Unlocking the region’s potential

By Tunku ‘Abidin Muhriz. First published in the Borneo Post 7 November 2014.

Since its inception the Institute for Democracy and Economic Affairs (IDEAS) has focused on domestic issues, but that will shift with our Southeast Asia Network for Development (SEANET), a partnership of like-minded organisations to promote economic liberalisation in ASEAN. Next year, Malaysia will be Chair of ASEAN and the ASEAN Economic Community (AEC) will be declared. SEANET will argue that ASEAN can reach higher levels of economic dynamism and sustained prosperity by subscribing to three principles.

Firstly, inclusive growth as the key to social stability, by opening up economies to provide opportunities for smaller companies and micro-entrepreneurs. We want to enhance competition, push down prices and drive up the quality of goods, resulting in improved living standards and better protection of consumers. We advocate the eventual elimination of protectionist policies, reduction of regulatory burdens that could dampen innovation, and removal of trade barriers within ASEAN as well as between ASEAN and the wider world.

Secondly, property rights for all: the keystone of a prosperous economic system. Respect for property rights, including intellectual property rights, is a prerequisite to inclusive growth and development that benefits everyone and not just a select few. Proper protection of property rights provides incentives for individuals and firms to produce and accumulate capital that can be invested for further development.

Thirdly, freer movement of goods, capital and people, which is necessary for strong and sustainable economic growth as well as greater integration within ASEAN. Freer movement means ASEAN can capitalise on the diversity of talent within member nations to develop each country’s comparative advantages. It will also lead to stronger cultural, organisational and personal bonds within the region, creating natural incentives for countries to maintain good relationships with each other, contributing to peace and security.

In my travels across the region in recent years, I have encountered diehard enthusiasts of ASEAN who want to see much deeper integration. They yearn to see an ASEAN Parliament, the morphing of the Secretariat into an executive arm, and the creation of a judicial arm. Such ambitions are folly as long as there remain wide gaps in the democratic credentials between the countries.

But the cause of economic integration can be pursued despite these democratic deficiencies. Already we have the ASEAN Free Trade Area (AFTA) and its ASEAN Trade in Goods Agreement (ATIGA), alongside other sector-specific efforts, and ASEAN has free trade agreements with six countries (with whom the Regional Comprehensive Economic Partnership (RCEP) is being negotiated).

In that context you have the AEC, which envisages a single market and production base, a highly competitive economic region, equitable economic development and full integration into the global economy. Areas of cooperation include human resources development and capacity building, recognition of professional qualifications, closer consultation on macroeconomic and financial policies, trade financing measures, enhanced infrastructure and communications connectivity, development of electronic transactions, integrating industries to promote regional sourcing and enhancing private sector involvement.

Naturally there is resistance from parts of civil society and businesses who fear that economic integration will lead to domination by foreigners – leading to legislative efforts to prevent foreign ownership. Surveys indicate that youth fear they will be overwhelmed by an influx of workers from neighbouring countries.

But if we examine the situation of SMEs more closely, we see that much can be done to strengthen them. At present many SMEs complain of having limited access to finance as major banks are reluctant to provide loans. Across the region there are huge variances in property rights, economic freedom and ease of doing business. These factors push entrepreneurs into the informal sector, limiting their ability to expand and compete effectively with larger businesses.

As such, SMEs can benefit hugely from a liberalisation of business regulations, registrations and licensing, so they can more easily enter the market and compete. If we enforce property rights and contracts, we can give SMEs the incentives to expand and improve their capital. These must go hand-in-hand with enhancing the rule of law and fighting corruption, which are strongly correlated with economic development. By liberalising the financial sector – especially for micro-finance and peer-to-peer lending – we can unlock credit for SMEs. And by opening up to trade and foreign investment, we can help reduce the costs of running businesses.

Making all of this a reality may necessitate the creation of strong enforcement mechanisms in ASEAN, but these efforts will lead to greater prosperity (and in the long run, greater democracy) for our region’s 600 million people. That is what SEANET hopes to achieve: through research and publications, media engagement, public education through open and closed door meetings, and training programmes for regional leaders.

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Tunku ‘Abidin Muhriz is the Founding President of IDEAS

This is an abstract from the author’s speech at the Economic Freedom Network Asia Conference 2014

2017-03-14T08:10:35+08:00 7th November 2014|News|Comments Off on Unlocking the region’s potential