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Can Business Recover?
Strongmen can, at the very least, be good for an economy when they care to be. Thailand, for example, has certainly reaped economic benefits from Thaksin's rule: first-quarter GDP growth this year hit a boom-era 6.7%, and Thailand remains one of the few Southeast Asian countries still able to attract hefty amounts of foreign investment. In the early 1990s, Vietnam was considered a surefire contender for economic hypergrowth along the lines of Malaysia or even China. The communist government in Hanoi faltered with its reforms, and many businessmen who swooped in to ink deals soon round-tripped their way out. But the country is now doing well, with agricultural, garment and shoe exports helping to chalk up 7% annual GDP growth over the past decade.
The hopeful scenario of the '90s was that rapidly rising incomes in Southeast Asia would naturally lead to more relaxed leadership and transparent politics, as it did in South Korea in the 1980s. (It's a theory frequently invoked in discussions of China's future.) There's no evidence of such a development in Vietnam. For several years, Singapore has been promising more freedom to its prosperous citizenry. "We are moving toward democratization," says Chan Heng Chee, Singapore's ambassador to the U.S. "We will be more open." Malaysia's former Deputy Prime Minister, Anwar Ibrahim, thought his country was ready for something new when he tried to oust Mahathir Mohamad from the premiership in 1998. But Anwar underestimated his onetime mentor: he was summarily fired and is now in jail for corruption and sodomy.
But Malaysia might prove to be an accurate indicator of Southeast Asia's economic future. Mahathir successfully transformed a country of tin mines and rubber plantations into a modern economy, featuring fancy skyscrapers and humming factories alike. He did it his way, rarely without controversy and often drawing outrage, but he succeeded in attracting billions of dollars of foreign investment. Mahathir is retiring in October, and successor Abdullah Ahmad Badawi might have to work twice as hard as Doctor M just to keep the country from losing pace. Today, Malaysian factories can't compete with cheaper labor in Vietnam and China. Almost no one in Southeast Asia can divert the flood of investment heading toward Shanghai or Guangdong. "China is like a vacuum cleaner sucking up foreign direct investment," says Abdul Razak Baginda, who heads a Malaysian government-affiliated think tank in Kuala Lumpur. "I think we have to go back to our roots—to agricultural production and niche manufacturing areas."
That means growth rates of 8% a year are gone forever—up to 5% is just about as high as can be expected for Malaysia now. The country's often stated goal of becoming a developed nation by 2020 will have to be extended—for a long time—and that probably refers to not only affluence but democratic freedoms too. As Malaysia goes, so might the rest of Southeast Asia, and that's assuming that no unforeseen catastrophe—such as SARS—shakes the region further.