Asian governments pursue `magic of the marketplace'
| Hong Kong
What do jute mills in Bangladesh, airlines in Singapore and Malaysia, the Japanese telephone system, and Bangkok's bus service have in common? Until recently, all of these enterprises were government owned and operated. Now, if they haven't already been sold, they are on offer to private investors.
A brand of ``Reaganomics'' is sweeping through Asia.
After decades of direct public investment, state subsidies, and stringent regulation, governments across the region are now eager to reduce their economic roles and turn to the private sector as the source of future growth. They are pursuing what President Reagan once called the ``magic of the marketplace.''
For most Asian nations, deregulation and the ``privatization'' of state enterprises mark a fundamental shift in strategy. Economists caution that the transition is likely to be gradual and difficult. But the evidence of change is already abundant.
After floating shares in its airline on the local stock exchange recently, Malaysia now intends to sell off its telephone system, container port, and rail lines, among other things.
Thailand and Indonesia are developing similar plans. Singapore Trade and Industry Minister Lee Hsien-loong said in a recent speech that the Republic was ``willing to divest itself of [state-owned] companies for a fair price.''
In Taiwan and South Korea, there are parallel efforts to reduce subsidies and the barriers that have long shielded local industries from competition.
``Our economy is now very large and complex,'' says Mihn Kyoung Hwie, a government adviser in Seoul. ``It is no longer efficient for the government to intervene.''
The continent's biggest countries appear to have reached the same conclusion. Both China and India are now freeing their markets and moving at least partly away from centralized economic planning.
A new generation of ``technocrats'' in Asia views such policies as a logical response to a changed economic environment. They are most concerned with maintaining momentum, despite a worldwide economic slowdown. Beyond that, the past is catching up with Asia. Too much of the region's ``economic miracle,'' it is now believed, has been fueled by foreign debt and public spending.
At nearly $50 billion, for instance, South Korea's foreign borrowings rank among the world's largest. The Philippines has already been forced to reschedule its $26 billion external debt. Government deficits have risen even more dramatically. Thailand's 69 state enterprises, for instance, now cost Bangkok more than all of its budgeted expenditures combined.
Planners have also come to see that state-owned enterprises are often run more as bureaucracies than companies. Government protection of private industries, once intended to help them grow, has left many unable to compete. In fact, some have become huge repositories of workers who would otherwise be unemployed.
``Asia's public sector grew in order to get development moving,'' says Eric Nickerson, Bank of America's senior economist in Asia. ``It was a logical way to allocate scarce human and financial resources.''
Economists now view the region's hands-off policies as a natural progression. ``It's an underlying indication of a new level of development,'' Mr. Nickerson adds, ``when things don't have to be controlled anymore.''
Analysts say this is especially true of Asia's more advanced developing countries -- Singapore, Taiwan, and South Korea. But for East Asia especially, privatization also represents a philosophic turning point. Government control of basic industries was a guiding principle for Sun Yat-sen, known as the father of modern China and an inspiration to later generations of Asian nationalists. Sun drew heavily on Confucian theory, which gave rulers responsibility for the welfare of the ruled. These traditions, plus the third world's post-war brand of populism, are now being swept aside. Governments in Asia want to spend less and let private initiative fill the vacuum. Protecting ``infant industries,'' it is argued, is no longer appropriate.
``We want companies not internationally competitive to go under,'' a senior South Korean official said bluntly in a recent interview.
The United States has been instrumental in spurring this trend -- partly by its own example. More directly, it has pressured countries such as South Korea and Taiwan, whose trade surpluses with the US have ballooned in recent years, to open their economies.
Washington's influence has also grown through the multilateral institutions: The International Monetary Fund and the World Bank have been demanding that Manila, for instance, dismantle its massive public sector.
The Asian Development Bank (ADB), to which the US is the second-largest donor after Japan, now uses its lending programs to encourage private investment rather than substitute for it. The ADB is also urging the development of stock markets as a new source of capital.
But many economists caution that it is likely to take years for the region to ``go private,'' as an ADB analyst puts it. One problem is capital. Outside of Japan, few Asian companies are big enough to absorb sprawling state corporations on their own. And the first candidates for the auction block are often the chronic lossmakers. Making them profitable can be politically sensitive, if not impossible. Bangkok's bus service, for instance, has long been subsidized. Nonetheless, even small fare increases have frequently sparked riots in the past.
Liberal technocrats are also likely to face resistance from entrenched bureaucrats and industrialists unwilling to give up advantages they have long enjoyed. Slower growth in the region has already forced delays in some market-opening programs. But Asia's biggest problem stems from its own success. Two decades of rapid growth have skewed incomes dramatically.