TCS Daily


Building an Asian EU?

By Alan Oxley - October 10, 2003 12:00 AM

The leaders of the 10 members of the Association of Southeast Asian Nations (ASEAN)[1] have laid out at their annual summit in Bali a grand ambition by 2020: to create a Southeast Asian version of the European Union. Brussels should be flattered. The idea may seem out of left field, but there are historic parallels between Europe and Southeast Asia. Realizing this ambition, however, sets ASEAN a mighty test.

 

The European Union is the latest iteration of a process of union and fragmentation in Europe over a thousand years. The Holy Roman Empire -- the first European "Union" -- formed from the rump of the Western division of the Roman Empire. It took many momentous wars over several centuries to achieve the civilized and democratic communion of interest that today constitutes the European Union.

 

The laws and principles of governance developed during the Roman Empire and the common ethic of Christianity provided a common cultural base for the idea of "Europe." The ultimate instrument of union has been economic integration. But not before the nations of Europe settled themselves around national boundaries.

 

Southeast Asia has the necessary common cultural base for a supra state. Visit Angkor in Cambodia and the royal courts of Bangkok and Jogjakarta in Indonesia and the thousand year old culture of India upon which the ancient civilizations in Southeast were based becomes obvious. It is not the only cultural glue that binds ASEAN, but it is the most important.

 

The ASEAN intent to build a version of the EU seems more to recognize the economic community created in Europe rather what was is the purpose of building that community, namely political integration.

 

The difference is important, because the EU is heading in directions chosen to secure the political goal without full regard for the economic consequence. The Euro is the leading case in point. A common system of money is being created without the common political base that experience tells us is necessary if the currency and the monetary policy to underpin it is to support economic growth, not retard it.

 

Europe is engaged in a great experiment and we shall see if it works. Many wise heads consider Europe should have left it at that after it created the single market for trade and investment.

 

The ASEAN ambition appears restricted to the single market at this stage. Even that is a big ambition. The commitment is to remove all trade barriers by 2020. This repeats the target they adopted in the APEC Bogor Declaration in 1996, but reiteration is welcome. The challenge for ASEAN's leaders is to act to secure that goal.

 

First they have to remove trade barriers. ASEAN countries have already negotiated schedules to do this in the ASEAN Free Trade Agreement. However since the Asian currency crisis, enthusiasm for sticking with those timelines has flagged.

 

Second, and more fundamental, is the consolidation of property rights. The great South American economist, Hernando de Soto, has reminded us in "The Mystery of Capital" how vital it is that rights be protected by law which is beyond political influence. Argentina, Brazil and Egypt are famous cases where nationals invest more outside their own countries than inside because property rights are weak. While they are stronger in the ASEAN countries than most other developing countries, the security provided by property rights in ASEAN does not yet match those in the EU or the industrialized world.

 

Third, ASEAN needs to stay firmly on the open rather than closed side of the economic integration ledger. It may seem strange to say this given that it has been one of the fastest growing economic regions over the last three decades. There are some warning signs. The principles adopted in ASEAN to promote investment discriminate against investors from outside ASEAN. These principles take ASEAN in the wrong direction. By and large ASEAN is losing global competitiveness and foreign investment is falling away.

 

Finally, ASEAN must stick with the smaller rather than big government model of growth and development. Both Malaysia and Thailand have become big government spenders to stimulate growth since the Asian currency crisis. They need to ensure before too long that government withdraws from the role of driving economic activity. Singapore, with a dirigiste economy resembling that in France has finally realized that using the government to drive growth instead of the private sector can only take you so far.

 

In contrast to Latin America where rhetoric about growth is all too common, the Southeast Asian tradition had been able to achieve growth with hard work. The ambition to emulate a successful model of economic integration like the EU is good. But hard work, not rhetoric will realize it.

 

alan Oxley is a co-host of Techcentralstation and Chairman of the Australian APEC Centre at Monash University.

 

NOTES

[1] Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam.

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