Neoliberalism and economic sustainability in south east asia
Abstract
Major shift in world order after cold war has posed some dramatic changes. Dynamic of international relation significantly begins to move more complex. It is shown by the emergence of unilateralism of politic-represented by US-, turbulence in the frame of global political economy order, the birth of new regionalism or even a global threat which called terrorism, and many people are shocked by a serious ecological problem. Those events at least, slowly but sure distract our attention in perceiving the logic and nature of world politic. The dominant issue of deterrence, arm race, or millitary approach during cold war are now fading away due to interdependence relation among states of world. It is clearly seen from a huge reality called globalization. Surprisingly, it spreads very fast and influences many aspects of life. As a respond, many countries now try to build some cooperation which reflects a distinct political economy interest as their major goal. Those relation is formed both bilateral and multilateral cooperation. We are watching economy regionalism and particular economy bloc is set up in some regions. In fact, we are entering a borderless world. Events from various kind of countries moves and passes by very fast. Through a dramatic progress of sophisticated technology, products of economy, culture,politic,etc, have been a common thing. This is the arena of a globalized world which keeps campaigning a single credo called neoliberalism. Neoliberalism soon has been vastly hegemonic mechanism applied in many countries. Generally, it works through 3 main policies consist of liberalization, deregulation, and privatization.
The euphoria of free market economy supremacy was completely shaken by the explosion of global economic crisis about 3 years ago. Surprisingly, the crisis itself centerd in US, a country which has long time known as the greatest economy power,. The emergence of it has stimulated many debates around the sustainability of free market system. Some people argue that the current economy system is too vulnerable and could be endangering the world future. Thus, it is a good point of departure to begins exploring what the core problem behind that huge accident is.
Along with the massive implementation of neoliberalism, people sometimes are unable to analyze and catch what actually really occurs in world economy. What kind of system sustains it? How the mechanism works? And who become the major and marginal actors behind it? Those questions frequently could not be answered well. It even becomes worst due to one side-perception about free market economy as if it is a neutral or linier concept of economy system.
Therefore, in this essay, I assume that neoliberalism which shapes the global free market as a dominant factor in affecting some severe economic crisis in the world. In many ways, neoliberalism might be depicted as a new stream of world economy imperialism. Afterwards, I will try to analyze the big project of ASEAN through AFTA in term of its reliability and sustainability against neoliberalism. Over last two decades ASEAN have been trying so intensive to create chance to open its market towards world competition. But, of course, the first goal of ASEAN is to ensure that there is conducive atmosphere for economic stability in its region.
I strongly believe that those projects are hevily influenced or a copy paste of neoliberalism principle.so the question is, does ASEAN have promising future or vice versa?
Keywords : neoliberalism, regionalism,economic crisis, AFTA,
Hegemony and domination of neoliberalism
Commonly, terminology of neoliberalism defined as a form of capitalism in new style. Both of them shares the same logic and philosophical basis namely liberalism. This economic system has been very well known due to its resistance against the intervention of government in economic activity. Further, it really believe on the law of free market as convicted by one of its original thinker, adam smith. To let invisible hand plays free assumed to be able to bring out more efficiency and efectivity in accumulating profit for people welfare.
Considered from a historical perspective, globalization is the present stage of economic imperialism. Base on the conception which formulated by vladimir lenin at the beginning of twentieth century, imperialism is a set of basic characteristic : further development of capital monopoly, the emergence of finance capital through the fusion of industry capital and the banks, the export of investment from senter to periphery, and the competition among imperialist to control foreign market.[1] In the present circumstances, these features even become more aggressive. It is accelerated by the huge advancement of technology in transportation and communication. Regard to sophisticated technology of information, it is a crucial instrument to facilitate the growth of finance capital and the network of big multinational corporations. This era witnesses a very high rate of international investment compared to previous years. Since the collapse of soviet bloc, some former countries of soviet and another underdeveloped countries have been trying to open more spaces for foreign investment.
Recent years, there are many academician or activist explain the major concept of neoliberalism but all of them have similiarity on its core, namely a broadened freedom of free market policy. Elizabeth Martinez and arnoldo Garcia gives their points as follows :
1. Market regulation-freedom of product, capital, and service, which is market has its own mechanism to let go trickle down effect principle in the distribution of prosperity. Neoliberalism includes the dismissal of worker union and the elimination of some obstacles against capital mobility. It is granted from state or government
2. Reduction of public spending to social insurance, sucah as education or health.
3. Deregulation to allow the market power to react as a self-regulating mechanism
4. Privatization of state-owned company
5. Changing the public perception from collectivism to individualism.[2]
All of those things above are set up and legitimated by 3 powerful and legal multilateral institutions, they are world bank, IMF, and WTO (on trade). Revolution of economy liberalism which guided by this three institutions has been exported to many countries especially developing and underdeveloped countries in region like south east asia,Africa, or latin America. Recommended policy refers to neoliberalism formulated as a structural adjustment policy which can be simplified as a tightening belt policy..
Impact of neoliberalism in some parts of the world
For those who familiar with the history of international economy, dramatic and glorious success of political economy of neoliberalism begun along 1980s and 1990s, will remember that the same boom ever happen in 1850s and 1860s when the idea and system of classical economy liberalism sweapt across much part of the world. Both era were characterized by technological revolution which dramatically intensified global economic integration. Neoliberal economy ideas in fact gain supports and legitimacy mainly from its leading figure like margareth thatcer and Ronald reagen. They kept blostering the campaign of neoliberalism in their ach era of authority.
In the late of 1920s world was tremendously shocked by a large scale of economic crisis called great depression. Massive blow directed to economy liberalism had opened so many sharp critics from various groups and people. This collapse apparently caused by inherent nature of capitalism which kept producing goods in large number but it was not balanced with the availability prediction of number of supply and demand. At last, the crisis of overproduction appeared. Due to excessive of production, the rate of domestic consumption declined and then created economic stagnation. This condition, subsequently overcome by cutting off the wage and firing many workers or labour. Beside that the rate of unemployment highly increased caused massed panic and social disaster.
As stated by marx that capitalism in return will always suffer from periodic crisis. And it is. Another economic crisis crushed many countries in latin America. The crisis was triggered by the wave of implementation of neoliberal agenda especially due to foreign debt. Debt crisis was in its very critical point in which latin American countries had been trapped too deep. Generally, it began in 1980s. before 1982, credit flown to government of latin America and private sector was 257 billion dollar, Mainly it was given to countries like brazil, argentina, mexico. this number actually was more than 50% of whole third world countries debt. Yet, this trend kept moving uncontrolled until it reached 650 billion dollar which rose about 67% since 1980s[3]. what then made misery is not its number of debt but on debt interest payment that was extremely high to US banks. This event, of course, had wasted potential capital used to finance some strategic sector for domestic economy. Within only one year (1995) those banks received about 67,5 billion dollar from the debt interest. Along the decade they gain more than 600 billion dollar which was abot 30% of total export income in the same period. Debitor or financial institution actually neglect tha factor of the realiabiliti of country to pay debt. They just continuo giving debt without rational and ethic calculation[4].
This chain of debt also followed by unequal policy of foreign direct investment. So the crisis burst appeared. Brazil, argentina, chile, and mexico were heavily suffered from economic crisis. The collapse of their economy reflects that there must be something wrong in neoliberal agenda.
Not too far from that period, some countries in asia were knocked down by the same system. Neoliberalism had blown away the fundamental of domestic economy. It then spreaded to another asian countries, so people called it as asia’s economic crisis.
Asian’s economic crisis
Asian’s economy obtain significant progress between 1965 and 1990. According to world bank, they really appreciated a substantial achievement shown by some asian countries. Those key players are japan, south korea, Taiwan, and Singapore. The list added by newly industrializing countries (NICs) whicah are indonesia, thailand, and malaysia. They performed dramatic growth, even three times higher than latin America (5,4% percent versus 1,8%). This progress accompanied by significant reduction in poverty and income inequality, as well as a better life expectancy.but this glory in fact hides timebomb. Some assessed those countries soon will fall into economic degradation.
Prior to 1997, not many scholars questioned the viability of the East Asian model, Young (1994, 1995) and Krugman (1995) being the notable exceptions. Young and krugman argued that the East Asian economies could not sustain their aggregate growth rates. Quite contrary to the World Bank study, Young concluded that the claim about export-led growth creating dynamic gains was not valid[5]. However, neither the World Bank nor Young foresaw an imminent economic collapse or fundamental structural weaknesses that would make the East Asian economies vulnerable to financial crises.
On January 1997, big corporation of steel,Hanbo Steel, from soth korea announced for having a debt crisis. In the meantime, neoliberalism which liberalize finance sector again crushed by some speculative action which messed up the currency and exchange stock market. It respectively caused big damage on some currencies in Asia such bath, rupiah,peso, and ringgit. Situation was worsened along with the huge loss of some capital in stock exchange market and companies especially in Thailand, hongkong, south Korean and especially Indonesia. In Indonesia itself, the government announce state of bankruptcy over 16 banks because of default. Indonesia compelled to carry a heavy burdened of foreign debt about 140 billion dollar.
ASEAN economic sustainability under neoliberalism
The wave of economy regionalism also takes places in south east asia region. The existence and role of ASEAN in this region,undoubtedly is very critical. In fact, ASEAN now is facing some serious challenges and constrains. ASEAN is no longer an organization which assigned to settle down traditional issues like prevention of war, regional peace, military threat,etc. Yet, ASEAN should begin to look outward and notice another aspects which is very crucial now. The priority of economic cooperation will become in main list.
Declaration of Singapore in 1992 which approved at the ASEAN summit IV on January in Singapore, basically is a historical moment for ASEAN future especially for people in south east region. This consensuss was a linier respond towards globalization of economy after cold war era. Originally it was designed and ratified by 6 countries, they are Indonesia, Singapore, Thailand, philipina, Malaysia, and brunei Darussalam[6]. But later, the membership itself was expanded into 10 countries with Vietnam, laos, Myanmar, and Cambodia. Since its establishment in 1967, AFTA has been some kind of breakthrough to promote and enhance prosperity and economic progress among nations in ASEAN. Cooperation in AFTA aims to increase the ASEAN’s product competitiveness in world market and open a large scale of market in order to stimulate the enhancement of foreign direct investment (FDI) in south east asia region. In this case, ASEAN definitely holds very important role to make sure and push good cooperation among its members. AFTA has to be understood as a global dynamic along with its problems. The principle of free market doctrine in many cases can not be oversimplified. Stakeholders of ASEAN must be extra carefull in implementing this project. Trade liberalization and deregulation generally is a complicated mechanism which needs wit and wisdom to be applied. There have been some cases that reflects fail or destructive impact happen in many countries due to free market policy. Economic crisis rose in 1980s, late of 1990s, also at the beginning of 21 century are warning sign.
Countries in ASEAN are gifted with an abundant natural resource, consist of minerals, coal, petroleum, wood, sea, and so many plantations. Beside that, ASEAN is a region with a quite huge market in the world due to its densed population, approximately 330 million people will be covered by its agreement.So, economically, ASEAN has such a great potency to move forward as one of the world economy power. However, ASEAN must be decisive to control and manage its economy strategy. Never forget that great powers like US, EU, japan,-recently china also emerges as a new key economy player- have a long historic tradition in influencing political economy order in south east asia. Beside that twenty first century economy more coloured by the domination of many giant multinational corporations.
ASEAN was established on August 8th 1967 in Bangkok by its five original member countries, namely, Indonesia, Malaysia, Singapore, Philippines and Thailand. When ASEAN was established, trade among member countries was insignificant. indeed in its early phase, ASEAN tend to focus more on some social-political cooperation with a spirit of solidarity. This forum, actually has developed many diplomatic communication among its members. In particular, ASEAN is designed to encounter the danger and bad impact of cold war era. Therefore, at that time ASEA could not see and make use another potency such economy. In many ways, each members still led by self-national economic interest. Historically, ASEAN could not manage to encourage strong and balanced economic cooperation among its member. The individual ASEAN states have been far more interested in pursuing economic relations with outside actors than with each other, and have been unable to put aside their individual national economic interest to cooperate on a regional basis.[7]Estimates between 1967 and the early 1970s showed that the share of intra-ASEAN trade was between 12-15% of total trade of member countries.
To support economic cooperation between member countries, hence, the ASEAN Free Trade Area (AFTA) was established in 1992. This agreement was aimed at eliminating tariff barriers among member countries and creating regional market of 500 million people. The Agreement on the Common Effective Preferential Tariff (CEPT) scheme required that tariff increased on a wide range of products traded within the region be reduced to no more than five percent. It applied to all products from ASEAN member countries defined as those that had at least 40% ASEAN content. More than 99 percent of the products in the CEPT Inclusion List (IL) of ASEAN-6, comprising Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand, have now been brought down to the 0-5 percent tariff range. ASEAN new members including Cambodia, Lao PDR, Myanmar and Vietnam have also implemented their commitment on the CEPT scheme with 80 percent of their products having been moved into their CEPT Inclusion List.
We must be very carefull in analyzing the impact of free trade area. Market liberalization which eliminate some trade barriers like tarrieff, quota, granting of tax holiday for foreign investment can make new serious problem. Market actually can not be let to play by itself. Uncontrolled market mechanism will eventually benefit only for the strong one. Poor farmer, small and medium scale industry wont be able to compete in regional market since they have lower capital and less infrastructure.
Trade liberalization is not the only policy. Remember, all ASEAN countries have never rejected the principle of neoliberalism. Since the asian crisis in late 1990s and global economic crisis recently, the agenda of neoliberalism remains active. Deregulation and economic liberalization sustain some government policy. In Indonesia, Thailand, singapura, Vietnam, philipina and other countries program to reduce the national spending runs smoothly. Subsidy in education, health, social insurance still very low. Regulation of flexibility determined by WTO and AFTA tend to repress the welfare of workers. Commonly, rate of wage in southeast asia is insufficient. In return, it opens up more space for poverty. In Indonesia, about 100 millin of its population living under poverty with income less than 2 dollar per day. The same case also occur in Cambodia, laos, Myanmar, philipine, or Vietnam.
From the external side, southeast asia in under the siege of global capitalism. Dependence relation which emerge, by some scientist and people argue as the new form of maintaining their hegemony and domination. The development of big industry in industrial countries are greatly depend on its relation with the third world. Imperialist power which represented by US, china, EU, and their MNCs, totally control the major asset and wealth of the world. Mostof 500 MNCS come from north America (241 or about 41% of that number). The rest is 118 or about 23% come from Europe, 58 from japan, last 11% come from another countries[8].
Those MNC tend to invest in developing countries like in southeast asia. Their ultimate considerations are, wage of labour here is cheap, tax is very low, the abundancy of natural resource.Beside that this region is very potential market to expand their profitability as well as Uncontrolled and gigantic stock market which runs in this region, could harm regional economy. Recent global economic crisis basically caused by unregulated and reckless speculants who control and manipulate stock market. The question is, can ASEAN compete with the presen ability?
conclusion
From those reflections, obviously, global political economy order guided by neoliberalism has too many problems. Along the history, economic liberalism or free market system for several times trapped in some periodic crisis. It indicates that neoliberalism should be reassed and reconsidered in order we don’t repeat the same mistake.
Through AFTA, ASEAN actually still dictated by neoliberalism regime. The implementation of Free trade area in many ways may bring some negative impacts for its member. Level of economic capacity and progress among ASEAN member is very different and even shows relatively large gap. Within neoliberalism economic sustainability is really worrying. ASEAN needs to formulate certaion mechanism or regulation which can protect and sustain its regional economic security
REFFERENCE
BOOK
Petras, James dan Veltmeyer, Henry, Imperialisme Abad 21, Kreasi Wacana, Yogyakarta, 2004
Stiglitz, Joseph E, Making Globalization Work, Penerbit Mizan, Bandung, 2007
Harvey, David, Neoliberalisme Dan Restorasi Kelas Kapitalis, Resist Book, Yogyakarta, 2009
JOURNAL
Journal of pacific review,vol 12, no 3,1999
Journal of pacific affair 1997. Accessed from www.jstor.org
Review of international political economy, vol 8,no 1, taylor n francis ltd.2001
Latin America perspective,vol 29, no 6,sage publication inc.2002
Jurnal Wacana Edisi V, Demokratisasi Atau Kenapa Demokrasi Itu buruk, Insist Press, 2004
[1] Carlos vilas and carlos perez, globalization as imperialism, latin American perspective,vol 29,no 6sage publication,2002
[2] www.globalissues.org
[3] James petras,imperialism abad 21, kreasi wacana, Yogyakarta,2004,hal 129
[4] Joseph stiglitz,making globalization work, penerbit mizan, bandung,2007,hal 307
[5] Aseem prakash,the eastasian crisis and the globalization discourse,review of international political economy, vol.8,no 1, taylor n francis,ltd,2001
[6] Paul bowles, ASEAN, AFTA, and the new regionalism,pacific affair,1997
[7] Shaune narine, ASEAN into twenty first century, the pacific review, vol.12,no.3, routledge,1999
[8] Jurnal Wacana edisi 18, Kenapa Demokrasi itu Buruk,Insist Press, Yogyakarta,2004, hal 93
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