No.45 Success as Trap? Crisis Response And Challenges To Economic Upgrading in Export-Oriented Southeast Asia

This paper explores the capacities for sustained growth in the export-oriented countries of Southeast Asia, with a focus on Vietnam, Malaysia and Thailand. The paper is especially concerned with the prospects for "upgrading" and moving beyond the "middle-income trap" in Malaysia and Thailand. But the core argument for all three countries is similar: Each has responded relatively well to economic crises with impressive reforms, especially in areas of property rights, macroeconomic policies, and, to varying degrees, financial supervision. With some exceptions, however, reforms have not extended to improving local (indigenous) competitiveness and technological capacities. These limits reflect both successful adjustment in areas noted earlier and the availability of resources, including commodity export revenues, external aid, and migrant / informal labor. The danger is that such "safety valves" will serve to reinforce existing institutional and political arrangements, thus undermining initiatives to improve local competitiveness and linkages so key to upgrading. Of particular interest is the fact that, unlike Western European countries where external exposure and vulnerability have led to various forms of labor incorporation, and unlike in the East Asian NICs, where such vulnerability has led at least to a commitment to shared prosperity (and in Singapore to a peak union's participation in labor market and productivity decisions), labor has remained largely disorganized and excluded from bargaining over key issues in export-oriented Southeast Asia. This argument in turn reflects the contention that crises vary in nature and intensity, that different crises have different impacts on the willingness and capacity of political elites to promote new coalitions and to foster new forms of coordination (i.e. institutions), and that such institutions are especially important for movement into more innovation-based activities and higher income status.

keywords: economic upgrading, middle-income trap, crisis, labor, capacity, Southeast Asia