There can be no doubt that the recent economic reform policies of Burma will significantly impact output, productivity and, hopefully, improve the standard of living for the vast majority of citizens. The country has already made strides in opening and liberalizing the economy, but will face considerable challenges as it emerges from decades of isolation. Statistical measures put growth at an annual rate of over six percent with the expectation that a surge in foreign investment will make a substantial contribution to the economy in the future.
Although the conventional wisdom is that the market and political reforms are a significant positive step, Burma’s current level of development continues to trail all of its neighbors and income disparity is already becoming an emerging issue. The construction boon in the cities and tourist areas can be readily observed, but take a ride to the countryside and a different story emerges. Much of the farming methods of small landowners are not only noticeably similar to those of the pre-reform period, in some remote areas little has changed in the past thousand years.
A significant factor contributing to the urban versus rural income inequality is that the vast majority of investment in Burma is concentrated in the urban sector, despite the fact that only one-third of the population lives in these areas. The construction of five-star hotels and office space continues to receive investment priority and tends to continue even if a glut occurs. Overseas development aid has too often placed emphasis on providing opportunities for companies associated with the aid-provider rather than the recipient.
While Burma’s endowment in natural resources may bode well for advances in agricultural production, a major cause of poverty among Burma’s rural people, both individuals and communities, is lack of access to productive assets and financial resources. This population is characterized by high levels of illiteracy, inadequate health care and extremely limited access to transportation and social interaction.
As the World Bank has reported, the 60 million people of Burma have literally been in the dark for too long with three out of four living without reliable electricity. Roughly 30 percent of Burmese do not have access to safe water and the rural poor face harsh environmental conditions and frequent natural disasters.
As the level of income disparity increases, it is feared that it may portend social unrest down the road, perhaps resulting in a return to a more controlled economy and populace. The inability to gauge the extent to which the government may react to this situation creates an environment of uncertainty that may negatively impact the rate of economic growth that is necessary to move Burma significantly forward in the development process.
It is only natural that the transition to a market economy results in changes in income distribution. This phenomenon is certainly not unique to Burma. The unleashing of the forces of competition and the entrepreneurial spirit, for example, gives incentive to individuals and firms to improve their economic standing. The allure of profits provides the catalyst for innovation and encourages new investment both from within the country and from abroad. Those willing to take risks and possessing specific skills should be rewarded accordingly. Theoretically, these benefits should significantly contribute to economic growth and in the long-run spread to all sectors of the economy.
The standard model of the market economy, however, generally does not factor in such variables as corruption and influence peddling, factors that give certain groups special privileges and unfair access to resources. Such phenomena, often labeled as crony capitalism, are not unique to developing countries, but are a growing trend in the developed countries as well. These elements distort the market mechanism enabling some to gain substantially at the expense of many segments of the population. Being told that in the long-run benefits of the market will trickle down to everyone is little consolation for the malnourished peasant or unemployed factory worker who places precedence on obtaining a subsistence standard of living in the present.
Addressing this trend before it becomes severe and expanding the benefits of the market economy to all is an issue Burma policymakers must address now and in the future. If not, the social costs of the emerging inequitable distribution of income may come to haunt all sectors of the economy.
Dr. Dennis McCornac is an economist specializing in economic development and the economies of East Asia. He is currently the Interim Director of Global Studies at Loyola University Maryland in the USA.