ASEAN Beat

Rethinking the Development Gap: ASEAN’s Inclusive Growth Imperative

ASEAN will need to deal with regional disparities if integration is to succeed.

If ASEAN wants economic integration by the end of 2015, it will have to do something about its internal development gap. The bloc’s 10 member states range from less-developed Myanmar to advanced city-state Singapore and emerging Indonesia. While important progress has been made, over a quarter of the ASEAN Economic Community (AEC) initiatives covering services liberalization and customs modernization, due to be implemented in 2008-2011, remain pending.

The AEC Blueprint is ASEAN’s vision for regional economic integration to transform the region with the free movement of goods, services, investment, and skilled labor, along with a freer flow of capital. Regional integration, via both market and government driven processes, will leave no ASEAN member state untouched as it drives the evolution of economic structures and policies spanning across the region.

To achieve that, ASEAN will need to overcome its greatest challenge; the one it faces from within. The development gap within ASEAN will likely emerge as the top non-traditional security issue in the coming decade. Regional policymakers need to find ways to leverage growth opportunities and strengthen competitive advantages to move their states further up the value chain, while mitigating perceptions that the AEC will create winners and losers.

As Tan Sri Dr. Zeti Akhtar Aziz, Governor of Bank Negara Malaysia, argued, “If the AEC vision was aspirational when it was first conceived, it is now clearly an imperative.” Integration represents a real chance for ASEAN to achieve economies of scale, attract further foreign investment, drive global growth, and develop the institutional and structural tools to achieve economic development goals.

But integration is not without its risks. If policies deliver an unequal distribution of opportunities, then a widening development gap and growing perceptions of unequal access to gains could undermine regional solidarity and create misguided perceptions of both political and economic opportunity costs to further ASEAN cooperation. These challenges and doubts should not be underestimated in the grand scheme of pursuing “one vision, one identity, and one community.”

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To be fair, development gaps always exist, and are not always obstacles to integration. In ASEAN’s case, however, the development gap is detrimental to the adoption of a regional identity. Abdul Khalik captured the divide vividly, describing how Laotians forlornly view their inability to partake in Thailand’s prosperity from across the Mekong riverbank in Vientiane. Forming a regional identity is already difficult in Southeast Asia, because unlike other regions, it has no common religion, no common language, and not even a single land mass.

As the 1 percent vs. 99 percent debate sparked by the Occupy movement of summer 2012 in the U.S. demonstrated, these fault lines can be exacerbated when economic regional integration and growth initiatives, in their purest sense, do not take into consideration a people-centered or even pro-poor approach, leaving growth and development outcomes exclusively to the determination of the market’s “invisible hand.” As the world looks to ASEAN for a renaissance in international leadership in the Asian Century, ASEAN cannot afford fragmentation of the regional spirit.

The most important principle to minimizing the development gap is not to insist on regional redistribution policies, but instead to focus on strengthening domestic capacity to identify and harness competitive advantages for sustainable growth and development. Economic growth is not an end in itself, but rather a tool for achieving development goals.

For ASEAN, the first step is to review the development gap and tap both public and private sector expertise to review and execute major assistance policies, especially those related to institutional building, human capital development, infrastructure improvement, and enhanced financial intermediation. This process may be both difficult and time consuming beyond 2015, and will require real commitment.  But they are key to the viability of future growth and integration initiatives.

To their credit, ASEAN policymakers recognize the potential pitfalls of economic integration, as evidenced by tangible action plans such as the Initiative for ASEAN Integration (IAI).

The current IAI Work Plan has targeted four priorities: infrastructure development, human capital development, information and communication technology and regional economic integration via trade facilitation and regional harmonization. ASEAN is slowly erecting a paradigm of equitable growth based on social and economic inclusion.  

One immediate tweak to the regional ambition is to accept that equal opportunity does not guarantee equal outcomes. Without that perception of equality, ASEAN member states could vary in their calculation of the opportunity costs and benefits of integration, which in turn could hinder future regional agreements and policy reforms.

As the Asian Development Bank has rightly pointed out, minimizing the development gap will require not only sustaining higher economic growth, but also policies that close non-income gaps directly. The problem is that these initiatives require time, patience, political will, capital, and a role for the private-sector. Those resources may be beyond the immediate reach of Cambodia, Laos, Myanmar and perhaps Vietnam and will require the support of more than the ASEAN-6.

One solution is to pursue future integration frameworks that deliberately seek to strengthen development gaps via capacity building. A prime example is ASEAN’s banking integration efforts, where regulators have a strong interest in pursuing a level playing field to ensure reciprocal access to markets and an acceptable supervisory regime, possibly only with a relatively standardized market system.

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With due respect to John Maynard Keynes, the long-run—at least in the context of AEC realization—is not all that far off and we will likely not be dead yet. While ASEAN is at risk of external irrelevance if integration stalls, it faces a similar fate internally if it does not consider the interests of individual member states.

ASEAN has been hard-pressed to deliver to its citizens. The right mix of policy recalibration and action holds the key to leveling present disparities and placing inclusive development on the right track.

Daniel Wu [[email protected]] is the manager of the US-ASEAN Business Council. The views expressed here are his own. This article was written as part of a Pacific Forum CSIS Young Leader conference project.