Bridging Development Gaps

IT is no secret that ASEAN is diverse and divided. The development divide that separates the newer Cambodia, Laos, Myanmar and Vietnam ("CLMV") members from the founding ASEAN6 features prominently. Although this divide is multifaceted, its most conspicuous manifestation lies in differences in per capita incomes. 

More rapid rates of economic growth in the Cambodia, Laos and Vietnam (CLV) since the 1990s, driven by trade, investment and other market reforms, have reduced income differences and poverty greatly. Although the divide has narrowed, it still remains significant.  

Further narrowing of these gaps will require an increase in the speed and breadth of policy reforms. With trade, the focus needs to shift to behind-the-border measures that reduce trade costs through transport and trade facilitation. A gaping hole in ASEAN’s policy landscape is the failure to address labour migration adequately. 

Furthermore, ongoing demographic transitions will require greater capital inflows or labour outflows if massive unemployment is to be avoided. 

Capital inflows will only increase if there are substantial improvements in the investment climate. These changes will take time and since absorptive capacity is currently nearing its limit, it is an issue for the long run. 

Greater labour mobility will occur in the interim, but will require effective policy frameworks to be developed in both sending and receiving countries, if it is to be regulated. It would also help if a regional agreement that also deals with low skilled labour could be struck. 

The current policy void on labour migration not only limits the benefits from trade and investment liberalisation, but also increases the cost of structural adjustment. For CLMV, the absence of a functional exchange rate mechanism due to varying degrees of dollarisation, increases the importance of labour mobility in adjustments to economic disturbances or other shocks.

Labour mobility reforms cannot exist in a vacuum. While ASEAN converges in rapid growth, polarisation within its member states can threaten social cohesion and the sustainability of future growth. 

If convergence at the expense of internal cohesion is seen as a hollow victory, so too would the preservation of internal cohesion at the expense of convergence. In other words, how do we make growth more inclusive? In order to do this, there is a need to invest heavily in social infrastructure, especially in education and health. Apart from directly reducing social inequities in these areas, such investments will also produce a workforce that is better able to actively participate in the growth process. 

Beyond income inequality, asset inequality is a key rift between member states. Land reform is critical in addressing these divisions, increasing agricultural productivity, and enhancing labour market flexibility during periods of structural transition.