In order to fall into the savings gap, a country must find itself at full employment and have net foreign exchange reserves. That country would require relatively less foreign aid than one suffering from a foreign-exchange gap. If foreign aid were given to that country, that excess foreign aid would be fretted away on luxury imports.
On the other hand, a country finding itself at less than full employment, hence with excess productive capacity in labor, would benefit relatively more from foreign aid. Which Gap for Cambodia? The Two-Gap model as applied to Cambodian economic history results in a mixed outcome of in- betweens. It appears that Cambodia lavished in luxury imports from the s onward, yet it does not appear 22 Kasliwal, Pari.
Development Economics , , p. At the same time, much of the foreign aid, or assistance provided Cambodia in the s was expended on the war effort, corruption, and inflation. As such, the introduction of net exports implies capital inflow or outflow. From the s onward, up and until , foreign aid was a lifeline for Cambodia.
Two percent was to come from the Khmer people. Whether that foreign aid exacerbated or ameliorated the economic condition of the country, as could conceivably happen were the country to suffer from a savings g ap--is for analysis to tell. Of course, there was also the war in the same time-span. As for the s and s, the current account trade deficits indicate similar though milder symptoms. In that case, income is made to equal a Cobb-Douglas C-D aggregate production function.
Output is a function composed of factor endowments which equals national income. This is precisely where technological 28 See R. Technology has improved the productivity of labor, capital, and land in unimaginable ways. Agriculture is made many times more productive when fertilizers are used. Computers have liberated white-collar workers some would say imprisoned them and so on.
There is little that technology has not yet touched or revolutionized. Not only were land, capital and labor to be the ingredients to the broth of economic growth, but such had become the impact of technology. One need not think of technology as merely computers, but as tractors and fertilizers.
By plotting a longitudinal growth curve that has on one axis real GNP or GDP and the capital stock on the other axis, Solow was able to show that increases in the capital stock would produce growth that was larger than expected. Changes in each factor should, therefore, explain changes in the growth of income. For Cambodia, where technology stood in the s and s is one aspect of its failure to grow in those decades. For instance, the school system was based on the French system.
Education was geared towards the production of civil servants, not agronomists, scientists, and entrepreneurs. For instance, there were many academic centers, but few had the wherewithal or curriculum to provide a solid or relevant education, much less research and development. The problem of scarce education is one too often found in the case of developing countries-- who in the Third World does not suffer from such a malady? How it comes about and contributes to economic growth now depends on other variables such as labor and capital.
According to Kasliwal, there are three versions of how technology is made endogenous: 1 spillovers, 2 diffusion, and 3 human capital. For our purposes the first and third one are especially relevant. The use of certain technologies, it is argued, can have benefits which go beyond private accounting. For instance, the use of computers and their manufacture thereof, can significantly improve productivity and knowledge in areas which go well beyond the computer industry.
Primary and secondary schools which, for example, use computers can benefit. Indeed, these benefits can spread throughout the economy. Economic and Policy Implications Endogenous growth theory considers technological growth as springing from investment in education, research and development, in and of themselves.
The policy implications, according to Kasliwal, go beyond the neoclassical, Solow Growth-based prescription for increased physical capital, or human capital accumulated through schooling. We see too an increasing call for the U. More so than would appear.
Endogenous growth research looks at the short-and long-run effects of investment in specific areas like education, research and development, even trade liberalization. In particular, Other models of endogenous growth explicitly consider the implications of economic policy on the long-run rate of growth. The market return to productivity-increasing investments is increased, and this leads to an increase in the rate of growth. In this case, the long-run effect of trade liberalization is not only a higher level of output in the future [via comparative advantage], but a higher rate of growth of output.
Trade liberalization may thus lead to a permanent increase in the 37 rate of output and consumption. Hence, this conclusion favors opening borders to goods, which means reducing barriers and tariffs. For Cambodia, this was true for the s, s, and the first half of the s. However, from to , Cambodia closed its doors to the world. From to , the remainder of the world, with the exception of the Soviet block countries, closed its doors to Cambodia. This year, the U. Congress approved MFN most-favored nation status for Cambodia, which means the country will now allow Cambodian exports to enter with the best tariff structure America has to offer.
The same conclusions which apply towards the Solow Growth model, apply equally to Endogenous Growth Theory. We turn next to the relationship among agriculture, industry, technological change, and labor in the sixth model of economic development employed in this thesis. The first is the classical or Lewis dual sector economy model. Both models differ in only one respect: whether they assume the economy to be initially fully employed or underemployed. The Lewis turning point marks the instant at which an economy becomes fully employed, and separates the classical from the neo-classical model.
The basic assumptions of the dual sector classical economy model a. Lewis model are that 1 the agricultural sector exhibits surplus labor. Because there is surplus labor in agriculture, the price of agricultural goods is not expected to increase until the marginal product of the last worker employed cannot be replaced with another identical worker of equal cost. Thus food prices will remain constant so long as there is underemployment in agriculture.
The Growth Mechanism In both the classical and neoclassical models, the growth mechanism is triggered by increased industrial output which in turn increases profit and therefore investment. This investment, both models assume, is sent back into the stock of capital in industry. The loop is completed when that capital creates more demand for workers from agriculture. The wages offered to induce more workers into industry must increase, and so too must the wages of the agriculture sector. Because the neo - classical dual sector model begins where the classical model ends that is, past the Lewis turning point , full employment is assumed, and any labor transfers from agriculture to industry will cause a shortage in 38 See W.
Labor in agriculture is often said to be of low productivity for that reason.
That is, the cost of replacing the worker who has left for work in industry is no longer replaceable at the same subsistence real wage which once prevailed in agriculture. Wages there and in industry must go up.
Contrasting Assumptions and Logic In order to understand the differences between the two models, their logic must be contrasted. The classical model assumes surplus labor in agriculture, a declining marginal product of labor in agriculture, and exogenously determined agricultural wages. The neo-classical model assumes a fully-employed economy which is at or beyond the Lewis turning point the point at which full employment has been reached. As was stated earlier, wages in agriculture are no longer exogenous in the model since they can now increase with the transfer of workers from agriculture into industry.
This has implications for both the price of food and other agricultural products since the labor costs are going to increase under the neo- classical framework. Whereas the classical model relies on repressed wages to create the profit necessary to invest in more capital, the neo-classical model turns instead to technological change in agriculture. Policy And Economic Implications: Economic Growth versus Equity The implications for Cambodia according to the classical dual economy model is that any repression of the wage in agriculture will increase the level of employment in industry which will help it reach the Lewis turning point more rapidly.
This is what some have referred to as the welfare paradox, namely the fact that things must get worse before they get better for a country to industrialize. The Kuznets inverted U shows that virtually all industrialized countries have gone from relatively low inequality to higher inequality where the inverted U is maximized and back down to less inequality in the neo-classical phase past the Lewis turning point. This is true of the newly industrializing economies NIEs of East Asia: Korea, Taiwan, Hong Kong, and Singapore, which have reached the threshold of inequality and are turning the corner towards less inequality today.
Such increasing inequity would indicate, perhaps, that Cambodia was only following the Kuznets inverted U and had not yet reached the maximum. That maximum is, in fact, the Lewis turning point. Just as countries pass the turning poin t, inequality declines. This is apparent for the more-developed countries the aforementioned NIEs. Since technology alleviates both the increase in real wages in agriculture and the price of agricultural output especially the price of food , thus allowing continued transfer of labor from agriculture into industry without the necessity to increase real wages in either sector.
How realistic is each model for Cambodia? From a purely ideological standpoint, the classical dual economy model has been relatively successful in capturing trends in both capitalist and communist countries. Countries from England to America have all undergone periods of primitive capitalist accumulation for economic growth to take place. The Second World composed of the former Soviet Union and other socialist countries renamed primitive capitalist accumulation the Law of Primitive Socialist Accumulation.
In non-totalitarian countries like Taiwan and South Korea, land reforms were instrumental in shifting labor to the cities and the enclosures movement in 18th century England were to play a similar role. For Cambodian economic history, there were no such sweeping land reforms until , when private property was abolished. The reader should distinguish between unemployment and underemployment. Many developing countries claim to have low unemployment, but in reality suffer from massive underemployment. There are, to be sure, many types of employment: full-time, part-time, etc.
Someone who works part-time could be considered employed, yet be underemployed. The catalyst for an agricultural or green revolution comes when technology significantly increases the efficiency or extent of arable land as with the use, for instance, of fertilizers and modern implements which make possible higher yields with fewer workers.
Whether the policy implications are realistic matters only if the assumptions made by the neo- classical model are realistic themselves. To be sure, full-employment is not realistic for Cambodia past or present, but then so too are repressive labor tactics. Although their simplicity betrays their actual usefulness, the imp ortance of the factors and conditions they elucidate continues to grow still. For Cambodia, as will become evident, these years have been few and far between.
The road may lead from backwardness to dictatorship and from dictatorship to war. Studies by Robert J. Muscat , Fred Z. As was explained in the introduction, this thesis is concerned with the examination and application of standard theories of economic growth on Cambodia. In so doing, the theories themselves can be tested against historical evidence various statistics, trends, etc. The s saw virtually none. The home of one of the largest man-made monuments in the world, the temple- complex of Angkor Wat built in the 12th century.
A Hydraulic Economy Historians have called the Khmer Empire, which was based around the city of Angkor, a hydraulic economy because of its advanced irrigation system and the many canals leading into the water ways of the Mekong delta which runs throughout Cambodia and Vietnam. Leading Cambodia scholar David Chandler has written of the period spanning , Nearly all the people of [Cambodia] were ethnic Khmer, who occupied themselves with rice farming and with the monastic and official life.
Commercial and industrial tasks were handled by minority groups. Marketing, garden farming, and foreign trade for example by Chinese or by people of Chinese descent. Cattle trading, weaving, and commercial fisheries were controlled by a Muslim minority composed partly of immigrants from Malay archipelago It has managed to integrate people from China to Malaysia over the centuries in relative peace.
Until France made of Cambodia its protectorate in , the Khmer Empire had all but waned into oblivion from the 17th century onward. Becoming the alternating suzerain of its neighbors Siam Thailand and Hue Vietnam , Cambodia was on the verge of national extinction in the early 19th century. By extending its protection to Cambodia, the France of Napoleon III no doubt saved the Cambodian Kingdom inasmuch as it simultaneously took away its sovereignty.
For nearly a century, France would rule 7 the country. When Cambodia became a full-fledged colony of France in , it was from Hanoi, Vietnam that a French governor oversaw it in addition to Vietnam and Laos. The story of a colonization without hitches]. All external economic relations depended on [the Mekong] river transport to Vietnam. This is why nothing was done to develop Cambodian industry, not even to protect existing or emerging industries that were more or less crafts. France doted Cambodia with a suitable infrastructure roads, railroads, development of cities, etc.
More generally, the colonial authorities, guided by a liberal ideology, without public 12 policy in mind, allowed the market to rule. He is mistaken in that respect, because patron-clientelism has not subsided to this day. Elle va disparaitre dans les annees Since , the institution of patronage is quickly fading.
Disappearing in the years According to Craig Etcheson, After seventy years of struggle to establish their authority over the proud Khmer Monarchy and peasantry, the French colonial authorities began in the s to plant the first of the great rubber plantations Developed primarily by French and Belgian capital, rubber production was geared almost exclusively to the export market.
Preliminary estimates for Cambodia show real growth was better than expected, reaching a four-year high of % in , compared to %. Driven by garment exports and tourism, Cambodia's economy has sustained an average growth rate of 8% between and , making it one of the.
The plantations quickly came to dominate the primary sector, and hence the bulk of pre-industrial Cambodian economy. Because of the low productivity 15 of Khmer workers, the French preferred to import Vietnamese labor to tend the plantations. It is a problem tackled in the dual sector classical economy model with ominous wage repression. Because labor was instead imported from Vietnam, intersectoral labor flows from agriculture into industry for Cambodians were hampered.
Was this a setback for industrialization? I used the actual dissertation. The bibliography references the book published by L'Harmattan, which is presumed to be more easily accessible. A year earlier, however, Cambodia had been granted independence peacefully. Finally, after centuries of national decline, asymmetric interdependence and tutelage, Cambodia was allowed to govern itself.
In the following years, Sihanouk made a number of critical choices which would become the backbone of economic development for Cambodia during the s and s. But for the most part, it seems, he failed to govern with forethought. For instance, in the mids, he decided to break-off diplomatic relations with the U. S at a critical juncture during the Vietnam War.
Under his management, schools proliferated, but they were seriously deficient in relevant curriculum. Graduates could expect few worthy opportunities for their hard 17 Delvert, Le Cambodge , pp. On their basis he concludes that structural measures ought to be used to switch consumption away from these unproductive goods. It was severely amended in and enacted as a second Constitution in Property is under the protection of the Law. No one can be deprived of his property except for the purpose of public use in situations established by the Law and in exchange for just and advance compensation.
He was and is still an avid director whose passion for the big screen was criticized as too time consuming and distracting to juggle with the affairs of a State which he ran until He remains an aficionado of movie-making. General unemployment fared better. The working population between the age of 15 and 60, which numbered 2.
That indicates an undesirable, though not intolerable rate of unemployment. It may also indicate which of the two gaps, covered in the previous chapter, is more important. Accordingly, since Cambodia received aid from the United States, France, and China in the s and from the Soviet Union in the s when diplomatic relations were severed with the US , this might indicate why, at the same time, well-to-do Cambodians imported luxury goods so rapaciously as to keep the trade balance in perpetual deficit.
This, despite healthy rice exports in the s. That level of aid was initially overwhelming relative to domestic tax and tariff revenue. Had Sihanouk foreseen the chaos that would envelop Cambodia after , he might have recognized the need to educate more scientists, technologists, and engineers first and foremost. In addition, fiscal austerity, currency devaluation and extensive agricultural modernization would have helped spurt economic growth from the s onward. Peth Lim on March 4th, Between and , A.
There had been no Cambodian currency under French colonization. Until , the three countries of Indochina: Vietnam, Cambodia, and Laos, had monetary policy placed in the hands of France. The riel was pegged to gold at These days of plenty would be numbered, as BNC deposits slowly shrunk to lower and lower levels in following years.
In actuality, the socialist Buddhism directly inspires the religious principle, preaches for people to 25 Dauphin -Meunier, Histoire du Cambodge , p. It is unclear whether Cambodia, Laos, and Vietnam considered the creation of an optimal currency area before going their own independent ways. However, given its size, and the loss of monetary independence, an independent Union central bank might have alleviated the current account deficits Cambodia suffered for most of the s and s.
The first two-year plan, promulgated in and renewed in , emphasized the development of infrastructure and agricultural development perhaps to prime the pump. This planning is ambitious in its objectives and imprecise in its means. To achieve this, planning depends upon free competition between private investors and entrepreneurs, in addition to direct and indirect government intervention.
The plan is thus principally a catalog of public 30 investments in a public policy framework. That initial plan thus became a two year federal budget of sorts. The number of kilometer of roads more than tripled from 4, in to 16, in It contains the most detailed breakdown of economic progress made from to , but ought to be taken with at least some reservation. Nixon giving a televised speech on the secret U. Durin g the French colonial period, it is apparent little was done to educate Cambodians in schools. The Protector France that had otherwise significantly helped the infrastructure, unfortunately did next to nothing 36 for schooling in Cambodia.
The primary and secondary school system, which served the population of 5 to 18 year olds, increased significantly between and The number of primary schools were doubled, and their students tripled.
Secondary schools increased 34 Osborne, pp. First a pawn, says Osborne, then a prisoner. Universities, the bedrock of research and development, central to endogenous growth for the rest of the economy, were finally established in Cambodia. Table 3. The number of secondary schools numbered nearly by There were, in that same year, only 16, high school graduates and college graduates in a population hovering 5 million. Primary, secondary, and tertiary education do not prepare for much more than a career in civil service.
Furthermore, professorships were not prestigious nor lucrative. Milton Osborne writes: In looking back at his years in power, both Sihanouk and his defenders have made much of his efforts to transform and expand the Cambodian educational system. The claim invites debate, because there is no doubt that educational opportunities expanded in Cambodia, particularly during the s. But at the same time there was an ever-growing gap between the numbers of pupils and students processed through secondary and tertiary institutions and the availability of jobs for those who had completed their education.
The issue of education But hand in hand with these views went his determination to found schools, colleges and universities Somewhat disquieting, according to Osborne, was that science was not singled out as desirable field to enter, at least not when compared to the humanities and arts. It is not normal, for example, for there to be more students in the College of Letters than in a 42 Technical University if that country needs more engineers than historians.
My pal and I dropped at the fourth month that year. We gave another shot the following year , but the country was at war. I join[ed] the Navy and my pal join[ed] the Army because he did not know how to swim. My goal was to get [a] license [equivalent to a Ph. The artificial creation of both demand and supply of students and faculty by the government might have worked initially.
As thousands of students entered the newly built Universities, however, fewer than half could expect to be employed for the extent of their educational attainment. Worse still, corruption was endemic, even at the Universities. The 41 year-old Mr. Chanou writes, Corruption was everywhere. Everyone was involved, either receiving or giving [sic] bribery. You have to pay a bribe to get a birth certificate for your child.
Money talked and you could get away with almost anything as long as you have it. Without question, corruption worsened from onward, when Cambodia entered the Vietnam War and Sihanouk was deposed. Though not emphasized in this thesis, corruption was observable at nearly all levels of government. Osborne noticed it at the highest echelons, which he recounts in Before Kampuchea Even low level civil servants and policemen, whose salaries hardly sufficed, padded their income with bribes.
Chanou, who attended the Lycee de Battambang, recalls the worst aspect of Cambodian schools: Students had to memorize, sometimes without understanding whys. Lack of books, [sic] materiels, equipment. Teachers were not qualified most high school teachers were just high school graduates. Curriculum did not prepare students for real life experience. But still, how much quality could one expect from a country that in had but two high schools?
Important advances were made during the s, but instruction came to a halt during the war in the early s. If education in the sciences is an endogenous growth variable, a determinant therefore of technological change, its importance is all the more increased. If education or schooling produces human capital, then its upkeep is critical to growth itself.
As physical capital is accumulated, human capital is necessary too for its operation. In poorer countries, argue Romer, Mankiw and Weil , the lack of human capital becomes an impediment. The explicit link with the Solow Growth Model is apparent in the unexplained residual which Robert Solow deduced was technology.
Conversely, if investment in technology-producing education is inadequate, the rate of economic growth expected in the following years will be diminished. Revisiting the Sihanouk years, education missed the mark on at le ast two points: 1 there was no special emphasis on basic science, and 2 the employment opportunities, when available, were all government sponsored. The dual sectors model has a technological component with respect to agriculture. Technology in agriculture works to lower the cost of food, thus eliminate the need for increases in the real wage for industry.
One way in which this technology is implemented is via schooling in agricultural techniques. Since these schools were based on the French system of education, for civil service, not agronomy. The curriculum should distance itself from the French model In a country that will remain agricultural, schools should create agronomists and not, as Mr.
In the last analysis, however, the absence of a sound educational system was a detriment to Cambodian economic growth then and for the following years. Much rests still on this critical sector [education] for the economic development of the country. The number of hospitals tripled from to , while clinics and pharmacies proliferated. The lack of statistics and usable numbers in certain sectors or time periods have forced the experts to 57 estimate parts of the gross national product. By , there were more than five times the number of small to medium private enterprises in Cambodia than were present in Without being fought, the private sector is neither really encouraged: it is tolerated.
By , Cambodian industry had made considerable headway. Depending on where one lived, the degree of industrialization might be as different as light and day. A personal friend recalled never having seen a paved road until his adolescence late s. To be sure, Cambodia looked like a country steeped in agriculture, but coming of age with respect to industry and certainly commerce.
Only commerce and banking in Cambodia approached the norm. Using the elements in the dual sector economy model, what would have been the factors needed for industrialization? By the time resource extraction begins, a green revolution or agricultural revolution has taken place. Before that, investment in agriculture must take place modernization of farming and self-sufficiency via exports of agricultural products is one indicator.
Priming the pump first allows agriculture to be exploited for the sake of industry. As the following statistics on rice production show, Cambodia seemed on the verge of a green revolution if not beyond it when the Second Indochina Conflict erupted in neighboring Vietnam the first one had ended in at Dien Bien Phu. Major industries in this sector include mining, agriculture, forestry, and fishing. Industries such as motor assembly, and building and construction are part of this sector.
Examples of services include repair and maintenance of capital goods, haircuts, public administration, medical care, transport and communications, teaching. Go urdon writes, Les schemas keynesiens ont ete concus dans un cadre europeen pour des pays industrialises et des societes liberales vivant sous des regimes economiques qui se reclamaient du capitalisme. The Keynesian schemes were created in the European context for industrial countries and liberal 61 societies that lived under capitalist regimes.
We see that spending in the first two-year plan was overwhelmingly financed by foreign aid and targeted towards infrastructure which meant jobs and agricultural production. Assuming these expenditures were multiplied throughout the economy, national income would expectedly rise by more than the amount spent.
It is clear that Cambodia depended on foreign aid during the s and s, and that it became crucial to its economic design--infrastructure, schools, etc. However, there are also indications that the aid was far too fungible few controls or requirements on how it would be spent and perhaps even excessive. In matters of public finance, as in matters of balance of payments, foreign aid overwhelms the deficit it creates.
According to statistics available on rice production and exports, Cambodia was self-sufficient in rice production from to Fertilizer use see Table 3. Mechanization has only begun: there are hardly more than tractors in , of which nearly are in the province of Battambang.
Growth in the agricultural sector slowed down beginning , a result of upstream industries tied to the sale of rice transportation, alcohol, etc. This was correlated with a general downturn in construction, textiles, and other industries in , , and It was not until the early s--a time of extreme turmoil for Southeast Asia--that Cambodia suddenly found herself in the unusual position of importing rice via American food aid.
His density index calculations, with respect to rice production, indicate that land use was increasing. Cultivation was extensive as well intensive. Because of the war, rice which was available never made it into Phnom Penh for instance. See Jackson for more regarding this matter.
The trade balance was almost always negative for Cambodia during the s and s. With the exception of and , the balance of trade was in deficit each year. It appears that what trade policies there were in tariff legislation did not provide effective trade protection policies for exporters. The loss of foreign exchange reserves each year should have forced the government to devalue in order to prevent its further loss.
Yet it does not appear such devaluation, as an exchange rate policy either took place or worked to keep imports down and promote exports. By , some 55 percent of the Khmer peasantry owned less than one hectare. By , 31 percent owned less than one hectare. The point is highly relevant given its linkage to the Dual Sectors model. It is hoped that future studies will treat this important agricultural transformation with extended care.
The trend line indicates a worsening deficit in the trade balance and terms of trade. However, foreign aid came in handy each year. Using national income figures from Etcheson, it was a crude matter of extrapolating the rate of real growth with the riel as base currency. Although the trend line for is sloped upward, signs of a general slowdown starting were been observed. Yet, the trade balance seems to fluctuate from to and just gets worse from to On the other hand, the trade surplus of and could have marked the end of the J curve and the beginning of an effective foreign exchange or trade policy.
This was of course at about the time the Gulf of Tonkin Incident occurred, prompting the expedition of American troops into South Vietnam. Cambodian Economic Growth 15 10 5 Rate of Growth 0 -5 Year Note: Using the nominal national income figures, price index, and population statistics, I calculated per capita real income for each year as nominal national income divided by the price index, and divided by population.
Had the deterioration in the trade balance been halted--through austerity measures with a devaluation as its center piece--Cambodian industries could have benefited from some breathing room during the s. In any case, a recession will no doubt envelop the Mexican economy as a result. Taxes in Cambodia The issue of taxation is one left glaringly untouched in this thesis. Taxes were low to non-existent in Cambodia because tax capacity itself was low. Value Added [sic] Taxes was applied to all consumer products. The MGP student remembers how his family dealt with taxes. He writes: We had a open local market that was open only a few hours a day in my home town srok.
Private citizen[s] can bid once a year to collect sale[s] [sic] taxe in a small tow[n] such as mine. It was a poor way to [sic] cellect sale tax for this type of goods on the street. This is where corruption is taking place. It is almost up [to] the local tax collector to estimate of how much a business had to pay taxes, because [sic] bookeeping was almost close to nil. My father owned some rice mills and he never wanted me to know how the [sic] taxe collector estimated his taxes.
All I knew [was] that there [sic] were something fishy under 78 the table and he wanted all his children to get education instead of owning any business like him. To the extent that Cambodia depended overwhelmingly on foreign aid, taxes were relatively insignificant. With the Keynesian model, however, taxation matters tremendously. That is to say, a redistributive tax, from the poor to the wealthy in which the rate of taxation increases as the level of income goes up. Aside from this progressive tax, the level of taxation itself plays an important role in macroeconomic policy that aims for austerity.
One of the most obvious ways of preventing consumption is to tax hence reduce disposable income. For Cambodia, however, the lack of consumption was not a problem. Consumption Is Preferred Most emblematic of the Cambodian economy was a total disregard for the future. It seems consumption as opposed to saving was favored by its citizens.
Such improvident decisions have serious implications for the rate of future economic growth according to the Harrod-Domar model. National Bank deposits which reflect the reserve holdings of public and private commercial banks declined from to , never to reach levels again. One impediment discussed in chapter two was the lack of financial institutions. In November , banks were nationalized. Banking was for the well-to- do, or those who needed access to money via transfers.
The move was perhaps politically motivated since nationalization is often the by-product of socialist largesse. Therefore, it appears, this economic behavior too was rational. Simply put, the benefits to consuming were equal to or greater than those of saving. It was more incentive compatible to spend than to save.
There were, anecdotally speaking, innumerable drawbacks to keeping money in banks. Banking was not user-friendly, unless one desired to travel abroad or make foreign purchases. For instance, personal checks had to be certified or notarized i. These are the instruments that make savings meet investment, he writes. That is, to be sure, not unexpected. Most developing countries have severe problems in getting people to part with their money, even temporarily. There were other institutions too that filled the void, the Royal bureau of cooperatives, for one, extended loans to farmers.
However, he notes that these savings were kept in the form of cash and valuables which were themselves not investable. This sad pattern of economic activity was perhaps due to or the result of the erosion of purchasing power from to Food shortages and high prices, falling purchasing power, high interest and rents, rising taxes, declining productivity and land availability, increasing population density--all these problems plaguing peasants in the post-World War II period were but symptoms of a general economic malaise. Except for a few very narrowly defined fractions of the urban elite e.
Purchasing power, or how much one could get for a riel was thus shrinking. Cambodia was open and it did have public finance, but increased private saving would have boosted investment. The claim of eroding purchasing power is not debated here simply because additional or contrary longitudinal data was not found. And as radical Cambodians hastened to point out, imported goods supplied many urban needs, thus transferring the multiplier effect abroad.
Another complication within the Cambodian private sector was the rise in the late s and early s of a species of speculators. Dealing in currency, gold, land, rice, alcohol, opium, salt, beef, tobacco, or any other commodity that offered a chance to make a quick buck, speculators helped catalyze inflation, create supply crises, imbalance foreign accounts, and deprived the 87 government of revenue. This was exacerbated by the foreign aid which subsidized the economy.
Jobs for graduates of the educational system were scarce, and in any case artificially created by the government. The emphasis was never on basic science, but civil service, which has seldom been known to spurt economic go-getters. To top it off, much of the prosperity gained in those decades was in fact illusory according to Etcheson.
The erosion of purchasing power from to and through pushed the standard of living well below that of In retrospect, the failure to increase the level of saving and control consumption by the Cambodian government resulted in two decades of anemic growth. Aside from the everyday corruption which plagued all levels of government, the economy suffered from a spendthrift malady. Were there adequate incentives to save? With hindsight, clearly not. The nationalization of private banks did nothing to boost the view of banking in the eyes of Cambodians.
It was still an oddity best left to its own devices. During the s and s, Sihanouk and his cronies were more concerned with statistics that would impress the international community than with the substance of the educational system they were building. With his hands busy in geopolitics and political maneuvering, Sihanouk lost sight of the tell-tale signs of a troubled economy.
These factors, combined with others such as 1 ineffective trade policy resulting in chronic trade deficits and eliminating incentives to produce at home 88 The dual sector classical economy model which assumes underemployment concludes that wage repression in agriculture is necessary for intersectoral labor flows to continue without real wage increases due to inflation in the price of agricultural goods.
The erosion of purchasing power might in fact be consistent with the model in that it would show that real wages were in fact not increasing. In chapter 5, I present an economic model of corruption and the conditions necessary for its minimization. The 82,,, ,,, economy, which had become war-driven, grew hyperinflationary. This came as a deep shock to both Sihanouk and high elements of the American government because neither had anticipated the move contrary to popular misconceptions. A new constitution abolishing the monarchy was passed and Cambodia became a Republic.
In fact, these publications were responses to one another; volleys, if you will, in a match to proselytize. Cambodia was, for all intents and purposes, at war with Vietcong soldiers within her borders. Comparisons of this period with the subsequent one are impossible given the near hyperinflation of the economy and the total absence of 1 World Bank STARS database, From the eve of the fall of former chief of state Sihanouk, the Cambodian economy was already in a difficult situation.
But the consequences of the war have created other major difficulties. Production was substantially reduced creating a shortage of basic goods and export revenue. They began by paralyzing our principal rubber plantations, destroying our roads, bridges, railways and 6 other means of transportation. He points to transportation problems as the main cause of economic strangulation for Cambodia. There was, in addition, a massive influx of refugees entering Phnom Penh from to The population of the capital city had been , in March , but by the beginning of , the number of residents had reached more than 2 million.
Agricultural Production Shrinks Precipitously Rice production declined substantially from 3. There were decreases in rubber, corn and palm sugar output, due to the war with the North Vietnamese who had made several incursions into Cambodia. Table 4. Source: Kampuchea in the Seventies , p. Three years of secret bombing by American Bs brought international attention to Cambodia not to mention took their toll in human lives and damaged property and forced Nixon to televise a speech in which he explained to the American people why he had defied Congressional prohibition.
Even before the Paris Peace Accord which called upon the withdrawal of 8 Kampuchea in the Seventies , p. By early , the increasing attacks on the Lon Nol regime had all but caused pandemonium in Phnom Penh. In the final days of the Khmer Republic, Phnom Penh had become the final stand. Between and , the price index for commodities ranging from food to clothes jumped by more than fifty percent. The food index with base in for working individuals in Phnom Penh was in March of ; by April of it had reached From the end of to April of , the 9 Bulletin Mensuel no.
During this period, many people try[ed] to convert their money to such items as gold, silver and food stuffs. Depreciation of the riel abetted fiscality. One reckons that import demand 10 Ibid. Within one year, Cambodia would no longer accept American or humanitarian aid in any capacity, for a new regime would control the country. Democratic Kampuchea In this [the Sihanoukist and Khmer Republic periods] we lost all sense of soul and identity. We were completely enslaved by the reactionary, corrupt, and hooligan way of thinking, by the laws, customs, traditions, political, economic, cultural, and social ways and lifestyle, and by the clothing and other behavioral patterns of imperialism, colonialism, and the oppressor classes.
On April 17, , the Khmer Rouge guerrillas, who had for the last five years amassed virtually all Cambodian provinces, entered the capital. A significant body of paperwork was created at S torture center or Tuol Sleng, where confessions were extracted during the and , but few economic statistics are available because gathering data was not a high priority for the new government. The Khmer Rouge issued a four-year plan for to This plan, along with seven other important documents, was translated and published in Chandler, Kiernan, Boua, Pol Pot Plans the Future From the point at which they smelled victory, it seems, the Khmer Rouge had planned the evacuation of all cities for the purpose of revolution.
Charles Twining writes, An extraordinary [Cambodian communist] party congress held in February , reportedly presided over by Khieu Samphan, is generally thought to have made the decision to evacuate cities and abolish all currency after the takeover. The fact that the cities were all emptied within several days of the fall, with the people knowingly directed to spots in the countryside where they camped at least temporarily, does not give the impression of a sudden, knee jerk action.
This had all been 20 organized before hand. If not the most radical, the Cambodian communist revolution was surely the most deadly per capita. Estimates of the death toll range from a low of , associated with Michael Vickery to a high of 3 million associated with pro-Vietnamese elements resulting from disease, starvation, forced labor, and 18 Burstein, pp. There were, of course, no such bombings. As the world has come to learn from the plight of the Cambodian refugees who now reside in America and elsewhere, what transpired next was far from a liberating revolution.
Our traditional mentality, mores, traditions, literature, and arts and culture and tradition were totally destroyed by U. Social entertaining, the tempo and rhythm of music and so forth were all based on U. Markets were all but destroyed. All who had lived in the cities were now to work in the countryside. The leaders of the Khmer Rouge movement Saloth Sar better known to the world by his nom de guerre as Pol Pot 23 and French-educated economist Khieu Samphan, to name but two, sought to recast Cambodia anew; perhaps into a brave new Democratic Kampuchea. Believe totally in the Party, the revolution, the people, the workers, the peasants and the army; 4.
Save up, improve, and think up new ideas to win the fight, and spring forward bravely. Many books have detailed the creation of Democratic Kampuchea, amo ng them Jackson , Ponchaud , Chandler , and Etcheson The initial result of Khmer Rouge rule was rapid: the rustication of an economy. Soon after the end of the fighting on 17 April and the entry of the revolutionary forces [Khmer Rouge] into Phnom Penh, virtually the entire population was ordered to begin moving out of the city into rural areas.
Excepted from the general order were some factory workers and some skilled employees of technical services, such as municipal water and electricity plants. The evacuees were given of such reasons as the danger of American bombardments, and were told that the evacuation was only for three days, after which they would be able to return On the other hand, those who had been subsistence farmers, cliques and Khmer Rouge devotes were to become the new elite.
The economy of Democratic Kampuchea can be compared with very few others in the world, even those inspired by the Sino-Soviet experience. Vickery writes, Economic activity was entirely managed by the state apparatus. There were no markets, no currency, no independent exchange; in most places no private garden production or independent food gathering, and by there was even a policy, ever more strictly enforced, of communal cooking and eating.
Movement outside the basic unit, village or co-operative was forbidden without written authorization, which was rarely granted Born not to poverty, but landlord families. By undertaking radical social engineering, the Khmer Rouge reversed the social order, destroyed traditional notions of family, and ruined an entire country.
Wealthy families were to become poor, in an instant, and the economic focus of a nation now turned like a laser beam onto agriculture. Whereas the s, s and early s saw poor quality schooling, the late s would see virtually none. Agriculture and in particular the production of rice, rebounded to pre-war levels by , but at what human cost? Surely few others but the Khmer Rouge leadership and those having full rights ate well.
The role of rice was not insignificant to the Khmer Rouge. Rice was at the core of their plan to develop an industry that would serve agriculture. If we have plenty of rice, we have plenty of everything. The more rice we produce the greater potential we have for export. The more we export, the better we can afford to buy equipment, machines, and other instruments necessary for building our industry and communications lines and for rapidly changing our agriculture.
The total crop amounted to 3. Meat eating was boosted by countering Buddhist reluctance to take life and by encouraging the raising and slaughtering of livestock, particularly pigs The emphasis then was on 34 work, and more work, all in groups. Furthermore, Twining writes of the situation afterwards: One feature that distinguished Democratic Kampuchea from the rest of the world was the absence of money.
In April , stories of Cambodian riels blowing in streets or being used in fires, with nothing to replace them, stirred the imagination Self-sufficiency was the principle throughout the land. Rice was grown for consumption by the populace and for export outside the local area. Each cooperative had one rice pounder to remove the husks from the kernels of rice An individual was 35 allowed to have two basic possessions of his own: a bowl and spoon.
On January 5, , the new Constitution of Democratic Kampuchea was promulgated. Property for everyday use remains in private hands. In July-August , the Party issued a four-year plan for It was ambitious in its goals, and detailed too.
For instance, the Khmer Rouge goal for rice production called for the doubling of productivity per hectare. No other resources existed in the country. The decade of occupation which followed, combined with ongoing warfare left Cambodia with 6 million land mines and the highest per capita amputee rate in the world.
Embargo on Vietnam now applied to Cambodia as well. The embargo whether justified or not made it impossible for the economy to receive significant aid from the international community. Trade liberalization, which we saw in chapter 2 as an endogenous growth promoting factor, was absent for that decade. Salaries themselves were determined by the state, a sampling in Table 4.
At the beginning of , the official exchange rate was seven riels per dollar; by October of it had devalued to riels per dollar, officially. Restitution and reparations were out of the question, but individuals who had farmed in the area could continue to do so, without harm. Rice production since improved with the exception of one setback in Total rice output from to reached the nominal total for to During the launched month withdrawal period, human rights issues in Cambodia will be investigated by the EU.
The EU represents the largest importer of Cambodian garment products with around 40 percent of all garment exports. Despite the impending setbacks of the EU market, the US market with a share of 30 percent and the rising Chinese demand can still back the local garment industry. Further, the local energy supply represents a problem that needs to be tackled for further economic growth. Energy production depends on oil, coal and water power. However, these sectors are largely import depending or cause major environmental implications which leads to high energy prices in Cambodia.
Backed by the national plan to connect all 24 provinces to the national grid by , decentralized energy supply offers huge potential to solve the problem. Biogas, solar and wind power offer potential to spice up the energy mix and to quickly reduce the prices while making energy supply more reliable. Currently, the country is depending on imports of resources.
Mainly oil, gas and coal are imported and not exploited in the country itself.
Still, Cambodia offers a vast potential for self-exploitation of resources. Due to regional disputes with Thailand, the offshore oil resources have not been exploited so far. In the government started to facilitate exploration agreements for local oil resources. Future opening up of the resources sector offer huge potential for investors. The infrastructure sector is in the need of investments as well. The local refinery production facilities are not able to handle large-scale exploitation operations.
Reforms of the legal framework regarding the resource sector are in progress. Cambodia offers with its liberal investment law and the strategic location a perfect opportunity for manufacturing sites, also supplying the economies in accelerating Thailand and Vietnam. Current manufacturing companies focus on food and beverages, chemical rubber and plastic as well as paper processing. Especially regarding the US-China trade war, the country could position itself as a cheap alternative for manufacturing.
With around 40 percent of the workforce being employed in the agriculture sector, it remains in the heart of the Cambodian economy. The global demand for agricultural products — in particular from China that already represents 27 percent of the total exports in — is supporting the local production. Recent agreements for the promotion of organic food and the rising demand for such products in ASEAN can further facilitate development in the local food industry. However, the local agricultural industry faces several problems. The sector is currently not competitive on a global level.
Lack of infrastructure represents an obstacle, especially for the export-based agricultural industry. Cambodia offers several opportunities to get involved for investors. An open investment environment, cheap labor and the close location to the largest markets in the world support the investment incentives. Lowering production costs by self-exploitation of resources will support resource-based industries in the country in the near future as well. Readers may write asia dezshira. An Introduction to Doing Business in Singapore provides readers with an overview of the fundamentals of i Your email address will not be published.
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