The answer lies on your doorstep

Burma’s parliament has just stolen a march on its rivals. It is now the largest military common room in the country, with more than a thousand well-appointed seats. But whilst the political structure of the country remains frustratingly unchanged and far from democratic, the signs of greater economic liberalisation look significant.

The development of Special Economic Zones (SEZs), the potential of the garments’ sector, and the provision of vague labour rights in the constitution all point to an economic potential that regional countries are salivating over.

So as Burma attempts to assert a new economic age through privatisation, what can she learn from the experiences of those around her?

It would be wise here for planners to cast the net wide, for examples of success and failure are not confined to single nations. India, the world’s largest democracy, is toted as a model developing nation, one that aspires to superpower status with shopping malls at every turn and 10 percent growth rates.

Yet it is rarely noted that democratic India has a larger proportion of malnourished children than Burma: roughly 42 percent in the billion-strong country, while next door the figure is closer to one-third; globally, it is one-sixth. Moreover, one in three adults in India are malnourished. This comes despite the proud assertion that there has not been a famine in India since independence, and that the country is “shining”.

The 10 percent difference between India and Burma’s proportions of hungry people may not sound significant but when one considers the flux that has occurred there over the last 20 years the prevalence of hunger, however, has remained stubborn. It is a source of national “shame”, according to PM Manmohan Singh, to add further insult to injury, the same period has seen India’s middle class swell, both in waistlines and numbers.

Singh’s government has undertaken a number of programs to combat such a blot on the nation, all to no apparent avail. He is however also seen as one of India’s great ‘market liberators’.

But the country’s move towards a freer market is comparable to that of Burma’s. In India the rescinding of bureaucracy was seen as victory against a ‘tyranny’ that had blighted the economy of the country, so much so that the bureaucracy was compared to colonial rule through the moniker; “the licence Raj” (British colonialism in India was euphemistically known as “the Raj”).

Tearing down, as he has, subsidies on commodities such as cotton, Singh ushered in a sharp rise in farmer suicides that were blamed on this ‘liberalisation’. Indian educator and campaigner Vandana Shiva estimates that since 1997, 200,000 farmers have taken their own lives as a result of indebtedness.

Roughly 70 to 75 percent of Indians survive through agriculture; nearly the same proportion as Burmese. So in essence this is where Burma’s focus should be, but economist Sean Turnell notes a “famine” of agricultural credit.

Where for inspiration?

This is a crucial time in Burma, for as elites and business circles may cheer the scent of liberalisation of its market, sick as they are of corrupt and ineffective bureaucracy, planners must look elsewhere for inspiration for agriculture and take lessons from India on what can go wrong in the sector. It will not be sufficient to simply liberalise this, for at stake are the livelihoods of 70 percent of the Burmese people and the chance to seize on growing global food prices.

Incentives must be given to increase yields, but this will require a refit of the Myanmar Agriculture and Development Bank (MADB), which Turnell describes as currently “moribund”. He estimates that a “re-capitalisation” of the MADB for the purposes of providing agricultural credit would have to be between $US400 million and $US1 billion.

Both India and Bangladesh took on the vogue for micro-finance, but overwhelmingly from the private sector. This is now starting to fall apart as the level of indebtedness has soared, often as ruthless money lenders hiding behind an NGO-created brand have profited.

However if one looks at Thailand’s recent agricultural experience, micro-loans supplied by a public institution, the Thailand Village Fund, which was instigated by ousted former PM Thaksin Shinawatra, was credited with enormous success, seen as partly responsible for shifting the number of people living in poverty from roughly 12 percent to seven percent in less than a decade.

The Thailand Village Fund was initially worth some $US2.3 billion. How can Burma’s state acquire such capital? The answer, as ever, may lie in Burma’s gas revenues, exports of which were worth some $US2.5 billion in 2007/08, and will likely soar as more is exported. Turnell estimates that six months’ worth of current gas sales would be enough to re-capitalise the MADB. However what many nations, including Norway and Kuwait, have done is to plough such revenues into a Sovereign Wealth Fund (SWF), which over time have developed into multi-billion dollar money pots. Could Burma’s bountiful natural resources similarly be used to reinvigorate the country?

As Aung San Suu Kyi told the Davos gathering of the World Economic Forum last week, a massive proportion of the GDP currently goes into military spending. But this is not sustainable, given that gas is a very unsustainable commodity. In this respect the capacity of any parliament should be viewed by its ability to wrest control of at least some of this finance, with military expenditure likely to stem mainly from natural gas sales.

Aung San Suu Kyi speaks via weblink to the WEF in Davos (Reuters)

Regardless, agricultural credit will be essential. In this area Burma can earn more foreign currency as an exporter as well as enhance food security. But this should not be seen as an end in itself. The provision of rural credit should in theory provide greater productivity and greater yields. It can also help to swell a re-capitalised MADB or a potential SWF, which in turn could provide credit for other enterprises within the country.

As productivity increases, labour will be freed, meaning that a greater proportion of the country will require jobs in cities. Here again, like agriculture, there is vast potential, with GDP per capita in terms of purchasing power parity extremely low at around, or indeed less than, $US1000. Wages will thus remain competitive. This in theory could shift some of the share of GDP away from agriculture, which currently accounts for over 40 percent of the country’s GDP, as it has for all of independent Burma’s history.

Import substitution could also be a boon to manufacturers, as Burma currently imports large quantities of low-cost, labour-intensive manufactured goods from the likes of China and Thailand. This must also be considered with the looming ASEAN Free Trade Agreement, which after 2015 will make import tariffs illegal in many sectors, and can go hand-in-hand with a growth in the garments’ sector.

Cast the net wide

Industries such as garments can provide an initial level of growth, jobs and export earnings, but for smooth, even development Burma must look to education, which needless to say has suffered under military rule.

Again concise government policy must be present for education in order to transform it into the bedrock of up-stream economic endeavour that goes beyond superficial growth. Where funding for this originates will be a great challenge and will surely be a medium- to long-term exercise, for just as low-wage manufacturing can flourish, so will capable, newly educated individuals seek to leave in search of better wages, as many do now.

Tourism could be another major growth industry, as it has been in Thailand where it accounts for six percent of GDP. Crucially, moreover, it is labour intensive. This could provide a vital bridging industry that will allow growth and jobs without necessarily requiring the skills and education that some of India’s economic growth has resulted from.

In this we see concerns of both neighbours: Thailand fears that the country’s education sector is not strong enough to push her economy through to the levels of nations such as South Korea or Taiwan, meaning she may struggle to move beyond a middle-income, labour-intensive, but knowledge-light, economy.

In India, however, economic growth has been the opposite: the large proportion of export earnings and truly new industry that has lifted the economy as a whole has been in knowledge-intensive industries that weigh heavily on the country’s surplus of university-educated middle class. But this has not employed the masses who are unable to access education, and are therefore stuck beneath a glass ceiling, gazing at a class they no longer recognise as fellow country men.

Here we see how the provision of both the basic services to the populous, such as education, and a slew of low-wage jobs through private sectors such as tourism or garments will be crucial. However, underpinning all this is planning, which in the modern age is something that economists and politicians have seemingly neglected as a priority. The vogue that is spoken most often is deregulation, one that Burma’s generals are only recently catching on to.

The lessons of India can be heeded, but so should those of Egypt and Tunisia, both examples of ‘liberal’ autocracies. Egypt’s Mubarak and Than Shwe are not worlds apart, but in Egypt inflation has soared, as has unemployment, and as deregulated agriculture bankrupted farmers, the nation became a net importer of food. Its prominence stagnated as IMF and World Bank economists cheered it as a “success”, with tourism and oil providing the basis for an inequitable and deceptive 7.5 percent growth rate that is invisible to the millions now agitating on the streets of Cairo and elsewhere.

There are certain key necessities that will determine the economic outcome of Burma – an outcome that could, if properly managed, be very rosy. The marketisation of somewhere like India has so far failed a vast swathe of that country and, as a result, humanity. Deregulation alone cannot be left to govern Burma’s economic future.

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