Review of The Institutional Imperative

Erik Marinez Kuhonta, The Institutional Imperative: The Politics of Equitable Development in Southeast Asia

Stanford, California: Stanford University Press. Pp. xxii, 342; appendix, bibliography, index.

Reviewed by Andrew Walker.

As poor countries develop, the core socio-economic challenge shifts from absolute poverty to relative poverty. In the early stages of national economic development, countries struggle with the basic challenges of subsistence agriculture and generating enough surplus to feed the rapidly expanding urban population. As incomes rise, these absolute livelihood pressures decline and the new challenge of economic disparity emerges. In simple terms, economic disparity is a product of the fact that productivity gains in the newly expanding sectors of the economy are much more rapid than productivity gains in the agricultural sector. Even though incomes in the agricultural sector are increasing, thus reducing the incidence of absolute poverty, they typically increase more slowly than incomes in manufacturing, construction, heavy industry and services. A socio-economic gulf can quickly open up between the booming urban areas and the countryside, where agricultural remains an important element of the economy.  This disparity problem becomes a central political challenge for governments in developing countries, especially when it erupts into political agitation and violent confrontation.

In The Institutional Imperative, the political scientist Erik Kuhonta makes an important contribution to evaluating the responses of developing countries to this disparity problem. He does this by means of a comparative study of Malaysia and Thailand (with a shorter discussion of Vietnam and the Philippines and some brief notes on Fiji, Guyana and Sri Lanka). In both Thailand and Malaysia rapid economic growth has brought about large reductions in absolute poverty. In the 1970s, almost 50 per cent of Malaysians lived below the poverty line; by 2009 this had plummeted to only 4 per cent (page 51). In Thailand the drop was from 63 per cent in 1969 to 12 per cent in 2004 (page 122).  But, Kuhonta argues, the performance of these two countries on relative poverty is quite different. Malaysia has addressed the disparity problem much more successfully and has been able to combine reductions in both absolute and relative poverty. Malaysia’s Gini coefficient, which measures inequalities in the distribution of income, declined from .529 in 1976 to .441 in 2009 (page 5). Thailand, however, has been less successful, and economic growth has made its income distribution more unequal, with the Gini coefficient moving from .426 in 1975 to .515 in 2006 (page 6).

What explains the difference? The short answer is simple: institutions.

For Malaysia, Kuhonta’s argument pivots around the Kuala Lumpur race riots of May 1969. The government recognised the contribution of economic inequality to social conflict, and quickly abandoned its laissez faire approach to economic development, embarking on a twenty-year boom in state-led economic engineering. State intervention was decisive, targeted and very substantial: in the mid-1980s public spending was 40 per cent of Malaysia’s GDP, the highest rate in the region (page 94). The central aims of the government’s New Economic Policy were to increase agricultural productivity, encourage the movement of labour into more productive sectors of the economy, and provide affordable social services.  Moving beyond the development programs of the 1960s, the NEP “sought to avoid an excessive dependence on agricultural development as a means to reduce poverty” (page 92). Agriculture was important, but the dangers of the agricultural trap meant that the main game lay in promoting industrialisation. The transformation of the sectoral mix of the Malaysian economy underpinned its positive performance on inequality, enabling a labour force that was benefitting from government investment in health and education to take up more remunerative pursuits. At the same time a sophisticated social safety net improved the living standards of those Malaysians remaining in the less productive parts of the economy. The results were very impressive indeed. Between the mid-1970s and the early 1990s, Malaysia’s income inequality consistently declined while the economy was shooting ahead at between 6 and 9 per cent per year.

Kuhonta argues that the reasons for Malaysia’s successful “pursuit of equitable development” (page 4) are institutional. The Malaysian economy has been well served by a strong political party and a cohesive and interventionist state. Malaysia’s most important political party, the United Malays National Organisation (UMNO), has provided a coherent, stable and socially embedded organisational structure for the pursuit of reformist policies. UMNO had a robust birth in the anti-colonial campaign against the Malayan Union plan and rapidly “penetrated deep into the countryside” (page 61), mobilising farmers, townsfolk and the Malay-dominated colonial administration. It soon established a sophisticated internal structure, special sections to reach out to women and young people, and an ambitious national economic development plan. Following the 1969 riots, UMNO reformed its internal organisation, strengthened its planning structures and resisted efforts to turn it in a more radically pro-Malay direction. UMNO’s institutional strength meant that it became a crucial link between the state and the population, enabling it to combine state-led development with local participation and representation. Its success in aggregating the interests of the poor resulted in reformist policy platforms and “relentless efforts to improve the livelihood of the rural peasant” (page 106).

According to Kuhonta, Thailand has not experienced a watershed moment like Malaysia’s May 1969. The brief period of democratic opening between 1973 and 1976 witnessed the introduction of some important social reforms, including legislation on land reform and tenancy, the creation of local development funds and the expansion in agricultural credit. But, Kuhonta argues, these attempt were much less effective than they were in Malaysia and, “despite the reform efforts and the passage of laws and programs to address the disparities between city and countryside, the livelihoods of the poor did not improve” (page 159). Effective social reform and restructuring foundered because of the weakness of the state, the anti-reformist influence of local and national elites, and a bureaucracy that was insufficiently embedded in the rural social milieu. “Unlike Malaysia, there was no synergy between policy makers and policy implementers and no institutional links between the executive and bureaucrats in the periphery” (page 159). Thailand succeeded in recording impressive economic growth in the 1970s and 1980s—outstripping Malaysia in the second half of the 1980s—but this was achieved at the cost of sharp increases in inequality. Between 1975 and 1992 the income share of the poorest fifth of the population fell from 6 per cent to 4 per cent of the national total while the richest fifth increased their cut from 49 per cent to 59 per cent (page 121). A range of programs have been put in place to address rural disadvantage, especially since the election of the government of Thaksin Shinawatra in 2001, but these have been less systematic than in Malaysia and much less successful at “integrating the rural population in the modern economy” (page 190).

The basic reason for the different performance, Kuhonta proposes, is that Thailand has had no UMNO. Since the late nineteenth century, Thailand’s “institutional imperative” has been to maintain the symbolic and political power of the king. The revolution of 1932, which overthrew the absolute monarchy, had the potential to shift Thailand’s institutional development in a new direction, but the vanguard People’s Party foundered on leftist ideology, internal rivalries and royalist backlash. Unlike UMNO, the People’s Party proved “fundamentally incapable of establishing roots in society” (page 141)—lacking the organisational and ideological mettle born of anti-colonial struggle—and it was vulnerable to the enduring appeal of royalist nationalism.  “The legacy of 1932,” Kuhonta argues, “was thus to ultimately strengthen military-bureaucratic rule rather than democracy or social reform” (page143).   This legacy has bedevilled Thailand’s political development, with a plethora of short-lived, unstable and fragmented political parties that have been unable to build the “organizational power” (page 123) necessary to counter an interventionist military that traded on the symbolic power of the monarch. The only stable party, the Democrats, has shown little interest in social reform. “With the recent exception of the Thai Rak Thai (TRT) Party, no political institution has emerged in Thailand to fundamentally tackle uneven growth and rural-urban disparities.” (page 8).

Kuhonta’s account of the very different institutional paths that Malaysia and Thailand have taken is compelling reading. Tracing the origins of modern responses to inequality back to anti-colonial mobilisation in Malaysia and royalist revival in Thailand makes for a perceptive and engaging approach to contemporary political economy. The book is an important contribution to highlighting more and less successful approaches to the middle-income challenge of economic disparity. However, there are three points on which I find Kuhonta’s argument not completely convincing.

First, I am not persuaded that the differences between Malaysia and Thailand when it comes to inequality are as stark as Kuhonta proposes. His historical accounts of the two countries suggest that Thailand’s performance has been consistently less impressive than Malaysia’s.  For example, in relation to Thailand’s period of democratic opening between 1973 and 1976, Kuhonta writes:

… the subaltern classes did not gain from this period because political institutions were weak, fragmented, and conflicted over their commitment to social change. This stands in sharp contrast to the situation in Malaysia, where the dominant party, UMNO, was able to overcome a major social crisis in the late 1960s, thus redirecting the state towards deep-seated reform. (page 163)

The contrast in terms of institutional development is reasonable, but the data on growth and inequality raise questions about the overall argument. Between the late 1960s and 1980, Thailand’s growth rates were similar to those of Malaysia, rural poverty declined from 70 percent to 43 percent and, most importantly, the level of inequality in Thailand was significantly lower. Kuhonta’s argument is on much firmer ground in the 1980s, when Thailand’s inequality shot up while Malaysia’s declined. Since the early 1990s, the performance of the countries on inequality has been rather similar with some fluctuations up and down, but an overall downward trend. I would have found the argument more convincing if the book gave more concerted attention to exactly what went on during the crucial decade of the 1980s.

Second, Kuhonta tends to be unfair in his judgements about Thailand. He is correct to highlight Thailand’s relatively unsuccessful struggle with relative poverty (inequality), especially during the 1980s, but too often this slips over into an overly negative assessment of Thailand’s performance on absolute poverty. For example, referring to the rapid economic growth of the 1980s and 1990s he suggests that the “negative social and economic consequence of the boom became drastically apparent” (page 164) and that the rural poor “have found it exceedingly difficult to reap gains from the economic boom” (page 165). But, again, the data tell a rather different story. Thailand has been enormously successful in dealing with rural poverty. Kuhonta’s own data show that it declined from 96 percent in 1962 to 21 percent in 1999 (page 122). More recent data show it falling to around 10 percent in the mid-2000s. Productivity increases and livelihood diversification have dramatically improved the lot of rural people in Thailand, creating standards of living unthinkable just a few decades ago. The Thai state certainly could have done more to support this, but, in overstating the contrast with Malaysia, Kuhonta gives insufficient attention to decades of investment in irrigation systems, rural roads, electricity supply, agricultural extension, community development and agricultural credit. The absence of detailed discussion of the internationally regarded Bank for Agriculture and Agricultural Cooperatives, and the contribution it has made to raising rural income by supporting productivity-enhancing investment, is surprising. Rather than highlighting Thailand’s rural credit revolution, Kuhonta assumes that “rising debt in the countryside” (page 177) is a symptom of reform failure.

Third, and on a related point, the book reflects an analytical ambivalence about the process of de-agrarianisation. In his discussion of Malaysia Kuhonta makes it clear that the large reduction in the size of the agricultural workforce has been an important factor in reducing poverty and inequality. Put simply, the government-assisted transformation in the structure of the economy means that rural people have been able to move into more remunerative sectors of the economy. This labour force transformation has been much slower in Thailand, “with between 40 percent and 50 percent of the population still employed in the agrarian sector” (page 6). Kuhonta clearly recognises that this is an important factor in explaining the level of disparity in Thailand, and he notes the inability of Thailand’s industry to absorb the rural population. But, at the same time, he describes the labour force shift that has taken place as “a drove of rural migrants … form[ing] the basis for cheap labour to work the export industries” (page 164). He condemns the Thai state for “displac[ing] and repress[ing] the peasantry” (page 165-166), “squeez[ing] out the peasant” (page 166) and running “roughshod over the livelihood of displaced peasants” (page 166). Small farmers, he writes, have been forced “to push back against economic modernization in an effort to protect their sources of livelihood” (page 165).  Here, I think, Kuhonta’s politics are getting in the way of his otherwise excellent analysis. Isn’t Thailand’s inequality problem largely a result of a peasantry that has been insufficiently displaced? Doesn’t the fundamental failure of the Thai state lie in the fact that it hasn’t pushed hard enough to move people out of agriculture and into industry? The fate of villagers in the area of the Pak Mun Dam who have lost their traditional fishing grounds is certainly distressing (page 178-181), but preserving the livelihoods of subsistence fishermen is hardly going to shift Thailand’s Gini coefficient in a positive direction. De-agrarianisation often isn’t very pretty, but economic disparity may well be the price to be paid for pursuing it as slowly as Thailand has over the past 50 years.

Andrew Walker is Senior Fellow in the Department of Political & Social Change and Deputy Dean of the ANU College of Asia and the Pacific, Canberra.  A co-founder of New Mandala, he is also the author of Thailand’s Political Peasants: Power in the Modern Rural Economy (Wisconsin 2012).

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