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Myanmar’s post-socialist economic transformation

Since 2011 Myanmar has been back on track with its economic transformation from a centrally planned, state command, socialist economy to a market, capitalist model. The new foreign investment law adopted in November 2012 is a sign of opening up.

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The reform of the currency exchange regime (April 2012) is a hint toward broader economic liberalization. Domestic banks are gradually being allowed to offer more financial services. Companies can more freely engage in international trade. The service sector seems to be expanding. The change is indeed visible. Foreign products fill the shelves of shops and more and more imported cars congest the roads of Yangon. Entrepreneurship is thriving and photocopies of the new economic legislature can be bought at the traffic lights.

Post-socialist economic transformation already commenced once, in 1988. Banks got more freedom to operate. Private companies could thrive and foreign investors invest. But soon after, the trend was reversed. The government got cold feet. The Asian financial crisis and international sanctions added its fair share to the hold up of the reforms.

Now the reforms are picking up again. We all hope that this time they will be irreversible. One of the dilemmas the Myanmar authorities are likely to face is the mode of economic transformation. Last month, in February, a famous British historian and expert on post-socialist transformation from the University of Oxford, Prof. Timothy Ash, argued during his visit to Yangon that the best doctrine for transformation is the [Frank] “Sinatra Doctrine”: I’ll do it my way.

Indeed, every post-socialist transformation is different. Every country follows its own way determined by initial conditions, internal and external, as well as the political elites’ perception as to what is good and what is not … preferably for the country and its economy rather than for the elites themselves.

Nevertheless, it is legitimate to argue that the process of post-socialist transformation has seen two very distinctive models of transition, as acknowledged by many policy makers. In general, they are described as the European model—a dynamic political and economic change, with its “shock therapy”—and the Asian model where gradual economic reforms are often not accompanied by political liberalization.

From the economic perspective, the European model creates an economic-systemic environment, which is extensively liberalized. The Asian model retains the paramount position for the state in the national economy. Naturally, this division is oversimplified, thus, to a large extent, perhaps incorrect. I prefer to see the main division being drawn between Central-Eastern European (CEE) countries—predominantly those who joined the European Union or are planning to do so—and East Asian states such as China, Vietnam and perhaps Laos. Former Soviet Union republics are located somewhere in between, whereas Mongolia, in this categorization, seems to be in the CEE club.

Poland is a good example of successful post-socialist economic transformation following the CEE model. Naturally, this model did not comprise only shock therapy. In fact, it’s best to divide the Polish systemic transformation into four periods: the shock therapy (1989-93); incremental changes (1993-97); four major reforms (1997-2001); and the process of accession to the European Union (2001-04). In each period a great deal was achieved. Each period was characterized by different reforms necessitated by the progress made.

The end result is that Poland has built a modern, competitive, market-based economy with transparent regulations, effective institutions and little on the side of market access barriers. Companies from all over the world receive equal treatment, regardless of whether they are domestic, foreign or multinational. We successfully integrated with the rest of the European Union. The GDP doubled and Poland joined the group of the 20 largest economies. The standard of living increased dramatically.

The Asian model of post-socialist economic transformation is more interventionist. It draws extensively from the experiences of the capitalist economies of Japan, Korea and Taiwan, often described in the scholarly literature as developmental states. Those countries seem to have the most distinguished record of developmental advancements in the second half of the 20th century. However, their economies have never been socialist.

The Asian model of economic post-socialist transformation can claim significant successes. The economic growth in China and Vietnam has by all means been very impressive for decades. China became a middle-income economy, its size increasing many times over from the moment of commencement of the gaige kaifang era of reforms.

Despite the environmental degradation and increasing disparities, this economic growth has been accompanied by large improvements in the standard of living as measured by the Human Development Index. In other words, growth translated into development.

So now Myanmar people and Myanmar authorities have some options to choose from in terms of post-socialist economic reform trajectory. Underneath the general models of transition lie many sectoral micro-solutions, which sometimes worked and sometimes didn't. It is important for Myanmar to study them.

What lies ahead for Myanmar? I dare to claim that provided the political liberalization continues, Myanmar might lean more towards some CEE solutions. I would certainly hope for that. Not because one set of systemic solutions allows better results, as it might not, but because wise openness and transparency unleash human capital more effectively.

And there is human capital in Myanmar, despite the widespread perception of the insufficiency of skilled labor. The CEE model also offers insight into how to successfully integrate with the rest of the region.

Poland and other CEE countries joined the European Union, and in 2015 one expects the establishment of the ASEAN Economic Community. By no means will it be the ASEAN version of the European Union, rather, a first step on the path of closer cooperation. Nevertheless, it will require a significant degree of regional integration.

Dr. Andrzej Bolesta, expert on East Asian economies, studied at LSE and Oxford University. He is the Economic Counsellor of the Polish Embassy and the coordinator of the Polish Reform Mission to Myanmar.  

Last Updated ( Saturday, 16 March 2013 13:51 )  
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