an improperly regulated financial sector giving way to excessive risk-taking behaviour has led to a worldwide crisis of austerity and of lack of jobs. The situation in East Asia is somewhat different from that in the western world in that finance bubbles had already been burst in the 1997 crisis and lessons learned from that. Nevertheless, developing East Asia is still dependent on western markets as destinations for exports as domestic markets remain insufficiently developed to absorb production of goods and services. In this situation, states such as Thailand, Vietnam and Cambodia look to examples from elsewhere in the region concerning the means of transforming themselves from being part of the factory age, which limits growth at the upward end of the middle income range, into the higher income range of economies. Examples include the Republic of Korea, Taiwan, Singapore and even to some extent Malaysia. This raises the question of the extent to which the examples of those other states, in which labour market management has passed further along a familiar trajectory, offer practical examples that can be applied in the developing states that follow behind them. Issues of relevance in this case include wage and compensation issues, management of unions and the freedom of speech, association and collective bargaining, as well as the interaction between the education system and the labour market. This paper examines the cases of economically advanced East Asian states in terms of labour market development with a view to considering how those examples might be applied in those countries which now follow.

Keywords: labour markets, economic crisis, East Asia, Thailand, Korea

Economic Development and Democracy

People who fail to learn the lessons of the past, it is occasionally observed,  are more or less doomed to repeat the mistakes of the past. In the case of  economic development, it should be better known that this was achieved in most  western countries in non-democratic and largely inhumane conditions. In western  Europe, for example, it was created on the back of the exploitation of workers  in the factories that produced the goods that were then exported to overseas  markets – overseas markets forced open in colonies at gunpoint.

Read the full article here.