Post on 29-Apr-2018
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Dr. Edo Andriesse Department of Geography
College of Social Sciences, Seoul National University
Regional Varieties of Capitalism in Southeast
Asia
Working paper No. 175 February 2014
The views presented in this paper are those of the author(s) and do not necessarily reflect those of the Asia Research
Centre or Murdoch University. Working papers are considered draft publications for critical comments by
colleagues and will generally be expected to be published elsewhere in a more polished form after a period of critical
engagement and revision. Comments on this paper should be directed to the author at edoandriesse@snu.ac.kr
Copyright is held by the author(s) of each working paper: No part of this publication may be republished, reprinted
or reproduced in any form without the permission of the paper’s author(s).
National Library of Australia.
ISSN: 1037-4612
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Regional varieties of capitalism in Southeast Asia
Dr. Edo Andriesse
Assistant Professor, Department of Geography
College of Social Sciences, Seoul National University
Gwanak-r0 1, Gwanak-gu
Seoul, 151-746
Republic of Korea
+82 2 880 4014
edoandriesse@snu.ac.kr
Abstract
Integrating the concepts of social capital, informality and geo-institutional diversity more explicitly in
theories of capitalist diversity opens up new and promising avenues for further regional research in
less developed countries. The case of Laos demonstrates that economic integration with neighbouring
countries is leading to specific regional varieties of capitalism, new state-business relations as well as
new local-central relations. Although the institutional complementarities generate economic growth
they neither translate into thriving small and medium companies, productive employment nor
inclusive development. This calls for theories and policies that reorient capitalist formal and
particularly informal institutions from growth towards development.
Keywords: , Laos, inclusive development, regional development, ethnicity, informality
Introduction
Increasingly, the regional varieties of capitalism (regional VoC) approach, which took its point of
departure in the analysis of the Western OECD economies, augmented by Japan, is also being
employed for non-Western and developing countries. In 2009 the journal Economy and Society
(volume 38, issue 1) published a special issue focusing on Latin America, entitled “Latin American
Capitalism: Economic and Social Policy in Transition” (MARTÍNEZ et. al, 2009). In the same year, the
Asia-Pacific Journal of Management published a special issue on varieties of Asian capitalism
(volume 26, issue 3). The latter volume emphasised the need to scrutinise the coevolution of
institutional arrangements and firm behaviour, the role of the state and the relationship between
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institutions and sustainable development (ANDRIESSE and VAN WESTEN, 2009; CARNEY et al.,
2009; TIPTON, 2009). Also, the Socio Economic Review (volume 11, issue 2) has recently discussed
Asian capitalisms (STORZ et al., 2013). The diversity of capitalism in Asia is further investigated in
Witt’s and Redding’s (forthcoming) handbook entitled The Oxford Handbook of Asian Business
Systems, with the key content of the countries’ part being summarised in WITT and REDDING (2013),
highlighting two outcomes. First, with the exception of Japan the scrutinised countries cannot be
classified as a classical liberal market economy, coordinated market economy or French style state-led
economy (SCHMIDT, 2003). Second, the findings demonstrate the relevance of institutional diversity
with respect to social capital, culture, informality and multiplexity all across Asia.
Accordingly, the characteristics of Asian capitalism may be outlined as follows. First, social capital
needs to be reconsidered as a combination of institutionalised trust in organisations and interpersonal
trust. As institutionalised trust is relatively low in many Asian countries, it is no surprise that family
business groups and conglomerates have emerged over the course of history. This has enabled
executives and owners of these organisations to navigate entrepreneurial and governmental waters
through interpersonal networks while minimising uncertainty associated with third parties. Second
and related to social capital, Asian capitalism involves a substantial degree of informality. De facto
informal ways of doing business have frequently impacted economic activity and performance more
than de jure formal laws, regulations, contracts and agreements. Actors in the private sector, but also
farmers and even governmental authorities themselves find it more efficient and effective to
circumvent formal arrangements by processes of defection and reinterpretation (HALL and THELEN,
2009). STORZ et al. (2013) point out that the related types of informal institutions have remained
under-researched and thus they propose to pay more attention to this complex topic in future research.
Third, it may be useful to follow WITT and REDDING (2013) as they observe the presence of
multiplexity in Asian capitalist diversity, namely the existence of multiple capitalist systems in one
country. They particularly point out the simultaneous existence of state-owned and private sectors
and argue that the presence of multiplexity raises important questions on the preconditions that
support the coexistence of multiple varieties of capitalism in the same institutional space. From this
follows a question pertaining to institutional convergence: if we allow for multiple equilibria within
the same national context, then firms may create their own equilibrium points.
Most important from a point of view of geo-institutional differentiation and multi-scalar analyses is
the fact that multiplexity generally also exhibits a distinctive spatial character (YANG, 2007; VAN
HELVOIRT, 2009; Andriesse et al., 2011). Spatial inequality and growth asymmetries frequently
characterise development trajectories in developing countries. As Yeung (2007) proposed, economic
geographers are well positioned to respond to the problem of methodological nationalism (PECK and
THEODORE, 2007) and to embark on spatially fine grained empirical analyses. Even in small
countries such as the Lao People’s Democratic Republic (hereafter simply referred to as Laos) the
variegated evolution of foreign direct investments might have created different regional varieties of
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capitalism (ANDRIESSE, 2011). Economists, business and management scholars usually employ the
varieties of Asian capitalism approach for studying large countries, obviously most notably China and
Japan, as well as countries with much innovative capacity such as Singapore, Hong Kong, South Korea
and Taiwan. However, integrating social capital, informality and multiplexity more explicitly in
theories of capitalist diversity opens up new and promising avenues for further research that
reconsiders often neglected economic and social structures on the regional level of the least developed
countries, thus reorienting the common focus on large firms and government towards often neglected
actors such as small and medium enterprises (SMEs) in agrarian and labour-intensive industries. Also,
this allows for a reconsideration of policy problems such as poverty reduction and inclusive
development from a regional perspective.
This paper begins with an overview of the comparative capitalisms approach in non-Western and
developing countries. This is followed by a section discussing the recent findings on diversity of as well
as within Asian capitalist systems. The focus is on the emerging economies in Southeast Asia. The next
section then addresses the case of Laos: a state-led frontier economy. It will demonstrate the relevance
of scrutinising regional varieties of capitalism informed by social capital, informal institutions and
multiplexity and in so-doing, it delivers an account of geo-institutional differentiation in a less-
developed country. Finally, in this paper institutions, the formal/informal, enabling/disabling,
national/regional, rules of the game, are distinguished from organisations and actors.
Comparative capitalisms in developing countries
In the last decade non-Western, developing countries have increasingly been included in the varieties
of capitalism literature. Most research focuses on Latin America, notably on the relationship between
capitalism and social policies, and East Asia, focusing on the successes of pre- 1990 Japan, China and
the Asian Tigers. Nevertheless, increasingly academics have focused on Southeast Asia and Africa as
well. For instance, PEDERSEN and MCCORMICK (1999) discussed Africa’s business systems,
DORWARD et al. (2005) and POULTON et al. (2006) connected Africa’s agricultural opportunities to
institutional complementarities and OCHIENG (2008) in general favoured coordinated market
economies over liberal types as it has a strong focus on stakeholders rather than firm shareholders. An
important development is the search for more varieties and a continuum rather than a dichotomy of
liberal market economies and coordinated market economies. The emerging literature points out that
the role of the state is an essential element in many varieties (TIPTON, 2009; MARTÍNEZ et al., 2009;
BECKER, 2012; WITT and REDDING, 2013) and as will be elaborated below also regional (sub-
national) states for the analysis of regional varieties, as opposed to earlier approaches putting the firm
as the heart of empirical scrutiny and stressing its centrality in any capitalist variety. It now frequently
appears that the state occupies a crucial role in economic activity, either in a positive enabling or
negative disabling way. Indeed, the successes of large countries (Brazil and China), smaller countries
(such as Malaysia, Chile and Uruguay), failures in state capacity across the global South and the
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resurgence of left-wing governments in Latin America since 2000 necessitates a detailed examination
of state-business, state-society and local-central relations. Although several authors have concluded
that the Washington Consensus era ended with the collapse of Lehman Brothers in 2008, one can
begin to wonder whether civil servants, politicians and policymakers have ever considered this
consensus in the first place in China, the Republic of Korea, Russia, Brazil and others (THE
ECONOMIST 2012a). In the case of East Asia analysts have written on the successes of the Beijing-
Seoul-Tokyo (BeST) Consensus and the Beijing Consensus: a political economic model in which a
visible hand not only facilitates but steers and where necessary intervenes in markets in order to
create global competitiveness, export success and a vibrant urban middle class (LEE and MATHEWS,
2010; RAMO, 2004). Although several Asian countries have tried to follow this consensus to a certain
extent state actors in poorer countries are frequently involved in neo-patrimonial, predatory, personal
and familial deals lowering institutionalized trust and increasing the scope for disabling informal
institutional arrangements (EVANS, 2005; CARNEY and GEDAJLOVIC, 2001; ANDRIESSE and VAN
WESTEN, 2009; WITT and REDDING, 2013; NATTRASS, 2013; ZHANG and WHITLEY, 2013).
The explicit inclusion of the role of state in comparing capitalist diversity has generated
various varieties. In a study on welfare regimes MARTÍNEZ FRANZONI (2008) identified three types
using a cluster analysis: 1. a state-targeted (Argentina and Chile), 2. state-stratified (Costa-Rica, Brazil,
Mexico, Panama and Uruguay) and 3. informal familialist (twelve other Latin American countries).
She argues that “with a few exceptions, such as Ecuador and Venezuela, countries of the informal-
familialist regime type were late industrializers and adjusted their economies radically. They were
highly stratified at that time, and they continue to be so today. As one of the consequences, the
proportion of spouses with paid work reflects family strategies that are deployed to compensate for
low wages and weak or non-existent public policy.” This is a more fruitful exercise than capturing the
Latin American experience in its entirety into the singular variety of “hierarchical market economy”,
based on the notion that many diversified business groups internalise business transactions
(SCHNEIDER and SOSKICE, 2009). WITT and REDDING (2013) also carried out a cluster analysis
based on the following indicators: education and skills formation, employment relations, financial
system, inter-firm networks, internal dynamics of the firm, ownership and corporate governance,
social capital and the role of the state. Five clusters of business systems are detected: (post-) socialist
economies, advanced city economies, emerging Southeast Asian economies, advanced Northeast
Asian economies and Japan (fitting into the coordinated market economy group). It is problematic to
allocate these five clusters in any continuum. Rather, they represent distinct varieties with unique
institutional formal and informal arrangements (Table 1).
In sum, the study of capitalist institutional arrangements and its evolution in developing
countries requires a reconsideration of the modi operandi of the “orthodox” varieties of capitalism
school. Three issues stand out that have so far received little attention in the human geographical
literature. First, economic growth has been accompanied with rising socio-economic inequality.
Inequality is the highest in Latin American countries, and the Asian Development Bank (ADB), is also
starting to worry more about the threats of excessive social, economic and spatial inequality
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(MARTÍNEZ et al., 2009; ADB 2012). While shared growth prevailed in the high performing Asian
economies during the 1970s and 1980s, as pointed out in WORLD BANK (1993), inequality has
markedly risen in the last two decades and the Kuznets curve is starting to lose its validity.1 In
countries such as the Philippines growth of the gross domestic product does not sufficiently translate
into reductions in unemployment, underemployment and the percentage of people below the poverty
line. Therefore, choosing economic growth as a dependent variable is too narrow (TUROK, 2011).
Opting for inclusive development appears to be more instructive and valuable. That would make the
regional VoC approach analytically more relevant for developing countries and expand the
comparative tools for institutional inquiry. According to KANBUR and RAUNIYAR (2010), pro-poor
growth is insufficient as many countries have witnessed rising inequality amidst falling poverty levels.
They claim that the millennium development goals are a reasonably suitable tool to measure inclusive
development. An advantage of inclusive development is the possibility to take into account non-
income inequalities such as inequality along ethnic lines. In both Latin America and Southeast Asia
indigenous populations are underrepresented as entrepreneurs, employers and managers, whereas
descendants of southern European migrants in the former and ethnic Chinese in the latter own a
disproportionate share of economic assets. Inequality, ethnicity and increasingly class are obviously
major issues in African countries as well. NATTRASS (2013) paints a rather bleak picture of South
Africa that is now part of the BRICS group. In the first post-apartheid years the country was heading
towards a coordinated market economy, but evolutionary dynamics, mainly race-state-business
relations, “created a variety of capitalism which provides CME [coordinated market economy]-like
support for the employed, patrimonial and increasingly corrupt support for sections of black business,
whilst effectively excluding the predominantly unskilled, unemployed from the fruits of growth”.
Second, in the “global South” the informal sector has played an essential and influential role
in economic life. For instance in India, generally seen as an emerging economic powerhouse and a
potential competitor of China given its more favourable demographics in the long run, only 7% of the
total labour worked in the formal registered sector around 2000 including access to the formal social
security system and provisions under the labour law (HARRISS-WHITE, 2010). Furthermore, she
contends that the informal sector has created relatively more jobs since the early 1990s when India
started to liberalise and deregulate. The presence of the informal economy has led to the introduction
of a new variety of capitalism: “informally dominated market economies”. Using Mozambique as a
case study DIBBEN and WILLIAMS (2012) analysed institutional arrangements in in the sphere of
employment relations. Trade unionization, collective bargaining, skills training and social security are
much weaker and looser in the informal sector, but one should not ignore the organizational
capabilities within this sector. However, a major obstacle is that informal sector organisations have
limited influence at the national level. DIBBEN and WILLIAMS conclude that Mozambique’s variety
resembles to some extent some southern European countries, yet the introduction of a new variety
based on informality is preferred. This has major implications for the study of employment relations
and labour issues in developing countries. For example, what is the impact of social identities (class,
caste in the case of India, religion, ethnicity, gender, family) on informal arrangements, how do the
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formal and informal interact with one another (HARRISS-WHITE, 2010) and are policies to formalise
existing informal arrangements always advisable?
Third, WITT’S and REDDING’S (2013) observation that informality and social capital need
to be further explored should be deepened by paying more attention to influential families and a
national and regional level. Extended families obviously form a source of social security in informally
dominated market economies with relatively undeveloped formal welfare regimes (MARTÍNEZ
FRANZONI, 2008) and long lasting political dynasties and competition between dynasties influence
institutional arrangements (e.g. IQBAL, 2012 on Pakistan; MENDOZA et al., 2012 and BBC, 2012 on
the Philippines). 2 Furthermore, many business groups are well connected to the state/certain
national politicians (GOMEZ, 2009; ZHANG and WHITLEY, 2013), and perhaps most importantly,
the boundaries between business and politics are often very difficult to locate in case millionaires turn
politicians. Good examples are Thailand’s former Prime-Minister Thaksin Shinawatra (PASUK and
BAKER, 2004), President Horacio Cortes of Paraguay and in the developed world former Italian
Prime-Minister Silvio Berlusconi. And at the regional level the Osmeña family of Metropolitan Cebu in
the Philippines is one of the best examples (VAN HELVOIRT, 2009: 155-192; LANGE 2010).
Integrating families would also do justice to calls for considering more rigorously the role of ethnicity
and personal capitalism (CARNEY and ANDRIESSE forthcoming).
Multi-scalar varieties of Southeast Asian capitalism
This section examines regional VoC in the countries which are member of the Association of Southeast
Asian Nations (ASEAN). Probably the first overview of Southeast Asia informed by the body of
knowledge on varieties of capitalism is TIPTON (2009). Regarding the role of the state he made the
interesting distinction between state direction and state capacity. State capacity (the ability to
translate policy into desired action) has been generally low in the Southeast Asian states, whereas
state direction (the extent of control over markets) decreased during the transition from the import-
substitution to the export-oriented industrialisation era. Holdings, state-owned and family business
groups have been mainly responsible for the export successes and governments’ policies have greatly
contributed. This resulted in a neglect of SMEs, even in Singapore where “there are relatively few
successful entrepreneurs…, and compared to other Chinese of Southeast Asia, Singaporean Chinese
are unlikely to engage in entrepreneurial behaviour” (TIPTON, 2009). Tipton further complained that
neither ASEAN nor its member states have implemented effective policies to encourage the
establishment of SMEs and innovation in SMEs. This omission explains to some extent the lack of
inclusive development and growing inequality in Southeast Asia. The section of the labour force that is
unable to work for the successful business groups or to connect to those groups indirectly through
supply and demand linkages falls behind and often works in the informal sector. In addition to the
formal-informal sector duality another challenge in Southeast Asia is an emerging middle income trap.
It remains unclear how Thailand and Malaysia can take the next step and how the developed country
status can be achieved. It appears to be difficult to transform from export-oriented industrialisation to
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strategies whereby innovative capacity and knowledge intensive industries are gaining prominence.
Political instability, vested interests (personal capitalism), processes of institutional lock-in and a lack
of reforms in education and skills formation stymie transformative capabilities. This political
economic model could be described as embedded mercantilism (JAYASURIYA, 2003; ANDRIESSE
and VAN WESTEN, 2009). The Philippines, Indonesia, Vietnam are likely to face a similar situation
(OHNO, 2009; IMF, 2013).3 .
Table 1: Varieties in Asian capitalism
Cluster Country Capitalist variety
(Post-) socialist
countries
China Authoritarian capitalism
India From failed developmental state to hybrid
market capitalism
Vietnam Post-state capitalism
Laos Frontier capitalism
Advanced city
economies
Hong Kong Hybrid capitalism as catalyst
Singapore Open-led state capitalism
Remaining
Southeast Asian
countries
Indonesia Oligarchic capitalism
Malaysia Personal capitalism
Philippines Inequality-trapped capitalism
Thailand Post-developmentalist capitalism
Advanced Northeast
Asian countries
Republic of Korea Plutocratic state-led capitalism
Taiwan SME-oriented capitalism in transition
Japan Coordinated capitalism between
institutional change and structural inertia
Source: WITT and REDDING, 2013 (clustering based on their statistical analysis)
Nevertheless, there is substantial variety and dynamics within Southeast Asia. Table 1 gives an
overview of contemporary varieties of capitalism in Southeast and East Asia. The classifications are
based on rigorous comparative institutional analyses. For several countries it gives a clue as to how
institutional arrangements are evolving. For instance, in Thailand personal capitalism is gaining
strength (see also ZHANG and WHITLEY, 2013) and the role of the state in Vietnam has decreased
somewhat although one should acknowledge substantial elite resilience (GAINSBOROUGH, 2010:
156-176). In terms of poverty reduction and inclusive development the country stands out as a
relative success story (BEESON and PHAM, 2012). Economic growth has trickled down faster to the
poor compared to other countries in transition such as Cambodia, Laos and India as well as the
emerging economies of Thailand and Indonesia (see for instance KERBO, 2011: 136-157 where
Vietnam is compared to Cambodia). Although ethnic minorities still face many problems in improving
their livelihoods, the Overseas Development Institute (ODI) included Vietnam in both the top 20
absolute achievers in poverty reduction and top 20 relative achievers in terms of progress relative to
the millennium development goals targets (ODI 2010: 4). . Another welcome development is the
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absence of outright land grabbing in Vietnam (SIKOR 2012). This contrast with the Philippines where
capitalism results in exclusive growth patterns (BALISACAN, 2003).
Regarding variegated multi-scalar analyses it is necessary not only to include the regional,
but also the international scale (PECK and THEODORE, 2007). In the economic spaces of Southeast
Asia it is evident that the ethnic Chinese way of doing business based on guanxi, a specific set of
informal institutions (PARK and LUO, 2001), remains a vivid element. This pertains both to large
business groups operating in urban areas as well as small-scale entrepreneurs. YEUNG (2006) points
out three aspects of continuity of Chinese capitalism in Southeast Asia: 1. “the family firm as a central
element in organizing ethnic Chinese capitalism 2. strategic deployment of ‘Chineseness’ and Chinese
identities; and (3) Chinese culture as strategic resources for business expansion”. One of the best
examples in Thailand is the Charoen Phokphand, a multinational with massive agro-processing and
other investments in mainland China. Its owners, the Sino-Thai Chearavanont family, is the richest
family in Thailand with an estimated worth of US$ 14.3 billion (YEUNG, 1999; FORBES 2013). Indeed,
ethnic-Chinese from many Southeast Asian countries are now investing in mainland China.
Henceforth, bearing in mind that certain varieties of capitalism have international dimensions would
also avoid methodological nationalism. In other words: “…it is certainly possible that Chinese culture
and identity will remain an important set of strategic resources for Chinese Southeast Asians to
engage in a form of economic organization that is neither entirely Chinese in its nature and ethnic
composition nor bounded within national political-economic institutional contexts like its
counterparts elsewhere” (YEUNG, 2006). This does not only pertain to the ethnic Chinese in
Southeast Asia, but also to expanding Indian business interests in the Middle East, international value
chains managed by ethnic Koreans in China and others. .
The remainder of this section explicitly focuses on regional -institutional differentiation and
inclusive development in the Philippines, Thailand and Malaysia. National institutions interact in a
complex manner with regional institutions. First, there could be institutional geographical overlap
between national and regional institutions. Second, regional institutions could steer or block
developments in a coexistent and co-evolutionary manner with national ones. Third, national
institutions could marginalize regional institutions due to powerful national organisations and actors.
Fourth, the dimensions of formal versus informal institutions and enabling versus disabling
institutions additionally complicate multi-scalar varieties. And fifth, related to the second point,
CROUCH et al. (2009) advise to engage in more industry specific studies in order to understand how
actors in industries behave. According to them they might follow the national institutional framework,
but could also try to circumvent it and foster other institutional arrangements that are more conducive
to the sector requirements for international competition. .”
In light of this potential analytical complexity Andriesse et al. (2011) linked regional VoC to
the global value chain approach. GEREFFI (2013) argues that this approach remains vivid “in a post-
Washington Consensus world”, yet new governance structures and geographical concentration can be
expected as a result of the larger influence of emerging economies in the Global South. Linking global
or national value chains t0 regional institutional inquiry offers the possibility to explicitly take into
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account multi-scalar variety and to scrutinise the interdependence of international economic linkages
and regional diversity. For instance, the ways of benefiting from foreign direct investment or trade
opportunities depends on regional actors and governance structures.
Table 2: regional variety in Southeast Asia Cebu Negros Oriental Bohol Satun Perlis Economic geographical nature Market-driven
exports of manufacturing and services
A post-colonial plantation economy
A small-scale farming economy
Market-driven agro-industrial economy
A state-driven service economy
Multi-scalar political-economic networking Public –private coordination
Strong: ‘boosterist’ alliance
Exclusive: political and business elite is the same, social polarization
Limited: restricted to personal elite alliances
Limited: elites divided by ethnicity and religion
Strong within Bumiputera sector
Local-central ties
Strong: mutual dependence
Strong: alliances of planters, elite well-represented in Manila
Top-down: dependence on Manila
Top-down: dependence on Bangkok
Hierarchical and strong, active Federal government
Role of ethnicity
Moderate: many Filipino-Chinese entrepreneurs
Strong: economic and political dominance by mestizo elites
Strong: duopsony of Filipino-Chinese tycoons
Strong: economic dominance by Sino-Thai families
Strong; ethnic divide in business communities
Inclusive/exclusive aspects of value chains and regional VoC Value chains Strong
exclusion mechanisms
National protective policies; no upgrading
Tycoons prevent inclusion of outsiders
Relatively inclusive access upstream
State-driven local chains
Regional VoC Competition for access to foreign buyers reduces social capital
Relatively inclusive access mechanisms for locals, based on personal contacts
Relatively inclusive access mechanisms for locals, based on personal contacts
Exclusion of Muslim majority, except as labour
Inclusive within Bumiputera sector
Source: ANDRIESSE et al., 2011: 168, 173
Table 2 examines the regional perspective on varieties of capitalism in Southeast Asia, based
on a research project on regional economies in the Philippines, Thailand and Malaysia.4 . Bohol, Cebu
and Negros Oriental are located in the Visayas in central Philippines, while Satun in Thailand and
Perlis in Malaysia straddle the Thailand-Malaysia border. Interestingly, Satun and Perlis shared a
similar history until then Siam and British Malaya agreed on a permanent border in the Anglo-
Siamese treaty of 1909 and still share similar social identities, most notably an Islamic majority. Table
2 consists of three parts: the upper part gives the most important industries in each region; the middle
part unpacks institutional and political-economic outcomes governing the regional economies and the
third part connects these outcomes to the nature of insertion in the national or global economy as well
as the extent of inclusive development, the latter of which is a prime concept in this paper. The table
shows that the interplay between national institutions, local-central ties and ethnicity determine the
relative influence of regional institutions. Regional institutions, for instance the ethnic Chinese way of
doing business in Perlis, are blocked by the powerful impact of Federal Malaysian policies to support
and expand the Bumiputera sector.5 This is a good example of marginalisation of regional institutions.
In the three Philippine cases distinctive regional institutions can be detected, due to the absence of a
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coherent national VoC and traditionally strong regional elites, if not dynasties. Regional elitism in
Cebu, Negros Oriential and Bohol also contributes to exclusion mechanisms, most notably with
respect to the development of value chains and the regional VoC in Cebu.
Map 1: Laos
This is consistent with Philippines’ classification as inequality-trapped capitalism (Table 1). In terms
of the impact of regional VoCs on the extent of inclusive development it is important to recognize that
“social and cultural capital can foster cooperation at the local level while excluding certain segments of
the population (ANDRIESSE et al., 2011: 172).” This implies that regional institutions can be enabling
for economic growth while disabling for inclusive regional development. For instance, policy makers
generally favour strong business associations such as chambers of commerce and industry-specific
associations in order to stimulate regional collaboration, regional institutional thickness (AMIN and
THRIFT, 1994:15), and cultivating a sense of regional belonging. Yet, when those associations tend to
exclude specific groups along ethnic, religious or other social dimensions, fostering inclusive
development is becoming difficult.
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6. The next section zooms in on Laos, a country in transition where capitalist institutions just
started to emerge after 1986. Due to major institutional changes and rapid responses of Lao and
neighbouring actors in the last two decades, Laos provides a key example for regional diversity in
Southeast Asia.It could also serve an illustration of what might happen in Burma/Myanmar in the
coming decades. The opening up of this country, with China, India and Thailand keen to invest could
trigger similar process of geo-institutional differentiation.
Regional variety in Laos
This section partly draws on ANDRIESSE (forthcoming) and ANDRIESSE (2011). Laos as a territorial
entity is a product of the colonial era, in which the French sought to disconnect the area east of the
Mekong River from the economy and culture of Siam (contemporary Thailand) (IVARSSON, 2008).
In addition, the Vietnam War caused enormous havoc in Laos, with communists and pro-North
Vietnamese forces fighting non-communists, largely made up of ethnic minorities such as the Hmong
people. In 1975, the Lao People’s Revolutionary Party (hereafter referred to as the Party) claimed
victory and has ruled the country ever since. Laos, however, remained a purely communist country for
only eleven years. The Party, facing external debts and an economy in shambles and in the light of
economic reforms in the USSR and China announced the New Economic Mechanism (NEM) in 1986,
similar to Vietnam's Doi Moi reforms and associated economic opening-up (STUART-FOX, 1997:195-
201). The NEM has been responsible for the entry of capitalist institutions, privatisation, a remarkable
opening up of markets and the influx of foreign direct investment (FDI). Nevertheless, the political
system has remained authoritarian. The Politburo of the Communist Party is in firm control of most
political activities and the Secretary-General of the Party is also President of the Republic.
Laos’s population of 6.4 million is small in the Southeast Asian context, as is the economy;
moreover, around 70 percent of the labour force works in agriculture. In the latest UNDP Human
Development Report, Laos is ranked 138 in the human development index (HDI), with a value of
0.543. Cambodia has exactly the same ranking while Timor-Leste is ranked above Laos (134) and
Burma/Myanmar below (149) (UNDP, 2013: 146-147). Net official development assistance received
accounts for 6.2 percent of the gross national income. This is 6.9 percent in Cambodia, but only 2.9
percent in Vietnam (UNDP, 2013: 184). Clothing, wood products, and processed foods have a high
potential for export and thus are useful from an inclusive development perspective (generating
employment and limiting environmental pollution, if managed well), but in the contemporary Lao
political economy, the booming industries are copper- and gold-mining and hydropower; industries
that generate little employment and degrade the natural environment (UNDP, 2006; DIE, 2009).
Laos aims to be a kind of battery, as it were, for neighbouring countries. At the end of 2010 the
completed Nam Theun 2 dam (NT2) and hydropower facility began selling electricity to Thailand.
The current trends in Lao mining and hydropower are part of a wider economic geographical
phenomenon which can be described as a transnational resource frontier. and international economic
spaces. . Thai companies, for example, have invested in sugarcane plantations in Southern Laos, the
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Chinese state-owned copper importer Minmetals owns a copper and gold mine in Savannakhet
province, Chinese and Vietnamese are involved in rubber plantations in the northern and southern
provinces respectively, and the NT2 dam is a complex project involving direct investment by Thailand
and France (SHRESTHA, 2010). The resource frontier 'captures empirical reality concerning the
political economy of rapid and uneven development in the country' (BARNEY, 2009:150). It should be
noted, however, that foreign investors have not only made inroads in resource frontiers, but also in
manufacturing industries such as clothing and motorcycle assembly.
Institutional complementarities
On the basis of the institutional spheres of education and skills formation, employment relations,
financial system, inter-firm networks, internal dynamics of the firm, ownership and corporate
governance, social capital and the role of the state it is possible to identify three institutional
complementarities:
1. A strong interventionist role of the state in the general political economy, a state-mediated
financial system, state-mediated inter-company relations, and the suppression of trade unions
have jointly led to a capitalist variety in which large companies that are somehow connected to
the Party, either through patronage or partial government ownership, can flourish. On the other
hand, it has resulted in disabling arrangements for SMEs. Ordinary entrepreneurs find it very
difficult to obtain access to finance; business organisations do not support SMEs, and consortia
of state-owned enterprises and foreign companies are the main beneficiaries of this model.
2. The absence of inclusive employment relations, improved but still low levels of educational
attainment, low wages, insufficient levels of social capital, and the government’s approval of
exploiting natural resources have resulted in a frontier mentality. A 'first come, first served'
arrangement steers a considerable part of the frontier economy, whereby business interests
force farmers, fishermen, smallholders, and villagers to relocate to make way for large-scale
frontier operations in hydropower, mining, and plantations. The lack of education and a narrow
base of civil society make protesting difficult, if not impossible. This complementarity explains
the current trajectory of rapid but uneven growth. The danger in the long term is increasing
socioeconomic inequality. This is why Laos’s variety can be labelled frontier capitalism (see
Table 1)
3. A virtual absence of corporate governance and on-the-job skills formation, a hierarchical
internal firm structure, and the lack of trust-based inter-company relations within industries
have created an institutional vacuum. Instead of industries endowed with institutional
thickness, institutional thinness prevails, and firms in Laos’s major industries are not
embedded in well-organised global value chains (except for mining), industrial districts
(WHITLEY, 1999: 43-44; ANDRIESSE et al., 2011). Consider the clothing industry. Many actors,
including the government, knew that the industry would see the end of the Multi-Fibre
Arrangement and was likely to experience difficulties once preferential trading regimes for the
14
least developed countries were toned down, but relevant stakeholders have conducted few
concerted efforts to enhance the capabilities of the industry (RASIAH, 2009).
Geo-institutional differentiation, social capital and informality
The complementarities described above provide a general overview of the prevailing national
institutions and the resulting political economy as well as lack of inclusive development. But as
mentioned in the introduction of this paper a regional perspective requires a closer look at geo-
institutional differentiation, social capital and informality. Table 3 connects capitalism in Laos to
three geographical scales: the international scale of the Greater Mekong Subregion (GMS), the
national scale and the regional (sub-national) scale. Laos is geographically a rather fragmented
country and as it has influential neighbouring countries, it is possible to identify several blends of
frontier capitalism. In southern Laos Thai and Vietnamese corporate actors, supported by chambers
of commerce, governmental authorities are actively investing in large scale plantations, contract
farming, mining and trading activities. With respect to the rubber industry PINKAEW (2012) showed
that the central government in Vientiane plays a relatively minor role in some of the new provincial
arrangements:
This provincial administration has direct bilateral relations and Memoranda of Understanding with
16 individual provinces in Vietnam, mostly in the field of agricultural production, but also education
and tourism. Several senior members of the provincial staff can communicate in Vietnamese and
Champasak is keen to foster relations with Vietnamese investors. Thus, many of the early
negotiations between companies and Champasak province were underpinned by a series of
diplomatic arrangements between provinces. It should be noted that land concessions at the
provincial level sometimes did not follow Laos’s land law.
Table 3: Multi-scalar analysis of variety of capitalism of Laos
Greater Mekong Subregion
Financial system, ownership and
corporate governance
Important role of foreign direct investors from Vietnam, China and
Thailand
Inter-firm relations Foreign firms establish links with Lao private firms and state-owned
enterprises
Labour mobility More than 200000 persons (irregularly) work in Thailand
Multilateral organisations Belief in efficacy of market integration
Belief in efficacy of connectivity
Laos as a nation state
Role of the national state Intervenes in many industries, encourages frontier mentality
Insufficient attention paid to inclusive development, notably SMEs,
employees, farmers and displaced citizens
Lao Holding State Enterprise steers hydropower industry
Nation-building in progress: for instance use of Lao Kip encouraged
Balancing political-economic interests of Vietnam, China and Thailand
15
Social capital Low institutionalised trust
Education and skills formation Secondary education needs to be improved
Gender inequality
Little on the job training
Employment relations Labour as input factor rather than human capital
The “regional world” of Laos
Role of the provincial state Accountable to Vientiane, but increasingly active as interventionist in the
economy, especially in frontier industries
Social capital High village based interpersonal trust
Ethnicity Complex relations between Lao people and the many ethnic minorities
Inter-firm relations Increasing number of deals with Vietnamese, Chinese and Thai firms,
depending on geographic location
Sources: RIGG, 2009; COHEN, 2009; PINKAEW, 2012; ANDRIESSE, forthcoming
The institutional outcomes in Champasak serve to illustrate two points: First, it is a clear example of
defection by a provincial government rather than the private sector .7 In this case national formal
institutions are deemed ineffective and instead new cross-border arrangements are forged. Second,
the Party in Vientiane is not all-powerful. Other actors such as provincial governments increasingly
mingle in economic affairs. Furthermore, ROMYEN (2010) demonstrated how complex land dealings
are in contemporary Savannakhet. In a paper on the sugarcane business in Savannakhet, she showed
that large Thai firms have heavily invested in plantations since the mid-1990s. Nevertheless,
increasing economic openness does not mean that deals are made in a ‘free’ land market. Instead,
negotiations on long-term land concessions are politicized and involve Thai sugarcane business
executives, the Thai government, the Lao government, chambers of commerce, brokers and lobbyists.
Moreover, she contends that the Thai side is in a more favourable position to benefit from the
emerging corridors in Laos, as Thai firms have much more capital available and experience with the
rules of the game entrenched in current geo-institutional settings in the GMS. Meanwhile, in northern
Laos the Chinese have secured interests in an array of economic activities including casinos and
rubber plantations. The government of Laos, even the Lao military and Chinese companies backed by
Chinese governmental authorities perceive large scale rubber plantations as the civilising way forward
for the upland populations (COHEN, 2009). Yet, certain ethnic minorities themselves, not backed by
organisations, have also been able to benefit from new rubber opportunities on the Laos China
borderlands using informal arrangements structured by kinship and other forms of interpersonal trust
(STURGEON, 2013). Thus the increasing integration between the regional scale and the GMS scale
results in complex frontier economy dynamics in which not only Lao, Vietnamese, Thai and Chinese
firms and provincial governmental authorities are involved, but rather unexpectedly also weaker parts
in society such as ethnic minorities and rubber smallholders. As such there is a need to recognise the
potential emergence of pockets of spontaneous inclusive development.
Besides geographical variation in the power and influence of the Party, things in Vientiane
are also changing. In the medium run, informality, notably the role of important families, will increase
amidst continuing low institutionalised trust (Table 3), difficulty to do formal business and capability
16
to enforce contracts. Laos ranks 163 in the WORLD BANK’s (2013: 3) ease of doing business list. This
compares unfavourably to the other (post-) socialist countries as classified by WITT and REDDING
(2013) (Table 1): China 91, Vietnam 99 and India 132. And Cambodia, together with Laos the other
small country located between Vietnam and Thailand, is doing better as well with a rank of 133. It is
therefore no surprise that informality and families are essential for doing business. After 1975 senior
Party members increasingly engaged in traditional Lao forms of social capital, giving jobs to extended
relatives and loyal retainers. As Laos state capacity has been relatively low (compared to the
neighbouring countries except Cambodia), competition between networks of influence and patronage
cohering around senior Party officials became a part of political life (STUART-FOX, 2006).
For the majority of the population, nevertheless, the Party is something rather abstract and
the people need to cultivate interpersonalised trust in their communities. Informal arrangements
based on kinship, friendship, ethnicity, and village origin play very important roles. Such social
identities often 'regulate' job-seeking in the clothing industry in Vientiane, initiating (irregular)
migration to Thailand and many other forms of economic survival. In the communist era of 1975–
1986, hierarchy, reciprocity, and village patronage structured social life, but nowadays many find it
difficult to cope with the capitalist features of urban individualism and competition. Migrants arriving
in Vientiane without connections in the city have considerably higher chances of becoming beggars,
prostitutes, criminals, or drug-addicts (REHBEIN, 2007), while urban Lao people look down upon
ethnic minorities. In sum, it cannot be expected that nationwide more neutral forms of social capital
will emerge anytime soon. The findings on regional varieties of capitalism in Laos complicate the idea
that policymakers can transform the GMS into a level playing field, wherein formal institutions and
more roads bring about smooth integration and connectivity (Table 3). Instead, regional actors, be
they firms, provincial governments or rubber smallholders, reinterpret and even defect from national
institutions. This process is informed by social identities such as ethnicity and linguistic familiarity
and generates a mosaic of formal and informal institutions at the regional level. .
Conclusion
This paper has demonstrated that a multi-scalar approach towards varieties of capitalism in Southeast
Asia generates a better understanding of processes of capitalist modernisation, given the persistence
of regional diversity . Institutional complementarities might be enabling for certain business
communities and general economic growth, yet prevent inclusive development and result in
socioeconomic and spatial inequalities due to social identities, various interactions between national
and regional institutions, vested interests and distributive conflicts. In other words, the way various
institutions interact might not be beneficial for all involved actors in the economic sphere. For
instance, the case of Laos revealed that the weak position of employees, insufficient levels of social
capital, and the government’s approval of exploiting natural resources promote an economic
environment in which business thrives at the expense of weaker sections of society. Given rising
inequality in Asia there is a need to connect regional varieties of capitalism stronger to the concept of
17
inclusive development as well as the millennium development goals. The ODI concluded that one of
the ways to achieve the millennium development goals is to have “sound macro-economic policies,
open trade, and recognition and active management of the complementary roles of market and state”
(ODI, 2010: 10). Several questions arise from the latter part of this statement. What exactly does this
complementary role entail? Is the role actually always complementary? What is the impact of
informality, social capital and geo-institutional differentiation on this complementary role? How can
national and regional policymakers get rid of disabling institutions and institutional lock-in while
facilitating new enabling complementary roles? And how does it differ between industries (Crouch et.
al., 2009)? For instance, the health industry is important. Health is a major theme in the millennium
development goals, the industry is set to grow tremendously as a result of ageing and there is a
complex web of state-owned hospitals, private hospitals, a variety of clinics, insurance firms, public
health agencies, informal traditional health systems, etc. etc. in many developing countries. And while
education and skills formation occupy a strategic place within the varieties of capitalism approach,
health is rarely researched.
For the above questions to be answered comprehensively this paper concludes with
suggesting two policy recommendations and two topics for advancing theories on regional VoC. First,
many developing countries need to invest more in education and skills formation in non-core areas.
The evidence on Laos demonstrates that a lack of education and skills formation seriously hampers
the emergence of inclusive development. A stronger focus on human capital formation makes it easier
and more effective to benefit from formal institutional reforms (decentralisation schemes, growth
poles, spatially targeted industrial policies, etc.) and increasing connectivity. It would also allow
citizens to cope better with potential negative side effects such as environmental degradation and to
increase chances of success in case of migration. Second, RODRÍGUEZ-POSE (2013) points out that a
carefully crafted balance between strategy and the right institutions is essential for regional inclusive
development. Indeed, national and international organisations often design good strategies for
specific regions in developing countries, yet ignore the disabling regional informal institutions on the
ground. In this regard smarter sequencing seems to be of paramount importance. Building a road,
establishing product or service clusters or setting up an investment agency in Laos and many other
developing countries before getting the regional institutions right will not work, especially if
entrepreneurial activity is influenced by ethnicity or other social identities. For any strategy to be
effective enabling institutional complementarities should be sufficiently thick and the disabling ones
as thin as possible. To refine theories on regional VoC it is instructive to consider more explicitly the
notion of regional personal capitalisms (ZHANG and WHITLEY 2013, CARNEY and ANDRIESSE,
forthcoming). Despite all the decentralisation schemes in which transparency, accountability and the
virtues of good governance are promoted, familalism, personalism and overlapping economic and
political interests continues to thrive in regional capitalist varieties. These features have so far not
been adequately dealt with in regional theoretical inquiry. Another phenomenon that deserves more
attention is the complex interplay between national and regional states. Not only firms, but also
18
regional civil servants and politicians are increasingly well-positioned to reinterpret or defect from
national institutions creating more complex multi-scalar dynamics.
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Endnotes
1 The relationship between income and inequality is now sometimes considered to follow a N or U trajectory rather than an
inverted-U trajectory (PERRONS, 2011: 60; THE ECONOMIST 2012b). In general, there is now an increasing recognition that
social and spatial inequalities should be dealt with, even during periods of economic growth (TOMANEY et al., 2011: 624-628).
Moreover, since the collapse of the Lehman Brothers in 2008, inequality has received more political attention in the developed
world. Politicians have the felt need to respond to the grievances of middle classes in the USA and Europe who are now dealing
with the consequences of recession (STIGLITZ, 2013: ix-34).
2 In an insightful study on the dynastic politics and the composition of the 15th Congress in the Philippines, MENDOZA et al.
(2012) wrote that “about 70% of the 15th Philippine Congress is dynastic. On average, political dynasties are spread across the
different age and gender groups of legislators. So there appears to be little, if any, bias against the young or against women. But
political dynasties tend to dominate the major political parties and, on average, are located in areas with relatively higher
poverty levels and inequalities, and relatively lower average incomes.” They propose more research to reveal the causal
direction and links between dynastic politics and poverty, but their analysis is consistent with BALISACAN (2003) who
demonstrated that one of the significant variables explaining provincial poverty is local dynasties. They are not conducive to
regional economic growth and restrict the access of the poor to basic services.
3 The notable exception in Southeast Asia is Singapore. Together with the other Asian Tigers Singapore has clearly been able to
‘break out’ from the middle income status
25
4 The research project name was Differential regional development South East Asia, led by Dr. Van Westen and funded by the
Urban and Regional research centre Utrecht (URU), Utrecht University, The Netherlands. This project was part of a wider URU
research programme entitled Regional development in a global context. Empirical fieldwork from 2004 to 2007 generated a
wealth of regional knowledge on regional VoCs and value chains. A total of 194 firms, mostly SMEs, were surveyed and personal
interviews were conducted in order to unravel the role of the local state, in particular political economic interaction and
potential dependency on the national state. Thus besides taking into account geo-institutional differentiation a major strength
of this project was its focus on SMEs as opposed to large business groups in most of the literature. Another feature was the role
of ethnicity, notably the effect of ethnic Chinese entrepreneurship on value chains and regional VoCs. See ANDRIESSE and
VAN WESTEN (2009) and VAN HELVOIRT (2009) for more detailed information
5 The Bumiputera sector refers to economic activities of the Malay majority as opposed to the ethnic Indians and ethnic Chinese
who are generally better off and control a disproportionate share of economic assets
6 A limitation of ANDRIESSE et al. (2011) comparative analysis is that the informal sector was not covered in the empirical
analyses. Most of the 194 SMEs are formally registered. More research is needed to capture institutional diversity and geo-
institutional differentiation within this dynamic sector. DIBBEN’S and WILLIAMS’S (2012) study on Mozambique and
WILLIAMS and et al. (2012) on Bulgaria, Cyprus, Greece, Romania and Slovenia form good starting points in this context
7 HALL and THELEN (2009) pointed out that defection forms a major element in institutional change. This outcome also
resembles Crouch et al. (2009) insights of sector and regional specific actors who circumvent national institutional frameworks.