Published 2004 by the Asia-Pacific Center for Security Studies 

Reprint permission: Contact the editors at 2058 Maluhia Road, 

Honolulu, HI 96815 

All views expressed in the chapters of this book are those of the 

authors and do not necessarily reflect the views of the 

Asia-Pacific Center for Security Studies (APCSS) or any governmental agency.

The complete text version of this book can be found at

www.apcss.org
CONTENTS

Contributors iii

Preface

1. A REGION OF CHANGE: A REGION IN TRANSITION 1

Jim Rolfe 

I CONTEXT

2. THE FORMS OF TRANSITION: GLOBALIZATION, THE ASIAN CRISIS & CHANGE 11

Eric Teo Chu Cheow

3. CHANGE AND ITS REFLECTION IN NATIONAL SECURITY STRATEGY

AND FORCE STRUCTURE 24

Stanley Weeks

II HEGEMONIC POWER

4. REGIONAL CHALLENGE: CHINA’S RISE TO POWER 33

Jacek Kugler and Ronald Tamen

5. CHINA’S ROLE IN AMERICAN GRAND STRATEGY:

PARTNER, REGIONAL POWER, OR GREAT POWER RIVAL? 54

Christopher Layne

6. CHINA AS REGIONAL HEGEMON? 81

Paul Godwin

III SUB-REGIONS

7. THE PROBLEMS AND POTENTIAL OF THE PACIFIC ISLANDS FORUM 102

Eric Shibuya

8. ASEAN: A COMMUNITY STALLED? 116

Narayanan Ganesan 

9. SAARC: NOT YET A COMMUNITY 133

Atiur Rahman 

10. RIVAL REGIONS? EAST ASIAN REGIONALISM AND ITS CHALLENGE

TO THE ASIA-PACIFIC 149

David Capie

i
CONTENTS

ii

IV TRANSITIONS TO DEMOCRACY 

11. KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION 166

Carl Baker 

12. TRANSITION TO DEMOCRACY IN INDONESIA: SOME OUTSTANDING PROBLEMS 195

Ikrar Bhakti 

13. THE TRANSITION TO ‘GUIDED’ DEMOCRACY IN PAKISTAN 207

Aqil Shah 

V TRANSITIONS TO MARKET ECONOMIES 

14. FREE TRADE AGREEMENTS IN THE ASIA-PACIFIC:

COMPETITIVE ASPECTS OF SUB-REGIONAL TRADE INSTITUTION BUILDING 219

Yoichiro Sato 

15. NEW ZEALAND: DEVELOPING AND SUSTAINING ECONOMIC LIBERALIZATION 239

Gary Hawke 

16.INDIA TRYING TO LIBERALIZE: ECONOMIC REFORMS SINCE 1991 259

Charan Wadhva 

17. VIETNAM: WHAT NEEDS TO BE DONE? 285

Adam Fforde 

VI TRANSITIONS TO OPEN SOCIETIES 

18.TRANSITIONS IN MALAYSIAN SOCIETY AND POLITICS 300

Michael Leigh and Belinda Lip 

19. MONGOLIA: MANAGING TRANSITION FROM NOMADIC TO SETTLED CULTURE 323

Mashbat Sarlagtay 

20. TONGAN DEVELOPMENT AND PACIFIC ISLAND SECURITY ISSUES 335

Ian Campbell 

Index 355
ABOUT THE AUTHORS 

CARL BAKER is a member of the faculty of the Asia-Pacific Center for Security

Studies. He is a serving officer in the United States Air Force and has worked in 

South Korea and focused his research interests on Korean Peninsula issues for some 

years.

IKRAR BHAKTI is a research professor and head of the Research Centre for Political

Studies in the Indonesian Institute for Sciences.

IAN CAMPBELL is a Reader in History at the University of Canterbury, New Zealand.

His most recent book is Worlds Apart. A History of the Pacific Islands (Christchurch:

Canterbury University Press, 2003). 

DAVID CAPIE is a Postdoctoral Research Fellow and Co-Director of the Armed 

Groups Project at the Centre for International Relations, University of British

Columbia, Vancouver, Canada. His most recent book is Under the Gun: The Small Arms

Challenge in the Pacific (Wellington: Victoria University Press, 2003).

ADAM FFORDE is a Principal Fellow at the Melbourne Institute of Asian Languages

and Societies, University of Melbourne, Australia, and a researcher and consultant

focusing primarily on Vietnam and its economy. His most recent book (as editor) is

Doi Moi: Ten Years After The 1986 Party Congress (Canberra: Dept. of Political & Social

Change, Research School of Pacific and Asian Studies, Australian National University,

1997).

NARAYANAN GANESAN is a Senior Lecturer in Political Science at the National

University of Singapore. He is a member of the Council for Security Cooperation in

the Asia-Pacific (Singapore) and on the editorial board of Insight: Asia.

PAUL GODWIN has recently retired as Professor of International Relations at the

National War College, Washington DC, USA. He has published widely on issues of 

China’s military capabilities. 

GARY HAWKE is Professor of Economic History and Head of the School of

Government at Victoria University of Wellington, New Zealand. He has previously

chaired the New Zealand Planning Council. His publications include The Making of 

New Zealand: An Economic History (Cambridge: Cambridge University Press, 1985).

iii
AUTHORS

iv

JACEK KUGLER is the Elizabeth Helms Rosecrans Professor of International 

Relations at Claremont Graduate University, California, USA and current President of 

the International Studies Association 2003-2004. He is the co-author (with Ronald L. 

Tammen and others) of Power Transitions: Strategies for the 21st Century (New York: Seven 

Bridges Press, 2000). 

CHRISTOPHER LAYNE is Visiting Fellow in Foreign Policy Studies at the Cato 

Institute. His book on American grand strategy is to be published by Cornell 

University Press 

MICHAEL LEIGH is the director of the Institute of East Asian Studies at the Universiti 

Malaysia Sarawak. He has published widely on issues of economic, political and social 

change in Southeast Asia. 

ATIUR RAHMAN is a Senior Research Fellow of the Bangladesh Institute of Research 

Studies. He is also chairman, board of directors of Unnayan Shamannay (a non-profit 

private research organization) and the Credit and Development Forum. His

publications include some twenty-three books and many book chapters and journal 

articles. 

JIM ROLFE is an Associate Professor of international relations at the Asia-Pacific 

Center for Security Studies, Hawaii, USA. His most recent book (co-edited with Eric 

Shibuya) is Security in Oceania in the 21st Century (Honolulu: Asia-Pacific Center for 

Security Studies, 2003). 

RONALD L. TAMMEN is the Dean of the Mark O. Hatfield School of Government 

at Portland State University. Previously he served as Associate Dean of Faculty and 

Professor of National Strategy at the National War College in Washington, D.C. He is 

the co-author (with Jacek Kugler and others) of Power Transitions: Strategies for the 21st

Century (New York: Seven Bridges Press, 2000). 

MASHBAT SARLAGTAY is a researcher at the Institute for Strategic Studies in the 

Mongolian Ministry of Defence. 

YOICHIRO SATO is an Associate Professor at the Asia-Pacific Center for Security 

Studies, Honolulu, Hawaii, USA. His most recent book (co-edited with Akitoshi 

Miyashita) is Japanese Foreign Policy in Asia and the Pacific (New York: Palgrave, 2001). 

AQIL SHAH is based at the Forum for Democratic Studies, the research division of 

the National Endowment for Democracy, in Washington DC, USA. Previously he 

was an analyst for the International Crisis Group’s South Asia project in Islamabad, 

Pakistan. He regularly contributes to media and scholarly publications on political 

issues in South Asia. 
AUTHORS

v

ERIC SHIBUYA is an Assistant Professor at the Asia-Pacific Center for Security 

Studies, Honolulu, Hawaii, USA. His most recent book (co-edited with Jim Rolfe) is 

Security in Oceania in the 21st Century (Honolulu: Asia-Pacific Center for Security Studies, 

2003).

ERIC TEO CHU CHEOW is Council Secretary of the Singapore Institute of 

International Affairs, Director-General of the Pacific Basin Economic CouncilSingapore and Resource Panel Member of the Singapore Parliamentary Committee 

for Defence and Foreign Affairs. He writes regularly for the media and academic 

publications with a focus on East Asian politics, diplomacy and economics. 

CHARAN WADHVA is the President and Chief Executive and Research professor at 

the Center for Policy Research, New Delhi, India. His scholarly writings focus on 

issues related to the Indian economy and on regional economic cooperation. 

STANLEY WEEKS is a former U.S. Navy destroyer commander and is now a Senior 

Scientist at the Science Applications International Corporation in McLean, Virginia, 

USA. He is the co-author (with Charles A. Meconis) of The Armed Forces of the USA in 

the Asia-Pacific (Sydney: Allen and Unwin, 1999). 
A REGION OF CHANGE: A REGION IN TRANSITION 

JIM ROLFE

To describe the Asia-Pacific region as a region in change is, to a large 

extent, both commonplace and a truism.1 In 1996 Professor Michel Oksenberg 

placed the changes occurring in Asia on the scale of the Industrial Revolution 

in terms of their global impact.2 Some quarter of a century earlier, the theme of 

a 1970 conference in Canberra dealing with the region was also of change.

That conference noted that if it had been held in the 1960s based on the

experience of the 1950s, the participants in 1970 ‘would have sustained some 

shocks’ brought about by the differences in outcome that could have been

expected from a ‘well-informed contemporary [that is, 1960s] assessment’.3

The moral from this is that although change itself might be a given, its pace 

and direction are not and any lessons to be learnt from change are elusive and 

require an examination of assumptions as much as of trends. 

Consider the region we now call the Asia-Pacific as it was in, say, 1949: 

x It was a region of territories and colonies as much as a region of

states (although that was changing);

1 I define the Asia-Pacific region broadly. For the purposes of this book it includes South Asia,

East Asia and Oceania. The United States is also such a significant presence in the region,

strategically, economically and culturally, that it might well be described as ‘of the region’ and

it is discussed in terms of regional major-power relationships. Of course, the idea of region is 

just that: an idea. The ‘region’ in this book is defined the way it is because of some underlying

assumptions about relationships between states and about the cause and effect of issues and

their inter-relationships, as well as for bureaucratic definitional imperatives. Other ideas of 

‘Asia-Pacific’ could well lead to a different idea of the region.

2 Cited in Gary J. Smith, ‘Multilateralism and Regional Security in Asia: The ASEAN Regional 

Forum (ARF) and APEC's Geopolitical Value’, Paper 97-2, the Weatherhead Center, Harvard

University, February 1997. Other works from the same period and more recently dealing with 

different aspects of regional change include, for example, Chan Heng Chee, ed., The New AsiaPacific Order (Singapore: Institute of Southeast Asian Studies, 1997), Kurt W. Radtke and

Raymond Feddema, eds., Comprehensive Security in Asia: Views from Asia and the West on a Changing

Security Environment (Leiden; Boston; Köln: Brill, 2000), and James C. Hsiung, ed., Twenty-First

Century World Order and the Asia Pacific: Value Change, Exigencies and Power Realignment (New York

Palgrave, 2001). 

3 Bruce Brown, ‘Introduction’, Bruce Brown, ed., Asia and the Pacific in the 1970s (Wellington:

A.H. and A.W. Reed, 1971), p.x.

1
A REGION OF CHANGE: A REGION IN TRANSITION

2

x Britain, rather than the US, was still the significant power in the 

region (although that was changing); 

x It was a region in which Japan was still formally the enemy (although 

that was changing); 

x War was an always present fear—Korea would be the first major 

example (that fear has diminished considerably); 

x Communist imperialism was the danger in the region;4 (that danger 

has gone). 

x The United States was not closely involved with the region and to 

the extent that it was, it was trying to disengage (that would change); 

x There was no alliance system (although that would change and 

change again); and 

x South Asia and Southeast Asia were the sub-regions of dangerous 

instability— social, economic and political (that would change to 

some extent). 

The region, then, has changed considerably since 1949, but more than half 

a century later it is still changing. Today’s changes are in many cases quite 

different from those of the last 50 years. In other areas there are distinct 

similarities. The changes today occur at all levels of the regional system. There 

is the potential rise of a great power to challenge the United States’ military 

pre-eminence; there is a move to sub-regional (and pan-regional) focuses for 

dialogue and decision-making as the organizing principle for many state 

activities; political systems are moving almost inexorably towards liberal 

democracy, albeit with local flavors; economic systems are becoming ever 

more market-oriented and there is a consequent breakdown of national 

barriers to trade; and societies are increasingly rejecting traditional beliefs and 

reliance on community and faith and adopting the modernist credos of 

individualism, rationalism and secularism, not without some angst in many of 

the societies experiencing these changes. 

Change, of course, is not necessarily the same as transition. With transition 

there must be some concept of moving from one defined state or existential 

model to a completely different one. Change, on the other hand, is a more 

routine or day-to-day set of occurrences. Change may occur without transition; 

transition involves change.5 In this region there are system-level transitions, 

4

 A point made by President Truman in the United States’ Declaration of National Emergency’ 

in 1950 and by Canadian Prime Minister Lester Pearson amongst other regional statesmen. 

5

 J.S. Nye, ‘The Changing Nature of World Power’, Political Science Quarterly, vol.105, no.2, 

Summer 1990, p.177 notes, when discussing power transitions, that they involve ‘big changes 
JIM ROLFE

3

potential or actual, occurring with power relationships, and with the role of the 

state in relation to regional institutions. At the national level there are 

transitions to democracy, to market economies and to open societies all at 

different stages in different countries. 

We may also differentiate between the idea of the Asia-Pacific as being a 

region ‘in transition’ and a region ‘of transitions’. The first concept deals 

primarily with systemic transition and would clearly be applicable if, for 

example, the region were developing as Europe has and we wanted to examine 

those processes. Systemic transitions are happening to some extent in this 

region, and we examine them in this book, but there is much more happening 

simultaneously at the sub-system level and more than two thirds of this book 

is devoted to those changes. The sum of the transitions, nevertheless, is such 

that the region itself may well be described as being ‘in transition’. The 

transition, when it is complete, will see a region completely different from that 

of even fifteen years ago, let alone fifty. Of course, once that state is achieved, 

change will continue and that change may well involve a transition to another 

model of regional and state organization. 

Despite being able to see the broad outline of the forms of the regional 

transitions, we must still document the details and we must attempt to draw 

some lessons and ideas about the near and medium future, if only to avoid 

repeating our history as either tragedy or farce. This book is the outcome of a 

conference held in Hawaii in late 2002 at which selected scholars and 

practitioners were invited to think about specific areas of regional 

transformation either completed, in progress, or still in the starting blocks.6

The aim was to attempt to discern broad regional trends and to see, at the subregional level, similar processes at different stages of evolution to determine 

what, if any, lessons could be taken. The scholars involved in the project are a 

mixture of those based within the countries they are discussing and others who 

examine their area from a distance. There are advantages and disadvantages to 

each approach. Those based in their selected country have an intimate view of 

it, but may be too close to events for objectivity. Those examining the issues 

from a distance may suffer from equal but opposite advantages and 

disadvantages. Overall, the mixture gives a diversity of approach which reflects 

the diversity within the region itself. Diversity is also apparent in the ages and 

backgrounds of the scholars. Some have many years of scholarship to their 

in the international political weather’ and involve ‘the fortunes of individual nations’. Clearly, 

transitions are more than just change. 

6

 The paper writers were given the opportunity to revise their papers in light of the conference 

discussion and several chapters have been commissioned to fill gaps in the framework. 
A REGION OF CHANGE: A REGION IN TRANSITION

4

names, others are making their reputations in the field. Some have extensive 

experience in their field as practitioners as well as scholars, others have 

focused on one or other of those activities. Again, a useful diversity of 

approach is apparent. 

This is a work primarily of qualitative analysis rather than quantitative. 

That has been a deliberate choice. We aim to show a snapshot of the region 

and to draw out the complexity of the issues and an understanding of the 

‘color’ of the processes rather than seek the ‘certainty’ that much quantitative 

analysis promises.

Theory, also, is generally implicit rather than explicit, although Jacek 

Kugler introduces transition theory in his analysis of the process and time 

period over which China will become a (perhaps the) major regional power. 

Again, this is a deliberate choice: the book is not a work of theory. The 

theoretical model underlying most of the chapters is that there is an inexorable 

move towards increasing interdependencies between states, especially in the 

economic realm (but also in the political and social), and equally inexorable 

moves within states to the three systems that Novak describes as constituting 

‘a free society’: ‘a free polity, a culture of liberty and a free economy’.7 More 

simply, these might be described as transitions within states towards 

democracy, open societies, and market economies. Any uncertainty about 

these processes is over the pace and details of the transitions rather than their 

outcomes.

The first three sections of the book are set at the system or regional level. 

The first discusses the context within which transitions are occurring within 

the region. Stanley Weeks discusses the ways that national security strategies 

affect and are affected by change and he notes that our response to providing 

security will be colored by our concepts dealing with change and that our 

responses will lag behind the changes. The solution lies in a process that allows 

us to challenge our assumptions and forces us to identify the full range of 

possibilities. Eric Teo focuses on East Asia specifically and discusses the issues 

within the framework of globalization and the so-called Asian monetary crisis, 

the effects of which are still being felt. He identifies clusters of change in the 

financial, economic, social and political arenas throughout the region and he 

argues that there is a fundamental transition in the form of the Asian nationstate in the way it understands sovereignty, how it perceives national security, 

the way it has to take into account ‘soft power’, and in how inter-state relations 

7

 Michael Novak, ‘The Beginning of Economic Wisdom’, The National Interest, 71, Spring 2003, 

p.95.
JIM ROLFE

5

are changing. Teo argues that ‘ the fundamental transition for Asia will only 

come when the Asian concept of the nation-state gives way to a “larger nationstate” (as in the expanding and increasingly integrated Europe) beyond present 

borders. That should be the ultimate transition and goal for East Asia in the 

next twenty years or so’. 

The second section is also set at the regional level. Three chapters, by 

Chris Layne, Jacek Kugler and Ronald Tamen, and Paul Godwin, consider the 

question of whether the United States will remain predominant in the region 

or whether it will be challenged by China and, if so, in what sphere and over 

what time period. All three scholars argue that China’s rise is (almost) 

inevitable. Godwin and Layne argue that the US role in relation to China 

should not be to challenge it, but to act as an offshore balance to China’s 

continental power. Kugler argues that ways must be found to ensure that 

China is integrated into the world community in a way that allows its needs to 

be met, but at the same time ensures that its values are compatible with those 

accepted by the developed democracies. The future role of India within the 

region is not addressed in these chapters, but is one that scholars and others 

will undoubtedly have to consider soon. 

In section three the region is considered as, potentially, a system of subsystems based on the present geographically based (sub) regional organizations 

in South Asia, Southeast Asia and Oceania, the South Pacific.8 Change is 

occurring, but slowly; there is not yet any transition to the sub-region as the 

standard unit of analysis in regional affairs (and indeed, there is no form of 

overarching or multi-issue sub-regional organization in Northeast Asia at all). 

Eric Shibuya discusses the South Pacific—organized as the Pacific Islands 

Forum; Narayanan Ganesan looks at Southeast Asia—perhaps moving 

towards a form of integration as the Association of South East Asian Nations; 

and Atiur Rahman examines South Asia—particularly the South Asian 

Association for Regional Cooperation’s lack of success as a regional 

organization at any more than the rhetorical level. These three similar yet 

competing views of how sub-regions could develop tell us that there is a long 

way to go before we can argue that the region is integrating or developing any 

sense of ‘community’, even at the sub-regional level.9 Each of these regional 

8

 Of course, other sub-regions could be identified based on different criteria. The sub-regions 

defined in this chapter have been chosen for discussion because they are the only ones that 

attempt to bring together more or less the full range of strategic, economic and social issues of 

interest to their member states. 

9 The declaration by ASEAN leaders at their October 2003 summit of the goal of moving 

towards an ASEAN community by 2020 on the basis of the pillars of ASEAN security, 
A REGION OF CHANGE: A REGION IN TRANSITION

6

organizations has trouble agreeing on its goals, moving beyond rhetoric to 

action, and accepting that successful regional organization inevitably implies a 

derogation of sovereignty.10 Finally in this section, David Capie considers the 

way beyond the current sub-regional organizations. He notes especially 

integration both at the broad pan-regional level and also within East Asia as 

the ‘Asean + 3’ process gathers momentum. Capie sees no likelihood in the 

short term that East Asia will rival the Asia-Pacific as the focus of activity; 

rather, he argues, there will be a series of overlapping organizations that will 

build members’ confidence in the motives of other members, but that will not 

dramatically transform the existing regional order.

The final three sections move away from the region and sub-regions as the 

units of analysis and focus, at the state level, on the three broad functional 

areas within which international relations are conducted: the politico-strategic; 

the politico-economic; and the politico-social arenas.11 Rather than examine 

every country in the region, the analyses look at a broadly representative 

selection of countries (three in each section) to provide an overview of the 

region and the transitions occurring within it. 

Broadly, the model for each of these sections is for a case to be included of 

successful transition, one where transitions seems to be stalled and one where 

transition is either not yet successful or is yet to occur at all. A number of the 

scholars in these chapters have challenged some of the assumptions underlying 

the case selections.12 Gary Hawke, for example, argues that New Zealand 

should not be viewed as a country that recently and successfully adopted the 

market in place of a pre-1980s state-directed economy. It has, rather, always 

embraced international trade and its apparently dramatic economic 

liberalization is more a case of evolution than revolution. In any case, the 

lessons are drawn. Similarly, Ian Campbell notes that the inclusion of Tonga as 

a case in the book fuels perceptions that it is an archaic and closed society that 

economic and socio-cultural communities could in the longer-term move the level of analysis 

towards the sub-region. 

10 Amitav Acharya, ‘Democratisation and the prospects for participatory regionalism in 

Southeast Asia’, third World Quarterly, v.24, no.2, 2003, pp.375-390 discusses how the growth of 

democratisation in Southeast Asia (and consequent redefinitions of attitudes towards 

sovereignty) has the potential to revitalize the development of Southeast Asian regionalism. 

There are lessons here for the other regions also. 

11 See the discussion in Ralph Pettman, World Politics: Rationalism and Beyond (Basingstoke: 

Palgrave, 2001). 

12 The case studies were chosen by the editor. Some contributors exercised authorial discretion 

to change the focus of their chapters while others accepted the title as given and commented 

on the accuracy or otherwise of the assumptions underlying it. 
JIM ROLFE

7

needs to modernize, whereas Tonga has been ‘modernizing’ for some 200 

years and its liberal constitution dates from the 1870s, making it one of the 

oldest in the world. The chapter on Tonga does, however, give a view of a 

society that has not adopted all the trappings of a pluralist society and shows 

how this may be a source of strength. Adam Fforde makes a similar point in 

his chapter on Vietnam. Much needs to be done there, but the basics of a 

market economy have been apparent for some time. 

The world of high politics is symbolized by the transitions to democracy 

with case studies from South Korea, Indonesia and Pakistan. Carl Baker 

outlines Korea’s political changes and the challenges the country faces to 

integrate liberal democracy within a Confucian social system. He concludes 

with some prescriptions as to how Korea should move to ‘consolidate’ its 

democracy within a framework bounded by Korean national identity and 

culture. Ikrar Bhakti discusses the tentative moves towards democracy in 

Indonesia. The country’s democracy is still shaky and there are mixed opinions 

about the success of the Megawati Sukarnoputri government in developing 

democratic institutions. Megawati faces many challenges, not the least from 

political rivals trying to delegitimize her government, and her reforms may 

founder on opposition from her rivals and on a lack of any democratic culture 

within the country. In his chapter, Aqil Shah shows how continued 

interventions by the armed forces have all but destroyed democratic impulses 

in Pakistan. Democracy in Pakistan, in Shah’s view, is a failure; at best, it is a 

front for the military to retain control behind a façade of civilian government. 

Shah’s prescription is for a ‘fundamental reordering of civil-military relations’ 

within Pakistan, a process not likely to occur so long as Pakistan remains an 

important ally of the United States in the war against terrorism. As Acharya 

has shown, progress towards democracy within states is a fore-runner for the 

development of ‘participatory regionalism’.13

In the politico-economic realm, Yoichiro Sato discusses the region’s 

hesitant moves toward an open trading system through the World Trade 

Organization, the Asia-Pacific Economic Cooperation forum and through subregional and bilateral arrangements. Sato concludes that the openness of 

regional markets can be obtained so long as the global superstructure remains 

open. The case studies show varying degrees of success in transitioning to 

market economies: they include New Zealand (successful and complete), India 

(still trying) and Vietnam (moving more quickly than many appreciate). Gary 

Hawke outlines the broad range of New Zealand’s economic reforms since the 

13 Note 9 above. 
A REGION OF CHANGE: A REGION IN TRANSITION

8

mid-1980s and sets them within a broader historical context. He notes that the 

New Zealand experience has wider implications for our understanding of 

transitions, with the clearest lesson being the desirability (‘necessity’ might not 

be too strong a word) of managing expectations. India’s move towards a 

market economy since the early 1990s was spurred by economic crisis. Since 

then it has been slowed by the imperatives of the country’s turbulent 

democracy and a bureaucracy that is thorough to the point of obstruction. 

Charan Wadhva notes these points and concludes that the Indian economy has 

had notable successes but continues to exhibit weaknesses. Wadhva presents a 

comprehensive set of suggestions for India’s future economic path. In 

discussing Vietnam, Adam Fforde notes that although the country’s political 

system might be communist, the economy has taken on the attributes of the 

market and is now very well integrated into the world economy. Fforde argues 

that Vietnam needs more robust politics and a clearer definition of the 

relationship between state and society if Vietnam is to maintain its market 

orientation and gain full benefits from it. 

The final section discusses a range of societal transformations as states 

come to terms with modernity. Malaysia is a country undergoing many 

transitions: in identity; in education and language; and in the role of Islam, to 

name a few. Michael Leigh examines these and others and notes how the 

government of the day has always attempted to control the way society has 

operated and organized itself. He concludes that the most significant process 

has involved the restriction of space for dissent. The consequence has been 

that dissent has moved from being based on cross-ethnic or cross-religious 

organizations to being based on racial or religious exclusivity with a 

consequent division of society. Mongolia is a society moving rapidly from its 

pastoral nomadic past to an industrialized and urban future. Mashbat Sarlagtay 

examines the problems that arise when the romantic traditional culture clashes 

with the modern, citing the privatization of land in his case study. The 

traditional view was that for the nomads, boundaries and land ownership did 

not exist. Mongolia’s task has been to reconcile this view with one that argues 

that without laws on land ownership, Mongolia can-not develop. The latter 

view has prevailed, but not without a cost to the culture. Finally, Ian Campbell 

examines Tonga and argues that, although by modernist standards Tonga may 

not be ‘modern’, the country has insulated itself successfully from many of the 

problems of modernity that have affected other Pacific countries. Campbell 

usefully reminds us that the modernity/traditional dyad may be overly 

simplistic when considering security and insecurity, especially if the 
JIM ROLFE

9

explanation leads to an assumption that the remedy for security problems is 

simply more modernization. 

The picture that these chapters give us is of a region (and its constituent 

countries) moving more or less quickly to modernity, but using a variety of 

methods, and with more change (perhaps more transition) possible in the 

future. There is the medium-term possibility of a leadership transition from 

one great power to another, and the longer-term possibility that sub-regional 

groupings could play a larger role than they do at the moment, although the 

state will remain as the primary actor in regional affairs for some time. 

The region is one that has mostly embraced democracy (and even where 

states have not, they have attempted to take on democracy’s trappings) while 

strongly embracing the market, but the move toward open, plural, modern 

societies is lagging. That should not surprise us. Democracy and the market are 

far more susceptible to external influence and example than are the cultural 

underpinnings that set the way societies organize themselves. If stability is the 

overall goal, on the evidence presented in these chapters this will be best 

achieved through political inclusion, economic prosperity and social 

participation.

There are still lacunae in this discussion of change and transition. The book 

primarily considers endogenous factors. If exogenous factors were included 

explicitly then the large topic of the effects of globalizing processes might lead 

to different conclusions about the future shape of the region, although 

globalization and its effects are implicit in the discussion on the transitions to 

open market economies. Even in its treatment of endogenous issues the book, 

obviously, does not consider the detail of all the countries in the region. It is a 

snapshot with the failings of a snapshot. It could be that changes in some 

other countries, not documented here, could lead to outcomes different from 

those discussed implicitly and explicitly in these chapters. Perhaps more 

importantly there are events, changes, occurring in the region that could 

completely transform the ways that security relationships are conducted and 

that could thus lead us into a ‘new region’.14 For example, changes in the ways 

we think about security are not considered. In the future, issues related to 

health, the environment and demography could all be explicitly security issues. 

If that is to be so we will probably see consequent changes in the ways regional 

security relationships are managed. Also, there are direct changes in security 

relationships becoming apparent, as between India and China for example. It 

14 See the discussion in note 1 above about the region being an idea rather than an objective 

space.
A REGION OF CHANGE: A REGION IN TRANSITION

10

could be that these kinds of changes will have more long-term impact on the 

region than the possible hegemonic transition from one regional power to 

another. It is too early to tell if these will occur and whether they will be 

significant.

The region is relatively stable today, either as a consequence of the 

transitions discussed in these chapters or, perhaps, despite them. There is, 

however, nothing to indicate that change has finished or that stability will last. 

The challenge for the region is to acknowledge that change is a constant and to 

manage it so that it does not threaten the region’s continued stability. There 

are two levels at which change has to be managed today. The first is at the 

systemic level; the potential change from the United States to China as the 

dominant power. It is not completely clear whether, when or how this will 

happen and if it does happen whether the US will attempt to resist the process. 

This is a major uncertainty and it is one that all states have a stake in managing. 

The second level is that of the changes within states. Here the situation is 

much clearer. Change is happening, quickly in some areas and more slowly in 

others, but it is not a cause for significant concern for the region. Change is 

generally in the direction of more democracy, more open markets and more 

plural societies. Management issues are primarily for the individual states to 

deal with rather than for the region as a whole. For the longer future, the ways 

that East Asia could develop as a ‘super state’ through the ASEAN+3 process 

will be the issue to watch and manage. 
THE FORMS OF TRANSITION : GLOBALIZATION,

THE ASIAN CRISIS & CHANGE

ERIC TEO CHU CHEOW

The Asia-Pacific region, and East Asia in particular, is in transition. Like 

the rest of the world, East Asia has been profoundly affected by globalization

and liberalization. But East Asia also has been affected by the Asian crisis of 

1997-98, which seems to have changed the foundations of societies in the 

region as much as globalization. The East Asian transition has therefore been 

profound and dramatic, although many of these transitions and changes are 

also valid in the other countries of the Asia-Pacific region as well. 

GLOBALIZATION AND LIBERALIZATION 

The twin trends of neo-liberalism and liberalization, which began sweeping

the world in the Reagan and Thatcher years, triumphed with the collapse of 

the Soviet Empire in the late 1980s and early 1990s. The Reaganite and 

Thatcherite revolutions brought sweeping changes to the mentality of the 

post-World War order, and with the liberation of the Eastern European 

satellite states and the collapse of the Berlin Wall, neo-liberalism was well on 

its way to ideological victory. But when the Soviet Empire ultimately collapsed

under the weight of communism’s inefficiency and China became 

progressively engaged in a new ‘socialism a la chinoise’ experiment, liberalism’s 

triumph was complete.

A recent award-winning television series, ‘Commanding Heights’, based on

a book of the same name by Daniel Yergin, emphasized that the most 

important phenomenon and transition of the post-War modern era was

undoubtedly the free-market revolution that gripped the world in the 1990s.

This touched off a frantic race towards globalization characterized by the 

massive and rapid global exchange of four key elements: goods and services, 

capital, ideas, and human resources. The IT revolution has been instrumental 

(by partnering with liberalization) in enhancing this process. The United States,

Europe (including Russia, Eastern and Central Europe), Japan, parts of East 

Asia (including China), Australia and New Zealand, and the urban

agglomerations of the developing world have been plugged into this 

11
ERIC TEO CHU CHEOW

12

globalization process and network. On the other hand, half the world remains 

effectively marginalized by this same process; the rural worlds of Asia, Latin 

America and Africa remain in the dark shadows of globalization. 

Never has there been such rapid exchange of these elements, and on such 

a scale, in the history of humanity. The massive exchange of goods and 

services has been realized thanks to the development of worldwide transport, 

logistics, and IT systems, as well as the deregulation of commerce through the 

previous GATT arrangements and now the WTO. Further liberalization is 

expected, although key developing nations are now clamoring for a fairer 

playing field. The rapid transfer of capital (both in terms of investments and 

speculative short-term capital) clearly has its roots in the development of 

financial liberalism on a worldwide scale. Furthermore, thanks to IT, there is 

now no need for the physical movement of capital across the world. The 

interdependence of stock markets and capital markets also makes capital flows 

more rapid, fluid and uncontrollable, often to the detriment of developing 

nations.

The circulation of ideas and information has become so great that we are 

all now plugged into a world information web or pool; no information can 

now be deliberately hidden or denied for long, as media giants feed 

information instantaneously across the globe. The information flows now 

ensure better accountability and transparency, and have the effect of aiding the 

flow of goods, services and capital around the world. The flow of human 

resources has been the slowest element to truly globalize, as formidable 

barriers to the free flow of human capital across the globe still exist. Experts 

and professionals may now criss-cross the globe without much problem, 

especially in the developed world, in search of better value creation. However, 

the movement of the lower levels of the labor pool and societal masses is still 

strictly monitored, especially when moving from developing to developed 

nations. The free flow of human capital will not come about as long as the 

globe remains ‘divided’ between the ‘globalized’ and the ‘marginalized’, 

especially with the more powerful developed world having the ultimate say on 

opening its borders to such flows.

THE ASIAN CRISIS (1997-1998): A TOTAL CRISIS 

The Asian crisis of 1997-98 has had many important political, economic, 

financial and social consequences on ASEAN countries and South Korea. Its 

effects are still being felt today. The six original members of ASEAN and 

South Korea suddenly faced a ‘total’ crisis of financial, economic, and then 
THE FORMS OF TRANSITION

13

social and political proportions. The economic and social fabrics of their 

societies were torn as bad loans, shaky financial systems, corporate 

bankruptcies, rising unemployment and plunging currencies suddenly engulfed 

them. Indonesia and Thailand were ‘forced’ into new political upheavals and 

reforms. Similarly, crucial political and social reforms are affecting the 

Philippines, South Korea and Malaysia. Even traditionally stable Singapore 

and Brunei face social reforms and a rethink of their futures. The crisis also 

aggravated ethnic and religious tensions and the uneven distribution of wealth 

within countries and within ethnic-cum-religious communities like Indonesia 

and the Philippines, and to a lesser extent, Malaysia and Thailand.

The transition economies of the newer members of ASEAN (Vietnam, 

Laos, Cambodia, and Myanmar) were less exposed to the Asian crisis as the 

original members or South Korea. Still transitioning to free markets and open 

societies, they were not yet open to capital flows and international finance. 

Nevertheless, they also suffered in that the expected benefits of ASEAN 

memberships were undercut by the existing members’ preoccupation with 

economic hardship and political chaos. Furthermore, these less-developed 

members were in the grips of their own painful economic and social 

transformation; a process that is far from complete today. Reforms are still 

ongoing and it remains to be seen whether these countries will eventually 

succeed in adjusting to the new globalized world. 

The Asian crisis was indeed a total crisis for the affected countries. 

Beginning as a financial crisis, it soon became an economic one, It then 

evolved into a social crisis, which spilled over into the political realm as well.

The crisis began when currency exchange regimes came under speculative 

attack, beginning with the Thai baht in June 1997. On 2 July 1997, Thailand 

was forced to float the baht, which had been pegged to the US dollar, after its 

defense of the baht began to deplete the country’s foreign reserves As a result, 

massive speculative attacks were launched against other currencies that were 

pegged to the dollar, such as the Malaysian ringgit, the Philippine peso and the 

South Korean won. Though not pegged to the US dollar, the Singapore dollar 

was also affected. It was pegged to a trade-weighted basket of currencies and 

the Singapore dollar adjusted automatically downwards with its neighbors. By 

mid-August 1997, Indonesia was also forced to float its rupiah to save its 

dwindling foreign reserves. As a result, all of the attacked Asian currencies 

plunged; from Dec 1996 to Dec 1997, the baht fell (in comparison to the US 

dollar) from 25.6 to 48.2, the ringgit from 2.53 to 3.89, the peso from 26.3 to 

39.9, the Singapore dollar from 1.40 to 1.69, the Indonesian rupiah from 2,363 

to 5,495 and the Korean won from 840 to 1,695. Departing from orthodoxy, 
ERIC TEO CHU CHEOW

14

Malaysia in 1998 imposed capital controls and pegged the ringgit to the dollar 

at RM 3.8 to prevent the further erosion of Malaysia’s financial assets. 

The Asian Crisis then became a full-blown economic crisis in all the 

affected countries. With the withdrawal or flight of capital from the affected 

countries, industries (not only the big conglomerates, but also small and 

medium sized enterprises (SMEs)) and the wider economy began to ground to 

a halt, as interest rates doubled or tripled over a few weeks and corporate and 

consumer confidence plunged. The Asian governments most affected 

appealed for monetary aid from the International Monetary Fund (IMF), 

related agencies and other governments. Thailand was pledged US$17.5 

billion, South Korea US$55 billion and Indonesia US$43 billion in bail-outs. 

In return the IMF forced the affected governments to impose austerity 

measures, reduce government deficits and seek to increase efficiency in the 

economy(in both the real and financial sectors) while loosening liquidity. with 

the arrival of bail-out packages. These measures were accompanied by efforts 

to restore health to the financial sector, via adjustments in fiscal, monetary and 

exchange rates policies, as well as structural reforms in the real sector, such as 

tariff reductions, domestic deregulation, the elimination of subsidies and some 

fiscal policies. The forced closure of ailing banks created a panicked 

withdrawal of savings from even healthy banks. Economies went into tail-spin, 

as industries and factories ground to a halt and hard-hit consumers tightened 

their belts. On the other hand, Malaysia decided against IMF aid and the 

Philippines was already under IMF assistance at the time the crisis began. 

The Asian monetary crisis became a social one also as it unleashed a 

reform process that caused unemployment to increase dramatically. Indeed, 

‘democracy’ and ‘reforms’ became buzzwords in the affected countries by 

1998. In fact, the nexus of the Asian political economy shifted from the 

previous duopoly of big government-big business to a new triangular nexus of 

government-private sector-civil society (note that the new tripolar nexus has 

‘government’ minus the ‘big’, and the ‘private sector’ replaces ‘big business’). 

Conservative Asian societies were changing fast, as civil society strengthened 

in Thailand, the Philippines, Indonesia and South Korea. In this way, the Asian 

crisis gave civil society a push in the right direction, as democracy and reform 

took root in Asia. As unemployment and the lack of social safety nets 

threatened social harmony, civil society groups became increasingly assertive 

after years of centralized decisions by powerful governments. Civil society, 

comprising lobby groups (including labor unions, student groups and rights 

groups), Non Governmental Organizations (NGOs), and environmental 

lobbies, began taking governments to task openly on an array of issues. There 
THE FORMS OF TRANSITION

15

appeared a real need to redefine the ‘contrat social a la Jean-Jacques Rousseau’ 

between the governed and the governing in these societies . The social order 

had to change. 

Finally, there was a crisis of governance. Democratic aspirations grew as 

strong as the calls for drastic economic and social reform. Decentralization 

gained favor as grass-roots democracy took root. Governmental 

accountability came under the spotlight and governments are now checked not 

only by a mushrooming of political parties and the development of a bolder 

opposition, but also by the rising demands of civil society and people’s groups. 

Asian democracies became more complex political entities with multiple power 

centers. The crisis therefore contributed to reform of the political foundations 

of the affected countries. The successive Indonesian governments of 

Presidents Suharto, B.J. Habibie and Abdurrahman Wahid fell. Today, under 

Megawati Sukarnoputri, Indonesia has yet to find political stability. In Seoul, 

Kim Young-sam fell into disgrace due to the crisis, and was replaced by an 

opposition and dissident leader, Kim Dae-jung. In Thailand, Prime Minister 

Chavalit Yongchaiyudh fell from power after the collapse of the baht and was 

replaced by the more somber Chuan Leekpai. He was in turn replaced by 

Thaksin Shinawatra, who swept into power in January 2001 after campaigning 

against Chuan’s slow economic reforms. In these countries, incumbents were 

swept from power as a more genuine democracy was installed but political and 

economic stability remain elusive. For many countries, political and social 

institutions need to be built or re-built. Even relatively stable Malaysia went 

through a political whirlwind during the controversial Anwar Ibrahim saga in 

1998, which resulted in a resurgence of the Islamic opposition party PAS at the 

1999 general elections.

It is undeniable that the trends of liberalization and globalization as well as 

the Asian Crisis have contributed greatly to the impetus for change and 

transition in Asia. These changes and transition could generally, and in most 

cases should, be considered irreversible as Asia develops further. 

EAST ASIA TODAY : FOUR CHANGES AND ONE 

FUNDAMENTAL TRANSITION 

The countries affected by the Asian crisis have seen dramatic change in 

four major clusters: finance, economics, social/civil society and politics. In 

effecting these changes, Asia has also embarked on a fundamental transition of 

the nation-state itself.Changes in the financial field in four areas are under way, 

although reforms are still far from complete because of vested interests. 
ERIC TEO CHU CHEOW

16

First, moves have been made to consolidate the banking industry, from a 

myriad of small inefficient banks to a handful of stronger banking 

conglomerates. In general, the affected countries have timidly opened their 

financial sectors to both local and foreign competition, as in Singapore, the 

Philippines, and Thailand, though the Thai consolidation has been stalled 

somewhat by vested interests. Malaysia, meanwhile, has decided on a local 

consolidation before opening up the sector to international parties. The 

Indonesian financial scene is still a mess, reeling from bad and non-performing 

loans, which deters buyers. Only South Korea seems to have made significant 

progress toward consolidating its financial sector. The key to opening and 

cleaning up of the financial sector is how effectively financial authorities are in 

disposing of bad loans and confiscated assets, a process that has seen 

relatively limited success in Thailand, Indonesia and even Malaysia. But what 

is important is that East Asian countries have probably learned one 

fundamental lesson from the Asian crisis: that the management and 

implementation of financial liberalizationmust be sound and careful lest it 

invite the same problems that swarmed their economies in 1997. 

A second fundamental change has occurred in the way governments 

perceive financial regulatory frameworks. Before the crisis, Asian 

governments ‘liberalized’ the financial sector without adequate safeguards, 

allowing ‘easy money’ to pour in from international banks. In the case of 

Thailand, this ‘easy money’ was re-lent by local bankers at a premium for 

‘white elephant’ projects in big cities. It was estimated that Thailand, 

Indonesia and Malaysia accounted for 25 percent of the world’s private 

financial flows in the early 1990s—for example, US$200 billion poured into 

Thailand during these wild days of easy capital and its half-successful financial 

liberalization. The corresponding regulatory functions and frameworks were 

poor or non-existent. After the crisis, the conventional wisdom placed a 

premium on a strong regulatory framework, not just liberalization at any cost. 

The crisis was thus a wake-up call to strengthen the financial framework and 

its regulatory functions.

Third, speculative capital such as hedge funds have, since the crisis, come 

under fire by governments, especially in Kuala Lumpur. Asian governments 

appear to clearly distinguish now the fundamental difference between foreign 

direct investment (FDI) and short-term capital, whose flow in and out can 

destabilize a country’s financial system and economy.This shift in thinking is 

probably most acute in Malaysia, but can also be found in Thailand, Indonesia, 

and the Philippines. Malaysia imposed capital and currency controls in 

September 1998. 
THE FORMS OF TRANSITION

17

Fourth, the Asian crisis hammered the risk of cozy relations between 

bankers and authorities, and between big banks and conglomerates. South 

Koreans witnessed the lingering bond between the chaebol conglomerates, 

banks and the government clearly, as scandals erupted in the first family during 

the last days of the Kim Young-sam presidency. In Thailand and Indonesia, 

banks were also ‘protected’ or even ‘managed from a distance’ by politicians 

(or the military) and those close to power, for the benefit of political parties or 

the personal gain of the elite. The move throughout Asia is now for more 

transparency and accountability. 

In the economic field, strategies have undergone fundamental change, at 

least in four areas. First, Asian countries now realize that their 

overdependence on exports for economic growth during the heyday of the 

Asian boom must give way to more balance between exports and domestic 

consumption. This does not mean abandoning exports as a source of national 

income and wealth, but to shake off the export-led mentality, in which wages 

are suppressed and incentives given only for exports at the expense of and 

detriment to domestic consumption. With the shift towards more democracy 

and participatory politics, consumers are now a more prized commodity than 

in the past. Domestic consumption can only increase with rising purchasing 

and consumer power; hence wages should also be increased in tandem, and 

not suppressed for the sake of attracting FDI destined for exporting industries 

alone. But a warning must also be sounded against building up a potential 

domestic demand ‘bubble’ for political or social reasons through increased 

public and corporate debt. In some ways, the Asian consumer faces better 

prospects now than before the crisis. 

Second, Asians have had to rethink the place and role of the public (versus 

private) sector in the economy. Liberalization had called for a scaling back the 

public sector in a wave of privatizations, but the Asian crisis has also proven 

that when a crisis strikes, and with the quasi-absence of social safety nets, the 

private sector cannot deliver all the goods to ensure social and racial cohesion. 

A debate has begun, forcing governments and authorities to weigh the 

profitability of social services against the necessity of providing the minimum 

in social goods to the people. This reassessment of public versus private 

participation in the economy became a rallying theme in post-crisis Asia. 

Coupled with this debate is the issue of creating a larger regional economic 

entity based on an integrated production chains or networks and economies of 

scale within the region. Governments can play an important role in creating 

this new framework of regional cooperation and markets across Asia, which 

could then greatly benefit the private sector and its entrepreneurial drive. The 
ERIC TEO CHU CHEOW

18

2003 announcement of an ‘ASEAN Economic Community’ is a step in this 

direction.

Third, there is debate over how much the government should be directly 

involved in the market in terms of production and industrial strategies. The 

debate centers on direct government involvement in controlling its national 

industries or conglomerates, as in the case of Singapore’s Government-led 

Companies (or GLCs) under the Temasek Holdings umbrella, as opposed to 

the more nimble stable of Taiwan’s SMEs. The slogan was ‘more market and 

less government’ in a ‘small is beautiful’ context. But it was also acknowledged 

that governments should not abdicate their roles in setting the appropriate 

regulatory framework for the private sector to operate in. SME development 

has been highlighted and the involvement of the private sector in formulating 

industrial strategies and policies has been strongly recommended.

As the nexus of the Asian political economies has shifted from a duopoly 

to a tripolar structure, governments in Asia have been forced to give the rising 

‘true’ private sector (via SMEs) a greater role in setting the direction of the 

economy. This would also ensure the decoupling of big business from 

authorities, and its accompanying cronyism, collusion and nepotism, as 

highlighted by the experience under President Suharto of Indonesia. 

Furthermore, with the rise of democracy and people’s participation in the 

economic strategies and direction of the country, labor has increased its 

bargaining power in the corporate world, becoming one of its most important 

stakeholders. A recent Business Week article highlighted the fact that one of 

the major shifts in capitalism in the next ten to twenty years could be a shift 

from ‘market and managerial capitalism’ to a more ‘managed capitalism’, where 

stakeholders other than the management play a greater role. Asia will be no 

exception in this business trend. 

Finally, it became clear that governments, in abdicating their strategic roles 

over business and the economy, should encourage more basic 

entrepreneurship and creativity, based on a higher level of education, research 

and human resource development (HRD). Asians in general tend to value 

education, and there has since been a revival in the promotion of education in 

all East Asian societies in order to raise the general level of knowledge of the 

entire population. This is also in line with creating a population of betterinformed and more discerning consumers and actors in the economic and 

social life of the country. It is clear that the services sector would also grow as 

the purchasing power of the population increases. Education, health, leisure 

and lifestyle trends would be the new pillars of a new Asian economy, in order 

to supplement manufacturing, industry, infrastructure and ‘hard’ logistics. 
THE FORMS OF TRANSITION

19

In the social and civic arena, Asian governments have seen important 

shifts and changes, in at least four areas. First, as stated earlier, the rise of civil 

society in Asia appears irreversible. From Indonesia to the Philippines, 

Thailand to South Korea, and Japan to China, peoples’ movements have 

emerged to claim a voice and role in society. In some cases, as in Indonesia 

and South Korea, the Asian crisis helped unleash the power of civil society 

groups, whereas in others, increasing wealth and economic development have 

contributed to its rise as a powerful social force, as in China or even Japan. It 

has amounted to a willingness by the people to express themselves more after 

years of control and government-led economic expansion and growth. In 

many cases, Asian civil societies are still considered tame in comparison to 

their Western counterparts. But those in the Philippines, Indonesia and 

Thailand can get boisterous and rowdy at times. Unlike many of their Western 

counterparts, most Asian civil society groups and NGOs are still very issue- or 

interest-based (such as opposing specific projects for environmental reasons or 

lobbying against human rights abuses or trade union claims) and have not 

necessarily transformed themselves into formidable politico-social forces. 

However, the labor movement has become a formidable force in South Korea, 

just as NGOs are now more listened to in Indonesia and Thailand. 

Second, the rising civil society has also come to realize that it has a greater 

role to play in the new tripolar nexus, together with public authorities and the 

corporate sector. This civil society will in time wield a greater and more farreaching role as not only voters and consumers of social goods for the 

authorities and the political establishment, but also as consumers and 

individual shareholders in the corporate world and private sector. It is this dual 

role that the emerging civil society and citizenry is learning to play in Asia. 

This is forcing the government and private sector to ‘reconnect’ themselves to 

the people. When well organized, civil society groups could thus wield 

enormous power and influence, especially when domestic consumption is now 

clearly emphasized in Asia by both governments and the corporate world. 

Third, as education rises further and is emphasized more forcefully in the 

development of societies, the role of intellectuals will inexorably increase as 

compared to the role of businessmen, in the future direction of the country. 

Asia has in the past placed granted great authority to business conglomerates 

and top businessmen, but it can now be envisaged that intellectuals, the 

intelligentsia and academia in general will rise in importance as Asia looks for 

ideas and creative thoughts to develop further. This trend may also gain 

impetus from the moral questions concerning ‘unbridled capitalism’ that have 

been raised in the wake of the Enron and Arthur Andersen corporate debacles 
ERIC TEO CHU CHEOW

20

in America. This could in turn help steer the governments of Asia towards a 

shift in mindset that gives more priority and accord more value to intellectual 

exchanges and debates. The intellectual space in Asia should open up in the 

coming years, as Asian societies open up further. 

Fourth, the Asian crisis brought about a period of introspection in the 

region. There is a feeling of Asian vulnerability, and hence a whole debate of 

returning to ‘Asian roots’ has begun. This has sparked a regional debate on 

Asia’s future identity and culture, as a region and as a civilization. As Asians 

search for ‘inner strengths’ from their past and their old civilizations and long 

histories, many are looking for answers in ‘things Asian’ and the Asian ‘art de 

vivre’, as opposed to the Western fads that had continuously influenced Asia 

for more than a century. Asian societies have, in a way, turned inwards to look 

closely at themselves in this, context, probably also as a negative reaction to 

globalization and cultural uniformity. However, this return to Asian roots is 

also accompanied by a certain ‘loosening up’ of Asian societies, as they grow 

‘in less conformity’ and embrace some individualism and creativity as well. 

The trend of ‘Asian-ness’ (but less conformity) should be healthy, if it is not 

tainted by undue Asian arrogance or pride, as epitomized by the previously 

raging debate on ‘Asian values’, which was eclipsed by the Asian crisis. 

Finally, in the political field, four new trends have emerged in Asia. The 

first of these is the cry for democracy and reform that has resonated across 

Asia since the crisis. Prime Minister Mahathir Mohamad of Malaysia faced 

serious challenges during and after the Anwar Ibrahim episode from the 

latter’s supporters and other disenchanted Malays. Even in China, calls for 

more democracy could be seen on Chinese websites, although they were 

officially discouraged. It is clear that Asia has embarked on a new phase of 

democratic aspirations after years of intellectual and social ‘containment’ of the 

people; today the people of Asia are beginning to challenge years of thinking 

and policies characterized by a ‘government knows best’ mindset.

Second, increased popular and local-level assertiveness has resulted in 

moves towards decentralization and devolvement of power to local levels. 

Indonesia enacted decentralization laws in January 2001 although preparations 

for the move were lackluster and left much to be desired. Unfortunately, this 

has resulted in a rather messy transfer of power downwards and in conflicts 

of interests between the different levels of authority and competence. A similar 

experience is taking place in Thailand (with ‘chief executive officer governors’ 

in the provinces) but on a more modest scale. Malaysia, meanwhile, is 

experiencing a power struggle between federal and state authorities, especially 

when the latter are controlled by the opposition, as in the case of Kelantan and 
THE FORMS OF TRANSITION

21

Trengganu, which are in the hands of the opposition PAS. In some cases, 

there are also genuine concerns that decentralization and devolvement of 

power could lead to increased corruption (as in Indonesia), as multiple power 

centers now exist on the same level. 

Third, it is nonetheless clear that public accountability has become more 

important in Asia, especially with the increasing power of the media, or the 

‘fourth estate’. Political and corporate scandals have erupted across the region, 

as the media exposes them, with disastrous consequences for politicians, highlevel bureaucrats and corporate chiefs. The media has acted hand in hand with 

civil-society groups and NGOs to expose errant individuals and organizations, 

although not all media and journalists are impartial, neutral or non-politicized. 

The new-found powers of journalists in the Philippines and Indonesia have at 

times also destabilized societies, especially when they touch on religious or 

ethnic issues, However, there is no doubt that public accountability has 

increased from South Korea to Taiwan, and from Indonesia to Thailand, 

thanks to the free (but at times, ‘not too responsible’) media spawned in these 

countries.

Lastly, Asian countries and societies are re-defining the concept of power 

and politics. The days of the Chinese ancestral cult and Javanese kings are fast 

fading away, as new democratic aspirations from the ‘common people’ 

increase and test the old traditional concepts of power in Asia. This would 

require a new mindset in both the people and those elected to lead. The desire 

for short-term gains could drop in importance as Asian leaders look towards 

political visions and public service to hold public office, though this shift 

would be slow and hazardous. A new concept of power and politics is 

inevitable however, as politicians sever their close links to corrupt business and 

vested interests. They would also understand progressively that they cannot 

cling to power indefinitely, especially as the concept of hereditary power in 

Asia recedes. Power shifts and political successions would then become 

‘normalized’ and political transitions smoothened in Asia. 

THE ULTIMATE TRANSITION OF THE ASIAN NATION-STATE 

Finally, the last transition is that of the Asian nation state. There are also 

four aspects in this transition.

First, Asian countries will have to come to a new understanding on 

national sovereignty in the new globalized context. Because of globalization, 

the nation-state needs to be re-defined in terms of its prerogatives and power. 

Many Asian leaders have understood that their effective control over a myriad 
ERIC TEO CHU CHEOW

22

of policies and decisions has been reduced significantly, from monetary 

control to trade policies, the environment and security issues. Many are 

battling the surge of clandestine migration and workers across borders (as in 

Malaysia’s attempts to crack down on Indonesian and Filipino migrants), just 

as they counter the trade of drugs, small arms and women (between Thailand 

and its Indochinese neighbors and Myanmar, for example). Terrorism and the 

spread of HIV have also caused serious concern among Asian leaders as they 

try to contain such scourges. Without doubt, borders appear more porous 

today with the advent of IT and the work of triads, mafias and gangs, who 

have also become more powerful and sophisticated in handling cross-border 

traffic.

Second, there is the concept of national security defined in terms of 

subversion, terrorism and separatism. Asian states are now faced with 

increasing security risks, which have either grown out of their colonial heritage 

or their failure to build national entities and identities. Many Asian nation 

states are fragile in terms of institution-building and disparate in terms of 

population, religion and ethnicity. This fragility is a cause for concern as the 

potential for intra-state conflict is high across Asia. Unfortunately, national 

institutions have not been built and consolidated since independence and 

direct challenges are posed by multiple subversive or separatist groups. The 

transition of nation-states in Asia would therefore mean a re-definition of the 

nation and the need for a new ‘contrat social’ between people and authorities, 

without which the nation is doomed to further instability. The three principal 

institutions of the executive, the legislative and the judiciary (as in French 

philosopher Montesquieu’s ‘balance of powers’), as well as auxiliary institutions 

such as the legal, police, and security apparatus must be put in place to serve 

the people and the nation as a whole. Nation and institution-building would 

thus constitute the key to national security and to the critically needed 

transition to ‘modern’ nation-states in Asia. 

Third, Asian nation-states will have to contend with soft power as much as 

hard power in the new global context. Habitually, states have relied on hard 

power (military and political power) to project might and influence, but in the 

present context of globalization, soft power (culture, economic and intellectual 

power and influence) has increased in importance. Asian nation-states will 

have to learn that they can increase their role and place in the world by 

focusing not only on hard power issues alone, but by also emphasizing the 

build-up of soft power to gain a better foothold in the world of tomorrow. 

China is building up its soft power well, as it realizes that it cannot match 
THE FORMS OF TRANSITION

23

American hard power at this point in time, just as Thailand has always been 

fully engaged in cultural diplomacy and soft power. 

Last, Asian nations will probably need to redefine inter-state relations 

within the region. Asian regionalism has been absent as Asian countries have 

tended to look West for trade, investments, ideas and expertise (managerial as 

well as in science and technology) from colonial times to the present day of 

American ‘hyper-power’. Asian regionalism could be a new form of transition 

for Asian countries as they seek to overcome national sovereign issues and 

cross-border problems, as outlined above. Asian nations would thus need to 

‘think regional’ probably more in the coming years as the mindsets of Asian 

leaders and people shift towards the region as their ‘larger nation’ of the 

future. It is not a case of chauvinism or Asian arrogance, but an East Asian 

entity within the present ‘ASEAN + 3’ framework would definitely be one of 

greater prosperity and stability for the whole Asia-Pacific region.1 Asians 

would therefore have to think beyond their individual nation-states, which 

would also be in full transition towards the future. 

CONCLUSION

The forms of transition under way in Asia are indeed varied and diverse, 

encompassing financial, economic, social and political spheres. The 

international trends of liberalization and globalization have provoked these 

transitions in Asia, but it was the Asian crisis that gave these transitions 

further impetus and force. Although these changes seem irreversible, the 

fundamental transition for Asia will only come when the Asian concept of the 

nation-state gives way to a ‘larger-nation state’ (as in expanding and 

increasingly integrated Europe) beyond present borders. That should be the 

ultimate transition and goal for East Asia in the next twenty years or so, and it 

would clearly be one with enormous implications for the region and the world. 

1 ‘ASEAN+ 3’ is the grouping of the 10 ASEAN states with China, Japan and South Korea. 
CHANGE AND ITS REFLECTION IN 

NATIONAL SECURITY STRATEGY AND FORCE 

STRUCTURE

STANLEY B. WEEKS

INTRODUCTION

To understand changes and transitions globally and in the Asia-Pacific 

Region, the broader context in which change occurs must be appreciated. 

This chapter begins with a discussion of the challenges faced, particularly by 

strategic planners, as they look at change through the lenses of both their own

overarching perspectives of the world and their own concepts of security. It 

then examines one systematic approach to structure the analysis of plausible 

future scenarios and their implications. But to be actionable in the realm of 

national security, thinking about change must ultimately be reflected in 

national security strategies and, even more concretely, in military force

structures. This paper will examine two such examples from the US 

experience of how change is reflected in national security strategies and force 

structure. This overview of the context of change then concludes with a 

summary of the implications for our thinking about change and transitions in

the Asia-Pacific region. 

THE CHALLENGES OF CHANGE: THE IMPORTANCE OF THE 

VIEWER’S PERSPECTIVES

Strategic and security planners face the challenge of providing policy 

leaders a coherent way to understand the world (and its major regions such as

the Asia-Pacific) and how it may change over time. This understanding should 

then logically be reflected in a nation’s national security strategy and,

eventually, military force structure. We must first, however, face two broader

challenges: understanding how we and our leaders conceptualize our own

particular view of the world, and how we define security itself. 

These broader conceptual perspectives are lenses through which the world 

and its changes are perceived, and through which policy options are 

developed. At the highest conceptual level, views of the world may be seen

through analytic frameworks such as realism (focused on states as the key 

actors in a largely zero-sum system dominated by security issues), liberalism or 

24
STANLEY WEEKS

25

pluralism (focused on a more complex structure of actors within and between 

states, international actors and even non-governmental actors, in a non-zerosum system where social, economic, and security issues all play key roles), and 

Marxism/structuralism (where the focus is on domination and subordination, 

the global centers opposed to the peripheries, and a zero-sum system where 

class/structural economic issues determine politics).1 Although there are 

numerous linkages, overlaps and variants of these three classical analytical 

frameworks, the basic differences are real, and so are the perspectives on the 

world and on change depending on which of these lenses the strategic planner 

or the policy leader tends to use to view the world. 

Likewise, at the next lower conceptual level are a variety of geo-strategic 

perspectives (for example, ‘clash of civilizations,’ environmental/resources 

conflicts, ‘the coming anarchy,’ ‘pivotal states,’ ‘the end of history’ concept of a 

dominant ideological model of liberal democratic free-market systems, and the 

like).2 Again, whether strategic planner, political leader, or informed citizen, 

the way one perceives the world and its changes may vary dramatically if seen 

through different geo-strategic lenses. 

Finally, there is the challenge of understanding how one conceptualizes the 

issue of security itself—which is likely influenced by these overarching world 

and geopolitical perspectives. Is our perspective on security to be focused in 

narrowly military terms, or in the broader political/economic/military 

‘comprehensive security’ context more common among Asia-Pacific nations, 

or should security be conceptualized in terms of threats, vulnerabilities, and/or 

fears? As in all cases, the differing perspectives have much to do with how 

one will view the world and its changes. The way we conceptualize our views 

of the world and of security is usually determined over long periods of 

historical and personal experience—but at a minimum, there is a need for 

considerably greater awareness of these lenses with which we view the world. 

If changes in the world (especially as they impact security) are to be better 

understood we must minimize the extent to which our conceptual world views 

are biased or based on false assumptions or gross inconsistencies. This may 

indeed be the hardest challenge in understanding change. 

1 See Andrew L. Ross, The Theory and Practice of International Relations: Contending 

Analytical Perspectives, in Strategy and Force Planning, (Newport, RI: Naval War College 

Press, 2000), pp.52-72. 

2 See Samuel P.Huntington, ‘The Clash of Civilizations?’ Foreign Affairs, Vol. 72, No. 3, 

Summer 1993, pp.22-49; Robert D. Kaplan, ‘The Coming Anarchy,’ The Atlantic Monthly,

February 1994, pp.4, 44-76; Robert S. Chase, Emily B. Hill, and Paul Kennedy, ‘Pivotal States 

and US Strategy,’ Foreign Affairs, January/February 1996, pp.33-51. 
CHANGE AND ITS REFLECTION

26

THINKING ABOUT CHANGE 

While there are many different approaches to thinking about change, most 

share a common failure to identify major surprises and discontinuities in the 

world—the attack at Pearl Harbor, and the sudden collapse of the former 

Soviet Union being classic examples. Peter Schwartz offers a more promising 

approach to structure our thinking about future change (based on the 

experience of the Royal Dutch/Shell planning group that identified the 

potential for the 1973 changes in the global oil market).3

The Schwartz approach focuses on the need for planners to ‘re-perceive’ 

what the future world with its changes may look like. The approach uses the 

development of alternative future scenarios to challenge assumptions and 

thereby force the reordering of our perceptions. These scenarios are seen as 

aids to both anticipating future risks and to discovering future strategic options 

and opportunities. The scenarios that are developed are not designed as 

predictions of the future, nor are these scenarios limited to the narrow threatbased planning scenarios common in military planning, since they emphasize 

consideration of the full range of future possibilities, in order to be prepared 

for whatever changes may occur. 

Schwartz’s scenario-based approach to understanding the future 

environment centers on the identification of three elements: driving forces, 

predetermined elements, and critical uncertainties. ‘Driving forces’ are those 

key forces in a given scenario that we must care about because they drive 

change and directly influence the outcome. Schwartz suggests several 

categories to examine for driving forces: society, technology, economics, 

politics, environment, and the military and defense infrastructure.4

‘Predetermined elements’ are the constants (e.g., geography) which ‘we know 

we know’ and the events or trends already ‘in the pipeline’ (such as 

demographic trends, or energy dependency), that are ‘independent variables’ in 

the particular scenario being developed. ‘Critical uncertainties’ are often best 

identified by questioning our assumptions on elements that we initially 

perceived as ‘predetermined’ or known to us. In addition to areas of true 

(‘who knows?’) uncertainties about the future, these ‘critical uncertainties’ 

should include major events outside of our traditional assumptions that can 

3 Peter Schwartz, The Art of the Long View (New York: Currency Doubleday, 1991). 

4 Ibid.
STANLEY WEEKS

27

significantly impact or alter the future scenario.5 The important thing is that 

several alternative ‘futures’ can be identified using different driving forces, 

predetermined elements, and critical uncertainties, and, having ‘re-perceived’ a 

fuller range of futures and changes, planners and policy makers can better craft 

policies and actions to minimize risks and maximize opportunities.6

The practical application of the scenario-based approach to ‘re-perceiving’ 

alternative futures and change in the Asia-Pacific region can illustrate how 

such scenarios might enhance our understanding of a range of strategic 

possibilities as well as future uncertainties around the region. ‘Driving forces’ 

could variously include economic developments, religious/ethnic differences, 

coalitions, terrorism, mass migrations, and so forth. ‘Predetermined elements’ 

could include variously geography (‘the tyranny of distance’), continued US 

engagement, increasing energy dependence, and demographic trends. ‘Critical 

uncertainties’ could include stability or eruption of regional flashpoints (Korea, 

Taiwan, South China Sea islands), Chinese or Japanese expansionism, 

disintegration of states (e.g., Indonesia, China, Russian Far East), terrorism, 

mass migrations, enhanced regional organization, an increased or decreased US 

military presence, economic collapses, and so forth. This short and admittedly 

incomplete listing should nonetheless indicate that a scenario-based approach 

to future changes in the Asia-Pacific region will help to ‘re-perceive’ wide 

combinations of alternative futures, each with its own implications for our 

understanding and action. 

HOW CHANGE IS REFLECTED IN NATIONAL SECURITY 

STRATEGY AND FORCE STRUCTURE 

A better understanding of change and how to structure our thinking about 

future possibilities systematically is only actionable in the realm of national 

5 See P.H. Liotta, and Timothy E. Soames, ‘The Art of Reperceiving: Scenarios and the 

Future,’ in Selected Readings in Strategy and Force Planning, Vol. 1 (Newport, RI: Naval War 

College, CDE, 2002). 

6 While Schwartz’s categorization of the three elements (driving forces, predetermined 

elements, and critical uncertainties) is useful as a systematic way of ordering our thinking about 

future scenarios, the Schwartz approach has often led those who attempt to use it to fall into 

the error of concentrating too much on identifying whether a future change factor is one or 

the other element. While questioning initial assumptions of what is a ‘predetermined element’ 

is a good way to identify ‘critical uncertainties,’ the fact is that the same factor of future change 

can often fit in either category depending on our assumptions and the scenario we wish to 

examine. For this reason, many assessments of future change, such as the CIA’s unclassified 

Global Trends 2015: A Dialogue About the Future with Nongovernmental Experts, tend to mix the 

Schwartz elements together, under such labels as ‘the drivers and trends’. 
CHANGE AND ITS REFLECTION

28

security when reflected in national security strategy and, even more concretely, 

in military force structure. Shifting focus now to these specific applications of 

understanding change, we will examine below two examples from the US 

experience of how change is actually reflected in national security strategies 

and force structures. Although this analysis is based on the US strategy and 

force structure experience, such an examination could also usefully be 

extrapolated to other Asia-Pacific nations (with due regard for their different 

strategic contexts and recent history). Properly speaking, national security 

strategies have diplomatic and economic, as well as military, components—but 

our assessment here will focus on the military component of national security 

strategy.

In assessing the recent history of US national security strategy, two 

landmarks stand out—the Cold War, and the post-Cold War decade 

culminating in the September 11, 2001 terrorist attacks—and the new National 

Security Strategy issued in September 2002 by President George W. Bush. 

Although it was only in the late 1980s that the US Congress established the 

requirement for the president to publish annually a National Security Strategy, 

we can identify the essential elements of a strategy against the Soviet Union 

and its allies and supporters—including containment, deterrence, and US 

alliances and forward basing of forces—as it evolved after World War II. A 

critical juncture was reached in 1947, with the Marshall Plan and US aid to 

Greece formalizing the split with the former Soviet wartime ally. Most 

importantly, at the behest of the Truman Administration, Congress passed the 

National Security Act of 1947, creating a unified defense establishment, a 

separate service in the Air Force, the Central Intelligence Agency, and the 

National Security Council (NSC). This was indeed a significant reorganization 

of the US national security structure to address the changes in the world, but 

was not the simple success later mythologized by those ‘present at the 

creation’. In fact, the achievement of the goals of real change in national 

security strategy and even organization was a slow process, punctuated by false 

starts, errors, and bitter bureaucratic battles.7 The 1947 Act was amended just 

two years later in 1949 to formally establish the Department of Defense and to 

increase the role of its Secretary (the frustrated first Secretary committed 

suicide in 1949 by jumping from an upper window of the Bethesda Naval 

Hospital). It would not be until the 1960s that the NSC, and the significant 

role of the President’s National Security Advisor, would fully develop. The 

stronger role of the defense secretary came only after further revisions to the 

7 Fred Hiatt, ‘Truman’s Rose-Colored Reforms,’ Washington Post, July 15, 2002, p.17.
STANLEY WEEKS

29

1947 Act in the late 1950s, and with Secretary of Defense McNamara and his 

Planning, Programming, and Budgeting System and systems analysis changes 

in the early 1960s. The stronger role of the chairman of the Joint Chiefs of 

Staff took almost forty years after 1947 to evolve, with the real boost to the 

authority of the chairman and to the Joint Staff and ‘jointness’ in general, 

coming from the Goldwater-Nichols Department of Defense Reorganization 

Act of 1986.8 The defense acquisition process has evolved over the years 

without similar landmark reforms and remains a subject of criticism for its 

lengthy processes, bureaucracy, and costs. The Cold War national security 

strategy itself, which this reorganized national security structure was to 

execute, took almost a half decade from the end of World War II to be 

articulated (initially only within the government) by George Kennan’s 

‘containment’ writing and Paul Nitze’s NSC-68 document in early 1950. Only 

the start of the Korean War in the summer of 1950 finally pushed President 

Truman to fund the new strategy and the force structure it would require. 

If US national security strategy lagged behind the changes in the postWorld War II security environment, US military force structure changes were 

even slower. The US Army emerged from World War II with a primarily 

light/heavy ‘barbell’ division structure.9 During the 1950s era of ‘massive 

retaliation,’ the Army’s abortive ‘Pentomic Army’ reorganization was strongly 

resisted within the service and never completed. In the 1960s era of ‘flexible 

response,’ the Army added Green Berets and counterinsurgency emphasis 

without altering the essential ‘barbell’ force structure, which continued (with 

new equipment) through the 1980s Air-Land Battle era and the 1991 Gulf War 

essentially to this day. However, recent years and army experience in Kosovo 

and Afghanistan have again emphasized the need for lighter and more mobile 

medium-strength Army force structures as now envisioned in the Interim 

Combat Brigades and Future Combat System the Army is developing. Similar 

examples could be given for the other services—but the Navy and Air Force 

force structures tend to focus more on platforms (aircraft, naval vessels) that 

can be upgraded over time with new weapons systems, so the ways in which 

force structure lags changes in strategy are perhaps less visible. 

8 For a critical analysis of the Goldwater-Nichols Act of 1986, see the review by Professor 

MacKubin Thomas Owens of Victory on the Potomac: The Goldwater-Nichols Act Unifies the 

Pentagon, by James Locher III, in the Washington Times, September 15, 2002. 

9

 John Gordon, and Peter A. Wilson, The Case for Army XXI ‘Medium Weight’ Aero-Motorized 

Divisions: A Pathway to the Army of 2020, Strategic Studies Institute, US Army War College, May 

1998.
CHANGE AND ITS REFLECTION

30

The second example from US experience of how change is reflected in 

national security strategy is the post-Cold War reorientation to focus more on 

homeland security and asymmetric threats, particularly terrorism. The US 

awareness of and concern with asymmetric threats did not begin on September 

11, 2001. For much of the past decade there were studies and warnings 

suggesting the need for a reorientation of post-Cold War national security 

strategy and force structure to focus more on such threats. The Defense 

Department’s longtime director of Net Assessment, Andrew Marshall, had 

since the early 1990s pushed the need to think more broadly about how 

changes in the security environment increased new asymmetric threats and 

highlighted the need to change US force structure. Marshall’s work tended to 

focus more on the longer-term rise of a peer-competitor state, but clear 

warnings of the potential of mass-casualty terrorism by non-state actors were 

provided by the 1993 World Trade Center bombing and the spring 1995 Aum 

Shinrikyo attacks in Tokyo (as well as the Oklahoma City attacks in the United 

States).

Both the National Defense Panel report and the Commission on US 

National Security Strategy in the late 1990s warned of the need to focus more 

on these types of asymmetric terrorist threats. Yet for over a decade after the 

Cold War, successive US national security strategies still emphasized more 

conventional adaptations to focus military forces (essentially the same forces 

of the Cold War, scaled back by one-third) on regional conflicts and 

interventions. In fairness, the 1997 Quadrennial Defense Review and resulting 

National Security Strategy did include some greater emphasis on asymmetric 

warfare in its third element ‘Prepare now for an uncertain future,’ but largely 

absent was real funding for force transformation and the willingness to see the 

possible military roles in countering terrorism (still being viewed largely as a 

‘law enforcement’ problem).

After the September 11 2001 terrorist attacks, US national security strategy 

and force structure began to anticipate and reflect a new emphasis on dealing 

with the changes in the security environment—an emphasis which had actually 

begun earlier in 2001 as Secretary of Defense Rumsfeld conducted the 

Quadrennial Defense Review (QDR). While the military quickly acted to eliminate 

the terrorist-harboring Taliban government in Afghanistan, the President 

appointed a coordinator for homeland security and, some months later, 

proposed the creation of the cabinet-level Department of Homeland Security. 

The lengthy debate in Congress over authorizing this new department 

reflected the complex bureaucratic realignments and new power centers likely 

to result from this reorganization. If the history of the 1947 National Security 
STANLEY WEEKS

31

Act is any guide, the Department of Homeland Security is likely to experience 

much change in coming years. As Deputy Defense Secretary Paul Wolfowitz 

testified to Congress: ‘I don’t think we’ve got the final answer here, and it’s 

going to take a long time.... But I think this is a very important step...’.10

Military force structure implications continue to be debated and once again, as 

in the post-World War II period, national security strategy and, even more, 

military force structure lags years behind the first indications of change in the 

broader international environment. 

IMPLICATIONS FOR OUR THINKING ABOUT CHANGE IN 

THE ASIA-PACIFIC 

These observations have several implications for our thinking about 

change and transitions in the Asia-Pacific region. First, conceptual worldviews 

and geostrategic perspectives are lenses that color how we see the world and 

its changes. There is a need for greater awareness of this fact, so that we can 

minimize the biases, false assumptions and gross inconsistencies that can 

hamper our understanding of change. 

Second, there is also the need for better awareness of how we 

conceptualize the issue of security itself. The impact of change on ‘security’ 

may be very different depending on whether our meaning of security is 

military, comprehensive, or simply vulnerabilities and fear. 

Third, whatever the broader issue of change, the US historical experience 

suggests that national security strategies and force structures tend to lag in 

reflecting this change. Major changes to national security strategy tend to 

emerge as delayed responses to historic landmarks such as the end of World 

War II or the end of the Cold War. The creation of new national security 

institutions and structures to implement the new strategies is particularly 

difficult. As Machiavelli wrote in The Prince:

It must be remembered that there is nothing more difficult to plan, 

more doubtful of success, nor more dangerous to manage than the 

creation of a new system. For the initiator has the enmity of all who 

would profit by the preservation of the old institutions and merely 

lukewarm defenders in those who would gain by the new ones.11

Military force structure lags even further behind in reflecting change. With 

the lifetimes of ships and even aircraft platforms now measured in decades, 

10 Hiatt, op.cit. 11 Ibid.
CHANGE AND ITS REFLECTION

32

fundamental force structure changes are today more likely to occur through 

transformations in how these forces are linked together and integrated as joint 

forces (through networks and command, control, communications, and 

computers).

Finally, as we seek better ways to understand change, we would be well 

advised to approach change through a systematic process which challenges our 

assumptions and forces us to identify the full range of possible scenarios and 

challenges, including the less likely changes that can truly surprise us. Thomas 

Schelling’s foreword to the classic Roberta Wohlstetter analysis Pearl Harbor: 

Warning and Decision contains a wealth of insight on how change can surprise: 

Surprise, when it happens to a government, is likely to be a 

complicated, diffuse, bureaucratic thing. It includes neglect of 

responsibility but also responsibility so poorly defined or so 

ambiguously delegated that action gets lost. It includes gaps in 

intelligence, but also intelligence that, like a string of pearls too 

precious to wear, is too sensitive to give to those who need it. It 

includes the alarm that fails to work, but also the alarm that has gone 

off so often it has been disconnected... It includes the 

contingencies that occur to no one, but also those that everyone 

assumes somebody else is taking care of. It includes straightforward 

procrastination, but also decisions protracted by internal 

disagreement. It includes, in addition, the inability of individual 

human beings to rise to the occasion until they are sure it is the 

occasion—which is usually too late.12

12 Thomas Schelling, ‘Forward’, Roberta Wohlstetter, Pearl Harbor: Warning and Decision

(Stanford: Stanford University Press, 1962). I am indebted to Dr. James Giblin for this insight. 
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

JACEK KUGLER AND RONALD TAMEN

‘The twenty-first century is the Chinese century’

Dr. Sun Yat-Sen

The United States will retain world leadership for at least the 

remainder of the Twentieth century, perhaps even for a longer time,

but the position will eventually pass to China. 

A.F.K. Organski

INTRODUCTION

The tragic events of September 11, 2001 have all but obscured major 

trends in world politics. The US government is now, justifiably, concentrating 

on the ‘war on terrorism’ and considering how to handle this new threat.

However, the structure of world politics has not changed. While terrorist 

activities can and have disturbed the relative tranquility that characterized

world affairs that followed the collapse of the USSR in the late 1980s, it is not

prudent to overlook the fundamental challenges that face the United States 

today. We postulate that these challenges have not fundamentally changed

because of the new challenge by Osama Bin Laden and his terrorist group alQaida, or by the renewed attention now paid to Iraq. The structural, persistent 

challenges facing the United States come from Asia and to a lesser degree from

the European Union. Decisions that determine the interactions among these

major powers will determine the stability and instability of World Politics in

this century.

FORECASTING EVENTS 

Straight-line projections are notoriously inaccurate. Speculation about

outlying alternatives often yields disappointments. One legitimate reason for 

assuming the risks involved in predicting the future is to avoid war. We take 

these risks here to outline our view of the dynamics of world politics because

the consequence of working without a rough compass is ignorance, and 

ignorance can lead to conflict.

33
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

34

Significant constraints limit our ability to forecast the future of world 

politics over the next three to five decades. National units and their borders 

are not constant. They change over time. Major alterations can occur through 

integration, as in the case of the European Union (EU) and the North 

American Free Trade Agreement (NAFTA). Changes also occur through the 

disintegration of large units like the USSR. Finally, the waging of World Wars, 

particularly in the nuclear era, obviously would play havoc with any forecast. 

Such upheavals would redraw the global map. We sidestep such problems by 

assuming in the forecasts that existing national entities like the US, China and 

India will remain intact, while emerging supra-national political units like the 

EU or NAFTA will expand cautiously. 

In addition to reliability problems, forecasting also is difficult because of 

disputes over variables. While there is general agreement that power 

distributions, alliances, technological developments and political structures play 

a role in the rise and decline of nations, there is serious disagreement about the 

impact of these factors on national trajectories over time. Variations in 

national performance can dramatically affect any future estimates and alter the 

anticipated links between these variables and war and peace. 

Given these risks, why is it useful to enter into the anticipation game? We 

believe it is prudent for decision makers to have access to rough forecasts 

because we live in an unusually critical period where current policy choices will 

frame long-term outcomes—some of them involving war and peace. In other 

words, the potential consequences urge us to take intellectual risks. 

The past provides a guide to the future and approximations are useful 

signposts. For example, economics like politics is not a precise science, but 

when its basic macro tenants are disregarded societies pay dearly. In the fifty 

years prior to the collapse of the USSR, for example, debate raged over 

whether developing economies should adopt a centralized or free-market 

structure to increase economic growth. Each camp controlled roughly half of 

the world’s population. The results are in. Today, most nations that chose 

democratic, open, competitive economies have successfully developed. With 

rare exceptions those that chose the closed government-guided economies are 

unsuccessful, and many languish in the poverty trap. The consequence of wellmeaning but incorrect policy choices is that a significant portion of the world’s 

population lives in poverty, without basic rights, and dependent even today on 

external capital to jump start their moribund economies. 

This chapter provides a systematic sketch of the future relations among 

great powers informed by recent developments in Power Transition theory. 

We choose this theory because it has an established empirical record when 
JACEK KUGLER AND RONALD TAMEN

35

applied to past periods of war and peace at the global as well as regional 

levels.1

The chapter proceeds as follows. Sections II, III, and IV provide an 

outline of the structure, elements, and dynamics of war and peace. Section II 

describes the hierarchical structure of world politics. Section III outlines the 

major elements of national power: population, economic productivity and 

political capacity. Section IV discusses the dynamics of war and peace. Section 

V focuses on European integration and the Asian hierarchy. Section VI 

outlines the global implications of the changes we anticipate in world politics. 

Section VII examines regional issues in Asia—the next center of world 

politics. Given the uncertainties we face, we expect that these forecasts will 

only provide a rough map of the future rather than a detailed set of 

prescriptions.

STRUCTURE OF POWER TRANSITION: THE HIERARCHY IN 

WORLD POLITICS 

Power Transition theory conceptualizes world politics as a hierarchical 

system. All nations recognize this hierarchy and the relative distribution of 

power therein. 

As we can see in Figure 1 below, a dominant nation resides at the top of 

the global hierarchy. The term dominant has a special meaning in Power 

Transition theory. The dominant nation is not a hegemon but rather the 

recognized pre-eminent, most powerful international leader. The dominant 

nation maintains its position by assembling and managing a coalition of 

nations with similar preferences for the rules that structure international 

interactions. For the most part, the dominant nation creates and defends the 

status quo. Following the collapse of the USSR, the United States became the 

dominant power and from that position it controls the largest proportion of 

resources within the international system. 

1 A. F. K. Organski, World Politics (New York: Alfred A. Knopf, 1958); A. F. K. Organski, 

World Politics (New York: Alfred A. Knopf, 2ed., 1968); Jacek Kugler and Douglas Lemke, eds., 

Parity and War: Evaluations and Extensions of the War Ledger (Ann Arbor: University of Michigan 

Press, 1996); Ronald L. Tammen et al., Power Transitions: Strategies for the 21st Century, (Chatham 

House: New York, 2000); , Douglas Lemke, Regions of War and Peace (Cambridge: Cambridge 

University Press, 2002), and Brian Efird, Jacek Kugler and Gaspare Genna, “From War to 

Integration: Generalizing Power Transition Theory”, International Interactions, 2003 29,4, pp 

293-314. Portions of the following analysis also are extended from Jacek Kugler, Ronald L. 

Tammen and Siddharth Swaminathan, ’Power Transitions and Alliances in the 21st Century’, 

Asian Perspective 25, 2001, pp.5-29. 
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

36

FIGURE 1: GLOBAL HIERARCHY

Small Powers

Middle Powers

Great Powers Dissatisfied

Satisfied

Dominant Power

Great powers populate the second tier of international power. Each of 

these nations has a significant, but not overwhelming, proportion of the power 

in the international system. Current great powers include China, Japan, the EU 

in toto, Russia, and potentially India. Most, but not all, great powers are 

satisfied with the creation and management of rules by the dominant nation. 

For example, the EU and Japan are committed to sustaining the established

status quo under US leadership. Yet among the great powers there exist

nations that are not fully integrated into the dominant power’s regime, such as

perhaps China, India or Russia today. When these dissatisfied nations 

anticipate a power overtaking, they may challenge for leadership of world 

politics.

Beneath the great powers are the middle powers. These include states of

the size of France, Italy, Poland, South Africa, Indonesia, or Brazil, each with

substantial resources. Middle powers can make serious demands that cannot 

be dismissed, but do not have the capabilities to challenge the dominant power

for control of the global hierarchy. Further down the power hierarchy reside 

the small powers. Though large in number, they have few resources and very 

limited power. These nations, such as Malaysia and Iraq, pose no direct threat 

to the dominant nation’s leadership of the global hierarchy.
JACEK KUGLER AND RONALD TAMEN

37

Figure 2 shows that regional hierarchies exist within the global hierarchy,

each with its own set of dominant, great and lesser powers.2

 Regional 

hierarchies are influenced by the global hierarchy but cannot, in turn, 

fundamentally affect outcomes in the global system.

FIGURE 2: REGIONAL HIERARCHIES

India

Pakistan

Bangladesh

Israel

Egypt

Palestine

Global Hierarchy

Regional Hierarchies

US

When regional hierarchies are largely isolated, they function in the same 

manner and operate under similar power rules as those found in the global

hierarchy. In all cases, the dominant power in the regional hierarchy is 

subordinate to the influences of the dominant power in the global hierarchy. 

Power Transition theory anticipates that wars will diffuse downward from 

the international to the regional hierarchies. The reason is that the global

dominant power and its main great power challengers have the ability to 

directly exert power anywhere in the globe, while most regional powers can 

only do so within their own region. Note that World Wars I and II involved all 

the great powers and diffused to include almost every regional hierarchy. The

contending powers delivered troops to distant areas of conflict from Africa to 

Asia. In contrast, the far more numerous conflicts in regional hierarchies did 

not spill outside the region. When powers from the global hierarchy were 

2 Douglas Lemke, and Suzanne Werner, ‘Power Parity, Commitment to Change, and War’

International Studies Quarterly 40, 1996, pp.235-60, Lemke op cit, and Tammen et al. op cit, provide

a detailed discussion of multiple hierarchies. 
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

38

involved, such as in Korea, Vietnam, Afghanistan or Iraq among many others, 

foreign troops fought in the regional hierarchy wars but the conflict did not 

escalate to the territory of those providing troops. We believe that despite the 

terrorist activities in the United States that distinguish the events prompted by 

the September 11, 2001 attacks on the United States, the current war on 

terrorism and the invasion of Iraq are limited conflicts over control of the 

Middle East regional hierarchy. These conflicts have little chance of escalating 

to a major confrontation that would rival World War I or II. Thus, major wars 

among powers in the global hierarchy reorder the international system while 

wars fought among nations in regional hierarchies alter the local distribution of 

resources but not the fundamental structures of world politics. 

The September 11 attacks confounded the usual boundaries. Our leaders 

perceived the terrorist attack on the United States as the equivalent of a major 

war among great powers not a limited conflict centered on the Middle East 

hierarchy. They compare the terrorist axis to the challenge posed by the Axis 

powers during World War II. Nothing could be farther from reality. Despite 

the civilian casualties and suffering inflicted on US citizens, the terrorist 

activities involve a very small number of determined individuals who do not 

and cannot challenge the structure of world politics. No matter the outcome in 

Iraq, this conflict will not resolve structural differences that will emerge as a 

consequence of the transition of power between the United States, Western 

Europe and the two potential Asian challengers, China and India. This chapter 

focuses on this lasting long-term challenge. 

ELEMENTS OF POWER TRANSITION 

The Dynamics of Power

A nation’s power produces the capability to influence the behavior of 

other nations. The components of national power are population, productivity 

and political capacity.3

3 A number of competing conceptualizations of power or national capabilities are available— 

most notably the Composite Capabilities Index of the Correlates of War (COW) Project as 

detailed in, for example, J. David Singer, and Melvin Small, ‘The Composition and Status 

Ordering of the International System: 1815-1940’, World Politics, 18, 1966, pp.236-82. 

Capabilities are an aggregation of world population, urban population, military expenditures, 

military personnel, iron and steel production, and coal and oil consumption. Power Transition 

theory uses total economic output of a nation weighted by its political capacity. The COW and 

GDP measures are highly correlated. A comparison of the two measures can be found in Jacek 

Kugler, and Marina Arbetman, ‘Choosing among Measures of Power: A Review of the 

Empirical Record’, Michael Ward and Richard Stoll eds., Power in World Politics (Boulder: 
JACEK KUGLER AND RONALD TAMEN

39

These three elements change over time at different rates. Population size is 

difficult to modify in the short term while economic productivity can be 

altered more rapidly. Political capacity is volatile and changes cannot be 

predicted accurately. For this reason we will concentrate on population and 

economic productivity to provide a glimpse into the future of world politics. 

Variations in political capacity can disturb these estimates within a range but 

will not determine them. 

Population

Population is the sine qua non for great-power status. Population provides 

the potential resource pool from which a nation can mobilize and extract 

resources. Without a relatively large population, a nation cannot hope to 

become either a great power or a dominant nation. The size of populations is 

the condition that ultimately determines the power potential of a nation and is 

the element that determines which nations will remain major powers. Recall 

that France, England, and Germany once were great powers that competed 

for global dominance when the rest of the world had not yet joined the 

Industrial Revolution. Today, individual Western European nations cannot 

compete with national populations the size of the United States, Russia, China, 

or India. From this perspective, a fully functioning and politically capable EU 

is the prerequisite for Europe to be a great power in the future.

Population structures are also critical in understanding how power 

fluctuates in the international system. Mature developed nations have 

undergone a demographic transition and have acquired stable populations that 

are unlikely to expand rapidly. In fact, many developed nations such as 

Germany, France, or Italy in the EU and Japan in Asia face the prospect of 

declining populations in the next century. Unless augmented by immigration, 

as is the case in the United States, the populations in these societies are 

expected to decline in relation to those in other regions of the world.

On the other hand, large developing nations such as China and India that 

are still undergoing demographic transitions have populations that will 

continue to grow for a generation or more. Even after fertility patterns are 

reduced to reproduction rates, total population growth figures will continue to 

dwarf those of other regions.

Westview Press, 1989) and Richard Merritt and Dina Zinnes, ’Alternative Indices of National 

Power’, Michael Ward and Richard Stoll, eds., op cit. While national capability measures are 

effective in ranking the relations between nations they fail to capture the dynamics of power 

change. For a current review see Emilio Casetti, “Power Shifts and Economic Development: 

When Will China Overtake the USA?”, Journal of Peace Research, 2003 40,6 pp 661-675.
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

40

FIGURE 3: RELATIVE SHARE OF POPULATION TOTAL AND RELATIVE BIRTH 

RATES FOR MAJOR CONTENDORS 1950-2070*

0

10

20

30

40

50

60

1930 1945 1960 1975 1990 2005 2020 2035 2050 2065 2080

Year

Relative Population (%)

India

China

US

EU

Russia

0

10

20

30

40

50

60

1930 1945 1960 1975 1990 2005 2020 2035 2050 2065 2080

Year

Relative Population (%)

India

China

US

EU

Russia

0

10

20

30

40

50

60

1930 1945 1960 1975 1990 2005 2020 2035 2050 2065 2080

Year

Relative Population (%)

India

China

US

EU

Russia

* Size of nation circles represents the birth rate per 1000

Figure 3 outlines these demographic phenomena over the next fifty years. 

The position of each circle represents the relative shares of population while 

the size of each circle represents the birth rate.4 Figure 3 makes it clear that the

United States, as in the case of Great Britain, cannot remain the dominant 

nation in the long run. Both China and India have populations four times

larger and this gap cannot be bridged because birth rates in Asia exceed those

in the US and the EU. Based on population potential alone, China and India 

are poised to become the dominant nations of the future. Figure 3 also shows 

that due to their overwhelming initial population size advantages and birth 

patterns, no further demographic overtakings are likely to take place once the 

center of politics shifts to Asia.

4 Demographic data for all the countries in this study are taken from the International 

Database of the US Census Bureau (online at www.census.gov/ipc/www/idbnew.html).
JACEK KUGLER AND RONALD TAMEN

41

Economic Growth 

National output generally is measured by gross domestic product. Recent 

developments in endogenous growth theory displayed in Figure 4 refine the 

characteristics of the S curve of development and lend reinforcement to the 

tenets of Power Transition.5 Politically capable governments have the 

capability of extracting resources from their populations; managing the 

economic productivity of individuals in their societies; and reducing birth rates 

in the early stages of development. In contrast, nations with limited 

productivity per capita and low political capacity face expanding populations. 

Frequently some of these underdeveloped societies struggle with economic 

growth and fall into a ‘poverty trap’. With a change in political capacity these 

underdeveloped societies can rapidly transform into developing nations and 

initiate a period of rapid, sustained economic growth that exceeds population 

expansion. This means that developing nations can close the productivity gap 

between rich and poor nations because the dynamics of endogenous growth 

suggest output convergence over time. 

Figure 4 illustrates the likely growth paths for societies with varying levels 

of political capacity.6 Nations with high political capacity grow rapidly and 

achieve sustained growth earlier. On the other hand, low political capacity 

governments preserve low rates of economic growth and continue to flirt with 

the possibility of falling into the poverty trap. International economic 

intervention does not change the dynamics of national growth. Internal 

political factors prompt changes in population, which then alter the physical 

and human capital resources that drive technology and lead to sustained 

growth.

5 Yi Feng, Jacek Kugler, and Paul Zak, ‘The Politics of Fertility and Economic Growth’, 

International Studies Quarterly, 44, 2000, pp.667-693. 6 This figure is derived in Feng, Kugler, and Zak op cit. Their study develops a formal dynamic 

model of politics and economic growth based on fertility decisions, physical and human capital 

accumulation. Politics critically affect fertility choices that, in turn, determine the transmission 

of human capital from parents to children. Human capital provides the foundation for 

sustained increases in living standards as individuals with new ideas enter into the production 

processes. Politics is also identified as a primary cause of countries falling into a low-income 

poverty trap. An expectation of political instability increases the likelihood of a poverty trap 

because it adversely affects income and raises fertility, thus allowing human capital to decrease 

over generations and causing reductions in future output. 
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

42

FIGURE 4: THE ENDOGENOUS GROWTH TRAJECTORY OF PER CAPITA

OUTPUT

High Political Capacity

Trajectory

45q

Low Political Capacity

Trajectory

Poverty Trap

Transitional

Growth

Dynamics

Balanced

Growth

F

utu

re G

r

oss D

o

mestic P

r

o

d

uct

Current Gross Domestic Product

When two societies with similar populations are at different stages in their

growth paths, one dominates the other. When they are at the same stage, they 

are at parity. We will show that the dynamics of growth alter these 

relationships and have implications for war and peace. Consider the evidence:

Figure 5 shows the probable evolution of total output into the next

century. The size of the circles indicates the per capita productivity of the

population. Note that the high differential in GDP levels between the US, EU, 

and China is a temporary condition.

The EU will gain on the US, and with the possible inclusion of Eastern

Europeans—not included in the figure—should become the largest economy

in this century. Unless a stronger central authority emerges, the political

weakness of the EU will remain and inhibit its emergence as a competing 

dominant power.
JACEK KUGLER AND RONALD TAMEN

43

urning to Asia. Note that future US annual economic growth rates

com

US, EU, China and eventually India. 

FIGURE 5: RELATIVE SHARE OF TOTAL OUPUT AND PRODUCTIVITY PER 

CAPITA OF MAJOR CONTENDERS 1950-2070*

0

10

20

30

40

50

60

70

1930 1945 1960 1975 1990 2005 2020 2035 2050 2065 2080

Year

Relative Power Shares (%)

EU

US

China

India

0

10

20

30

40

50

60

70

1930 1945 1960 1975 1990 2005 2020 2035 2050 2065 2080

Year

Relative Power Shares (%)

EU

US

China

India

*Size of nation circle represents per capita productivity

T

pare poorly with those of China.7 Short of partition or internal turmoil, 

China will become the world’s largest economy within the next 50 years. India

will follow in the second half of this century. This process is no different from

the overtaking of the United Kingdom by Germany in the mid-twentieth

century and later the overtaking of both by the United States and the USSR. 

These dynamics have important policy ramifications for relations among the 

7 Estimates of annual growth rates are taken from Angus Maddison, Monitoring the World

Economy 1820-1992 (Paris, 1995); Angus Maddison, Chinese Economic Performance in the Long Run

(Paris, 1999); and Ajai Chopra et al., India: Economic Reforms and Growth (Washington D.C.,

1995). Maddison estimates China's total output to grow at 5.5 percent up until 2015. For 

developed societies growth rates are 3.5 percent, which are currently seen as achievable

objectives. Estimates for India, ranging from 7.5 to 9 percent are taken from Chopra et al.
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

44

HE BOUNDARIES OF POWER 

tatus Quo 

nt satisfaction of the challenger and 

in the dyadic relationship between these two nations. We refer to 

the

atisfaction or 

diss

l boundary relates to the conflict- cooperation continuum. As the 

continuum become more extreme the intensity of 

eith

by the relative power of the challenger and 

def

T

S

The status quo represents the joi

defender with

 relationship between the global dominant nation within the global 

hierarchy and the set of similar policies and preferences for each dyad in the 

regional hierarchy. Power Transition postulates that satisfaction with this 

dyadic status quo is a major determinant of conflict but gains and losses will be 

attained directly from dyadic interactions among participants. 

While the status quo can be conceptually identified, empirically there is 

little consensus about what determines variation in s

atisfaction.8

 In this work we estimate the full degree of variations in the 

status quo to show alternate paths nations could follow in the presence and 

absence of cooperation. Future work will address means of forecasting the 

status quo.

Conflict and Cooperation 

The fina

values on either end of this 

er conflictual or cooperative relations increases. Therefore, the likelihood 

of discrete events, such as war on the conflictual side and integration on the 

cooperative side, also increases.

Power transition theory argues that the propensity to engage in either war 

or integration is driven in part 

ender and in part by the degree of conflict or cooperation among nations. 

To approximate this theoretical insight we measure militarized interstate 

conflict and degree of cooperation expressed by levels of integration achieved 

across countries. Basic data for conflict are derived from standard measures of 

militarized interstate conflict (MIDS) developed by the Correlates of War 

8 The notion of a status quo is compelling but we know little about what causes changes in 

satisfaction. There is speculation that it might be attributed to similarity in political systems 

(Douglas Lemke and William Reed, ‘Regime Types and Status Quo Evaluations’, International 

Interactions, 22, 2: 1996, pp.143-164, and Tammen, et al., op cit.). Once preferences are given 

they can be analyzed with sophisticated decision making tools like game theory but we have 

little knowledge of their origin or evolution.
JACEK KUGLER AND RONALD TAMEN

45

al hierarchy creates a sense of order as a consequence of the

con

ODELING THE DYNAMICS OF POWER TRANSITION

ange the

equ

Project.9 Measures of cooperation are derived from the integration scores 

developed by Genna.10

Hierarchy

The glob

centration of power at the top, and potential lack of order when parity

among contenders is achieved. The global hierarchy should not be viewed as a 

fixed structure; rather it is constantly in flux, reflecting variations in relative 

power distributions driven by differential growth rates across countries.

Recently Lemke developed hierarchy measures that apply to the global and

regional structures that incorporate distance and power reach.11 Since here we 

are concerned only with global hierarchy we use a simplified structure based

on continental reach alone as described by Efird, Kugler and Genna.12

M

We are concerned with the underlying power dynamics that ch

ilibrium conditions of world politics because these dynamics have been 

empirically related to war, peace and integration. In a straightforward

formalization of the Power Transition concept, Efird proposes a simplified 

dynamic model that traces the interactions between power, hierarchy,

satisfaction and political outcomes with a simple non-linear structure.13

9 Note 3 above.

10 Gaspare Genna, ‘Changing Power, Sovereignty, and Loyalty in the European Union’, 

unpublished Ph.D. Dissertation, Claremont Graduate University, 2002 see also Efird, Kugler

and Genna, 2003 op.cit. 11 Douglas Lemke, Regions of War and Peace (Cambridge: Cambridge University Press, 2002) 12 Efird, Kugler and Genna, op cit.

13 Ibid. Efird’s theoretical relationship is defined as follows: P  S P  H 3 CI

CI = degree of war or integration

P = relative power

H = hierarchical structure

 S = Degree of satisfaction with the status quo 

P is expressed by Gross Domestic Product that combines population and productivity (Kugler 

and Arbetman op cit). The S term represents the joint satisfaction of the challenger and

defender with the status quo. While this element can be assessed through the correlation of 

alliances, trade and military buildups it cannot be forecasted at this time. The H term

represents the constraint imposed by the concentration of power in the hands of the global or

regional dominant nation. Low values indicate that the dominant power is preponderant and

the hierarchy is well ordered, while high values indicate that several great powers are at a

balance and compete for dominance in an unordered hierarchy. This structure is estimated
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

46

FIGURE 6: DYNAMICS OF POWER TRANSITION

Relative Power, and Satisfaction, and the Probability of War

Relative Power

Defender Parity Challenger

Preponderant

Sa

Preponderant

tisfaction

Dissatisfied

Satisfied Low

High Probability of War

Integration

Severe conflicts

Peace and

Stable alliance

Unstable alliances

and confrontation

Relative Power, and Satisfaction, and the Probability of War

Relative Power

Defender Parity Challenger

Preponderant

Sa

Preponderant

tisfaction

Dissatisfied

Satisfied Low

High Probability of War

Integration

Severe conflicts

Peace and

Stable alliance

Unstable alliances

and confrontation

As Figure 6 indicates, Power Transition theory contends that the

propensity to engage in either war or integration is driven by changes in the 

relative power of the challenger and defender prompted by differential growth

in populations and output. While these contenders cannot directly control 

such changes, they are able to alter the status quo to generate political

satisfaction or dissatisfaction.14 In a well-ordered hierarchy, conflict is 

anticipated under conditions of overtaking in about half of the cases. Such

conflict is relatively rare but intense, while integration is likely for a broad set 

of cases. In such a dominated hierarchy, integration is possible when the 

defender is preponderant because the potential challenger may be forced to 

cooperate even when it is dissatisfied with the dyadic relationship.

endogenously in the model. CI represents the degree of conflict or cooperation among 

nations.

14 This particular functional form for the conflict-integration equation is chosen to reflect the

verbal arguments power transition theorists have been making and testing for the last 40 years.

Indeed, using the cube term shifts the highest level of conflict to just past the parity point and

reflects the curvature for the conflict-integration term with respect to relative power, as

derived by Bruce Bueno de Mesquita, and David Lalman, War and Reason, (New Haven: Yale

University Press, 1992) and empirically derived by Kugler and Lemke op cit. The interaction

with satisfaction is consistent with findings by Lemke and Werner op cit.
JACEK KUGLER AND RONALD TAMEN

47

Expected outcomes in an unordered hierarchy indicate little variation in 

conflict-or-integration because of changes in satisfaction. If the defender and 

challenger are dissatisfied and as their relative power approaches parity, the 

degree of conflict increases. The stronger the challenger vis-à-vis the defender, 

the more likely is the use of war to resolve disputes. In the case where the 

challenger is preponderant and both defender and challenger are dissatisfied, 

the likelihood of war is maximized. As the contenders move toward 

satisfaction, the probability of conflict decreases. The likelihood of conflict is 

much lower and concentrates around parity. Grievances are less pronounced 

and more easily reduced, transforming the challenger from a dissatisfied to a 

satisfied actor before it challenges for dominance. Integration is likely after a 

power transition between satisfied countries since the two countries have a 

history of cooperative relations and they have passed through the overtaking 

without conflict. Integration takes place as the previous challenger becomes 

increasingly preponderant. 

This framework may be used to anticipate developments in the global 

hierarchy over the next half-century. 

A GRAND STRATEGY 

Stable alliances are coalitions of states that share similar evaluations of the 

status quo. Stable alliances are not agreements of convenience that can be 

altered easily or without consequences. They are arrangements of persuasion 

where nations associate because of commonly held commitments to existing 

rules. The economic and security gains thus derived keep such alliances vital. 

Members of stable alliances tend to be satisfied. They establish long-term 

relations and seldom defect from obligations generated by alliances. 

The potential contribution of alliance members, and the resulting stability 

of such alliances in the face of war is a critical issue facing the elites in status 

quo powers set on preserving international peace. During peacetime, alliances 

are created and sustained by the commonality of preferences among actors. 

NATO, for example, was created after World War II to combat fascism and 

communism, and also to maintain peace among Western European nations. 

Unstable alliances, on the other hand, are arrangements created in the shadow 

of war, such as the agreement between the USSR and Germany at the onset of 

World War II, or the alliance between the Allied forces and the USSR after the 

German invasion. Nations seek unstable alliances only in order to avoid defeat, 

they seek stable alliances to preserve lasting peace. 
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

48

Assessing the Present

Alliances are created by the dominant power to strengthen the stability of 

the system by ensuring the preponderance of satisfied countries. A successful 

dominant power attracts those great, middle powers and some small powers 

that support the dominant nation’s leadership. Consider in Figure 7 the 

relations between the EU and the United States after 1945. 

FIGURE 7: US-EU RELATIONS 1960-2050

1960 1970 1980 1990 2000 2010 2020

Neutrality

Satisfactio

Dissatisfied

Satis

War

Integration Increasing Likelihood of Conflict Increasing Likelihood of Cooperation

fie

n

d

2030 2040 2050

Western European nations joined the dominant power to become part of a 

status quo alliance system. US foreign policy in the post-war era provides a

clear example of preponderance through satisfaction of allies. The objective of 

NATO was to defend the associated nations from an attack for this reason. As

Figure 7 shows, the US and the current members of the EU cooperated both 

to ensure security and economic coordination. An equally important and

perhaps even superior objective of the US was to maintain stability within 

Europe. NATO’s preponderance insured that power-overtaking among 

France, England, and Germany did not lead to a repetition of World Wars I 

and II. This paved the way for the formation of the EU.
JACEK KUGLER AND RONALD TAMEN

49

Looking toward the future, can this process continue with the integration 

of new members into the security and economic grouping thus converting 

dissatisfied nations into satisfied nations? The incorporation of Poland, 

Hungary, and the Czech Republic into NATO is encouraging. These nations 

share common values: democracy, free markets, and acceptance of the status 

quo. Likewise, the potential expansion of the EU into Eastern Europe argues 

well for the integration of economic interests in Europe. 

The addition of Eastern European nations to the security and economic 

grouping does not, however, substantially alter the distribution of power and it 

does not change fundamental relationships in the international system. 

Fundamental changes in the structure of world politics would follow only if 

Russia joins NATO and the EU (See Figures 3 and 5). This addition could 

make a large impact on preserving peace by strengthening the international 

hierarchy. Russia’s entry into NATO would increase cooperation as fears 

diminish that the expansion of NATO to Eastern Europe is anti-Russian. It 

would help shift this nation into the satisfied group. Moreover, Russia’s pool 

of resources would significantly help the dominant US and EU coalition to 

postpone the overtaking by China. The United States can only ensure stability in the 

next quarter century if the EU members are satisfied and Russia is a full member of this 

dominant coalition.

Despite the promise of stability through cooperation, there are some 

disturbing indicators to the contrary. The Bush administration has backed 

away from a number of treaties that could have solidified the relationship 

among the EU, the United States and the emerging cooperation with Russia. 

Opposition to the ban on the testing of nuclear weapons, antiballistic missiles 

restrictions, the imposition of global environmental standards and the 

establishment of an international court of justice are prominent examples of 

US actions that untie mutually binding agreements and diminish cooperation. 

These unilateral actions do not enhance stability. Perhaps the continuing need 

to wage the war on terrorism will deflect the US from this early pattern of 

withdrawal and disassociation and once more move the US to the forefront of 

international cooperation. 

Alliance consolidation and expansion, however, is only a short-term 

solution. Even under the most favorable conditions of a US-EU-Russia super 

bloc, peace can only be insured for the next quarter or at most the next halfcentury. Beyond that the challenge of Asia looms large. 
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

50

Forecasting the Future 

The primary goal of US foreign policy must be the creation of a satisfied 

China. In no way does this mean appeasement or concessionary policies. 

Creating a satisfied China relates to the conditions that lead to the emergence

of internal policies and preferences in China for accepting the international

status quo. Some of this can be managed from abroad. Some cannot.

China’s entry into the WTO was a good first step. Economic interactions

create the opportunities to socialize China into the prevailing rules and norms 

of commerce. Security arrangements could follow. Here the status of Taiwan is 

critical. Potentially, the most explosive issue in Asia is the debate over the 

reunification of China and Taiwan. The management of this confrontation will 

shape the long-term relationship between the United States and China. How 

both nations handle this controversy will influence, if not determine, their 

permanent long-term relationship. The dynamics of the US-China relationship 

are defined by their changing relative power. This dynamic is illustrated in 

Figure 8.

FIGURE 8: CHINA AND THE USA

Y e a r

W ar

Integration

C onflict

C ooperation

N eutrality

S atisfa c tion

D issatisfied

S atisfied

Forecast: U S-C hina, 1996-2050

1996 2006 2016 2026 2036 2046

Note that China’s power is growing relative to that of the US. China will 

overtake the United States in the next thirty to fifty years, long before it is an

advanced developed nation. The potential confrontation will be—as in the 

case of Germany and the USSR in World War II—one between a very 
JACEK KUGLER AND RONALD TAMEN

51

advanced nation and a developing giant. Whether one assumes slow or rapid 

growth is less important than the essential trend.

These overall trends can lead to a peaceful or contested transition 

depending on the actions by the two giants. A major point of contention 

between them remains the political dispute over Taiwan. China surely

recognizes that time is on its side, and may even see the benefits of an

autonomous Taiwan. Patience on the part of the Chinese leadership could 

bring the reward of reunification without the use of force. The longer that 

China postpones the use of force, the greater is the relative power shift from 

the US to China and the higher the likelihood that an accommodation that 

maximizes autonomy for Taiwan can be reached. Indeed as Figure 8 indicates, 

there is greater room for accommodation under a cooperative US leadership.

FIGURE 9: CHINA, USA AND TAIWAN RELATIONS.

Year

War

Integration

Conflict

Cooperation

Neutrality

Satisfaction

Dissatisfied

Satisfied

Forecast: US+Taiwan vs China, 1996-2050

1996 2006 2016 2026 2036 2046
REGIONAL CHALLENGE: CHINA’S RISE TO POWER

52

The fundamental question is how long can this expectation be sustained 

without generating the preconditions for a global war? Figure 9 shows the 

three-way interaction between the US, China and Taiwan. 

Had Taiwan declared its independence very early in the overtaking process, 

perhaps immediately following the recognition of China by the United States, 

Taiwan may well have succeeded without generating a regional or a global 

conflict. This is no longer the case. Today, using its economic and military 

preponderance, the United States can force China to back down in any crisis. 

The overwhelming majority of studies indicate that the US today certainly 

would win any military encounter in the Pacific because the US navy can 

protect Taiwan against an invasion. Our estimates suggest that in the Asian 

hierarchy US preponderance should last for 25 years and then the tables will 

start to turn. This is not a long time to alter international structures and 

perceptions. 

It is in the interest of both China and the US to find ways to postpone the 

day of reckoning over Taiwan. An early regional conflict prior to the 

anticipated transition would result in a likely defeat for China, but the 

resentment would then set up a later confrontation that carries with it the 

extraordinarily high costs of a global conflict. In the nuclear era a global 

conflict of this magnitude would be devastating. From the Power Transition 

perspective the goal of a stable US policy is the addition of China into 

economic and security arrangements. The first step in the direction of 

cooperative relations was achieved when US support assured China’s 

membership in the WTO. However, a NATO-like security membership is 

lacking.

GRAND STRATEGY POLICY IMPLICATIONS 

Power Transition implies that lasting stability can be attained if China, the 

EU, Russia, and eventually India join forces in an economic and security 

arrangement. Strange as this concept may sound, in the long term, the goal of 

the US and EU should be the expansion of NATO not only to Russia but 

China and India as well. Perhaps this would occur under a different name or 

structure. That is less important than the fact that a security system is 

developed based on shared preferences. This arrangement would create the 

global hierarchy needed to insure peace and avoid the preconditions for a 

global war. 

The United States is the dominant power in world politics and can set the 

conditions for cooperation and conflict. Continued support for the status quo 
JACEK KUGLER AND RONALD TAMEN

53

by the EU and eventually Russia is essential to maintain peace in the next 

quarter century. The treatment of China is even more important. Unless ways 

are found to minimize China’s dissatisfaction, the world will face the prospect 

of global war. For this reason it is imperative to find a way to settle the dispute 

over Taiwan while subtly socializing China into the existing international 

system. If China were satisfied, the anticipated transition to Asian dominance 

would have little effect on world structures and standards. Existing norms in 

the international system would remain even though they are likely to be guided 

and influenced by the new dominant nation.

On the other hand, if dissatisfaction grips China or less likely the EU and 

Russia dyad, the preconditions for a global war emerge in the middle of this 

century. Given technological advances, the winner of that war will rewrite the 

international rules and norms of a new international hierarchy. That has been 

the pattern of the past. It is what we expect of the future.

China’s participation in NATO or a similar organization is essential 

because peacetime alliances aggregate nations with similar preferences. This, in 

turn, ensures security. While China may cooperate over trade and human 

rights, this would not assure peace. What can be done through the WTO—a 

weak agreement compared to the EU—is to reduce economic dissatisfaction. 

However, as long as China does not enter into international security 

agreements their level of satisfaction will be low. There is evidence that nations 

that reach agreements on security and trade minimize conflict while those that 

reach security agreements alone likewise seldom fight. But those that reach 

agreements on trade alone engage in conflict as frequently as those that have 

no agreements or counter agreements. A combination of trade and alliance 

produces the strongest links to peace, but without security agreements peace is 

tenuous even among trading partners.
CHINA’S ROLE IN AMERICAN GRAND STRATEGY: 

PARTNER, REGIONAL POWER, OR GREAT POWER 

RIVAL?

CHRISTOPHER LAYNE

In the American foreign and defense policy communities the conventional

wisdom now holds that China will emerge as a true great power in the 

twenty-first century’s early decades. As one commentator has argued, ‘When

historians one hundred years hence write about our time, they may well

conclude that the most significant development was the emergence of a

vigorous market economy—and army—in the most populous country in the 

world’.1 It is unsurprising, therefore, that since the early 1990s, American

policymakers and analysts have focused increasingly on the strategic 

implications of China’s rise to great-power status. 

The conventional wisdom holds that American thinking about China falls 

into two competing viewpoints. One school of thought—widespread in the 

Bush II administration, especially the Pentagon—views China as an 

increasingly salient threat to US interests in East Asia, and America’s most 

likely future great power (or ‘peer competitor’) rival. Viewing China as already 

a strategic competitor, adherents of this viewpoint hold that Washington 

therefore must ‘contain’ China. Containment is primarily a geostrategic policy

that would use American military power to rein in China’s ambitions and 

compel Beijing to adhere to Washington’s rules of the game on such issues as 

arms control, weapons proliferation, trade, and human rights. For some, 

containment means using US influence to compel Beijing to accede to the 

liberalization of China’s domestic political system.

The other school of thought—with which the Clinton administration was

identified—holds that by ‘engaging’ Beijing (and by enmeshing it in the global 

economy and various multilateral institutional frameworks) China’s rise to 

great-power status can be managed, and Beijing can be induced to behave 

1 Nicholas Kristof, ‘The Rise of China,’ Foreign Affairs 72 (November/December 1993), p.59.

Not all analysts agree that China will emerge as a peer competitor. For a summary of the

debate, see Thomas J. Christensen, ‘Posing Problems without Catching Up: China’s Rise and

Challenges for US Security Policy,’ International Security, Vol. 25, No. 4 (Spring 2001), pp.5-9. 

54
CHRISTOPHER LAYNE

55

 

‘responsibly’ in international politics. Engagement is predicated on the belief 

that, as China’s contacts with the outside world multiply, its exposure to 

‘Western’ (that is, American) political and cultural values will result in 

evolutionary political change within China. Thus, containment is a strategy that 

gives more emphasis to the traditional ‘hard power’ tools of statecraft 

(especially military power), while engagement places somewhat more weight 

on the ‘soft power’ of ideas and trade.2 Containment holds that China must 

transform its domestic system ‘or else.’ Engagement holds that, over time, 

China will change. Containment stresses the exercise of American power. 

Engagement stresses the benefits to China of cooperating with the 

international community. 

This chapter discusses the role of China in American grand strategy. When 

all is said and done, it is apparent that there is a mainstream consensus view 

about the future of the Sino-American relationship, and that within this 

consensus the differences between containers and engagers are of degree, not 

of kind. US policymakers and foreign policy analysts broadly agree that China’s 

emergence as a great power would threaten America’s post-Cold War 

hegemony. The debate in policy circles is not about whether China’s greatpower emergence is inimical to American interests, but rather, what 

Washington should do about it. This chapter will first discuss American grand 

strategy and its theoretical underpinnings. Second, it will address the issue of 

whether China, indeed, is likely to emerge as a great power. Third, building on 

insights from international relations (IR) theory, it will show why strategic 

rivalry between the US and China is highly likely to occur. The chapter 

concludes with a prescription for an optimal US grand strategic posture toward 

a rising China.

THE INFLUENCE OF THEORY ON GRAND STRATEGY 

The debate about America’s China policy focuses primarily on several 

salient issues. Is China becoming a great power and, if so, will it threaten 

American interests? If China is becoming a great power, can its great power 

emergence be managed? Will China’s growing ties to the global economy 

make Beijing more pliable? Will China become more democratic (and how 

much should the United States do to promote democracy in China)? From the 

standpoint of American security, does it make a difference whether China is 

democratic? The present debate about China’s role in American grand strategy 

2 The distinction between hard and soft power is set forth in Joseph S. Nye, Jr., Bound to Lead: 

The Changing Nature of American Power (New York: Basic Books, 1991). 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

56

 

addresses these questions. This debate, however, cannot be understood 

properly without venturing into the seemingly treacherous waters of 

international relations theory. 

I say this hesitantly. Anyone who has taught the subject knows that the 

mere mention of the words ‘international relations theory’ is likely to cause the 

audience’s eyes to glaze over.’ But this is not an exercise in discussing theory 

for theory’s sake. On the contrary, policy debates inescapably have a 

theoretical dimension.3 The nexus between theory and policy is especially 

important with respect to grand strategy. After all, the very concept of grand 

strategy posits a relationship between theory and policy. As Posen puts it, 

grand strategy is a state’s theory about how it best can cause security for itself.4

In making grand strategy, policymakers build on their assumptions about how 

the world works; that is, their models (even if only implicit) of international 

politics. Grand strategy is a set of cause-and-effect hypotheses postulating 

which policies are most likely to produce the strategic outcomes that 

policymakers desire. The success of a state’s grand strategy depends, 

therefore, ‘on whether the hypotheses [that policymakers] embrace are 

correct.’5 Hence, to evaluate a grand strategy, it is necessary understand the 

theoretical model(s) that underlies it. The China policy debate illustrates 

concretely how theory influences policy. 

Realist Foundations Of American Grand Strategy 

What scholars call realism is what most people think of when they hear the 

term ‘power politics.’ Realism’s fundamental insight is that international 

politics is different from domestic politics. This is because, unlike domestic 

politics, in international relations there is no central authority (that is, a 

government) that can make and enforce rules of conduct on the system’s 

participants. When realists talk about international politics being anarchic, 

they are referring to this lack of a governing authority. When they talk about 

international politics as a ‘self-help’ system, they simply mean that in a 

3 As Stephen Van Evera observes, important policy questions usually do: ‘It is often said that 

policy-prescriptive work is not theoretical. The opposite is true. All policy proposals rest on 

forecasts about the effects of policies. These forecasts rest in turn on implicit or explicit 

theoretical assumptions about the laws of social and political motion. Hence all evaluation of 

public policy requires the framing, and evaluation of theory, hence it is fundamentally 

theoretical.’ Stephen Van Evera, Guide to Methods for Students of Political Science (Ithaca: Cornell 

University Press, 1997), p.91. 

4 Barry Posen, The Sources of Military Doctrine: France, Britain, and Germany Between the 

World Wars (Ithaca: Cornell University Press, 1984), p.13. 

5 Stephen M. Walt, The Origins of Alliances (Ithaca: Cornell University Press, 1987), p.2. 
CHRISTOPHER LAYNE

57

 

condition of anarchy, each state is responsible for ensuring its own survival 

and well-being. 

Of course, when a state acts to protect itself, its actions may have the 

paradoxical consequence of causing other states to feel that their security is 

impaired by the first state’s behavior. The result is often the kind of spiral that 

we associate with arms races. This vicious circle, where the quest for security 

leads to increased insecurity, is what international relations theorists call the 

‘security dilemma’.6 The security dilemma explains a lot about both Beijing’s, 

and Washington’s, perceptions of the Sino-American relationship. 

Offensive realism lies at the core of American grand strategy.7 It 

incorporates the following key assumptions about the nature of international 

politics. First, security in the international political system is scarce.8 Second, 

although all realists believe international politics is competitive, offensive 

realists (unlike defensive realists) believe that international politics is 

ineluctably conflictive—a harsh, unrelenting competition—because there are 

no offsetting factors tempering the great powers’ struggle for power and 

security. Third, pervasive insecurity means that international politics 

approximates a zero-sum game—that is, a gain in relative power for one state 

is a loss of relative power for all the others, which means there isn’t a whole lot 

of room for great-power cooperation.9 Fourth, in this hothouse environment, 

states are impelled to pursue offensive strategies by maximizing their power 

and influence at their rivals’ expense.

Given the fact that, for great powers, international politics is a harsh, 

unrelenting struggle for survival, what grand strategy is prescribed by offensive 

realism? Simply put, offensive realists say great powers should maximize their 

power in order to attain security. As University of Chicago political scientist 

John J. Mearsheimer says, ‘states quickly understand that the best way to 

ensure their survival is to be the most powerful state in the system.’10

6 On the security dilemma, see John Herz, Political Realism and Political Idealism (Chicago: 

University of Chicago Press, 1951), p.24. Also, see Robert Jervis, ‘Cooperation Under the 

Security Dilemma,’ World Politics, Vol. 30, No. 2 (January 1978), pp.167-214. 7 Key works on offensive realism include, John J. Mearsheimer, The Tragedy of Great Power 

Politics (New York: W.W. Norton, 2001); Fareed Zakaria, From Wealth to Power: The Unusual 

Origins of America’s World Role (Princeton: Princeton University Press, 1998); Eric J. Labs, 

‘Offensive Realism and Why States Expand Their Security Aims,’ Security Studies, Vol. 6, No. 4 

(Summer 1997); Christopher Layne, ‘The ‘Poster Child for Offensive Realism:’ America as 

Global Hegemon,’ Security Studies. Vol12. No. 2 (Fall 2003). 8 Mearsheimer, pp.7-13; Zakaria, op.cit., p.13; Labs, op.cit., pp.1, 7-8. 9 Mearsheimer, pp.12-13; Zakaria, op.cit., pp.29-30; Labs, op.cit., p.11. 10 Mearsheimer, p.33. Also, see Tellis, Drive to Domination, pp.376-379, 381-382. 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

58

 

Offensive realists believe that because of the international system’s structure, 

states can never settle for having ‘just enough’ power, because it is impossible 

for a state to know how much power really is sufficient to ensure its security. 

For great powers, the way to break out of the ‘security dilemma’ is to eliminate 

the competition, and become a hegemon. As offensive realists view things, 

‘the pursuit of power stops only when hegemony is achieved,’ because for 

great powers ‘the best way to ensure their security is to achieve hegemony 

now, thus eliminating any possibility of a challenge by another great power’.11

Liberal Influences On American Grand Strategy 

Although US grand strategy is shaped fundamentally by offensive realism, 

it also has an important component that is drawn from the liberal approach to 

IR theory (also known as Wilsonianism, or liberal internationalism). This is 

because American grand strategy is, as former Secretary of State James A. 

Baker III has put it, ‘a complex mixture of political idealism and realism’.12 Or, 

as the Bush II administration’s 2002 National Security Strategy of the United States 

puts it, US grand strategy is ‘based on a distinctly American internationalism 

that reflects the union of our values and our national interests’.13 America’s 

hegemonic grand strategy, in fact, is a ‘realpolitik plus’ grand strategy—a grand 

strategy that defines US national interests in terms both of power and the 

promotion of US ideals—which is why it has been labeled as ‘liberal realism’, 

or ‘national interest liberalism’.14 In American grand strategy, liberalism is 

muscular, not ‘idealistic’, nd it postulates cause-and-effect linkages about how 

the United States can enhance its security. In making the case to incorporate 

liberal objectives into US grand strategy, liberals talk the language of realism. 

The liberal and realist impulses in American grand strategy cannot be 

disentangled neatly from each other because there is a circular logic that ties 

them together. A liberal world order is thought to be conducive to US 

interests, and to bolster America’s power and security; therefore, because the 

United States is very powerful in international politics, it should use its power 

to create a liberal world order so that it can obtain more security for itself. In 

11 Mearsheimer, pp.34, 35. 

12 James A. Baker, III, The Politics of Diplomacy: Revolution, War and Peace, 1989-1982 (New York: 

G.P. Putnam’s Sons, 1995), p.654. 

13 Unites States Government, The National Security Strategy of the United States of America

(Washington D.C., September 2002), p.1. 

14 The term ‘realpolitik plus’ is Robert Art’s. See Robert J. Art, ‘Geopolitics Updated: The 

Strategy of Selective Engagement,’ International Security, Vol. 23, No. 3, p.80. The terms ‘liberal 

realism,’ and ‘national interest liberalism,’ are used, respectively by David Stiegerwald, 

Wilsonian Idealism in America (Ithaca: Cornell University Press, 1994) and Tony Smith, ‘Making 

the World Safe for Democracy,’ Diplomatic History, Vol. 23, No. 2 (Spring 1999), p.183. 
CHRISTOPHER LAYNE

59

 

fact, offensive realism leads precisely to the expectation that a hegemonic great 

power will use its preponderance to increase both its hard and soft power, and 

will view the two as mutually reinforcing.

What is the liberal approach to IR theory, and what are its key 

contentions? There are three main strands to liberal thought about 

international politics: political liberalism (also known as democratic peace 

theory), commercial liberalism, and liberal institutionalism. Political 

liberalism’s central claim—and liberals are all over the ballpark here—is that 

liberal (or democratic) states do not (or seldom) fight each other, and do not 

(or seldom) use military threats in their relations with one another. Political 

liberalism also tracks with balance of threat theory by suggesting that other 

liberal states will not balance against a powerful (even hegemonic) liberal state, 

because they know it will not use its capabilities to harm them.15 Commercial 

liberalism (which today essentially is synonymous with the concepts of 

international economic interdependence, and ‘globalization’) holds that 

international commerce and interdependence lead to peace, or at least make 

war much less likely.16 Commercial liberalism’s key claims have been neatly 

summarized by Arthur Stein:

War is costly, and exchange is beneficial. The prospects of 

commerce increase the costs associated with war, and the 

development of commerce creates a constituency to press the case 

for peace. As governments become more representative, the greater 

the degree to which those costs come to be included in political 

calculations and decisions and to be reflected in the political 

system.17

Liberal institutionalism holds that international institutions or regimes 

facilitate mutually advantageous cooperation that only can be attained when 

states voluntarily forego unilateral action in favor of multilateral collaboration. 

Thus, it is said, institutions temper the effects of anarchy in both economic 

15 As Michael Doyle says, ‘balancing denigrates the pacific union [among liberal democracies] 

and thus should be eschewed by liberals in their relations with each other.’ Doyle, ‘Politics 

and Grand Strategy,’ p.35. 

16 For an overview, see Stein, ‘Economic Interdependence and International Cooperation,’ 

pp.244-254. Stein concludes (p.290) that although economic exchange and interdependence 

do not ensure peace, they do make war less likely. The seminal work on interdependence is 

Robert O. Keohane and Joseph S. Nye, Jr., Power and Interdependence (Boston: Little, Brown, 

2ed., 1989). 

17 Stein, ‘Economic Interdependence and International Cooperation,’ p.255. For a recent 

argument that democracy, free trade, and international economic interdependence are 

interrelated see Tony Smith, America’s Mission: The United States and the Worldwide Struggle for 

Democracy in the Twentieth Century (New Jersey: Princeton University Press, 1995), pp.327-329. 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

60

 

and security relations among states. As Robert Axelrod and Robert O. 

Keohane argue, ‘Even in a world of independent states that are jealously 

guarding their sovereignty, room exists for new and better arrangements to 

achieve mutually satisfactory outcomes, in both terms of economic welfare and 

military security’.18 Liberalism’s bottom line is that it posits the existence of a 

virtuous circle among democracy, an open international economy, and 

international institutions. 

America’s Hegemonic Grand Strategy 

By eliminating America’s only great power rival, the Soviet Union’s 

collapse vaulted the United States into a position of uncontested global 

hegemony. Since the Cold War’s end, the declared objective of US grand 

strategy has been to consolidate and extend American hegemony in the 

international system. This first became clear in March 1992, when the initial 

draft of the Pentagon’s Defense Planning Guidance (DPG) for Fiscal Years 1994-

1999 was leaked to the New York Times.19 The DPG made clear that the 

objective of US grand strategy henceforth would be to maintain America’s 

preponderance by preventing the emergence of new great-power rivals. As the 

DPG stated, ‘we must maintain the mechanisms for deterring potential competitors 

from even aspiring to a larger regional or global role’.20 This strategy aimed not only at 

thwarting the emergence of the ‘usual suspects’ (a rising China, or a resurgent 

Russia), but also the rise to great-power status of America’s principal Cold War 

allies, Germany and Japan. As the DPG said, ‘We must account sufficiently 

for the interests of the large industrial nations to discourage them from 

challenging our leadership or seeking to overturn the established political or 

economic order’.21

18 Robert Axelrod and Robert O. Keohane, ‘Achieving Cooperation Under Anarchy’, David 

A. Baldwin ed., Neorealism and Neoliberalism: The Contemporary Debate (New York: Columbia 

University Press, 1993), p.113. This claim also is made in Robert O. Keohane and Lisa Martin, 

‘The Promise of Institutional Theory,’, Michael Brown et al eds., Theories of War and Peace

(Cambridge: MIT Press, 1998), pp.390-391. According to Keohane, states do not worry, per 

se, about the asymmetric distribution of gains from cooperation. Concern about relative gains 

arises only where there is a probability (not merely a possibility) that another will use its 

relative gains in a way that adversely affect’s the state’s interests. Where cooperation is 

institutionalized, the probability of asymmetric gains being so used is low. See also Robert O. 

Keohane, ‘Institutionalist Theory and the Realist Challenge,’ in David Baldwin op.cit. pp.275-

277, 281-283. 

19 Patrick E. Tyler, ‘US Strategy Plan Calls for Insuring No Rivals Develop,’ New York Times, 8 

March 1992, p.A1. 

20 ‘Excerpts From Pentagon's Plan: ‘Prevent the Re-emergence of a New Rival’,’ New York 

Times, 8 March 1992, p.A14 (emphasis added). 21 Ibid.
CHRISTOPHER LAYNE

61

 

The Clinton administration reiterated that the perpetuation of US 

hegemony was America’s key grand strategic objective. The May 1997 Report of 

the Quadrennial Defense Review (QDR), prepared by the Clinton administration, 

clearly embraced the geopolitical objective of maintaining American 

hegemony. The 1997 QDR’s underlying premise was that ‘The United States is 

the world’s only superpower today, and is expected to remain so throughout 

the 1997-2015 period’.22 Although not as blunt as the DPG, in strikingly similar 

language the 1997 QDR makes clear that the post-2015 objective of US grand 

strategy, and the military posture underpinning it, would be to keep things just 

as they were geopolitically: ‘it is imperative that the United States maintain its 

military superiority in the face of evolving, as well as discontinuous, threats 

and challenges. Without such superiority, our ability to exert global leadership 

and to create international conditions conducive to the achievement of our 

national goals would be in doubt.23 In the near-term, the 1997 QDR specified

that the goal of US grand strategy was to prevent ‘the emergence of a hostile 

regional coalition or hegemon’.24

In its fall 2002 National Security Strategy of the United States, the Bush II 

administration followed the Bush I and Clinton administrations in making the 

maintenance of American global hegemony the key objective of US grand 

strategy. Hegemons are like monopolistic firms in the marketplace. Neither 

like competition, and both act strategically to prevent the emergence of rivals. 

The Bush II administration’s 2001 Quadrennial Defense Review, and its 2002

National Security Strategy, evidence a clear determination to ensure that 

America’s global hegemony cannot be challenged. The 2001 QDR states that 

the United States seeks to maintain ‘favorable power balances’ in key regions 

like East Asia, the Persian Gulf and Europe.25 The US will accomplish this 

22 William S. Cohen, Report of the Quadrennial Defense Review (Washington D.C., May 1997), s.2. 23 Ibid., s.3. Like many bureaucratic documents, the QDR casts its policy recommendation as 

the sensible middle ground between two unacceptably extreme options. In the QDR, the first 

option rejected would focus US strategy and force structure on near term threats, ‘while largely 

deferring preparations for the possibility of more demanding security challenges in the future.’ 

The second unacceptable option is the reverse: sacrificing current capabilities to prepare for 

future threats from regional great powers or ‘global peer competitors.’ The path embraced by 

the QDR ‘focuses on meeting both near and longer term challenges, reflecting the view the our 

position in the world does not afford us the opportunity to choose between the two.’ The 

QDR thus clearly embraces the long-term objective of preventing the emergence of great 

power competitors. That is, it reaffirms the grand strategic objective of maintaining the US as 

the only great power over both the near-term, and the post-2015 long term. 24 Ibid. (emphasis added). 25 Department of Defense, Quadrennial Defense Review Report (Washington D.C.: September 

2001), pp.2, 4, 11, 15. 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

62

 

aim by maintaining overwhelming military superiority so that it ‘can dissuade 

other countries from initiating future military competitions’ against the US, 

and, if necessary, ‘impose the will of the United States... on any adversaries.’26

The 2002 National Security Strategy states even more clearly that the objective of 

American strategy is to prevent any other state from building up military 

capabilities in the hope of ‘surpassing, or even equaling, the power of the United 

States’. In a break with the Bush I and Clinton administrations, however, the 

Bush II administration has incorporated the logic of ‘anticipatory violence’ 

into US grand strategy.27 The 2002 National Security Strategy, and policy 

statements by senior administration officials (including President George W. 

Bush himself) have reserved to Washington the right to act preemptively, or 

preventively to cut down potential rivals before they become actual ones.28

China’s emergence as a great power would challenge directly America’s 

global hegemony. American grand strategy clearly aims to hold down China. 

While acknowledging that China is a regional power, Washington conspicuously 

does not concede that China either is, or legitimately can aspire to be, a great 

power.29 Discreetly warning China against challenging the United States 

militarily, the 2002 National Security Strategy warns Beijing that, ‘In pursuing 

advanced military capabilities that can threaten its neighbors in the Asia-Pacific 

region, China is following an outdated path that, in the end, will hamper its 

own pursuit of national greatness. In time, China will find that social and 

26 Ibid., pp.12-13, 15. 27 It is perhaps more accurate to say that the Bush II administration, unlike its predecessors, 

openly incorporated preemption and preventive war into US grand strategy. The Clinton 

administration did prepare to launch a preemptive strike again North Korea during the 1994 

crisis caused by discovery Pyongyang’s nuclear weapons program. See Ashton B. Carter and 

William J. Perry, ‘Back to the Brink,’ Washington Post, October, 20, 2002, p.B1. To the extent 

the Bush I administration’s policy, in fact, was driven by concerns about Iraqi President 

Saddam Hussein’s push to acquire nuclear weapons, and other WMD capabilities, the 1991 

Persian Gulf War could be regarded as a preventive war. 

28 George W. Bush, ‘Remarks by the President at 2002 Graduation Exercise of the United 

States Military Academy’, West Point, N.Y., June 1, 2002, 

www.whitehouse.gov/news/releases/2002/06print/20020601-3.html. The Bush II administration’s 

National Security Strategy (op.cit. p.15) declares that: ‘The United States has long maintained the 

option of preemptive actions to counter a sufficient threat to our national security. The 

greater the threat, the greater the is the risk of inaction - and the more compelling the case for 

taking anticipatory action to defend ourselves, even if uncertainty remains as to the time and 

place of the enemy’s attack. To forestall or prevent such hostile acts by our adversaries, the 

United States will, if necessary, act preemptively.’ 

29 For example, Defense Secretary William Cohen described China as an Asian power.

William Cohen, ‘Annual Bernard Brodie Lecture,’ University of California, Los Angeles, 

October 28, 1998 (DoD web site). 
CHRISTOPHER LAYNE

63

 

political freedom is the only source of that greatness’.30 Notwithstanding 

Beijing’s views to the contrary, the US grand strategy rejects the notion that 

China has any justifiable basis for regarding the American military presence in 

East Asia as threatening to its interests.31 Washington aims to encourage 

China to become a ‘responsible member of the international community’.32

‘Responsibility’, however, is defined as Beijing’s willingness to accept 

Washington’s vision of a stable international order.33 It also means China’s 

domestic political liberalization, and its development as a free-market economy 

firmly anchored to the international economy. As the Bush II administration’s 

2002 National Security Strategy declares, ‘America will encourage the 

advancement of democracy and economic openness’ in China, ‘because these 

are the best foundations for domestic stability and international order’.34

In essence, then, American grand strategy requires China to accept US 

hegemony. The strategy is silent, however, on what the US will do if Beijing 

refuses to accept America’s pre-eminence. On this point—notwithstanding 

that its emphasis on the pre-emptive and preventive use of military power has 

been debated mostly within the context of the US response to terrorist groups 

like al-Qaida and rogue states like Saddam Hussein’s Iraq—the Bush II 

administration’s strategy has obvious implications for potential peer 

competitors such as China.

WILL CHINA RISE? 

The Fates of Hegemons 

American grand strategists believe, to paraphrase the Duchess of Windsor, 

that the US can never be too rich, too powerful, or too well armed. And, at 

first blush, the natural reaction is to ask, ‘what’s wrong with that?’ After all, if 

international politics is about power—and it is—then should not the United 

States seek to amass as much power as possible? Yet, although it may seem 

counter-intuitive, there is plenty of evidence that suggests that it is self30 National Security Strategy, op.cit., p.27 31 Department of Defense, The United States Security Strategy for the East-Asia Pacific Region 1998

(Washington D.C., 1998) p.30 . 

32 Ibid. 33 Clinton, ‘Remarks on US-China Relations;’ Cohen, ‘Annual Bernard Brodie Lecture;’ The

United States Security Strategy for the East-Asia Pacific Region 1998. As National Security Adviser 

Berger puts it: ‘Our interest lies in protecting our security while encouraging China to make 

the right choices’—especially choosing to allocate its resources to internal development rather 

than building up its military power. Berger, ‘American Power.’ 

34 National Security Strategy, op.cit.
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

64

 

defeating for a great power to become too powerful. Since the beginnings of 

the modern international system, there have been successive bids for 

hegemony: by the Habsburg Empire under Charles V, Spain under Philip II, 

France under Louis XIV and Napoleon, and Germany under Hitler (and, some 

historians would argue—though the point is contested—under Wilhelm II). 

Each of these hegemonic aspirants in turn was defeated by a counter-balancing 

coalition of states that feared the consequences for their security if a 

hegemonic aspirant succeeded in establishing its predominance over the 

international system. ‘Hegemonic empires,’ Henry Kissinger has observed, 

‘almost automatically elicit universal resistance, which is why all such claimants 

sooner or later exhausted themselves’.35

It is a pretty safe bet that the United States will not be able to escape the 

fates of previous contenders for hegemony. Consistent with the historical 

record, we should expect to see American power balanced either by the 

emergence of new great powers, and/or the formation of counter-hegemonic 

alliances directed against the United States.36 For balancing to occur, of 

course, there must be other actors in the international system able to match US 

military, economic, and technological capabilities. To date, however, no rival 

to the US has emerged. And some US grand strategists believe no challenger 

will emerge in the future, because America’s economic and technological lead 

over potential great-power rivals is insurmountable.37 Indeed, given the 

immense imbalance of power in America’s favor, ‘catching up is difficult.’38

Clearly, in the short-term (the next decade) no state will emerge as America’s 

geopolitical peer. But over the next several decades one or more peer 

competitors is bound to emerge. This is where China comes into the equation. 

Why New Great Powers Rise: The Imperatives of China’s Emergence 

Great-power emergence results from the interlocking effects of differential 

growth rates, anarchy, and balancing. The process of great-power emergence 

is much more straightforward than this terminology might seem to imply. The 

term ‘differential growth rates’ is the specialist’s way of stating an important 

fact: the economic (and technological and military) power of states grows at 

35 Henry A. Kissinger, ‘The Long Shadow of Vietnam,’ Newsweek, May 1, 2000, p.50. 36 For a detailed explanation of the theoretical and empirical foundations of this argument, see 

Christopher Layne, ‘The Unipolar Illusion. Why New Great Powers Will Rise,’ International 

Security, Vol. 17, No. 4 (Spring 1993), pp.5-51. 37 William C. Wohlforth, ‘The Stability of a Unipolar World,’ International Security, Vol. 24, No. 

1 (Summer 1999), pp.4-41. 

38 Kenneth N. Waltz, ‘Globalization and American Power,’ The National Interest, No. 59 

(Spring 2000), p.54. 
CHRISTOPHER LAYNE

65

 

differential, not parallel, rates. A comparison of the United States and China 

provides a concrete example. From the mid-1980s through the late 1990s, 

China’s economy grew at a rate in excess of 10 percent a year, while for most 

of that period America’s economy grew at a 3-4 percent annual rate. In relative

terms, therefore, China has been getting stronger while the United States has 

been declining. 

Chinese policymakers are indeed sensitive to relative power issues and to 

the relationship between a state’s economic strength and its political strength.39

China’s relative economic power is increasing rapidly: its phenomenal 

economic growth rate since the early 1980s has, by some measures, catapulted 

it into a position as the world’s second-largest economy. If it can continue to 

sustain its near-double digit growth rates into the early decades of this century, 

it is projected to surpass the United States as the world’s leading economy.40 It 

is China’s explosive growth that is fueling its rise as a great power. The 

difference between China’s growth rates and America’s means that the 

distribution of relative power is shifting, and that China will emerge as a 

challenger to US global hegemony. As the historian Paul Kennedy has shown, 

time and again relative ‘economic shifts heralded the rise of new Great Powers 

which one day would have a decisive impact on the military territorial order’.41

Growth rate differentials, however, are only part of the story. The nature 

of the international system (its ‘systemic structure’) plays a major role in the 

process of great-power emergence. In a realist world, states that have the 

potential to become great powers have strong, security-driven, ‘structural’ 

incentives for doing so. To be able to protect themselves from others, states 

need to acquire the same kinds of capabilities that their rivals possess. The 

competitive nature of international politics spurs states to emulate the 

successful characteristics of their rivals, especially in the realms of military 

doctrine and technology. If others do well in developing effective instruments 

of competition, a state must respond in kind or face the consequences of 

falling behind. From this standpoint, it is to be expected that in crucial 

respects, great powers will look and act very much alike. It is also to be 

expected that this ‘sameness effect’ will impel states that are potential great 

39 See David Shambaugh, ‘Growing Strong: China's Challenge to Asian Security,’ Survival 36 

(Summer 1994), p.44. Shambaugh notes that Chinese strategists have been strongly influenced 

by Paul Kennedy's The Rise and Fall of Great Powers. 40 See for example Harry Harding, ‘A Chinese Colossus?’ Journal of Strategic Studies 18, 

September 1995, p.106. Harding estimates that China will surpass the United States and Japan 

as the world's largest economy by the twenty-first century's second decade 

41 Paul Kennedy, The Rise and Fall of Great Powers: Economic Change and Military Conflict From 

1500 to 2000 (New York: Random House, 1987), p.xxii. 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

66

 

powers actually to become great powers, and to acquire all the capabilities 

attendant to that status. States that fail to conform to this imperative will pay 

the price. As the noted realist Kenneth Waltz observes, ‘In a self-help system, 

the possession of most but not all of the capabilities of a great power leaves a 

state vulnerable to others who have the instruments that the lesser state 

lacks’.42

Another factor driving the process of great-power emergence is the 

tendency of states to ‘balance’ against others that are too strong or too 

threatening. Balancing is the term theorists use to describe a commonsensical 

aspect of states’ behavior. When a state feels threatened because another is 

too powerful, it will try to offset the other’s strength (either by building up its 

own military capabilities and/or by acquiring allies). The reason states balance 

is to correct a skewed distribution of relative power in the international system. 

The pressure to balance is especially strong in a unipolar system such as that 

which came into existence with the Soviet Union’s collapse. Historical 

experience leads to the expectation that America’s present hegemony should 

generate the rise of countervailing power in the form of new great powers. By 

definition, the distribution of relative power in a unipolar system is extremely 

unbalanced. Consequently, in a unipolar system, the structural pressures on 

potential great powers (like China) to increase their relative capabilities and 

become great powers should be overwhelming. If they do not acquire greatpower capabilities, they may be exploited by the hegemon. 

Of course, a potential great power’s quest for security may trigger a classic 

security dilemma. China’s great-power emergence is illustrative. China’s rise to 

great-power status in the long term is a virtual certainty, given its actual and 

latent power capabilities. But China’s rise is likely to occur sooner rather than 

later, because in a unipolar world China has very strong incentives to balance 

against US power. In this sense, the immediate impetus for China’s rise is a 

defensive reaction to America’s hegemonic position. At the same time, 

however, China’s rise has made others, including the United States, 

apprehensive about their own security. 

Can China Compete Militarily? 

China today lacks the two strategic prerequisites of great-power status: 

power-projection capabilities and a high-tech military. At present, China is 

unable to project air and naval power adequate to back up its claims to the 

South China Sea and, notwithstanding its robust policy toward Taipei, it could 

42 Kenneth Waltz, ‘The Emerging Structure of International Politics,’ International Security 19 

(Fall 1994), p.21. 
CHRISTOPHER LAYNE

67

 

not today invade Taiwan successfully. Moreover, China lags far behind the 

United States (and Japan, as well) in its capacity to field high-tech military 

forces. One need not accept the extravagant claims of some military analysts 

that a ‘revolution’ in military affairs is occurring to realize that modern 

technology has an important role in warfare. The Persian Gulf War, Kosovo, 

and the campaign against Afghanistan offered glimpses into the battlefield of 

the future, where sensors, computers, real-time communications, stealthy 

weapons platforms, and precision-guided munitions will dominate. Before it 

can compete militarily against the United States (or a rearmed Japan), China 

first must build up a modern aerospace and avionics industry (which it 

presently lacks), and develop the other infrastructural components needed to 

support a 21st century military (electronics, microchips, fiber-optics, ceramics, 

and robotics - to name but a few). 

Over the long term, China is bound to aim for military parity with the 

United States. For sure, there are many American strategists who believe 

China is too far behind the US to entertain hope of ever catching up, and who 

also claim, as Andrew Nathan and Robert Ross maintain, that even trying to 

close the gap is futile because such a policy ‘risks stimulating its neighbors to 

accelerate their own pace of advance, potentially widening rather than 

narrowing the gap between China’s security needs and its military capabilities’. 

Arguments of this sort reflect a peculiar logic and are myopic historically. If 

this argument is correct, no late-emerging great power would ever attempt to 

catch up to the dominant great power in the system. Yet, for all the reasons 

already discussed, latecomers do try (and sometimes succeed) in challenging 

the system’s dominant power.43 One can hardly imagine, for example, German 

or American policymakers in the late nineteenth century saying, ‘Oh well, we 

can never hope to match Britain strategically, and we will be less secure if we 

try, so we will just have to accept that England’s supremacy is a permanent fact 

of geopolitical life.’ Neither should we imagine that China as a great power 

would be content to accept US political dominance and military superiority—

and if it did, in what meaningful sense could we even speak of China as being a 

great power? 

The question of whether China can equal, or surpass, the United States in 

military effectiveness and capability is related to, but analytically distinct from, 

43 Andrew Nathan and Robert Ross, The Great Wall and the Empty Fortress: China’s Search for 

Security (New York: W.W. Norton and Company, 1997). There is an important literature 

demonstrating that latecomers enjoy ‘the advantages of backwardness.’ The seminal work is 

Alexander Gerschenkron, The Advantages of Economic Backwardness in Historical Perspective

(Cambridge, Ma.: Belknap Press, 1962). 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

68

 

the issue of whether China will attain great-power standing. Great-power 

status is a threshold that, when crossed, would mean that China will possess 

(at least to a considerable degree) the tangible resource inputs (in terms of 

finances, a defense industrial base, technology, and skilled personnel) needed 

to field a military force capable of competing against the United States. 

However, whether China actually would be able to use those resources 

effectively is another issue. As military historians Allan R. Millett, Williamson 

Murray, and Kenneth Watman have observed, ‘military effectiveness is the 

process by which armed forces convert resources into fighting power.’44

Hence the key question is whether China can convert its resources into 

effective and capable military power. 

Although much has been written about the linked issues of military 

innovation, effectiveness, and competence, we still understand imperfectly 

their underlying causal factors. Why are some militaries innovative and others 

not? Why are some militaries effective and competent and others not? 

Moreover, beyond understanding causation, there is the issue of identifying 

signposts. What factors should we look for to determine whether a particular 

military is likely to be innovative, effective, or competent?

Analysts have employed three analytical approaches to answer these 

questions: societal, organizational, and realist. The societal perspective (which 

focuses on how the cohesiveness, or divisiveness, of society affects military 

effectiveness) and the organizational theory perspective (which identifies a 

number of pathologies that make it difficult for organizations to innovate 

effectively) have ambiguous implications with respect to the question of 

whether China will be able to innovate successfully in the military sphere. The 

realist perspective, however, suggests strongly that China, over time, will be 

able to close the military gap currently separating it from the United States. 

States emulate their rivals, especially militarily. As political scientist Colin 

Elman has observed, ‘Perhaps more than in any other area, military 

technologies, strategies, and institutions are adopted because of perceptions of 

what other states are doing’.45 Security expert Barry Posen has identified the 

external factors that correlate with a state’s success in innovating militarily: the 

perception of a highly threatening international environment, and revisionist 

44 Allan R. Millett, Williamson Murray, and Kenneth Watman, ‘The Effectiveness of Military 

Organizations,’ in Military Effectiveness, Volume I: The First World War, ed. Allan R. Millett and 

Williamson Murray (Boston: Unwin and Hyman, 1987), p.2. 

45 Colin Elman, ‘Do Unto Others as They Would Unto You? The Internal and External 

Determinants of Military Practices’ (Olin Institute for Strategic Studies, Harvard University, 

unpublished paper, May 1996), p.3. 
CHRISTOPHER LAYNE

69

 

ambitions.46 China fits Posen’s profile. It is a state that believes it lives in a 

high-threat environment, and it has irredentist goals in Taiwan and the South 

China Sea. The safest assumption for American policymakers is that during 

this century’s early decades China will emerge as a military competitor of the 

United States. 

Between Now and Then 

Although the odds are strongly in favor of China reaching peer competitor 

status, this is not something that will occur overnight. It will take China some 

time to close the gap between itself and the United States with respect to 

material capabilities. An interesting question, therefore, is how, during its 

transition from potential to actual peer competitor, will a rising great power 

like China counter American hegemony? Given America’s apparent 

inclination to use preventive/pre-emptive strategies to counter future threats, 

rising great powers will have good reason to view the transitional interval as 

one during which they will be vulnerable strategically. Rising great powers like 

China likely will be attracted to asymmetric strategies as a means of offsetting 

superior US military capabilities. 

The terms ‘asymmetric warfare,’ ‘asymmetric threats’, and ‘asymmetric 

strategies’, have become buzzwords much favored by policymakers and 

analysts. A little bit of perspective is in order. When discussing asymmetric 

state responses to hegemony (in today’s world, to US hegemony) it is first 

necessary to specify the level of analysis being discussed. At the grand 

strategic level, research on the initiation of asymmetric conflicts tells us that 

weaker powers often rationally pick fights with stronger powers for a number 

of reasons.47 For example, such states may calculate that although the overall 

material distribution of power is adverse to them, they can still hope to prevail 

by using clever strategies (for example, pursuing a ‘limited aims’ strategy), and 

because the ‘balance of resolve’ favors them. The balance of resolve reflects 

asymmetries in motivation: if the stakes are greater for the weaker power, it 

may be prepared to take greater risks, and pay higher costs than a defender 

who regards the stakes as less than vital to its own security interests.48 Similarly, 

46 Barry R. Posen, The Sources of Military Doctrine: Britain, France, and Germany Between the World 

Wars (Ithaca: Cornell University Press, 1984). 47 The key work is T.V. Paul, Asymmetric Conflicts: War Initiation by Great Powers (Cambridge: 

Cambridge University Press, 1994). 

48 In his classic study, Andrew Mack demonstrates that weaker powers often count on 

favorable asymmetries in motivation to offset an unfavorable asymmetry in material 

capabilities. Specifically, weaker powers often calculate that if the stakes in the conflict are 

vital to itself but peripheral to a more powerful defender, domestic political factors ultimately 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

70

 

weaker powers will try to develop methods of war-fighting that neutralize the 

advantages (material and/or qualitative) enjoyed by a stronger adversary. At 

the operational and tactical levels, asymmetric responses by others to a 

hegemon may be manifested in the weaker power’s choice of weapons 

systems, operational doctrine, and tactics. Of course, there is nothing novel 

about asymmetric responses, which are as old as war itself. If its strategists are 

smart, a weaker power in an asymmetric contest will not attempt to slug it out 

with a stronger foe. As Edward Luttwak has noted, the essence of strategy 

always has been the ability to identify, and exploit, the opponent’s political, 

operational, and tactical vulnerabilities.49

Short of using nuclear, biological, or chemical weapons, a state like China 

which possibly is striving for, but has not yet attained, great-power status can 

employ other asymmetric means to offset superior US capabilities.50 For 

example, because American forces depend significantly on basing facilities 

provided by allies in key regions, a weaker adversary like China might use 

ballistic missiles, and/or special operations forces to deny the US access to 

these facilities in the event of conflict, or to at least disrupt US force 

deployments.51 Similarly, although unable to match the United States in key 

leading-edge military technologies (command, control, communications, realtime reconnaissance and surveillance), an emerging China that still is a nonpeer competitor might acquire low-cost technologies and information-warfare 

capabilities that could disable the satellites and computers upon which the 

American military depends for its battlefield superiority. In sum, even if, in 

the short term, others lack the capability to ‘balance’ against American 

hegemony in the traditional sense, the very fact of US preponderance gives 

them strong incentives to develop strategies, weapons, and doctrines that will 

enable them to offset American capabilities. Indeed, this is exactly what 

Beijing seems to be doing. Unable as yet to go toe-to-toe with the US in a 

will constrain the stronger power from incurring high costs to defeat the weaker power. See 

Andrew Mack, ‘Why Big Nations Lose Small Wars: The Politics of Asymmetric Conflict,‘ 

World Politics, Vol. 27 (January 1975), pp.175-200. 49 Edward Luttwak, Strategy: The Logic of War and Peace (Cambridge, Mass.: The Belknap Press 

of Harvard University Press, 1987), p.16. 

50 For an analysis of how a China that failed to achieve peer competitor status might 

nonetheless prevail (or perceive that it could prevail) in an asymmetric conflict with the United 

States fought over the fate of Taiwan, see Thomas Christensen, ‘Posing Problems without 

Catching Up: China’s Rise and Challenges for US Security Policy’, International Security (Spring 

2001).

51 For a discussion of the possible asymmetric use of ballistic and cruise missiles to hinder US 

ability to project power into East Asia, see Paul J. Bracken, Fire in the East: The Rise of Asian 

Military Power and the Second Nuclear Age (New York: Harper Collins, 1999). 
CHRISTOPHER LAYNE

71

 

great-power war, China is concentrating its military buildup on the kinds of 

capabilities—air power, cruise and ballistic missiles, diesel submarines—it 

would need to prevail in a showdown with the United States over Taiwan.52 In 

the longer term, the very fact of US global preponderance is certain to spur 

China’s emergence as a true peer competitor. 

CONTENDING WITH AN EMERGING CHINA: AMERICAN 

STRATEGY

As realist theory suggests, security concerns are driving China’s economic 

modernization. Chinese leaders understand the security dilemma (that is, so 

long as China is weak, it is vulnerable to the US) and hold an essentially realist 

conception of international politics. Beijing views an American-dominated 

unipolar world as inherently threatening. China is therefore committed to 

‘balancing’ against preponderant American power (by building up its own 

capabilities) and favors a multipolar system (that is, a system where there is 

more than a single great power) in which US influence would be diminished. 

Historical experience suggests that the emergence of new great powers 

usually has a destabilizing effect on international politics. Or, in plain English, 

conflict is more likely during eras when new great powers are emerging, 

because it is very difficult to reconcile the competing interests of the rising 

new great power and the established, status quo, great powers (or, in today’s 

world, the one and only great power). Whether China’s rise to great-power 

status will prove disruptive is, of course, one of the crucial questions analysts 

must answer as they attempt to peer into the future. American grand strategy 

harbors the hope that economic interdependence and domestic political 

liberalization will tame China so that its great-power emergence can be 

successfully and peacefully accommodated. But these hopes are bound to 

prove illusory. 

Economic Interdependence 

In US policy circles, a frequently heard argument is that as China becomes 

increasingly tied to the international economy, its ‘interdependence’ with 

others will constrain it from taking political actions that could disrupt its vital 

connection to foreign markets and capital, and to high-technology imports 

from the United States, Japan, and Western Europe. This claim was made 

time and again by the Clinton administration and its supporters in the debate 

about whether the US should extend permanent normal trade relations to 

52 Craig S. Smith, ‘China Reshaping Military to Toughen Its Muscle in the Region,’ New York 

Times, October 16, 2002. 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

72

 

China, and support Beijing’s accession to the World Trade Organization. 

‘Interdependence’ is another way of saying that trade is a tie that binds states 

to follow peaceful, cooperative foreign policies. Why should this be the case 

(or, as political scientists say, what is the ‘causal logic’ underlying this 

proposition)? That is, what is it specifically about interdependence that 

purportedly causes peace? 

Several causal logics underpin the ‘interdependence leads to peace’ 

argument. One is that as their prosperity comes to be ever more tightly bound 

to the global economy, states simply cannot afford the disruption of trade that 

would result from war. Another is the claim that in today’s technology and 

information-oriented global economy, trade, not conquest, is the most efficient 

road to achieving national wealth. Many American policymakers subscribe 

strongly to the belief that China will be a cooperative actor in the international 

system because its economic modernization requires its integration into the 

global economy and, as it becomes more interdependent with the outside 

world, it will find that interdependence has created a web of common interests 

with states that otherwise might be geopolitical rivals. 

The ‘interdependence leads to peace’ argument, however, is inherently 

suspect. After all, Europe never was more interdependent (economically, and 

intellectually and culturally, as well) than it was on the eve of the First World 

War. Obviously, the prospect of forgoing the economic gains of trade did not 

stop Europe’s great powers from fighting a prolonged and devastating war. 

Implicit in the ‘interdependence leads to peace’ argument is the notion that 

statesmen think like accountants; but they do not. Calculations of possible 

economic gain or loss are seldom the determining factor when policymakers 

decide on war or peace. And even if they were, there is little reason to believe 

that economic interdependence would be a deterrent to war. This is because 

even for the losers, the negative economic consequences of modern greatpower wars have been of short duration. 

China’s recent conduct suggests further reason to be skeptical of the 

‘interdependence leads to peace’ argument: Beijing is not acting as the theory 

predicts. As political scientist Gerald Segal pointed out, China’s behavior in the 

Taiwan Strait and the South China Sea in the 1990s indicates that it is not 

constrained by fears that its muscular foreign policy will adversely affect its 

overseas trade.53 As China becomes more powerful, it increasingly appears 

willing to risk short-term costs to its interests in economic interdependence in 

53 Gerald Segal, ‘The ‘Constrainment’ of China,’ International Security, Vol. 20 (Spring 1996), 

pp.107-35.
CHRISTOPHER LAYNE

73

 

order to pursue its geostrategic interests. Indeed, as China becomes wealthier 

and stronger militarily, it is (as realist theory would predict) becoming more 

assertive in its external behavior. 

Democratic Peace 

The so-called democratic peace theory is also invoked to support the 

proposition that an impending Sino-American rivalry can be ameliorated. 

Among those US strategists who have taken a hard line on China, the view has 

taken hold that conflict with China is inevitable—unless China becomes a 

democracy. In part, this is because China’s external ambitions are seen as 

being in conflict with America’s interests. However, China’s ‘aggressiveness’ is 

ascribed by US hard-liners, in large measure, to the nature of its domestic 

political system. Simply put, the containers view China as a ‘bad’ state. 

This Wilsonian viewpoint is quintessentially American. The time-tested 

American remedy for a ‘bad’ state is to transform it into a ‘good’ state—that is, 

into a democracy. The Wilsonian outlook incorporates the so-called 

‘democratic peace theory,’ which asserts that democracies never go to war with 

fellow democracies. Hence, expanding the ‘democratic zone of peace’ is 

deemed a vital American security interest. Yet the democratic peace theory is 

singularly devoid of intellectual merit.54 

There are two (not mutually exclusive) causal explanations of the 

democratic peace: first, in democracies, statesmen are restrained from going to 

war by the public, upon which the human and economic costs of war fall; and 

second, in their external relations with one another, democratic states are 

governed by the same norms of peaceful dispute resolution that apply to their 

domestic politics. Neither causal logic holds up under scrutiny. Democracies 

have often gone to war enthusiastically (Britain and France in 1914, the United 

States in 1898). And there is an ample historical record demonstrating that, 

where vital national interests have been at stake, democratic states routinely 

have practiced big-stick, realpolitik diplomacy against other democracies 

(including threats to use force). Moreover, contrary to the democratic peace 

theory’s central tenet, democratic states have gone to war with each other.55

It matters little, however, whether the democratic peace theory is true. 

What matters is that most of the American foreign policy community believes it 

is true. And this belief has consequences. After all, if a nondemocratic state (in 

54 For a critique of the democratic peace theory, see Christopher Layne, ‘Kant or Cant: They 

Myth of the Democratic Peace,’ International Security (Fall 1994). 55 See Christopher Layne, ‘Shell Games, Shallow Gains and the Democratic Peace,’ 

International History Review (December 2001). 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

74

this case, China) is likely to be a trouble-maker and challenge the United States, 

the obvious solution to the problem is for the United States to cause that state 

to metamorphose into a democracy: ‘The ultimate American objective on 

China is to induce China to behave more responsibly and to become more 

democratic.’ The impulse to be a ‘crusader state,’ however, invariably has 

pushed the United States down the road of foreign policy misadventure, and 

will do so if Washington pushes its Wilsonian agenda on Beijing. 

Averting Sino-American Conflict I: Avoid the Wilsonian Trap 

From a realist perspective, one must conclude that a US-China greatpower competition is highly likely in the future. Great-power rivalry is the 

norm in international politics for several reasons: anarchy among states 

generates legitimate security fears that require and justify self-help; reasons of 

state predominate over conventional interpersonal standards of behavior; and 

power relationships predominate over internal political characteristics in 

determining state behavior. 

But if rivalry is certain, war is not. Indeed, peace may be the most causally 

over-determined phenomenon in international politics. In this respect, realism 

is a theory about both war and peace. Because of the anarchic, self-help nature 

of international politics, realists believe that wars can occur and sometimes do. 

At the same time, many realists would argue (as would I) that war, especially 

great-power war, is rare. This is because for the great powers, war itself is a 

deterrent, albeit an imperfect one. Because of the uncertainties it entails, the 

decision to go to war is always (as Chancellor Bethmann-Hollweg put it in 

1914) ‘a leap into the dark.’ For this reason, realists would expect most greatpower crises to be resolved short of war. Indeed, because war is such a risky 

and uncertain business, realists would expect states to be extremely cautious in 

going to war. Whether the United States and China find themselves on the 

brink of war in the future will be determined as much by Washington’s policies 

as by Beijing’s. 

There are two elements of its grand strategy toward China that 

Washington needs to reconsider, and they are linked: trade, and domestic 

liberalization. Trade is an issue where almost all parties in the current debate 

about America’s China policy have gotten it wrong. Engagement (based on 

economic interdependence and free trade) will neither constrain China to 

behave ‘responsibly’ nor lead to an evolutionary transformation of China’s 

domestic system (certainly not in any policy-relevant time span). Unfettered 

free trade, however, will simply accelerate the pace of China’s great-power 

emergence: the more China becomes linked to the global economy, the more 

rapidly it is able to grow in both absolute and relative economic power. To be 
CHRISTOPHER LAYNE

75

 

sure, short of preventive war, there is nothing the United States can do to 

prevent China from eventually emerging as a great power. Thus, there would 

be no point to simply ceasing economic relations with China. But the United 

States must be careful about how—and why—it trades with Beijing. 

American trade with China should be driven by strategic, not market, 

considerations. If Washington cannot prevent China’s rise to great-power 

status, it nonetheless does have some control over the pace of China’s greatpower emergence. A US trade policy that helps accelerate this process is 

shortsighted and contrary to America’s strategic interests. The United States 

should aim to reduce China’s export surplus to deprive it of hard-currency 

reserves that Beijing will use to import high technology (which it will use to 

modernize its military). Washington should also tightly regulate the direct 

outflow of critical advanced technology from the United States to China in the 

form of licensing, offset, or joint-venture agreements. Individual corporations 

may have an interest in penetrating the Chinese market, but there is no 

American interest, for example, in permitting US firms to facilitate China’s 

development of an advanced aerospace industry. 

On the other hand, those US hard-liners who want to use Sino-American 

trade as a bludgeon to compel Beijing to accept America’s dictates with respect 

to human rights and democratization also have got it wrong: while American 

leverage is too limited to have any significant positive effects, Washington’s 

attempts to transform China domestically will inflame Sino-American 

relations. American attempts to ‘export’ democracy to China are especially 

shortsighted and dangerous. America’s values are not universally accepted as a 

model to be emulated, least of all by China. Moreover, America’s attempts to 

universalize its liberal values and institutions are more likely to be regarded by 

others as an exercise of hegemonic power rather than as an act of unselfish 

altruism. Indeed, it is commonplace to observe that the United States invokes 

its values as a means of legitimizing its predominant role in international 

politics. As the political scientist Samuel P. Huntington has observed, an 

American policy based on the universal applicability of liberal democratic 

ideology is the ‘ideology of the West for confrontation with non-Western 

cultures’.56

American efforts to force China to adhere to American norms and values, 

in fact, have sharpened Sino-American tensions. Chinese president Jiang 

56 Samuel P. Huntington, The Clash of Civilizations and the Remaking of World Order (New York: 

Simon & Schuster, 1996), p.66. 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

76

 

Zemin’s October 1995 remarks to the UN Security Council are illustrative. In 

his speech, he observed that ‘certain big powers, often under the cover of 

freedom, democracy and human rights, set out to encroach upon the 

sovereignty of other countries, interfere in their internal affairs and undermine 

their national unity and ethnic harmony.’57 The attempt to export democracy 

will cause a geopolitical backlash by strengthening China’s resolve to resist US 

hegemony. Kenneth Waltz perceptively observes why this is so: 

The powerful state may, and the United States does, think of itself as 

acting for the sake of peace, justice, and well-being in the world. But 

these terms will be defined to the liking of the powerful, which may 

conflict with the preferences and the interests of others. In 

international politics, overwhelming power repels and leads others to 

try to balance against it. With benign intent, the United States has 

behaved, and until its power is brought into a semblance of balance, 

will continue to behave in ways that annoy and threaten others.58

The truth is that China is not going to become a democracy—certainly not 

any time soon—and the United States lacks the power to compel China to 

transform its domestic political system. 

American efforts to do so can only serve to heighten tensions between 

Washington and Beijing. Chinese leaders fear, and oppose, American 

hegemony, and they regard America’s attempts to foist its political and cultural 

values on China as a specific manifestation of American ‘hegemonism’. 

Averting Sino-American Conflict II: Taiwan 

Taiwan is a powder-keg issue. China remains committed to national 

reunification, yet Taiwan is moving perceptibly toward independence. Almost 

certainly, Beijing would regard a Taiwanese declaration of independence as a 

casus belli. It is unclear how the United States would respond to a China-Taiwan 

conflict, although President George W. Bush created a stir in 2001 when he 

declared the United States would intervene militarily in the event of a Chinese 

attack on Taiwan. For sure, however, it is safe to predict that there would be 

strong domestic political pressure in favor of American intervention. Beyond 

the arguments that Chinese military action against Taiwan would undermine 

US interests in a stable world order and constitute unacceptable ‘aggression,’ 

ideological antipathy toward China and support for a democratizing Taiwan 

would be powerful incentives for American intervention. 

57 Quoted in Alison Mitchell, ‘Meager Progress as China Leader and Clinton Meet,’ New York 

Times, October 25, 1995. 58 Kenneth Waltz, ‘America as a Model for the World? A Foreign Policy Perspective,’ PS

(December 1991), p.669. 
CHRISTOPHER LAYNE

77

 

American strategists advance three reasons why the United States should 

defend Taiwan: strategic; reputational; and ideological. Strategically, Taiwan 

must be defended to protect the trade routes in the South China Sea. What 

this argument overlooks, however, is that these shipping routes are of vital 

Japanese interest but are relatively unimportant for the United States. The 

reputational argument is that unless the United States defends Taiwan from 

China, other states will lose confidence in America’s security guarantees and 

acquiesce in China’s regional hegemony. This argument overlooks two points: 

first, once China becomes a great power, the credibility of US commitments in 

East Asia inevitably will diminish; and, second, regardless of what the United 

States does with respect to Taiwan, other East Asian states will balance against 

a threatening China in self-defense, rather than jump on its bandwagon. The 

ideological argument, already mentioned, is that the United States cannot 

afford to stand on the sidelines while a fellow democracy is conquered by an 

authoritarian great power. 

During the 1996 tensions between Taiwan and China, leading members of 

the foreign-policy community argued that US interests required support for 

Taiwan because the real issue at stake was the need to defend a democratic 

state menaced by a totalitarian one. A leading Asian affairs expert argued, for 

example, that the issue between China and Taiwan had nothing to do with the 

latter’s political status as a province of mainland China. Rather, it was claimed, 

the United States had a compelling interest in defending Taiwanese democracy 

and preserving it as a political model for Beijing to adopt (presumably because 

a democratic China, from an American perspective, would be a more tractable 

state):

The United States must recognize that it has a fundamental interest 

in promoting Chinese democracy, and in protecting its sole example 

in Taiwan. Thus, we must warn China in no uncertain terms that we 

will not sit idly by if Taiwanese democracy is threatened, encourage 

our allies to make similar declarations, and continue to back up our 

words with a show of American naval power.59

Arguments that the United States must be prepared to defend Taiwan 

from Chinese invasion overlook three points. First, for nearly a quarter 

century, the United States has recognized that Taiwan is a Chinese province, 

not an independent state. Second, America’s European and Asian allies have 

no interest in picking a quarrel with China over Taiwan’s fate. If Washington 

goes to the mat with Beijing over Taiwan, it almost certainly will do so alone. 

(Given its unilateralist bent, however, the prospect of fighting China without 

59 Christopher J. Sigur, ‘Why Taiwan Scares China,’ New York Times, March 19, 1996. 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

78

allies might not be of much concern to the Bush II administration.) Third, by 

defending Taiwan, the United States runs the risk of armed confrontation with 

China.

In the short term, a Chinese invasion of Taiwan is unlikely, and the United 

States would have little to fear from a military clash with China. Both of these 

conditions, however, are likely to change in coming years. Looking down the 

road a decade or two, it would be a geopolitical act of folly for the United 

States to risk war with China for the purpose of defending democracy in 

Taiwan. The issue at stake simply would not justify the risks and costs of 

doing so. Indeed, regardless of the rationale invoked, the contention that the 

United States should risk conflict to prevent Beijing from using force to 

achieve reunification with Taiwan amounts to nothing more than a veiled 

argument for a declining America to fight a ‘preventive’ war against a rising 

China. Here, the embrace of pre-emptive and preventive military strategies by 

the Bush II administration raises obvious questions. If US hard-liners believe 

that preventive war is a viable option for coping with a rising China, instead of 

using the Taiwan issue as a fig-leaf, they should say so openly so that the 

merits of this strategy can be debated. 

CONCLUSION: TOWARD AN OFFSHORE BALANCING 

STRATEGY IN EAST ASIA? 

Any realist worth his salt would agree that the rise of a new great power is 

reason for concern. However, while concern is prudent, panic is not. China is 

in the process of emerging as a great power. But it has a considerable distance 

to travel before it gets there—and it is conceivable (even if not likely) that it 

will not get there. China’s ability to attain great-power status hinges primarily 

on two considerations: economic growth, and the domestic political situation. 

On the first point, China only needs to grow at a seven to eight percent 

annual rate over the next ten to twenty years to surpass the United States as 

the world’s largest economy. All things being equal, these growth rates appear 

feasible, even probable. However, all things are not equal, which leads to a 

second set of considerations that pertain to China’s domestic cohesion. There 

has been much speculation that China’s drive to great-power status may fail 

because of domestic internal developments. Civil unrest stemming from failed 

political liberalization, or the centrifugal effect of regional autonomy 

undermining central government control of the nation is the most frequently 

mentioned internal threats to China’s great-power emergence. Although these 

possibilities cannot be discounted, it nevertheless would appear that China is 

unlikely to succumb either to domestic political upheaval or to the kind of 
CHRISTOPHER LAYNE

79

 

disintegration that could lead to a collapse of central governmental authority. 

Thus China’s rise to great-power status probably will not be sidetracked by 

internal political developments. 

So what should the United States do about China? If the US persists with 

its current hegemonic grand strategy, sooner or later, the odds of a SinoAmerican conflict are pretty high. Current American strategy thus commits 

the United States to maintaining the geopolitical status quo in East Asia, a 

status quo that reflects America’s hegemonic power and interests. America’s 

interest in preserving the status quo, however, is bound to clash with the 

ambitions of a rising China. As a great power, China no doubt would have its 

own ideas about how East Asia’s political and security order should be 

organized. Unless US and Chinese interests can be accommodated, the 

potential for future tension—or worse—exists. Moreover, the very fact of 

American hegemony, as I have argued, is bound to produce a geopolitical 

backlash—with China in the vanguard—in the form of counter-hegemonic 

balancing. At the same time, the United States cannot be completely 

indifferent to China’s rise, either. 

The United States could accomplish the important goals of containing 

China, while yet avoiding direct conflict with Beijing, by abandoning its 

hegemonic grand strategy in favor of an offshore balancing grand strategy 

combined with a “spheres of influence” diplomacy. Throughout history great 

powers have been able to accommodate each other’s conflicting interests 

despite ideological differences and the fact that they seldom regard each other 

as friends. Among modern international history’s great powers, only the 

United States seems unable to accept the fact that great powers must live in a 

world with others who neither like them nor share their values. The belief that 

America must universalize its institutions and values in order to be secure has 

had dreadful consequences in the past. The issue of Taiwan illustrates that this 

mindset may lead to disaster again in the future. 

The key component of a new geopolitical approach by the United States 

would be offshore balancing.60 Instead of trying to stop the emergence of new 

great powers, an offshore balancing grand strategy would recognize the 

inevitability of their emergence, and turn this to America’s advantage. Rather 

than fearing multipolarity, as does the present US strategy of hegemony, 

offshore balancing would embrace it. An offshore balancing strategy would 

60 On offshore balancing, see Christopher Layne, ‘From Preponderance to Offshore 

Balancing: America's Future Grand Strategy,’ International Security, Vol. 19 (Summer 1997). For 

a discussion of how offshore balancing could work in East Asia, see Christopher Layne, ‘Less 

Is More,’ The National Interest, No. 43 (Spring 1996). 
CHINA’S ROLE IN AMERICAN GRAND STRATEGY

80

allow for the other great powers to build up their military capabilities, and to 

provide for their own and regional security. The United States would rely on 

the dynamics of a multipolar balance of power to check any other power from 

becoming overly ambitious and threatening. In East Asia, China would be 

contained not by the US, but by Russia, Japan, India, and Korea. In this 

respect, offshore balancing is a grand strategy based on burden-shifting, not 

burden-sharing (or what realists call ‘buck-passing’). In contrast to the effect 

of its hegemonic strategy, which attracts the strategic attention of other states 

to the United States, an offshore balancing strategy would deflect those 

concerns away to the US, and redirect them to the rivals others confront in 

their own neighborhoods.

To be sure, the United States would need to experience a conceptual 

revolution in grand strategy to adopt an offshore balancing posture with 

respect to East Asia. It would need to abandon the illusion that American 

hegemony can be maintained (and that multipolarity can be prevented). It 

would need to abandon many of the ideological pretensions that underlie 

America’s view of its world role. And American policymakers would need to 

rethink their stance on important specific issues, notably including Japan’s 

emergence as a great power, the role that economic interdependence plays in 

driving American security commitments, and the US commitment to Taiwan. 

If the United States is to shift its grand strategy away from hegemony—which 

it must do to minimize the odds of an eventual collision with China—it must 

take to heart the injunction of Walter Lippmann that it must forsake the 

temptations of hegemony in favor of more respectful and natural relations 

with other great powers: 

A mature great power will make measured and limited use of its power. It 

will eschew the theory of a global and universal duty, which not only commits 

it to unending wars of interventions, but intoxicates its thinking with the 

illusion that it is a crusader for righteousness... I am in favor of learning to 

behave like a great power, of getting rid of globalism, which would not only 

entangle us everywhere, but is based on the totally vain notion that if we do 

not set the world in order, no matter what the price, we cannot live in the 

world safely... In the real world, we shall have to learn to live as a great power 

which defends itself and makes its way among the other great powers. 
CHINA AS REGIONAL HEGEMON?

PAUL H.B. GODWIN

INTRODUCTION

In the late 1970s, Deng Xiaoping initiated the reform programs that were 

to end the internal chaos generated by Mao Zedong’s obsessions and China’s

self-imposed isolation from the world. The success of Deng’s reforms and his

strategy of ‘opening China to the world’’ have transformed the People’s 

Republic of China (PRC) into a major player in world politics. Deng’s marketoriented reforms resulted in a booming economy and made China a significant 

global trading country. His comprehensive defense modernization programs 

are reconstructing the once lumbering, obsolescent People’s Liberation Army 

(the PLA—as the services and branches are collectively named) into a modern 

defense force. The benefits accruing to China from Deng’s reform programs

were complemented by the Cold War’s end, the dissolution of the USSR, and 

Beijing’s diplomatic efforts to establish working, if not cordial, relations with 

its Asian neighbors. The combined effect of internal reforms, major changes in 

the international environment and Beijing’s diplomatic activism has made 

China more integrated with Asia and the world, and militarily more secure than 

at any time in the past 150 years. This transformation has added real gravitas to

China’s pre-existing status as a veto-wielding permanent member of the UN 

Security Council. 

Few doubt that China is a now great power. China’s population and land 

area are huge, and its geopolitical location means that no part of Asia—

northeast, southeast, south, central and northern—is without a Chinese 

presence or interest. The robust Chinese economy—not Japan’s, which 

remains mired in the economic doldrums—is the engine of Asia’s economic 

growth. China’s defense establishment, although far from the most modern in

the region, is large and undergoing a systemic modernization of its air, naval,

and ground forces. Although India and Pakistan weaponized their nuclear

programs in 1998, China holds Asia’s only operational combination of 

strategic, regional and possibly tactical nuclear weapons, and these systems are 

also in the midst of modernization programs.

81
CHINA AS REGIONAL HEGEMON?

82

Consequently, no regional power can challenge China’s pre-eminence in 

continental Asia. With the exception of Japan, it is very unlikely that in a 

decade or two any Asian state will be capable of contesting China’s preeminence in maritime East Asia. Only India will be able to challenge a 

Chinese naval presence in the Indian Ocean and the Bay of Bengal, should 

Beijing choose to patrol that distance from its home waters. Simply stated, 

China is now militarily more secure than at any time in the past 150 years. 

Indeed, one could argue that the ‘one hundred years of humiliation’ that so 

traumatically scars Chinese memories of its unfortunate modern history has 

ended. With the return of Hong Kong and Macao to Chinese sovereignty, the 

only major territories claimed by China outside Beijing’s control are Taiwan 

and the many rocks and islets in the South and East China Seas. 

With the restoration of China’s status in the world, an expanding economy 

and no major military threat to its security, one would expect Beijing to be a 

‘satisfied’ power. Satisfied in the sense that its influence in international 

politics continues to increase and that no state or combination of states 

presents an immediate military threat to China. Yet, even a casual perusal of 

Chinese commentaries on the trends in global and regional international affairs 

demonstrates that this is not the case. From Beijing’s perspective, the world in 

which China now exists is far from the world it desires. 

This chapter will attempt to assess whether Beijing seeks and can achieve 

regional hegemony. It will begin by identifying Beijing’s core objectives and 

the logic behind them. This will be followed by an overview of Beijing’s 

perceptions of the United States and the role these perceptions play in China’s 

security strategy. Finally, the issue of Chinese hegemony will be addressed. 

The chapter’s conclusions will focus on the implications of these findings for 

US policy. 

HEGEMONY AND ASIA 

Before entering any assessment of China’s security objectives and strategy, 

it is necessary to provide an operational definition of ‘hegemony’.1 For the 

purpose of this assessment, a state will be granted the status of hegemon when 

it is the single great power in its region. When a region contains more than one 

great power, there cannot be a hegemon. An assessment of Beijing’s security 

1 The following discussion is drawn from John J. Mearsheimer, The Tragedy of Great Power Politics

(New York: W.W. Norton, 2001); and Glenn H. Snyder, ‘Mearsheimer’s World—Offensive 

Realism and the Struggle for Security,’ International Security (Vol. 22, No. 1 (Summer 2002), 

pp.149-173.
PAUL GODWIN

83

objectives also raises the question of China as a potential hegemon. A potential 

hegemon is a state that has the capability to dominate a region by 

overpowering its great-power neighbors. Nonetheless, as John Mearsheimer 

notes, hegemony is rare because ‘the costs of expansion usually outrun the 

benefits before domination is achieved’.2 Consequently, potential hegemons 

only seek to achieve domination when the anticipated costs are low.3

Therefore, whereas China’s economic development and military 

modernization programs may in the future grant it the status of a potential 

hegemon, the decision to become the region’s hegemon does not directly 

derive from the capacity to dominate. The costs and risks of achieving 

domination must be perceived as lower than the benefits derived from 

hegemony.

These definitions require an appraisal of Asia as a region. The most 

important strategic characteristic of Asia is that it has two parts: continental 

and maritime. To be the regional hegemon, a state must be dominant over the 

both the continental and maritime components of Asia. The disintegration of 

the former USSR and the ensuing Russian economic crises and degradation of 

its military capabilities essentially removed from contention the only power 

that could challenge China’s continental pre-eminence. 

In maritime Asia, the United States functions as the countervailing power 

to China. With alliances and access to military facilities along Asia’s littoral 

from South Korea and Japan in the north, down to Australia in the south and 

Diego Garcia in the Indian Ocean, the United States performs the role of 

offshore balancer to China’s continental dominance. Certainly from the US 

perspective, the United States with its alliances and access maintains ‘the 

current continental-maritime military balance in East Asia’.4

As long as there is a second regional great power in Asia, by definition 

China cannot become the region’s hegemon. With its strong alliances and 

access to naval and air facilities along Asia’s periphery together with its 

diplomatic and economic influence within the region, the United States is in an 

extremely robust offshore position. In this sense, as Robert Ross has 

suggested, East Asia has become bipolar; China and the United States share 

the regional balance of power.5 The question therefore becomes whether 

2 John J. Mearsheimer, ‘Back to the Future: Instability in Europe After the Cold War,’ 

International Security, Vol. 15, No. 1 (Summer 1990), p.13. 3 Ibid. p.37. 4 Personal communication with RADM Michael McDevitt, USN (ret.) September 2002. 

5 Robert S. Ross, ‘The Geography of Peace: East Asia in the Twenty-First Century,’ 

International Security, Vol. 23, No. 4 (Spring 1999), pp.81-118. 
CHINA AS REGIONAL HEGEMON?

84

China’s regional security objectives have as their ultimate purpose the removal 

of the United States as Asia’s other great power. This question becomes 

important when it is recognized that China’s principal objection to the current 

distribution of global and regional power is focused on the role of the United 

States. China resents the manner in which the United States employs the 

dominant military, economic and diplomatic power it achieved with the Cold 

War’s end in global as well as regional affairs. Before evaluating Beijing’s 

perceptions of the United States, however, it is necessary to assess China’s 

security priorities. 

BEIJING’S QUEST FOR SECURITY: PRIORITIES6

China’s national security requirements are conceptualized in very broad 

terms. Beijing is extremely aware that China lags far behind the world’s major 

powers in economic, scientific and technological strength. Accordingly, the 

Chinese Communist Party (CCP) defines its fundamental task as transforming 

China from a developing to a fully developed modernized country matching 

the strength of other world powers. Moreover, Beijing recognizes that the 

rapid pace of China’s modernization over the past two decades and more has 

created major problems of instability and tension within society. Not the least 

of the political problems Beijing confronts is massive underemployment and 

unemployment. As the huge and once dominant inefficient state-owned 

enterprises (SOEs) are shut down, thousands of employees are thrown out of 

work. Worker protests have increased in recent years as their jobs have 

evaporated with little compensation from their former employers.7 These 

tensions have been accompanied by rampant corruption throughout the CCP 

and government.8 In rural areas, improper taxation and corruption among local 

officials create frequent farmer demonstrations.9 Millions of underemployed 

rural workers migrate to the cities seeking a living as poorly paid construction 

workers on the edge of the dynamic urban economy. Corruption, dislocation 

6 This discussion draws extensively from Thomas J. Christensen, ‘China’ in Ellings and 

Friedberg, Strategic Asia, pp.27-69. 7 See, for example, Jiang Zemin’s speech to the 16th Party Congress November 17, 2002. 

Beijing, Xinhua, November 17, 2002, in Foreign Broadcast Information Service, China, 

(hereafter FBIS-China) November 17, 2002 and John Pomfret, ‘China Cracks Down on 

Worker Protests: Leaders Detained As 2 Cities Face Continued Unrest,’ The Washington Post,

March 21, 2002, p.A21. 

8 See, for example, John Pomfret, ‘Corruption Charges Rock China’s Leadership,’ The 

Washington Post, Jan 2, 2002, p.A15. 9 See, for example, Agence France Press (AFP), Hong Kong, ‘More Details on Clashes Between 

Farmers, Riot Police,’ August 29, 2000. 
PAUL GODWIN

85

and instability among the workers and farmers have created severe stress in 

China’s society that simmers beneath the broad trend of growing wealth so 

evident in the major coastal cities and Beijing. Accordingly, official documents 

and speeches by CCP leaders stress the importance of balancing economic 

development with political stability. As Jiang Zemin put it in his Work Report 

to the 16th National Party Congress held in November 2002: ‘Stability is a 

prerequisite for reform and development’.10

China’s continued economic growth and modernization is critically 

dependent on trade and foreign direct investment (FDI). From 1990 to 1999, 

China’s total external trade increased from US$116.6 billion per year to 

US$360.6 billion. In Asia, this placed China second only to Japan’s US$729.9 

billion in total trade.11 Foreign direct investment in 1999 amounted to some 

US$38 billion—the highest level in Asia.12 Sustaining and expanding China’s 

trade and FDI is dependent upon an international environment conducive to 

commerce and investment. This linkage between trade, FDI and the 

modernization and expansion of China’s economy means that any major 

disruption of the peace and stability of Asia would have dire consequences for 

what Beijing defines as its fundamental national objective. 

Beijing’s primary security objectives are therefore maintaining internal 

stability and the CCP’s political monopoly while increasing China’s national 

strength and enhancing its international prestige and influence. The 2002 

defense white paper’s foreword acknowledges the importance of the 

international environment when describing China’s security environment. The 

white paper declares: ‘A developing China needs a peaceful international 

environment and a favorable climate on its periphery’.13

China’s defense policy is integrated into this fundamental concept of 

security with a very specific and expected set of objectives. The white paper 

presents these objectives in what appears a priority listing:14

x To consolidate national defense, prevent and resist 

aggression. China’s territorial land, inland waters, territorial 

seas and territorial airspace are inviolable. 

10 The requirement to balance economic development and stability was stressed by Jiang 

Zemin in his report to the 16th Party Congress. 11 ‘Strategic Asia by the Numbers.’ Ellings and Friedberg, Strategic Asia, Table 9.6, p.364. 12 Ibid, Table 9.8, p.365. 13 China’s National Defense 2002 (Beijing: The Information Office of the State Council, 

December 9, 2002), in FBIS-China, December 9, 2002, p.1 

14 Ibid, pp.3-4. 
CHINA AS REGIONAL HEGEMON?

86

x To stop separation and realize complete reunification of the 

mainland. 

x To stop armed subversion and safeguard social stability. 

x To accelerate national defense development and achieve 

national defense development. 

The priority granted Taiwan’s reunification with the mainland is made very 

clear by the statement that ‘Taiwan is an inalienable part of the motherland.’ 

After asserting Beijing’s commitment to peaceful reunification, the white paper 

declares that ‘China’s armed forces will unswervingly defend the country’s 

sovereignty and unity, and have the resolve as well as the capability to check 

any separatist act’.15

CHINA’S PERCEPTIONS OF THE UNITED STATES 

Beijing’s 2000 defense white paper portrayed a threatening security 

environment. The United States was the primary source of concern in China, 

which did not attempt to mask its apprehension over the menace seen in US 

power and purpose.16 Negative developments in the Asia-Pacific region were 

attributed to the United States.17 The strengthening of US military alliances, 

revision of US-Japan defense guidelines, planned deployment of ballistic 

missile defenses, and the supply of advanced American arms to Taiwan were 

identified as detrimental to China’s interests. In the South China Sea territorial 

disputes, the United States is clearly the most important of the ‘extra-regional 

countries’ seen as interfering in this issue. 

Beyond Asia, although only by the use of code words, the United States 

was condemned for threatening world peace and security in a variety ways. 

Using the ‘pretext of humanitarianism’, the United States was criticized for 

resorting to the threat or use of force in violation of the UN Charter. The USled NATO attack on Yugoslavia was particularly condemned for bypassing the 

UN Security Council. Overall, the United States was charged with maintaining 

a ‘Cold War mentality’ and using ‘hegemonism and power politics’ to 

undermine UN authority, enlarge its military blocs through NATO expansion 

and seek even greater military superiority.18 Given this security environment, 

especially the US transfer of advanced weaponry to Taiwan, Beijing’s defense 

15 Ibid, p.4. 16 China’s National Defense 2000 (Beijing, Information Office of the State Council, October 16, 

2000), pp.1-6; and Michael McDevitt and David Finkelstein, Assessing China’s Year 2000 White 

Paper: A Workshop Report (Alexandria, VA: The CNA Corporation, 16 November 2000). 17 China’s National Defense 2000, p.3. 18 Ibid. pp.3-4. 
PAUL GODWIN

87

white paper concluded that ‘China will have to enhance its capability to defend 

its sovereignty and security by military means’.19

China’s 2002 defense white paper reflected the warming of Sino-American 

relations following the tragic terrorist attacks of September 11, 2001. The 

United States was not named as the primary source of China’s concerns, but 

the issues remained. China’s apprehension over the expanding military 

relationship between the United States and Taiwan was seen in the white 

paper’s statement that ‘by continuing to sell weapons and military equipment 

to Taiwan and elevating relations with Taiwan authorities, a handful of 

countries have interfered in China’s internal affairs, inflated the arrogance of 

the separatist forces and undermined China’s reunification’.20 Similarly, the 

white paper noted that ‘Certain countries are stepping up their military 

deployments and strengthening their military alliances in the Asia-Pacific 

region’. The US-Japanese security arrangement was the obvious subject of the 

white paper’s observation that ‘other countries have time and again enlarged 

the terms of reference and scope of operations of their armed forces’.21 Thus, 

while the vitriol was removed, China’s apprehension over US strategic 

intentions remained.

Mistrust of US strategic intentions goes back more than a decade to the 

deterioration of Sino-American relations in the aftermath of the 1989 

Tiananmen Square protests and their violent suppression. At its core, Beijing’s 

wariness is rooted in the belief that despite Washington’s public commitment 

to a ‘strong, peaceful and prosperous China’,22 the United States’ security 

objective is to restrain China’s emergence as a strategic competitor and uphold 

at least the de facto independence of Taiwan. In Beijing’s eyes, China need look 

no further than the US Department of Defense 2001 Quadrennial Defense Report

(QDR) to confirm this suspicion. Although not mentioned by name, the 

report’s reference to a possible ‘military competitor with a formidable resource 

base emerging in Asia’ can refer only to China.23

19 Ibid. p.5. 20 China’s National Defense 2002, p.3. 21 Ibid.

22 The National Security Strategy of the United States of America (Washington, D.C.: The White 

House, September 17, 2002) [hereafter National Security Strategy 2002], p.18 (Internet version 

from www.whitehouse.gov) is just the most recent statement of this longstanding US 

commitment. 

23 Quadrennial Defense Review Report (Department of Defense, September 30, 2001) [Internet 

version, p.4] 
CHINA AS REGIONAL HEGEMON?

88

PERCEPTION SINCE SEPTEMBER 200124

The US response to the September 11 attacks served to heighten Beijing’s 

apprehensions. China’s concern over American diplomatic influence and 

military capability was reinforced by the speed with which the Bush 

administration built a coalition against terrorism and initiated military 

operations inside Afghanistan. Although China was among the first to pledge 

support for the United States’ actions, the ease with which the US gained 

access to bases for military operations in Pakistan and several Central Asian 

states created misgivings in Beijing. This was perceived as another 

demonstration of the United States’ ability to surround and possibly ‘contain’ 

China.25 Furthermore, US forces and political influence had moved into 

China’s inner Asian backyard, where Beijing had exerted considerable 

diplomatic effort to create a security system that excluded the United States 

Since 1996, China had worked with Russia, Kazakhstan, Kyrgyzstan and 

Tajikistan to establish a Central Asian security framework. In June 2001, this 

‘Shanghai Five’ became the Shanghai Cooperation Organization (SCO), adding 

Uzbekistan to its membership. While not a formal alliance, presidential 

summits have been held annually and their joint statements have indicated 

steady cooperative progress in military and security matters together with trade 

and cultural affairs. Summit statements, including those of the annual 

meetings held by defense and foreign ministers, have also introduced common 

views on international security matters that are outside the members’ borders. 

Past summits had expressed opposition to US withdrawal from the AntiBallistic Missile (ABM) Treaty with Russia, to American ballistic missile 

defense programs and support for Beijing’s stance on Taiwan.26 It is difficult 

not to conclude that the SCO was viewed by China as offsetting the US 

presence in Central Asia, slight though this was before Operation Enduring 

Freedom.

The cooperation and warmth emerging in Russo-American relations 

undoubtedly undermined China’s confidence in the SCO’s potential to counter 

US influence. Not only did Putin and Bush seem to get along, but also Russia 

24 For a valuable assessment of post-9/11 consequences for China’s security policy, see J. 

Mohan Malik, ‘Dragon on Terrorism: Assessing China’s Tactical Gains and Strategic Losses 

After 11 September,’ Contemporary Southeast Asia, Vol. 24, No. 2 (August 2002), pp.252-293. 25 I am grateful to Professor Bernard D. Cole for bringing this point to my attention. 

26 See, for example, Beijing, Xinhua Domestic Service, ‘Defense Ministers of the ‘Shanghai 

Cooperation Organization’ Members Sign a Joint Communiqué, June 15, 2001, in FBIS-China, 

June 19, 2001. 
PAUL GODWIN

89

did not strongly object when the United States withdrew from the ABM 

Treaty. Moreover, in agreeing to an American military presence in Central 

Asia, Putin had demonstrated a lack of concern over US inroads into Russia’s 

‘near abroad’. US progress in its relations with Russia was accompanied by a 

reversal of its opposition to General Musharraf’s military rule when he agreed 

to allow US military operations to be based in Pakistan and to suppress his 

own Islamic militants. In South Asia, Beijing saw the US war against terrorism 

contribute to an accelerating improvement in American relations with India, 

including arms sales and military exercises with Indian forces.27

Beijing’s apprehension over the growing US military presence and 

diplomatic influence in Central Asia and South Asia was expressed in such 

journals as Liaowang, a weekly published by China’s official news agency, and 

Qingnian Cankao, a weekly publication of the CCP’s China Youth League.28

The arguments presented suggested that the United States is using the war on 

terrorism to gain strategic advantage in Central Asia, adding to its ability to 

contain both Russia and China. Furthermore, there is the expectation that the 

US presence is not temporary but will endure for many years. This concern 

was undoubtedly enhanced by the congressional testimony of the Assistant 

Secretary of State for European and Eurasian Affairs, Elizabeth Jones, in 

December 2001. She stated that the United States did not intend to depart 

Central Asia when the anti-terrorism operations are completed. Rather, that 

American interests in preventing terrorism, assisting in political and economic 

reform, establishing the rule of law, and developing the Caspian Sea energy 

resources required a sustained American regional presence.29 Thus, from 

Beijing’s point of view, the US presence in Central Asia may not be permanent 

but it will not quickly fade.

To what extent arguments seen in official Chinese media present the view 

of China’s political leadership is uncertain. It is clear, however, that an 

enduring US presence in Central Asia is not what China’s leadership would 

prefer. As long as the United States military presence is a function of antiterrorism operations, then it is acceptable. Continuing a military presence 

27 Ding Zengyi, ‘Indian-US Military Cooperation Raises Concern,’ Jiefangjun Bao, February 24, 

2002, in FBIS-China, March 1, 2002. 

28 See, for example, Chen Qimin, ‘The United States pries Open the Geopolitical Pattern in 

Central Asia,’ Liaowang, January 21, 2002, in FBIS-China, January 30, 2002, in FBIS-China, 

January 30, 2002; Yun Zhen, ‘US Troops Quietly Enter Into Kyrgyzstan,’ Qingnian Cankao,

January 10, 2002, in FBIS-China, January 11, 2002. 

29 ‘US pledges not to abandon central Asia after Afghan War,’ Almaty Interfax-Kazakhstan , 

December 19, 2001, FBIS-China, December 19, 2001
CHINA AS REGIONAL HEGEMON?

90

beyond this operational requirement and becoming a strategic presence makes 

the United States a competitor for regional influence with Beijing. 

Secretary of Defense Donald Rumsfeld’s August 2002 annual report to 

Congress will not ease Beijing’s perception that the United States views China 

as the principal potential regional threat to US interests. The report reasserted 

the QDR’s assessment made a year earlier by stating that Asia was ‘emerging as 

a region susceptible to large-scale military competition’ and that this required 

the United States to improve both its access to regional facilities and its 

capability to conduct long-range operations with only minimal theater 

support.30 Such an assessment will confirm Beijing’s perception that despite 

the Bush administration’s focus on terrorism the US views China as a potential 

threat.

Nonetheless, the Bush administration’s determined concentration on 

terrorism had some positive consequences for Beijing. President Bush’s 

meetings with President Jiang Zemin at the Asia-Pacific Economic 

Cooperation’s (APEC) Shanghai meetings in October 2001 and in Beijing four 

months later indicated that both Washington and Beijing were using the war 

on terrorism to ease the tensions in Sino-American relations and find common 

ground for cooperation. In their October meeting, Presidents Bush and Jiang 

agreed that their common goal was to develop a ‘cooperative, constructive 

relationship,’ with President Bush adding that he sought a relationship that was 

‘candid, constructive and cooperative’.31 Both leaders recognized the 

disagreements between their two countries. Both raised the Taiwan issue, with 

President Bush adding disagreements over the proliferation of missile 

technologies and weapons of mass destruction. The tone suggested that both 

sides believed their differences should be and could be discussed with mutual 

understanding and respect.

Notwithstanding the positive tone of these meetings, the Chinese press 

and journals continued to portray the United States as Beijing’s most difficult 

foreign security problem. In the post-Cold War era, the United States is seen 

as overwhelmingly superior to any other state in its military, economic, 

political and scientific power, and with unmatched influence in international 

politics. With this superior position, the United States is expected to increase 

its power and thereby its ability to intervene in world affairs and sustain its role 

30 Donald H. Rumsfeld, Annual Report to the President and Congress (Washington, D.C.: 

Department of Defense, August 2002), p.12. 

31 ‘Remarks by President Bush and President Jiang Zemin in Press Availability Western Suburb 

Guest House’ (The White House, Office of the Press Secretary, October 19, 2001). 
PAUL GODWIN

91

as the world’s leader.32 This perception can only be confirmed by the 2002 

release of The National Security Strategy of the United States, which commits the 

Bush administration to maintaining military forces so strong that no state can 

surpass or match them.33 The question for Beijing became how to respond to 

the United States’ now dominant military, economic and political power, 

especially when China is identified as the single potential challenger to 

American military pre-eminence in maritime Asia. 

COUNTERING US INFLUENCE 

In seeking to counter US influence in Asia, Beijing fully recognizes that the 

United States is the pre-eminent global power. The multipolarization of world 

power and politics that Chinese analysts had been assessing and hoping for 

over the past 20 years is seen now as possible only in the distant future. Not 

only is the world unipolar, but those states that could form ‘poles’ are most 

often aligned with the United States. In Asia, Japan is allied with the United 

States and India is putting great value on its emerging ties with America. 

Despite their disagreements on a number of economic and security issues, the 

European Union’s members are aligned with the United States. Russia’s 

economy is too feeble and its military too demoralized and growing weaker by 

the year to be considered a pole. More importantly, Russia under President 

Putin has no intention of challenging American pre-eminence, but would 

rather foster a new strategic relationship with the United States.34 Beijing has 

accepted the reality that US ascendance in world politics will continue, most 

likely for decades. This recognition has led to what appears to be a strategic 

debate in China over how to respond effectively to this functionally unipolar 

world.35 Nonetheless, directly challenging US pre-eminence does not appear 

to be at the heart of China’s strategy and policy. As Bonnie Glaser has written, 

the consensus in Beijing is ‘that a confrontational policy toward the US while it 

32 See, for example, Li Zhongjie, ‘Understanding and Promoting the Process of World Multipolarization – Part 3 of ‘How to Understand and Deal with the Current International Strategic 

Situation,’ Liaowang, June 3, 2002. 33 National Security Strategy 2002, p.19. 34 Ibid. It should be noted that as Director of the Department of Scientific Research of the 

Central Party School involved preparing for the upcoming 16th Party Congress, Li Zhongjie’s 

views probably come close to the current assessments held by the CCP leadership. 

35 Jonathan D. Pollack, ‘Chinese Security in the Post-September 11 World: Implications for the 

Asia and the Pacific,’ Asia-Pacific Review 9:20 (November 2002), pp.12-30. 
CHINA AS REGIONAL HEGEMON?

92

occupies a position of unparalleled strength would be counterproductive and 

should be avoided if possible’.36

Accepting the reality of America’s strength, China’s current strategy is to 

restrain the United States’ exploitation of its political, military and economic 

strength. To achieve this goal, Beijing is pursuing two parallel courses of 

action, both of which antedate the second Bush administration. First, Beijing is 

sustaining a two-decade policy of active diplomacy designed to expand China’s 

regional political and economic influence.37 Enlarging China’s influence is seen 

as the most effective way to counter the United States while avoiding direct 

confrontation. Second, the modernization of China’s armed forces is being 

maintained and perhaps accelerated by the double-digit percentage 

augmentation of defense allocations that have permitted increasing 

acquisitions of advanced weaponry from Russia.

Countering American power and influence over the next decade or two 

could well be a near-term objective. Beijing’s long-term purpose could be to 

engage the United States in a strategic competition with the objective of 

supplanting US influence in maritime Asia. If displacing US influence is 

China’s long-term objective, Beijing faces an extremely difficult task. Most of 

the states on Asia’s maritime periphery view China’s growing power, especially 

its growing military capabilities, as their major potential external challenge.38

Their approach to China is therefore one of hedging against the worst possible 

outcome. Only South Korea, with its security focuses on North Korea and 

Japan, does not view China as a probable security problem. 

The hedging strategy pursued by Tokyo consists of engaging Beijing 

economically and politically while relying on its own extremely competent 

forces and Japan’s security alliance with United States to offset China’s 

increasing military strength. Nonetheless, Japan’s apprehension is mitigated by 

the fact that China’s military power, especially its force-projection capabilities, 

is far less threatening than that of the former USSR in the 1980s.39 Tokyo’s 

36 Bonnie S. Glaser, ‘Playing up the Positive On the Eve of the Crawford Summit,’ Comparative

Connections, Vol. 4, No. 3 (October 2002), p.7. 37 Robert Sutter, ‘China’s Recent Approach to Asia: Seeking Long Term Gains,’ NBR Analysis, 

Vol. 13, No. 1 (March 2002). 

38 For Southeast Asia, see Sheldon W. Simon, ‘Southeast Asia,’ in Ellings and Friedberg, 

Strategic Asia, pp.269-297. For Japan, see Eric Heginbotham and Richard J. Samuels, ‘Japan’s 

Dual hedge,’ Foreign Affairs, Vol. 81, No. 5 (September-October 2002), pp.110-121. For India, 

see Ashley J. Tellis, ‘South Asia,’ in Ellings and Friedberg, Strategic Asia, pp.223-267. 39 Kenneth B. Pyle and Eric Heginbotham, ‘Japan,’ in Ellings and Friedberg, Strategic Asia,

pp.95-97.
PAUL GODWIN

93

public policy does not define China as a potential military threat, and China 

continues to be the leading recipient of Japanese aid.40 Moreover, Prime 

Minister Junichiro Koizumi has set as policy the principle that Tokyo would 

work with Beijing to ensure regional stability. In part, this reflects China’s 

status as one of Japan’s most important economic partners. Japanese 

businesses and bureaucrats view China’s economy as complementary to 

Japan’s. Beyond providing raw materials and parts, China is Japan’s second 

largest trading partner and the preferred offshore production base for Japanese 

firms. Political dialogue has intensified as economic ties have deepened. In 

1997, Japan and China agreed to cooperate in the then-new ASEAN + 3 (the 

‘three’ being China, Japan and South Korea) meetings, and in 1998 they agreed 

to annual heads of state meetings and to expand their consultations to include 

security matters. In large part, Japan’s hedging strategy is rooted in the belief 

that China will not be openly confrontational, but for the foreseeable future 

will continue to emphasize economic development and its attendant 

cooperative approach to the world.

The hedging strategy pursued by the major states of Southeast Asia is also 

based on the political and economic engagement of China. Relations with 

Beijing are generally cordial, with trade and commerce expanding. Beijing is 

politically engaged through its participation as a full dialogue partner of the 

ten-member ASEAN (Association of South East Asian Nations), as a member 

of the security-oriented ASEAN Regional Forum (ARF) and the ASEAN + 3 

ministerial sessions. Despite the progress the ASEAN states believe they have 

achieved in persuading Beijing to be a cooperative and responsible partner in 

the region, there remains apprehension over China’s growing military, political 

and economic power. Beijing’s claims to the Spratly Islands and the South 

China Sea are of primary concern.41 Currently, however, with the exception of 

the Philippines, the ten states of ASEAN are not overly worried about China’s 

gradual military buildup. Beijing’s defense modernization programs are seen as 

focused on Taiwan. The South China Sea territorial disputes are not expected 

to become critical until the question of Taiwan is settled. There is, however, 

concern that Chinese military capabilities—driven by Taiwan’s US-supported 

defense modernization and in anticipation of American ballistic missile 

defenses—will one day be employed by China in the South China Sea. 

Consequently, in a manner similar to that of Japan, a sustained US military 

presence in the region is viewed as offsetting China’s burgeoning military 

strength.

40 This discussion is drawn from Heginbotham and Samuels, ‘Japan’s Dual Hedge.’ 

41 The following discussion draws primarily from Simon, ‘Southeast Asia.’ 
CHINA AS REGIONAL HEGEMON?

94

India has long viewed China as its greatest potential military threat; this 

was the driving force behind its ties with the former USSR in the era of SinoSoviet enmity. Border disputes and China’s relationship with Pakistan, 

especially its military assistance and covert support of Islamabad’s missile and 

nuclear weapons program, have been a constant security concern. These 

longstanding tensions have been joined more recently by China’s inroads into 

Burma (Myanmar), which have aroused India’s sensitivity to a Chinese 

presence in the Bay of Bengal. New Delhi’s recently developed ‘Look East’ 

policy is driven by this unease over China’s growing influence in Southeast 

Asia.42 India is the only South Asian state to be a full dialogue partner of 

ASEAN and a member of ARF, and seeks to counter China’s influence by 

expanding its political, military and economic ties in Southeast Asia. 

New Delhi’s hedging strategy, however is distinctly different from that 

pursued by Japan and ASEAN.43 Whereas the Japanese and Southeast Asian 

strategies ultimately rely on the United States to offset China’s growing military 

capabilities, India’s goal is to remain as South Asia’s hegemon and an 

independent power on China’s periphery. The political and economic aspects 

of India’s engagement strategy place foremost emphasis on the political 

component. New Delhi wants to avoid being locked into an antagonistic 

relationship with Beijing and has therefore sought to diplomatically manage its 

longstanding border disputes with China. Economically, India’s focus is 

inward. New Delhi wants to revitalize its economy to provide a strong base 

for its political ambitions and to ensure internal stability. Despite the political 

and military initiatives now embraced by Washington and New Delhi, the 

place of the US in India’s strategy is not as an ally. New Delhi wants a close 

working relationship with Washington, especially access to US military 

technology, doctrine and training, but primarily seeks recognition that India’s 

hegemonic role in South Asia is in the US interest. At the heart of New Delhi’s 

strategy is a commitment to establish India as an autonomous regional and 

global power—not a junior partner in any alliance or security arrangement. 

Despite China’s constant criticism of US alliances and utilization of Asian 

bases and port facilities as demonstrating American ‘Cold War mentality,’ 

Beijing recognizes that the United States’ military presence is welcome in the 

region. Similarly, although Beijing blames the United States for sponsoring the 

image of China as a military threat, its active program of military-to-military 

42 Simon, ‘Southeast Asia,’ p.294. 

43 This discussion is drawn from Ashley J. Tellis, ‘South Asia,’ in Ellings and Friedberg, 

Strategic Asia, pp.223-267. 
PAUL GODWIN

95

diplomacy demonstrates recognition that its own increasing military 

capabilities are the primary cause of regional apprehensions.44 Countering the 

exercise of US political and military strength has therefore involved seeking to 

allay maritime Asia’s fear that China’s growing power will ultimately result in 

an attempt to dominate the region. China’s efforts have been made easier by 

the region’s own strategy of engagement. Beijing’s participation in regional 

multilateral organizations and its push to increase mutually beneficial trade and 

investment with the region have been welcomed—especially following East 

Asia’s 1997 financial crisis. 

China desire to present itself as a good neighbor and responsible member 

of Asia’s multilateral organizations led to Beijing’s introduction of the ‘New 

Security Concept’ (NSC).45 Formulated in the spring of 1997, and occupying a 

prominent place in Beijing’s 1998, 2000 and 2002 defense white papers, the 

NSC is China’s proposal for a post-Cold War security system. Beijing made 

clear that the principles China espouses are in distinct contrast to the United 

States’ ‘Cold War mentality’ seen in its use of military power and alliances as 

the bedrock of Washington’s approach to regional security. In the place of 

military arrangements, Beijing recommends mutual trust, dialogue between 

sovereign states as equals, mutually beneficial economic cooperation, and no 

resort to military threats. Beijing’s 2002 defense white paper summarized 

China’s approach as based on ‘mutual trust, mutual benefit, equality and 

cooperation’.46 Given the apprehensions driving maritime Asia’s hedging 

strategy, it is very unlikely China’s NSC will supplant the confidence derived 

from US forward deployed forces and the alliances and facilities that enable 

their presence. 

A CHINESE ‘MONROE DOCTRINE’?47

Beijing’s diplomacy, economic cooperation and military diplomacy over 

the past decade and more have markedly improved China’s influence 

throughout Asia. China’s relations with Russia, the new states of Central Asia, 

India, Southeast Asia, South Korea and Japan are now the best they have been 

44 A summary of the past two decades of China’s military diplomacy can be found in, ‘China’s 

Military Diplomacy Forging New Ties, ‘Beijing, Xinhua, October 28, 2002, in FBIS-China, 

October 28, 2002. 

45 This discussion draws heavily on David M. Finkelstein, China’s New Security Concept: Reading 

between the Lines (Alexandria, VA: The CNA Corporation, October 29, 1998) 46 China’s National Defense in 2002, p.3. 47 The notion of a Chinese Monroe Doctrine is taken from John J. Mearsheimer, ‘The Future 

of the American Pacifier,’ Foreign Affairs, Vol. 80, No. 5 (September/October 2001), pp.46-61. 
CHINA AS REGIONAL HEGEMON?

96

than at any time since the PRC’s founding in 1949. This increase in Beijing’s 

influence and Asia’s response to China’s initiatives is essentially inevitable. 

China is continental Asia’s dominant power, with a flourishing economy that 

in some ways competes with other Asian economies but also contributes to 

the whole region’s economic growth. Asia’s hedging strategy toward an 

increasingly powerful China stems from the reality that little can be gained and 

much could be lost by pursuing confrontational policies. 

It is unclear whether Beijing views its present success as laying the 

groundwork for an Asian ‘Monroe Doctrine’, in which US involvement in 

regional affairs would be acceptable only with China’s approval. Such a 

doctrine would be plausible only if China had the military capability to enforce 

it. Assuming China remains politically stable and its economy continues to 

expand and technologically advance over the coming two decades, Beijing will 

have the resources required to support the research and development (R&D) 

programs and manufacturing capabilities required for a post-industrial 

economy. This same economy will be capable of supporting a sophisticated 

military-industrial complex. Furthermore, if China continues its present 

approach to defense modernization, over the next two or three decades 

Beijing’s armed forces will be increasingly equipped with arms and supporting 

systems allowing them to contest US military pre-eminence in maritime Asia.

The American military presence in the Western Pacific is that of an extraregional power using its force-projection capabilities and access to regional 

facilities to sustain a forward deployment. China’s defense modernization 

programs seem deliberately designed to threaten US forward deployed forces 

and the regional foreign-hosted infrastructure required to sustain and augment 

them in times of military crises. The programs of greatest concern to the 

United States, many of which originated in the 1950s and 1960s, are: 48

x R&D in space systems to develop wide-area space-based intelligence, 

surveillance and reconnaissance (ISR) systems. 

x R&D in anti-satellite weapons. 

x Cruise missile programs dedicated to improving the range and accuracy of 

land, air and ship-launched weapons. 

x Ballistic missile programs that seek to improve the reliability, survivability 

(mobile systems), accuracy and response times of tactical, regional and 

intercontinental-range weapons to augment or replace current systems. 

48 This discussion is drawn primarily from Report to Congress, Annual Report on the Military 

Power of the People’s Republic of China (Department of Defense, Washington, D.C. July 2002). 
PAUL GODWIN

97

x Continuing R&D on nuclear-powered ballistic missile and attack submarines 

to augment or replace older ships now in service. 

x Acquisition and development of advanced diesel-electric submarines armed 

with submarine-launched cruise missiles and guided torpedoes to augment or 

replace older ships in service. 

x Development and acquisition of more capable naval surface vessels armed 

with advanced anti-ship cruise missiles for offensive missions. Because 

destroyers and frigates currently in service are deficient in air defenses and 

anti-submarine warfare capabilities, we should anticipate significant 

improvements in these realms over the coming decade. 

x Air-power programs that develop and acquire technologically sophisticated 

multiple-role combat aircraft together with airborne warning and control 

system (AWACS) aircraft and aerial refueling to increase their effectiveness 

and combat radius.

x Ground-force programs that update armor and artillery weapons; 

development and deployment of helicopter aviation units; improved airlift 

capabilities for paratroop units; introduction of special operations forces; and 

increased amphibious warfare capabilities. 

x R&D on offensive and defensive information operations. 

x R&D and employment of improved command, control, and communications 

systems.

x Exercises designed to prepare the PLA for the joint operations essential for 

force projection and offshore defense.

It is correct to assume from Beijing’s declared security priories and PLA 

exercises over the past several years that the current defense modernization is 

focused on a potential conflict in the Taiwan Strait, most likely involving US 

forces. Over the long-term, however, these same programs have a wider 

significance for the region and the United States. Beijing does not now plan to 

match the military capabilities of the United States with its commitment to 

global force projection. Nonetheless, the trajectory of China’s military R&D 

and acquisitions does suggest that Beijing is seeking at a minimum the 

capability to implement an ‘area denial’ strategy along China’s maritime 

periphery.

The purpose of the strategy would be to make it extremely hazardous for 

US naval forces to operate inside an approximately 600-mile buffer zone off 

China’s coast.49 Space-based ISR will permit the PLA to locate and track 

49 See Bernard D. Cole, The Great Wall at Sea: China’s Navy Enters the Twenty-First Century

(Annapolis, MD: Naval Institute Press, 2001), pp.165-176, for a more detailed discussion of 

this strategy. 
CHINA AS REGIONAL HEGEMON?

98

surface forces that approach China, exposing them to attack by ship- and airlaunched long-range cruise missiles. Modern, quiet submarines will be armed 

with guided torpedoes and cruise missiles. The foreign-hosted military 

facilities granting US forces much of their sustainability and land-based air 

power will be susceptible to targeting by extremely accurate conventionally 

armed cruise and ballistic missiles. Fourth-generation combat aircraft together 

with AWACS and aerial refueling will give China greater effectiveness in the 

air in both offensive and defensive missions. This area denial strategy will be 

backed by a nuclear deterrent credible in the face of US ballistic missile 

defenses. In short, US dependence on maritime force projection and foreignhosted bases could be exploited by the capabilities China is now developing. 

These same capabilities will allow China to operate far more effectively in 

defense of its maritime claims and sea lines of communications. 

The defense of China’s continental periphery will be equally improved by 

current defense modernization programs. Upgraded ground-force weapons 

and mobility, combined with multiple-role combat aircraft and space-based 

ISR, provide the basis for a quick-reacting lethal response to any border 

confrontation. Force projection beyond the immediate border area is not a 

Chinese concern—Beijing’s intent is to make an adversary’s initiation of a 

military conflict along any part of China’s borders a dangerous endeavor. 

Although China’s potential to challenge US military pre-eminence in 

maritime Asia is clearly present, it is uncertain whether Beijing will attempt to 

employ its future military capabilities to eliminate the United States as Asia’s 

offshore balancer and establish China’s regional hegemony. As John 

Mearsheimer has suggested, Beijing would first have to assess whether the 

costs and risks involved in the process of eliminating the United States are 

greater or less than the benefits accruing from hegemony.50 Past assessments 

suggesting that a powerful China will seek hegemony have based a major part 

of their argument on the probable post-Cold War reduction of US forces in 

East Asia.51 Because of the American perception that China is the single Asian 

state most likely to become the United States’ strategic competitor, such a 

force reduction has not occurred and is unlikely to take place in the 

foreseeable future. The US Defense Department’s current QDR and Annual 

Report to the President and Congress make this US apprehension clear despite the 

50 Mearsheimer, ‘Back to the Future,’ p.13. 51 See, for example, Denny Roy, ‘Hegemon on the Horizon? China’s Threat to East Asian 

Security’, International Security, Vol. 19, No. 1 (Summer 1994), pp.149-168. 
PAUL GODWIN

99

thaw in Sino-American relations that emerged as the Bush administration 

sought China’s assistance in its war on terrorism. 

Moreover, when speculating on potential Chinese military capabilities as 

far distant as two or three decades hence, it must be recognized that Asia and 

the United States will not have stood still in those years. US forces are 

undergoing continuous modernization, and current planning is aware that 

reliance on foreign-hosted facilities to sustain forward deployments in the 

Western Pacific is a liability. Assuming no regional economic collapse, many 

Asian states will be building their own military strength. In particular, Japan 

and nuclear-capable India will be bolstering their capabilities, as will the major 

states of Southeast Asia. If the current mistrust of China’s future course is not 

alleviated, Beijing will continue to face a regional hedging strategy in which the 

defense establishments on Asia’s maritime periphery are militarily more 

capable and many governments look to the United States to counter China’s 

military power. These decades also provide Moscow the opportunity to 

recover from its current economic dilemmas and begin reasserting its power 

and influence in the Asia-Pacific. 

Looking ahead two decades, it is far more probable that Asia will become 

multipolar than remain bipolar or subjected to Chinese hegemony. Russia and 

India are potential great powers with important security interests in Asia and 

would oppose Chinese hegemony. There is the remote possibility of a SinoRussian alliance to oppose the United States, but this would be costly for 

Russia’s European interests. Moreover, the history of Sino-Russian relations 

over the past 150 years suggests that both Moscow and Beijing would view 

their partner with doubt and suspicion, making such an alliance inherently 

fragile. Japan would not want Chinese hegemony and would therefore sustain 

some form of its current security relationship with the United States. Nor 

would the states of Southeast Asia desire Chinese hegemony. Too weak 

individually or collectively to confront China, Southeast Asian states would 

rely on external powers to constrain Beijing. 

IMPLICATIONS FOR US POLICY 

Despite the present spirit of rapprochement, mutual apprehension remains 

the fundamental characteristic of Sino-American relations. The United States 

has good reason to be apprehensive over the course China may follow when it 

achieves the level of economic, technological, scientific and military capability 

it seeks. Although currently obscured by Beijing’s pragmatic response to 

Washington’s overwhelming political, economic and military power and its 
CHINA AS REGIONAL HEGEMON?

100

need for US trade and investment, China’s opposition to American preeminence is clear. Not only is China’s opposition to the United States evident, 

but Beijing’s military modernization programs also appear to be specifically 

focused on countering the US maritime strategy and the foreign-hosted bases 

enabling that strategy in the Western Pacific.

China’s apprehension over US strategic intentions may well be misplaced, 

but Beijing has good reason to be suspicious. Much of US policy and strategy 

goes against Beijing’s interests. American arms transfers to Taiwan have been 

accelerated and the Bush administration is pursuing much closer military ties 

with Taipei than any administration since the mutual security pact between 

Taiwan and the United States was terminated in 1979. The high priority the 

Bush administration has placed on developing national and theater ballistic 

missile defenses does threaten the credibility of China’s small nuclear deterrent 

and its much larger inventory of theater weapons. Until the recent thaw in 

Sino-American relations, the Bush administration’s hostility toward China was 

evident.

Nonetheless, the pragmatic approach adopted by Washington and Beijing 

as they now approach each other can be sustained as they develop strategies 

and policies for Asia. Longstanding US policy and strategy in Asia has been to 

prevent hostile domination of the East Asian littoral.52 The United States has 

never had the strategic objective of becoming the hegemon of Asia. Asia is 

simply too vast and complex to set such a goal. US policy has been to prevent 

the rise of a regional hegemonic power or coalition of powers. Thus, whereas 

the United States would oppose a Chinese thrust for hegemony, a multipolar 

Asia would be, or should be, as acceptable to the United States as the current 

bipolar Asia. Whether Beijing would find a future multipolar Asia acceptable 

for its security interests cannot be determined at this time. To the extent that a 

multipolar Asia has diminished US influence, there is good reason to believe 

that China would find that arrangement acceptable. 

What does seem to be evident is that the United States must sustain its 

strategy and capability to function as the offshore balancer to China’s growing 

power. Beijing’s progress toward an effective area-denial strategy does more 

than complicate US plans to provide Taiwan assistance in the event of an 

unprovoked attack. It also can raise doubt in Asia about the willingness and 

ability of the United States to sustain its offshore balancing role. A robust US 

military presence is therefore essential if Asia is to maintain its confidence in 

the United States. This, however, will entangle the United States and China 

52 This objective is stated in the current QDR, p.4. 
PAUL GODWIN

101

even further in the present security dilemma, in which actions taken by one as 

defensive are seen by the other as offensive. 

Purely military responses to each other’s military deployments will not 

resolve this dilemma. As the United States adjusts its force deployments in 

response to China’s increasing military capabilities and the need to reassure 

Asian allies and friends, it must also engage Beijing in high-level discussions of 

Asian security. Without such discussions, the mutual apprehension underlying 

Sino-American relations will only increase bilateral tensions and arms 

proliferation and enhance the potential for military conflict. The recent 

decision by Washington and Beijing to revive their suspended Defense 

Consultative Talks is an encouraging step toward restoring the high-level 

strategic dialogue required to ease the risks of mutual apprehension.53

53 Nathan Hodge, ‘US, China To Resume High-Level Military Talks,’ Defense Weekly Daily 

Update, October 28, 2002. 
THE PROBLEMS AND POTENTIAL OF THE 

PACIFIC ISLANDS FORUM

ERIC SHIBUYA

INTRODUCTION

The Pacific Islands Forum (PIF) can be justifiably proud of much of its

accomplishments as a regional organization. Since its founding in 1971, the 

PIF (formerly the South Pacific Forum, and usually referred to simply as ‘the 

Forum’) has been the major avenue for the small island states of Oceania to 

assert a collective voice on major international issues, thereby amplifying their

voice and impact. It has been through the Forum that positions on nuclear

testing, climate change, fisheries, and other security and/or environmental 

issues have been articulated and pushed in the international arena. The pattern 

of cooperation developed among the countries in Oceania is well established

and should provide many lessons for other regions. On the other hand, many 

critics view the Forum as an example of unrealized potential, of an 

organization of endless (and useless) discussion, where talk has replaced action

as the measure of effectiveness. The Forum, it is argued, has refused to take 

the next step in its evolution, from regional organization to regional 

community.

This chapter will weigh the prospects for the development of a regional

community. It will trace the historical development of cooperation in Oceania

and the evolution of the Forum as an actor in regional and international

politics. The structural and institutional obstacles to the Forum’s development 

beyond a regional organization towards a regional community will then be 

articulated, with some concluding remarks on the future of the Forum and its 

potential development.

THE COLONIAL CONTRIBUTION IN DEVELOPING 

REGIONAL COOPERATION IN OCEANIA 

Greg Fry has accurately noted, ‘the full story of South Pacific regional

cooperation cannot... be told solely as the history of the Forum in the way 

one might equate South-East Asian cooperation with ASEAN.... Much of the 

narrative should in fact be concerned with the politics of relations between

102
ERIC SHIBUYA

103

regional institutions and the political interests they represent’.1 The 

accomplishments of the Forum have often been credited to its overarching 

philosophy of the ‘Pacific Way’. Michael Haas has called the Pacific Way a 

system of ‘unanimous compromise,’ where everyone sacrifices something for 

the overall benefit of the whole and all decisions are made by consensus.2

Although many government officials have ascribed to the Pacific Way a legacy 

extending to precolonial, precontact times, its actual development is more 

accurately traced to the aftermath of World War II. The colonial powers of the 

region (the United States, France, the Netherlands,3 United Kingdom,4

Australia and New Zealand) organized a ‘South Seas’ conference in 1947 and 

developed an organization for the welfare of their holdings. The organization 

was called the South Pacific Commission (SPC, or simply the Commission) 

and it was designed to provide technical advice on economic and social issues.5

Discussion of ‘political’ issues remains strictly prohibited under the SPC’s 

charter, and meetings originally only included the administering powers of the 

region. Representatives from the islands met with the administering powers 

triennially at the ‘South Pacific Conference’ where the islands were able to 

make their views known about policies initiated by the SPC, but this was 

almost inevitably after the fact. (Meetings of the Commission and Conference 

did not even take place at the same time in the years the Conference met). 

When Western Samoa became independent in 1964, a question arose as to 

where it should be placed—should it remain in the Conference (and essentially 

have no voice) or become a full member of the Commission? The eventual 

decision was to give Western Samoa membership in both organizations, but 

this led to questions for the future. Concern rose that the remaining islands 

would seek independence ‘too soon’ in order to gain full membership into the 

SPC.6

1 Greg Fry, ‘International Cooperation in the South Pacific: From Regional Integration to 

Collective Diplomacy,’ in W. Andrew Axline ed., The Political Economy of Regional Cooperation

(London: Pinter, 1994), p.137. 

2 Michael Haas, The Pacific Way: Regional Cooperation in the South Pacific (New York: Praeger, 

1989). Cook Islands Prime Minister Albert Henry coined the term in 1975. 

3 The Netherlands would leave the SPC when it relinquished control of Netherlands New 

Guinea (West Papua/Irian Jaya, subsequently integrated into Indonesia) in 1962. 4 The United Kingdom withdrew from the SPC in 1996 but rejoined in 1998. 

5 The organization is now known as the Secretariat for the Pacific Community, and the 

acronym obviously is unchanged. 

6 Herbert Corkran, Mini-Nations and Macro-Cooperation: The Caribbean and the South Pacific

(Washington D.C.: North American International, 1976), p.147. 
THE PACIFIC ISLANDS FORUM

104

The ‘no politics’ restriction on discussion in the SPC was the source of 

great dissatisfaction for the nascent leadership from the islands. The most 

pressing issues for the islands were clearly political ones involving larger 

questions of decolonization, but the greatest concern was nuclear testing by 

France.7 Matters came to a head at the 1965 meeting in Lae, Papua New 

Guinea, when Ratu Sir Kamisese Mara of Fiji led a major push from the island 

representatives to give the Conference more relevance in the actions of the 

SPC beyond its existing ‘advisory’ capacity. The ‘Lae Rebellion’ was ‘the first 

concerted effort by Pacific Islanders to protest against the structures in the 

SPC which ensured dominance by the colonial powers’.8 Mara was also the 

driving force behind the creation in 1965 of the first indigenously motivated 

‘islands-only’ regional organization, the Pacific Islands Producers Association 

(PIPA). Formed by Fiji, Tonga, and Western Samoa outside of the domain of 

the SPC, PIPA provided a unified front for negotiating the prices of common 

agricultural products for export. 

Faced with increasing irrelevance, the SPC did evolve in an attempt to 

meet these new challenges and demands from the island states. From 1967 

onward, meetings of the Conference and Commission were held together, and 

the difference between the two bodies essentially disappeared by 1974.9

Despite these reforms, it was clear the SPC’s charter made the organization 

too limited to deal with all of the issues confronting the region, and the South 

Pacific Forum was founded in 1971 as an attempt to address these rising 

challenges.

THE SOUTH PACIFIC FORUM 

The first meeting of the South Pacific Forum was held in Wellington in 

August 1971. Attending the gathering were representatives of the Cook 

Islands, Fiji, Nauru, Tonga, and Western Samoa, as well as Australia and New 

Zealand.10 Despite it being held in Wellington, New Zealand (and Australia) 

technically attended the first Forum meeting as observers, though both 

countries were recognized as full members a year later at the second meeting in 

7Although the US had tested nuclear weapons in the Pacific, those tests ended in 1962. 

8 Greg Fry, ‘The Politics of South Pacific Regional Cooperation,’ in Ramesh Thakur, ed., The

South Pacific: Problems, Issues, and Prospects, (New York: St. Martin's Press, 1991), p.173. 9 Corkran, Mini-Nations and Macro-Cooperation, p.149. The administering powers still maintained 

the upper hand in the SPC due to its budgetary control. 

10 The respective Head of Governments attended for all of the island nations, as well as the 

Prime Minister of New Zealand. Australia’s representative for this first meeting was its 

Minister for External Territories. 
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Canberra.11 The initial arrangement was due to questions as to whether 

Australia and/or New Zealand would or should be full members of this new 

organization. It was recognized, however, that inclusion of Australia and New 

Zealand as full members of the Forum would maximize the influence the 

island states would have on their larger neighbors.12 Additionally, Australia and 

New Zealand would be the major sources of funding for the new organization 

(each provides one-third of the Forum’s annual operating budget, with the 

island states collectively providing the remaining third) and both were 

expected to give voice to regional concerns in other international gatherings. 

The Forum has no formal constitution and technically therefore has no 

legal personality in international relations.13 Far from a shortcoming, this fact is 

often listed as one of the strengths of the Forum because it gives the 

organization flexibility; all topics are up for discussion. Also, having no formal 

voting structure encourages decision making by consensus. The perceived 

benefits notwithstanding, the lack of legal personality may have been one of 

the major reasons for the establishment of the South Pacific Bureau for 

Economic Cooperation (SPEC), which would eventually adopt the role of 

secretariat for the Forum.14

Although the original motivation behind the Forum’s creation was an open 

discussion of political issues (nuclear testing and decolonization, in particular), 

the initial practical impact of the Forum came in the area of economics. 

SPEC’s original function was to enhance the export capacity of the island 

states, absorbing the duties of PIPA until the latter organization was eventually 

terminated in 1974. The South Pacific Regional Trade and Cooperation 

Agreement (SPARTECA) was opened in 1980, an early attempt by the 

countries of the region to adapt to the shifting forces of economic 

globalization.

The early emphasis of the Forum itself had thus primarily been regional; 

developing connections as a region (especially economically) was the major 

focus of discussion. For example, the need to coordinate regional aviation and 

shipping, as well as to alleviate costs in these industries, led to cooperative 

11 Brij Lal and Kate Fortune, eds., The Pacific Islands: An Encyclopedia (Honolulu: University of 

Hawaii Press, 2000), p.332. 

12 Fry, op.cit., p.140. 13 Richard Herr, ‘Regionalism and Nationalism,’ in K.R. Howe, Robert C. Kiste, and Brij Lal, 

eds., Tides of History: The Pacific Islands in the Twentieth Century (Honolulu: University of Hawaii 

Press, 1994), p.286. 

14 Ibid., p.286-287.. The Forum designated SPEC as its secretariat in 1975, and in 1988 the 

body was officially renamed the Forum Secretariat. 
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efforts in the establishment of Air Pacific and the Pacific Forum Line (PFL). 

Issues with the coordination of telecommunications within the region led to 

the organization of an annual Regional Ministers Meeting on 

Telecommunications. In the larger sense of building connections and a sense 

of the region as a unified whole, the University of the South Pacific (USP) has 

evolved into an institution of indigenous learning. 

It was really only as the Forum entered its second decade that it began to 

stretch its efforts as an organization into the international realm. The Forum 

Fisheries Agency (FFA) was founded in 1979 to provide a central point for 

information sharing and to serve as the chief negotiating body between Forum 

members and Distant Water Fishing Nations on licensing agreements to fish in 

the large and tuna-rich Exclusive Economic Zones (EEZs) of the Forum 

nations.15 The region was finally able to coalesce its opposition to French 

nuclear testing into legal expression with the South Pacific Nuclear Free Zone 

(SPNFZ) Treaty in 1985. The Forum also provided strong statements calling 

for action to deal with climate change, especially during the run-up to the 1992 

‘Earth Summit’ in Rio de Janeiro. The issue was first raised as a concern for 

study in the Forum’s 1988 communiqué.16 Three years later, the Forum would 

call global warming and sea level rise ‘the most serious environmental threats 

to the Pacific region’.17

Certainly, the Forum has done much in its thirty years of existence. 

However, despite these accomplishments, the Forum has been hampered by 

lack of capacity, national interests overriding regional benefits, and the ability 

of single nations to exercise a de facto veto, thereby watering down Forum 

statements for the sake of ‘Pacific Way’ consensus. While the Forum has 

proven an effective avenue for small island states to amplify their voices (with 

15 A brief outline of the development of the FFA can be found in Christopher Jasparro and 

Eric Shibuya, ‘Environmental Security and Ingenuity in the Pacific: Case Studies of Local 

Biodiversity Protection and Regional Fisheries Management,’ Regional Development Dialogue 23, 

no.1 (2002): 1-17. 

16 Climate change was becoming a prominent issue in 1988, with a conference on ‘The 

Changing Atmosphere: Implications for Global Security’ convening in Toronto in June. Also 

that month, James Hansen, head of NASA’s Goddard Institute of Space Studies sparked a 

major debate when he testified before the US Senate Energy Committee and stated he was ‘99 

percent certain’ the warm temperatures of the 1980’s were the byproduct of global warming 

(Ian H. Rowlands, The Politics of Global Atmospheric Change (Manchester and New York: 

Manchester University Press, 1995), p.73). 

17 Forum Communiqué, 1991. Twenty-Second South Pacific Forum, Palikir, Pohnpei, 

Federated States of Micronesia, 29-30 July. Texts of Forum Communiqués can be found on 

the Forum Secretariat website: http://www.sidsnet.org/pacific/forumsec/docs/docs.htm.
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the aid of middle powers Australia and New Zealand) in the international 

arena, the record of the Forum as a regional organization should give one pause 

in considering the viability of Oceania as a growing regional community.

FAILING TO MAKE CONNECTIONS: THE REGIONAL 

INFRASTRUCTURE QUESTION 

Although the leaders of the island states continually assert that the Forum 

allows them to unify and harmonize their voices and work together, many of 

the shortcomings of the Forum have been due to the propensity of one or 

more of its membership to take unfair advantage (or be perceived as taking 

unfair advantage) of the benefits derived from Forum projects. Air Pacific, for 

example, was originally conceived as the regional airline to service the island 

states. However, as Ron Crocombe has noted, Air Pacific’s ‘collapse as a 

regional airline and takeover by Fiji as a national airline, can be attributed to 

several factors, the biggest being the inequitable distribution of benefits’.18 In 

Air Pacific’s case, Fiji controlled the employment of airline staff and required 

all routes to be flown through Fiji, thus curbing its usefulness to other island 

nations, as well as shattering any façade that Air Pacific was in fact a regional

body.

The bitter experience of Air Pacific left the island states wary of other 

regional transportation projects. As a result, shipping proposals were 

continually put off or rejected outright. Finally the Forum agreed in 1977 to 

establish the Pacific Forum Line, with each nation owning individual ships but 

those ships being leased to the PFL. While the leasing plan kept the PFL from 

falling victim to the inequities that befell Air Pacific, the PFL as a fully regional 

shipping line was not economically viable and would have collapsed without 

heavy subsidies and loans. In 1982, the PFL undertook substantial 

capitalization with a US$6 million loan from the European Investment Bank 

and an additional US$12.6 million from Australia, New Zealand, and seven 

island investors. The PFL currently operates on a commercial basis and has 

had marginal success, running its first surplus in 1985. The PFL returned 

dividends to its shareholders in 1988 and 1996.19

The University of the South Pacific, meanwhile, has not lived up to its 

potential as a regional institution of higher learning. Again, inequitable 

distribution of benefits stirred increasing dissatisfaction with the USP, 

18 Ron Crocombe, The South Pacific (Suva: University of the South Pacific, 2001), p.607. 19 Lal and Fortune, op.cit., p.389. 
THE PACIFIC ISLANDS FORUM

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especially evident on its main campus in Fiji.20 Fiji’s immigration policies 

meant that employment again went mostly to Fiji nationals, as well as the bulk 

of the scholarships. USP has also not been immune to domestic tensions 

within Fiji, as shown in incidents of violence in the aftermath of the coups in 

1987 and the attempted coup in 2000. Then-President of the USP Students 

Association Veresi Bainivualiku was the center of the 2000 controversy with 

alleged connections to the Speight rebellion as well as accusations of assault on 

an Ethnic-Indian Fijian student, among other questions.21 In light of these 

events, the USP Council put forward in 2000 recommendations on ways to 

create a ‘Pan-Pacific’ identity at the university. These are currently under 

review.22 Whether or not such an identity can be instituted deliberately in a 

top-down fashion is questionable. However, the point is that it is recognized 

that the USP has fallen far short in an area that is a cornerstone of its 

educational philosophy and purpose. 

NATIONAL INTERESTS OVER REGIONAL CONCERNS 

The unequal distribution of benefits found in the Air Pacific and USP 

experiences are an example of a nation placing national advantage over 

regional benefits, but Fiji is not the only country guilty of using this tactic 

within Oceania (or anywhere else, for that matter). While the Pacific Way is 

supposed to bring about flexibility and compromise, the strong desire for 

consensus (at times for its own sake, it seems) gives each Forum member a de

facto veto during the Forum meetings, thus weakening the collective unity and 

power of the Forum. For example, in the mid-1980s, although the countries of 

the region were united in their opposition to French nuclear testing, the stance 

of each country regarding the larger question of nuclear deterrence varied 

rather significantly. Governments in Australia, Fiji, and Tonga were strong 

supporters of the United States and the nuclear umbrella that it provided. 

Vanuatu was very much against any aspect of ‘nuclearism’ in the region, a term 

coined by then-PM Father Walter Lini to describe the extension of colonial 

power through the US military presence. Although New Zealand received 

most of the international headlines due to its anti-nuclear stance resulting in 

the end of the trilateral Australia-New Zealand-United States (ANZUS) 

20 Crocombe, op.cit, p.247-251. 21 USP News, ‘Daily Post Calls for ‘Truth’ at USP,’ 23 August 2000, 

http://www.sidsnet.org/pacific/usp/journ/docs/news/usp3.html. Accessed 3 January 2003. 22 Tamani Nair, USP News, ‘USP Has ‘Full-On’ Programme in Spite of Political Crisis,’ 1 

September 2000, http://www.sidsnet.org/pacific/usp/journ/docs/news/usp11depvc.html.

Accessed 3 January 2003. 
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alliance, the Lange Government actually attempted to craft its stance as nonnuclear, but not anti-ANZUS.23 The SPNFZ Treaty is an attempt to produce a 

document that exhibited unified resistance to French testing but left the US 

issue slightly more ambiguous. Some analysts criticized the treaty as being too 

much a by-product of the Australian position, arguing that the Hawke 

government had forced the creation of the SPNFZ Treaty in such a manner as 

to protect its military alliance with the US and its uranium exports.24 The 

resulting treaty came under fire from both the conservative and radical camps, 

with Tonga (arguing that it went too far) and Vanuatu (arguing that it did not 

go far enough) both refusing to sign the treaty when it was first opened.25

Both Australia and New Zealand, being former colonial powers in the 

region, have occasionally had image problems in the South Pacific, and both 

have at times been perceived as overbearing, condescending, or even 

hegemonic.26 New Zealand has generally been more sensitive to this issue, and 

as a consequence has been seen as more a part of Oceania than Australia. That 

said, New Zealand has had recent splits with the island states, notably on 

questions of democracy and (from the view of the islanders) issues of 

indigenous rights. Most notably, New Zealand Prime Minister Helen Clark 

declared prior to the 2000 Forum Meeting that she would not ride to the 

leaders’ retreat on the same boat with Fiji PM Laisenia Qarase, who had been 

installed in the aftermath of the coup. As a result, two boats were used, but 

Clark and John Howard rode on one boat, while the other island states’ heads 

of government rode with Qarase. As Firth says, ‘the incident underlined the 

extent to which Clark, and in smaller measure John Howard, were under 

domestic pressure to parade their democratic credentials when in the Pacific, 

23 For an expanded articulation of this position, see David Lange, Nuclear Free--the New Zealand 

Way (Auckland: Penguin, 1990). 24 The most articulate version of this argument is found in Michael Hamel-Green, The South 

Pacific Nuclear Free Zone Treaty: A Critical Assessment (Canberra: Peace Research Centre, Research 

School of Pacific Studies, Australian National University, 1990). For an analysis that views the 

treaty’s construction more pragmatically, see Greg Fry, ‘Regional Arms Control in the South 

Pacific,’ in Desmond Ball and Andrew Mack, eds., The Future of Arms Control (New York: 

Pergamon Press, 1987). 

25 This could be taken as a sign that ‘unanimous compromise’ was achieved in the negotiations. 

26 See Rosaleen Smyth, Nii-K Plange, and Neil Burdess, ‘Big Brother? Australia's Image in the 

South Pacific,’ Australian Journal of International Affairs 51, no. 1 (1997): 37-52 and Jim Rolfe, 

‘New Zealand and the South Pacific,’ Revue Juridique Polynesienne 1 (2001): 157-169. 
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and the tendency of Island leaders to stick by their own in the face of foreign

criticism’.27

Australia has hurt its image by holding fast on the issue of climate change. 

During early discussions, both Australia and New Zealand were supporters of 

reduced greenhouse-gas emissions and both countries had even endorsed what 

was then known as the ‘Toronto Target,’ a pledge to cut emissions by twenty 

percent from 1990 levels by the year 2000.28 The Forum had issued 

unequivocal statements of concern on the threat of climate change and sealevel rise, but things would change as the issue moved from agenda setting to 

policy formulation. The 1991 Communiqué called for ‘significant and 

immediate reductions’ of greenhouse gases, especially carbon dioxide, as well 

as pointing to the responsibility of the industrialized countries to take the 

initial steps to mitigating climate change.29 A year later, after the negotiations in 

Rio, the Forum urged the early negotiations of protocols that address, ‘in 

particular, the issue of targets and timetables for the reduction of carbon dioxide 

and other greenhouse gas emissions’.30 The call for binding protocols 

establishing set targets and timetables for achieving reductions in greenhouse 

gases would be repeated the next year, though the language would be toned 

down in following communiqués. On the eve of the climate meeting in Kyoto, 

the Forum had a chance at their meeting in Rarotonga to issue a strong 

statement on climate change and perhaps build some international sentiment 

for a strong protocol. However, Prime Minister John Howard of Australia had 

already publicly stated that he would not agree to any statement on binding 

targets for greenhouse-gas reductions for fear that the Australian economy 

would be damaged.31 The Forum leaders’ statement on climate change is a 

completely uncontroversial document, recognizing ‘deep concerns’ about the 

impacts of climate change and ‘urged all participants at the forthcoming Kyoto 

Conference to pursue vigorously an outcome which would produce the 

highest level of net reduction in global greenhouse emissions’.32 Tuvalu’s 

Prime Minister Bikenibeu Paeniu said after the statement was issued, ‘Australia 

27 Stewart Firth, ‘A Reflection on South Pacific Regional Security, Mid-2000 to Mid-2001,’ 

Journal of Pacific History 36, no. 3 (2001), p.278, emphasis added. 28 The target would later be called the ‘AOSIS Protocol,’ named after its proposal by the 

Alliance of Small Island States (AOSIS). 

29 Forum Communiqué, 1991. 30 Forum Communiqué, 1992. Twenty-Third South Pacific Forum, Honiara, Solomon Islands, 8-9 

July, emphasis added. 

31 Bernadette Hussein. ‘The Big Retreat,’ Pacific Islands Monthly, November 1997, p.11. 32 Forum Leaders’ Retreat Statement on Climate Change, 1997. Annex I of 28th South Pacific 

Forum Communiqué, Rarotonga, Cook Islands, 19 September. 
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dominates us so much in this region. For once, we would have liked to have 

got some respect’. Howard, on the other hand, remarked that ‘there were a 

range of views, but in the end there was consensus’.33 Howard’s actions at the 

1997 Forum are perhaps more infamous within the region for how he acted 

rather than what he said. At the leaders’ welcome dinner, dancers came to each 

leader and brought them up to the floor. Howard refused to move from his 

seat.34 The awkward situation only further highlighted the gap between 

Australia and its island neighbors. 

THE SOVEREIGNTY OBSTACLE 

Quite similar in many respects to ASEAN, there is a strong reluctance in 

the Forum to deal with matters internal to another country. While there are no 

official limitations or pledges of ‘noninterference,’ the Forum has generally 

respected the internal sovereignty of its members. Indeed, the one successful 

example of Forum intervention was the 1980 secession in Vanuatu, which was 

quelled by members of the Papua New Guinea defense force, with Australia 

providing logistical and transportation support.

This situation has not gone without criticism from within the Forum itself, 

however. Former New Zealand Prime Minister David Lange is reported as 

commenting that, ‘in no circumstances will anything be discussed, no matter 

how important, which involves the internal affairs of a member. We met in 

Apia in 1987, shortly after the Fiji coup and pretended it hadn’t happened’.35

Indeed, the Forum Communiqué of that year stated the ‘deep concern and 

anguish... felt over recent events involving the overthrow of the elected 

Government in Fiji’. In a comment regarding any role the Forum might play in 

resolving the crisis, the only thing mentioned explicitly was a Forumsponsored mission sent to Fiji to hold ‘discussions with all parties in Fiji with a 

view to attempting to facilitate processes leading to a resolution of current 

problems’.36 Furthermore, the mission would only be sent at the request of 

Fiji’s Governor-General. 

The 1987 coups in Fiji were not the only instance of the Forum avoiding 

an internal matter of one of its members. Papua New Guinea (PNG) had been 

dealing with a secessionist movement in the province of Bougainville that had 

escalated into a full-scale civil war in 1989. Despite the loss of life and 

33 Hussein, op.cit., p.11. 34 ‘Editorial: 28th South Pacific Forum: Australia Calls the Tune,’ Pacific Islands Monthly,

November 1997, p.5. 

35 ‘Pacific Forum goes on Trial,’ Dominion (NZ). 27 October 2000, p.10. 36 Forum Communiqué, 1987, Eighteenth South Pacific Forum, Apia, Samoa, 29-30 May. 
THE PACIFIC ISLANDS FORUM

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evidence of human rights abuses on the part of both the Bougainville 

Revolutionary Army and the PNG Defense Force, the Forum made no 

comment on Bougainville until 1997, and the reference then was to peace talks 

being put in place.37

SOME SOUND AND FURY: REGIONAL STATEMENTS 

Most major internal security issues have been ignored or avoided by the 

Forum. The focus has been on issues like French nuclear testing and 

decolonization issues such as New Caledonia. The Forum has issued three 

major statements on security and security cooperation. The 1992 Honiara 

Declaration on Law Enforcement Cooperation was the first. As its title 

suggests, however, its focus was on developing methods of cooperation to deal 

with transnational crime issues. Major concerns included drug trafficking and 

money laundering, and discussions about mutual assistance were welcomed, 

but the Declaration was never implemented.38 Five years later, the 1997 Forum 

issued the Aitutaki Declaration on Regional Security Cooperation. Again, it 

only specifically mentioned environmental disasters and transnational crime 

issues. Finally, the Biketawa Declaration was issued at the 2000 Forum. 

Coming in the aftermath of the overthrow of Fiji’s elected Chaudhry 

government in May, both Australia and New Zealand pushed for a strong 

statement and an attempt at developing guidelines to assist on internal security 

matters. Although the main communiqué itself provided little comment on Fiji 

or other security issues (the communiqué mentioned the Townsville Peace 

Agreement on the Solomon Islands and ‘welcomed the effort and 

commitment to date by the Fiji Interim Government to return the country to 

constitutional democracy and looked forward to further progress in these 

efforts39’), Biketawa may be read as giving the Forum a larger role to play in 

the kinds of regional security issues it has previously avoided. 

Biketawa commits Forum member countries to guiding principles 

including good governance, equality of all individuals under the law, and 

37 ‘The Forum warmly endorsed the recent efforts made by the Government of Papua New 

Guinea in restoring peace to the island and expressed its readiness to assist Papua New Guinea 

wherever possible in its efforts to bring about a lasting a durable peace to Bougainville 

Province’. Forum Communiqué, 1997, Twenty-Eighth South Pacific Forum, Rarotonga, Cook 

Islands, 17-19 September. 

38As an interesting side note, the Declaration does mention as part of its ‘Other Issues’ section 

the threat of terrorism to the political and economic stability of the region noting special 

concern for civil aviation agencies. 

39 Forum Communiqué, 2000. Thirty-First Pacific Islands Forum, Tarawa, Kiribati, 27-30 

October.
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peaceful transitions of power, but it also respects indigenous rights and 

traditional values.40 So the underlying tensions continue even under this latest 

statement. Biketawa does go further than its predecessors in that it does lay 

out processes of investigation that the Forum could initiate during a crisis in 

one of its members. While all of the explicit actions are innocuous (assess the 

situation, appoint a fact-finding mission, provide mediation, among others), 

the ability to convene a special meeting to ‘consider other options’ does leave 

open the possibility of some type of intervention. It remains to be seen 

whether Biketawa will stand up to the test posed by the next crisis. 

THE FUTURE OF THE PACIFIC WAY 

‘The Pacific Way must emphasize effective regional co-operation, if we are 

to achieve our goals. To me the primary goals are social adequacy through 

quality education in its broadest sense, and economic self-reliance’.41 Although 

much has been accomplished during its existence, those primary goals remain 

as prominent as when the preceding quote was written a quarter-century ago. 

Despite a growing willingness to deal with security issues, the island states 

especially have returned to chronic issues of economic viability. These issues 

have become even more important now due to economic globalization, and 

the Forum and its membership are re-examining issues of economic 

cooperation. Efforts are under way to stimulate trade both within the region 

and with other parts of the world. Agreements such as the Pacific Agreement 

on Closer Economic Relations (PACER) and the Pacific Island Countries 

Trade Agreement (PICTA), both signed in 2001, are efforts by the region (and 

especially the small islands) to ride the waves of economic globalization 

without being swept away. The current Cotonou Convention gives some 

former island colonies in Africa, the Caribbean, and the Pacific preferential 

access into European markets. The Convention states that this arrangement 

will gradually be replaced by free trade agreements to take effect by January 

2008. The PACER agreement is an umbrella agreement that allows the small 

island states to slowly phase in free trade, first amongst the island countries 

(via PICTA), then within the region (Australia and New Zealand), and then 

beyond.

It is arguable whether the purpose of the Forum, despite the occasional 

lofty statement, really is to develop a regional community. Perhaps a more 

clear distinction should be made between the Forum as regional organization 

40 Biketawa Declaration, Thirty-First Pacific Islands Forum, Tarawa, Kiribati, 27-30 October. 

41 Dr. T.R.A. Davis, ‘Pacific Survival: Effective Regional Co-Operation,’ Pacific Perspective 7, no. 

1-2 (1978), p.4. 
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and the Pacific Way as a philosophy and practice that may evolve into a 

regional, communal identity. As Firth points out, ‘The Commonwealth, not 

the Forum, negotiated the first precarious peace agreements in the Solomons 

enshrined in the Honiara Accord and the Panatina Agreement of 1999. When 

those agreements collapsed in the armed conflict of mid-2000, it was Australia 

and New Zealand, not the Forum, that intervened’. He then posits, ‘Under 

these circumstances, the future role of the Biketawa mechanism might well be 

to confer the imprimatur of regional legitimacy on what are essentially bilateral 

interventions undertaken by Australia and New Zealand, which will claim to 

be acting on the basis of a mandate given by the Pacific Islands Forum’.42

However, if actions are indeed taken, and (perhaps more importantly) seen as 

legitimate, could this be detrimental to the security of the region? Recent 

events may suggest a shift in thinking, as Australia has now led what has been 

judged a successful intervention operation in the Solomon Islands dispute. 

There continue to be fears that this intervention will require a commitment 

greater than Australia will be willing or able to provide. The concern has been 

expressed that, ‘if [Australia] intervene[s] on their request, we will be running 

the show for the next 50 to 100 years’.43 Nevertheless, the fact that Australia 

was willing to lead the operation, and other states were willing to participate 

may signal a new trend in the activism of Australia and New Zealand in the 

region under the approval of the Forum. Australia has continually pointed to 

the Biketawa mechanism and the unanimous approval/invitation by the 

Solomons Parliament as its justification for the legitimacy of the operation. 

One of the major criticisms of the Pacific Way has been its slow pace. 

Noel Levi, then Secretary General of the Forum Secretariat, noted that while 

those from the outside want to come to a decision, ‘here in the Pacific, we take 

our time’.44 Frustrating though that gradual process may be, no result will ever 

have credibility without a sense of procedural legitimacy. As Jim Rolfe writes, 

‘The Pacific Way involves sitting and thinking about the process and getting 

that right as much as it does in trying to develop solutions. Once the 

participants are happy with the process, solutions are likely to follow.... No 

way forward is possible until both sides can see that there is more to gain from 

peace than from fighting’.45 Sitiveni Halapua, director of the East-West 

Center’s Pacific Islands Development Program, developed the Talanoa process

42 Firth, op.cit., p.280. 43 Megan Saunders, ‘In the Midst of Pacific Grim,’ Australian, 3 October 2002, p.5. 44 Pacific Islands Forum, 2001. ‘Focus on the Future,’ video. 

45 Jim Rolfe, ‘Peacekeeping the Pacific Way in Bougainville,’ International Peacekeeping 8, no.4 

(2001), p.52. 
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to mediate between the main actors in the aftermath of the May 2000 

overthrow in Fiji. The process brought deposed Prime Minister Mahendra 

Chaudhry and caretaker PM Laisenia Qarase together for talks.46 Certainly, one 

can debate whether more needs to be done, but no major incidents of violence 

have occurred since Talanoa was instituted, and that may be a sign of progress 

in and of itself. As Halapua himself said, ‘Better people take a long time and 

talk than a long time and fight’.47

46 The term ‘talanoa’ itself is Fijian for talking. Halapua in his presentations on the process 

stresses that it does not mean ‘talking about nothing,’ but rather ‘talking without control or 

with a specific agenda.’ 

47 Personal Communication with the Author, 6 November 2002 
ASEAN: A COMMUNITY STALLED? 

NARAYANAN GANESAN

The Association of Southeast Asian Nations (ASEAN) was born from the

Bangkok Declaration of August 1967. Much of the political turbulence that

was a hallmark of politics in maritime Southeast Asia prior to ASEAN’s

formation eventually dissipated as the regional organization cohered in the 

1970s and 1980s. Structurally, ASEAN functioned well within the framework 

of the Cold War since it amalgamated the interests of the non-communist

countries of Southeast Asia, despite being predominantly anchored in the 

maritime region and in particular the Malay Archipelago comprising Indonesia, 

Malaysia, and Singapore. Quite apart from its anti-communist character,

ASEAN evolved to provide familiarity and accommodation between the 

indigenous political elite and also significantly enhanced regime legitimacy for 

nation-building and developmental purposes.

ASEAN has been widely acknowledged as a significant actor in Southeast 

Asian international relations, especially for its involvement in resolving the 

Cambodian political situation in the 1980s, albeit with broader structural 

changes and the involvement of major external powers that facilitated the

process significantly. With the eventual admission of Cambodia into ASEAN 

in April 1999, the organization fulfilled its corporate desire of representing the 

entire region. Accordingly, at least in terms of its geographical footprint, 

ASEAN, perhaps with the exception of East Timor, collectively represents 

Southeast Asia. The organization’s lengthy tenure, against the backdrop of 

previously failed regional predecessors in the Association of Southeast Asia

(ASA) and MAPHILINDO (Malaysia, Philippines, and Indonesia), and its 

involvement in regional affairs have led analysts to regard ASEAN as a 

community of sorts, in its various manifestations. 

Significantly, ASEAN is often regarded as constituting a diplomatic, 

security, economic, and cultural community. This chapter appraises the utility 

of ascribing such labels to ASEAN on the basis of empirical evidence. The

central argument of the chapter is that whereas ASEAN fulfils the procedural

and transactional demands of a diplomatic and cultural community, it is 

116
NARAYANAN GANESAN

117

neither a security nor an economic community.1 The major reasons for 

ASEAN’s failure as a security community are the prevalence of intramural 

threat perceptions and the large number of outstanding bilateral issues that 

have the propensity to deteriorate into violence. Its failure as an economic 

community is a function of the competitive rather than complementary nature 

of economic activities and the economic introversion rather than integration 

arising from the Asian financial crisis of 1997. Both the economic and political 

failures are also a function of extra-regional developments and pressures. 

This chapter is divided into three major sections. The first section briefly 

surveys ASEAN’s formation and its significant achievements thus far. The 

second section looks at the centrifugal and centripetal forces within ASEAN as 

well as pulls and pushes from the larger regional and international 

communities. On the basis of an examination of the empirical evidence, the 

third section correlates ASEAN-related developments to the four different 

conceptions of community that will be addressed.

ASEAN IN HISTORICAL AND CONTEXTUAL PERSPECTIVE 

ASEAN’s inauguration in August 1967 was significant in that it brought an 

effective end to Sukarno’s policy of military confrontation against Malaysia.2

 It 

was also significant in enhancing Malaysia-Philippine relations, endangered by 

the latter’s claim to the East Malaysian state of Sabah in the island of Borneo, 

and Malaysia-Singapore relations owing to the latter’s fissure from the 

Malaysian federation in 1965 following a short two-year merger. President 

Suharto of Indonesia inaugurated his New Order government, which 

abandoned Sukarno’s aggressive and revolutionary foreign policy, to reorder 

regional relations. Nonetheless, Indonesia adhered to its proprietary claim to 

lead the region—a role that was exercised until the collapse of the Suharto 

government in May 1998.3

Lingering suspicions and anxieties between member states made things 

difficult for ASEAN at the outset. Its first significant activity was in declaring 

the region a Zone of Peace, Freedom and Neutrality (ZOPFAN) in 1971 in 

view of broader international structural changes, particularly the winding down 

of the Cold War in Europe and the inclusion of China in international 

1 At the 2003 ASEAN Summit, leaders resolved to work to develop an ASEAN security, 

economic and social community. 

2 For a description of the pre-ASEAN political situation, see Bernard K. Gordon, The

Dimensions of Conflict in Southeast Asia (New York: Prentice Hall, 1966). 3 See Michael Leifer, Indonesia’s Foreign Policy (London: George Allen and Unwin, 1983), p.xiv. 
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diplomatic relations. An ambitious attempt at import substitution, the ASEAN 

Industrial Projects (AIPs) of the early 1970s generated little enthusiasm. 

Approximately a decade after its formation, in 1976 ASEAN established a 

central secretariat in Jakarta and signed two explicitly political treaties, the 

Treaty of Amity and Cooperation and the Treaty of ASEAN Concord. The 

first emphasized the disavowal of conflict and aggression to resolve inter-state 

disputes, while the second was a gesture of solidarity and willingness to 

coordinate political activities. All these developments led to the significant 

institutionalization of ASEAN and paved the way for its political involvement 

in the Indochina theater. Suffice it to say, as observed by Michael Leifer, these 

developments were a response to the Indochinese situation in general, and 

Vietnam in particular. Only a year before these developments, in 1975, the 

Vietnam conflict ended in a North Vietnamese triumph, and ASEAN was 

anxious to contain the success of revolutionary communism in mainland 

Southeast Asia, and perhaps beyond. 

From 1976 to 1989, ASEAN’s coherence and raison d’etre quickly shifted to 

developments in the Indochinese peninsula. Vietnam’s invasion and 

occupation of Cambodia in 1979 for a period of ten years was catalytic in 

transforming ASEAN.4

 The organization sought to contain perceived 

Vietnamese ambitions by frustrating its invasion and occupation of 

Cambodia.5 From 1979 to 1982, ASEAN led diplomatic efforts at the United 

Nations to deny Vietnam political legitimacy in Cambodia by supporting the 

ousted government of Democratic Kampuchea (DK) led by the Khmer 

Rouge. When international opinion turned against the DK regime for 

genocide, ASEAN engineered an expanded Khmer coalition by including the 

nationalist forces of Son Sann and the royalist forces of Norodom Sihanouk to 

form the Coalition Government of Democratic Kampuchea (CGDK). The 

rationalizations ASEAN offered for this policy were to deny Vietnam the 

precedent to reorder regional inter-state relations through force and to prevent 

Thailand from becoming a ‘front-line’ state to communism through the 

occupation of Cambodia. Separately, Thailand, together with China, set up 

border encampments for the CGDK on the Thai-Cambodian border to 

engage Vietnamese occupation troops. For Thailand, this policy was part of a 

broader informal alignment with China to replace the United States as an 

4 The importance of the Indochinese political situation for ASEAN cohesion is detailed in 

Michael Leifer, ASEAN and the Security of Southeast Asia (London: Routledge, 1989). 5 See Muthiah Alagappa, ‘Regionalism and the Quest for Security: ASEAN and the Cambodian 

Conflict,’ Journal of International Affairs 46:2 (Winter 1993), pp.439-467. 
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external guarantor to its security.6 China’s ‘punitive expedition’ against 

Vietnam in February 1979 was both to assuage Thai security concerns as well 

as to support the Khmer Rouge. Suffice it to say then that ASEAN’s 

involvement in the Cambodian situation brought the organization far greater 

coherence and international visibility. In the meantime, Brunei joined ASEAN 

in 1984 after the United Kingdom lifted its protectorate status over the 

country.

While the Cambodian situation was being resolved by the larger 

international community that was in turn led by the United Nations, ASEAN 

reformulated a new agenda for itself in the 1990s.7 Concurrently, it sought the 

expansion of its membership to include all the countries of Southeast Asia. In 

terms of political initiatives, ASEAN initially elevated the status of its PostMinisterial Conference (PMC) in 1992 and then went on to inaugurate the 

ASEAN Regional Forum (ARF) as the premier regional multilateral security 

forum in July 1994. It also enhanced internal security cooperation to deal with 

a number of transnational security issues like piracy, drug trafficking and illegal 

migration. Additionally, ASEAN formed a nucleus within the Asia Pacific 

Economic Cooperation forum (APEC) that was formed in 1989. For 

economic initiatives, it endorsed regional ‘growth triangles’ as constitutive of 

intra-ASEAN cooperation and in 1993, signed a pact that was to eventually 

lead to an ASEAN Free Trade Area (AFTA) by 2008. This timetable was 

subsequently reduced so that it would take effect in 2002. 

To fulfill its goal of an expanded membership encompassing the region, 

ASEAN accepted Vietnam into the organization in July 1995 and Laos and 

Burma/Myanmar in July 1997. The outbreak of domestic conflict in Cambodia 

in 1997 between the forces of Hun Sen and Norodom Ranariddh led to a 

postponement of Cambodian membership. Cambodia was subsequently 

absorbed in April 1999. ASEAN’s membership expansion changed the 

organization’s calibration and outlook in that it now has within its fold three 

communist member countries in Vietnam, Laos, and Cambodia, and a country 

with a military junta in power in Burma. The inclusion of military authoritarian 

states is not without precedent, since Indonesia, the Philippines and Thailand 

all had such governments during the association’s history. Nonetheless 

Burma’s accession brought with it intramural differences between the 

Philippines and Thailand on the one hand, and the remaining members on the 

6 Sukhumbhand Paribatra, From Enmity to Alignment: Thailand’s evolving relations with China

(Bangkok: Institute of Security and International Studies, Chulalongkorn University, 1987). 

7 See N. Ganesan, ‘Taking Stock of Post-Cold War Developments in ASEAN,’ Security Dialogue 

25:4 (December 1994), pp.457-468. 
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other, over how to best deal with the new entrant. Such considerations were at 

least in part fuelled by diplomatic difficulties that ASEAN encountered with 

the United States and the European Union over the new entrant.8

More recently, ASEAN initiatives have included an attempt to 

collaboratively engage the Northeast Asian countries through an 

institutionalized mechanism in the ASEAN + 3 grouping that includes China, 

Japan, and South Korea. Attempts at the further and formal 

institutionalization of this grouping by Malaysia through the location of a 

permanent secretariat in Kuala Lumpur have been frustrated. Other than 

external pressures from the United States and countries allied with it to contain 

what is perceived as exclusive regionalism, there are also anxieties within 

ASEAN. Indonesia, which houses the ASEAN secretariat, and Singapore, 

which houses the APEC secretariat, are anxious to avoid being overwhelmed. 

There are also widespread suspicions that the new corporate entity is but a 

reformulation of Malaysia’s East Asian Economic Grouping (EAEG) that was 

subsequently downgraded to an East Asian Economic Caucus (EAEC) in 

ASEAN deliberations. 

CENTRIFUGAL AND CENTRIPETAL FORCES 

There is little doubt that there exist both pulls and pushes within ASEAN. 

Among the positive factors in its favor is the maturity of the organization 

itself. After thirty-five years of uninterrupted existence and having overcome 

the initial anxieties of the original member states, ASEAN has evolved a policy 

of regular consultation and dialogue on a wide variety of matters and at 

different levels of officialdom, from bureaucrats to heads of states. The 

approximately 300 meetings a year and joint cooperation have indeed had a 

percolating effect on the inhabitants of the region. This conception of ASEAN 

consciousness does indeed exist. Similarly, at the elite level, the policy of 

unobtrusive engagement and consultation has even spawned the phrase the 

‘ASEAN Way’.9

 This ‘soft capital’ acquired over years of interaction and the 

passing down of such familiarization through regular tours for new 

incumbents in office has remained intact and gelled. 

Both geography and history have aided the process of bonding. 

Geographically, the founder members of ASEAN had always envisaged the 

8 N. Ganesan, ‘ASEAN and its Relations with Major External Powers,’ Contemporary Southeast 

Asia 22:2 (August 2000), pp.258-278. 9 See Amitav Acharya, ‘Ideas, identity and institution-building: from the ‘ASEAN Way’ to the 

‘Asia-Pacific Way’?’ The Pacific Review 10:3 (1998), pp.319-346. 
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eventual membership of all Southeast Asian countries in ASEAN and live with 

the realization that the individual destiny of member states is at least partly 

derived from the immediate regional environment. Historically, regional elites 

are also familiar with the turbulence that characterized inter-state relations in 

the 1960s, and are anxious to avoid a return to the negative past. Additionally, 

it is hoped that the history of positive cooperation will deflect threats to return 

to a disruptive past. Yet, both internal and external forces and related agendas 

are not always within the control of ASEAN member states. 

There are a number of internal forces that exert pressure on ASEAN and 

its evolution and agenda. One of the more serious forces is the dissipation of 

collective regional and institutional leadership of ASEAN following the 

collapse of the Suharto government in May 1998. Suharto’s ascendancy in 

Indonesia clearly stabilized the regional environment and the willingness of 

member states to grant Indonesia primus inter pares status within ASEAN also 

restrained Indonesian hegemonic ambitions in the region.10 The political 

turbulence and rapid regime changes in post-Suharto Indonesia have not 

fostered the conditions required for domestic political consolidation, leave 

alone regional leadership. During better times, Indonesia was able to attempt 

to broker the Cambodian impasse, albeit unsuccessfully with the Jakarta 

Informal Meetings (JIM) in 1988, played honest broker in trying to resolve the 

disputed Spratlys territorial claims between China and ASEAN member states 

in the 1990s through informal annual dialogues, and brokered the truce 

between the Ramos government in the Philippines and the Moro National 

Liberation Front (MNLF) in 1996.11 Such regional leadership no longer exists, 

and arguably ASEAN is the weaker for it. 

Domestic political challenges and regime transitions in many of the core 

ASEAN member countries have left regional political elites weakened and 

more focused on an internal agenda of regime consolidation than on collective 

regional development. Quite apart from the situation in Indonesia, there have 

been significant problems in Malaysia, the Philippines, and Thailand, the larger 

of the original five member states. Weakened internal political legitimacy and 

correspondingly reduced state capacity to coherently articulate policy output 

clearly inhibits regional cooperation. 

10 See Anthony Smith, Strategic Centrality: Indonesia’s Changing Role in ASEAN (Singapore: 

Institute of Southeast Asian Studies, 2000). 

11 On Indonesian regional leadership efforts see Leo Suryadinata, Indonesian Foreign Policy Under 

Suharto: aspiring to international leadership (Singapore: Times Academic Press, 1996). 
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The Asian financial crisis of 1997 has also weakened the economic capacity 

of member states. Correlated to regime contestation in Indonesia, Malaysia, 

and Thailand, the crisis has led to high unemployment rates, significant 

weakening of the financial and property markets, depreciated currencies and 

bankrupted reserves. Coping with these problems while adhering to the 

demands of international donor and lender agencies as well as investors has 

been an immense challenge.12 It may be remembered, for instance, that it was 

the internationally mandated removal of subsidies for food and other essential 

daily consumables in Indonesia that led to the food riots that eventually 

metamorphosed into political violence and regime change in Indonesia. In 

light of these problems and associated domestic economic restructuring, 

Southeast Asian states have become considerably more introverted, forced to 

deal with domestic agendas rather than regional ones. 

ASEAN’s internal dynamics following the admittance of four new 

members in the 1990s has also complicated the decision-making process. In 

recognition of the lower levels of development and preparedness of the newer 

members to immediately accede to ASEAN’s pre-existing agenda, these states 

have been offered longer grace periods for compliance with collective 

decisions like trade liberalization and tariff reduction. There are also unspoken 

fears of Vietnam bearing overwhelming influence on the decisions of 

Cambodia and Laos for a strengthened position. Finally, it must be noted that 

ASEAN’s policy of consensual decision-making will obtain significantly lower 

levels of convergence on policy matters for ten countries instead of six. Such 

procedural difficulties weaken ASEAN’s previously coherent organizational 

culture.

There are also a number of specific issues that have seen relations 

deteriorate between ASEAN member states. Some of the more serious ones 

that are partly related to state and enforcement capacity include piracy, drug 

trafficking, atmospheric and marine pollution, insurgency, and illegal migration 

and fishing. Many of these ‘non-traditional’ security issues have frayed 

12 There are a large number of books and articles that deal with the issues and impact of the 

Asian financial crisis. For a sampling of the literature see H.W. Arndt and Hal Hill eds., 

Southeast Asia’s Economic Crisis: Origins, Lessons, and the Way Forward (Singapore: Institute of 

Southeast Asian Studies, 1999); Karl D. Jackson ed., Asian Contagion: The Causes and Consequences 

of a Financial Crisis (Boulder, CO.: Westview Press, 1999); Richard Robison et al., eds., Politics 

and Markets in the Wake of the Asian Crisis (London: Routledge, 2000); Gerald Segal and David 

S.G. Goodman eds., Towards Recovery in Pacific Asia (London: Routledge, 2000); and Purnendra 

Jain et al. eds., Crisis and Conflict in Asia: Local, Regional and International Responses (New York: 

Nova Scientific, 2002). 
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relations between geographically proximate states.13 They are often the cause 

of serious bilateral disputes that have sometimes deteriorated into conflicts. 

For example, drug trafficking, insurgency and illegal fishing have led to the 

outbreak of a number of conflicts between Thailand and Burma in the 1990s. 

Illegal migration of Indonesians to Malaysia has led to serious tensions 

between those two countries. Piracy and pollution from Indonesian forest and 

agricultural fires—euphemistically referred to as the ‘haze’—has led to 

considerable disquiet in neighboring Malaysia and Singapore. More recently, 

terrorism and the discovery of transnational terrorist cells in Southeast Asia 

such as the Jemaah Islamiah, has also led to considerable regional frustration at 

the slow response of the Indonesian government in apprehending those of its 

nationals who are widely accused of leadership and complicity in such 

activities.14 The terrorist attack in Bali in October 2002 provided the 

Indonesian government with an opportunity to deal with Islamic extremism 

and terrorism. It remains to be seen whether the Indonesian government will 

act decisively in the matter, although the indications are that it is determined 

to. Many of the issues mentioned are causal factors in deteriorated regional 

inter-state relations. Over time, they became interactive with deteriorated ties, 

in terms of the emergence of new issues or the prominence given to existing 

ones.

EXTERNAL FORCES 

External forces that impact on ASEAN, like internal forces, have both 

positive and negative effects. Of the positive effects, the ‘soft capital’ that 

ASEAN has acquired over the years is generally acknowledged and often 

successfully utilized. Major Asian regional powers such as China, India, Japan, 

and South Korea deal with ASEAN as a collective body. The well-entrenched 

set of regular dialogue partnerships that include the United States, the 

European Union, Australia, Canada and New Zealand continue to provide the 

benefits of regular consultation and policy coordination. ASEAN-initiated 

multilateral fora such as the ARF and the ASEAN + 3 grouping are generally 

well regarded and attended. Similarly, the existence of an ASEAN core within 

APEC is also recognized. Hence, ASEAN’s general standing as an 

organization that is representative of the Southeast Asian region is generally 

not challenged. Additionally, it is acknowledged that the dynamic leadership 

13 See Andrew T.H. Tan and Kenneth Boutin eds., Non-Traditional Security Issues in Southeast 

Asia (Singapore: Select Publishing, 2001). 14 See Barry Desker and Kumar Ramkrishna, ‘Forging an Indirect Strategy in Southeast Asia’, 

The Washington Quarterly 25:2 (Spring 2002), pp.161-176. 
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provided by ASEAN member states has led to the formation of many other 

consultative organizations including the Asia-Europe Summit Meeting 

(ASEM) and the East Asian Latin American Forum (EALAF). ASEAN and its 

member states, collectively and individually, are regularly establishing 

structured relationships with countries geographically farther afield while 

continuing to deepen existing ones. In a similar vein, there are a number of 

issue areas such as trade and tourism where ASEAN projects a united front 

abroad. Such unity also facilitates representation on more contentious issues 

like human rights and democracy. ASEAN member states like Malaysia and 

Singapore were also passionate advocates of ‘Asian values’ over Western ones 

in policy choices and development in general.15

There are, however, a number of structural and issue-specific challenges 

that confront ASEAN as well. Structurally, at the international level, the 

dissipation of bipolarity and the collapse of the Soviet Union as previously 

constituted removed the anti-communist ideological glue that informed and 

led to convergent foreign and defense policies. The resulting decompression 

effect has been a reordered agenda in terms of external threat perceptions, 

defense strategies and arms acquisitions.For example, the Soviet Union and its 

perceived proxy Vietnam are no longer the threats to regional security. 

Similarly, the disbandment of communist insurgency movements in Malaysia 

and Thailand has significantly altered threat perceptions and defense doctrines. 

Some of the issues involved in heightened bilateral tensions alluded to above, 

have actually informed ASEAN member states of security and threat 

perceptions, in a seeming displacement effect. The altered broader structural 

arrangements have clearly raised the regional temperature and threat 

perceptions are increasingly being identified with geographically proximate 

neighboring states that typically obtain voluminous transactions in many areas, 

some of which are viewed as threatening state security.16

In terms of specific issues, since the September 11 terrorist attack on the 

World Trade Center and Pentagon in the United States, and the more recent 

bombings in Bali and the Philippines, there has been tremendous international 

pressure on ASEAN countries to deal more effectively with terrorism. These 

incidents and their regional sponsors and sympathizers are sometimes part of 

15 For a sampling of the literature of this school see Kishore Mahbubani, ‘The Pacific Way,’ 

Foreign Affairs 74:1 (January/February 1994), pp.100-111 and ‘The West and the Rest,’ The 

National Interest 28 (Summer 1992), pp.3-14; and Fareed Zakaria, ‘Culture is Destiny: A 

Conversation with Lee Kuan Yew,’ Foreign Affairs 74:2 (March/April 1994), pp.109-126. 16 N. Ganesan, Bilateral Tensions in Post-Cold War ASEAN (Singapore: Institute of Southeast 

Asian Studies, 1999). 
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domestic political problems, as is the case in Indonesia and the Philippines. 

Accordingly, such international pressures are occasionally deflected or acted 

upon on slowly due to domestic political considerations. For example, 

Indonesia’s Islamic political constituency has become significantly more 

empowered in the post-Suharto era while the Philippine situation is delicate 

due to an increasingly uneasy truce between Islamic former rebels and the 

Philippine government. In many instances, the situation is complicated by antiAmerican nationalism, and correlated impacts on tourism and foreign 

investment.

Other political issues for which ASEAN member states have been faulted 

in the past include democracy, human and labor rights and corruption. With 

the collapse of communism, Western countries, and in particular the United 

States, have introduced such issues to condition the negotiating process. 

Persistent diplomatic pressures on labor rights in Indonesia and Burma and 

greater pressure on the latter to open a process of dialogue and reconciliation 

with the political opposition are common. In many of these instances, there 

appears to be a general failure to appreciate the conflation of state security 

with regime security. Hence, rather than capitulating to such pressures, 

incumbent regimes often further entrench themselves and invoke anti-Western 

nationalist sentiments. 

Economic issues over which ASEAN countries have been pressured 

include tariffs, the imposition of quotas on selected products or sectors, 

financial transparency and the liberalization of trade and investment rules. The 

truth of the matter is that while many ASEAN countries hope to emulate their 

Northeast Asian counterparts in development through export-led growth, 

tariffs account for a high proportion of governmental revenue in countries like 

Indonesia. Such external pressures may also stoke anti-Western sentiment, as 

has occurred in Indonesia and Thailand. Indonesia has a long history of 

economic protectionism and much of its resource exploitation has clearly been 

to benefit incumbent regimes and related elites and is viewed with a degree of 

suspicion. In provinces like Aceh and West Irian, such grievances sometimes 

reinforce existing pressures like separatism, making Western investments 

potential targets over regime-related grievances. 

In other forms of financial and economic transaction there is also scrutiny. 

Malaysia, for example, opted against international financial assistance after the 

1997 crisis and imposed economic controls in 1998. Whereas large and swift 

flows of capital and investments were previously viewed as being clearly 

positive, there is now greater scrutiny of the potential fallout arising from 

equally rapid withdrawals. In view of such reappraisals, ASEAN states are now 
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much more vigilant regarding the type of investments and financial 

transactions that occur. Currency speculation in particular, is actively 

discouraged. In light of both the positive and negative influences that obtain 

from within ASEAN and the larger external environment, an informed 

assessment can now be made regarding the type of community that ASEAN 

has evolved into. As stated at the outset, there is sufficient evidence in favor of 

a diplomatic and cultural community while there is equally sufficient evidence 

to conclude that ASEAN is neither a security nor an economic community. 

ASEAN AS A DIPLOMATIC COMMUNITY 

One of the greatest benefits of collective membership in ASEAN is the 

articulation of a united front on policy matters, especially those that require 

attention and resolution within a broader structural environment. From as 

early as the 1970s, ASEAN has served the function of a larger diplomatic 

lobby for individual member states. ASEAN is regularly utilized as a 

collectively representative regional forum to further the policy agenda of 

individual states, from negotiations on the price of export commodities to 

tariff reduction. Within the larger state-centric international environment that 

is in turn mediated by multilateral regimes, cohesive regional groupings obtain 

significantly more leverage than individual states. Even the largest ASEAN 

country, Indonesia, despite being a medium power in terms of traditional 

determinants like land area and population size, gains significantly from such 

enhanced leverage. Smaller member states like Brunei, Cambodia, Laos, and 

Singapore naturally benefit much more from such a collective representation. 

At the larger level, it is arguable that ASEAN has also functioned as a 

cohesive corporate entity. In terms of diplomatic representation, as noted 

earlier, ASEAN maintains a large number of regular dialogue partnerships with 

individual countries as well as other multilateral organizations like the 

European Union. Additionally, ASEAN has initiated its own multilateral fora 

like AFTA and the ARF. Significantly, the ARF and APEC also have a 

discernible ASEAN nuclei core. The greatest evidence of ASEAN’s diplomatic 

cohesiveness is its repeated interventions in the United Nations in the late 

1970s and throughout the 1980s to deny Vietnam political and diplomatic 

recognition over its occupation of Cambodia. 

There have, however, been a number of instances in which ASEAN’s 

collective image has been dented by the competitive demands or policy 
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outputs of individual states.17 For example, Indonesia and Malaysia recognized 

Vietnam’s security considerations when they jointly issued the Kuantan 

Declaration in 1980, seemingly breaking ranks with ASEAN’s anti-Vietnamese 

position, and Thailand unilaterally launched its conciliatory and developmentoriented Indochina Initiative towards Vietnam in 1988 when ASEAN was still 

antagonistic towards Vietnam. Similarly, the Philippines and Thailand lobbied 

hard for a policy of ‘constructive engagement’ with Burma in the 1990s, much 

to the chagrin of the less democratic ASEAN members, which objected to the 

concept of violating the cherished principle of non-intervention in the 

domestic affairs of member states.

Notwithstanding such intramural differences, it is arguable that ASEAN 

coheres sufficiently on important matters, especially those pertaining to 

political and economic security. The fairly high level of recognition that the 

association is accorded internationally also buttresses this conception of 

diplomatic community. This conception of a diplomatic community is likely to 

cohere and persist into the future, if for no other reason than to allow for the 

structured process of mutual consultation and accommodation internally, and 

to obtain greater leverage for individual member states and the entire region. 

ASEAN AS A CULTURAL COMMUNITY 

ASEAN can also be said to fulfill the requirements of a cultural 

community. The term is however not meant to be interpreted in the ethnoreligious and linguistic sense of community. The Southeast Asian region is far 

too diverse in these terms to be purposefully integrated as a community nor is 

it a necessarily positive or requisite development. In fact, many of the member 

states themselves are sufficiently heterogeneous to preclude such a conception 

of unified culture. Rather, the reference here is to procedural norms that have 

been sufficiently institutionalized to obtain an organizational culture in 

transactional terms between states. The existence of a permanent secretariat, 

the alphabetical rotation of Secretary-General appointments, and the vast array 

of meetings at different levels of officialdom and political elite have fostered a 

sense of community. It is a sense of community that member states are 

anxious to retain since it has led to much familiarity and accommodation 

between competing national priorities and leadership styles. The culture of 

regular exchanges on a number of issue areas and the periodic visits 

17 See, for example, Jürgen Haacke, ‘The concept of flexible engagement and the practice of 

enhanced interaction: intramural challenges to the ‘ASEAN Way’,’ The Pacific Review 12:4 

(1999), pp.581-611 and Kay Möller, ‘Cambodia and Burma: The ASEAN Way Ends Here,’ 

Asian Survey XXXVIII:10 (1997), pp.961-978. 
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undertaken by newly appointed senior bureaucrats and elite as well as retiring 

ones have had a percolating effect on this organizational culture well beyond 

ASEAN’s founding and early elite. 

Collective attempts at dealing with regional challenges and problems have 

also broadened the organizational culture. From coordinated attempts to deal 

with problems like drug trafficking, pollution and piracy, the culture of regular 

consultation is utilized to deal with common problems as well. This culture is 

facilitated as well as hindered by the policy of consensual decision-making.18

The facilitation derives from the invocation of lowest-common-denominator 

principles that are agreeable to all members while the hindrance derives from 

the difficulties associated with obtaining policy convergence among many 

members with differing priorities and goals. The generally accepted principle 

of non-interference in the domestic affairs of member states has also allowed 

for decisions obtained to be sufficiently acceptable to members to ensure 

compliance. This cultural community is interactive with ASEAN as a 

diplomatic community and is in turn informed and mediated by national 

interests and the larger external environment and related structures and 

pressures. In conceptual terms, it is likely to be the third tier in the policy 

output of member states, after the national level and important bilateral 

channels.

ASEAN AS A SECURITY COMMUNITY 

There has been some literature proclaiming ASEAN as a security 

community.19 Such claims are typically premised on the evolution of an 

‘ASEAN Way’ that is non-intrusive in the domestic political affairs of member 

states and the joint agreement to renounce aggression in the resolution of 

inter-state disputes. This agreement, identified in the Treaty of Amity and 

Cooperation (TAC), has been lodged at the United Nations as comprising part 

of the regional diplomatic protocol. In fact, states that obtained membership 

in ASEAN in the 1990s were required to become signatories to TAC prior to 

being granted membership. The evolution of the ARF as a regional forum in 

1994 with a mission to enhance confidence-building measures through 

18Johan Saravamuttu and Pushpa Thambipillai, ASEAN Negotiations: Two Insights (Singapore:

Institute of Southeast Asian Studies, 1985).

19 One of the earlier and more influential pieces drawing on the absence of conflict for this 

argument is Amitav Acharya, ‘The Association of Southeast Asian Nations: ‘Security 

Community’ or ‘Defence Community’?,’ Pacific Affairs 64:2 (Summer 1991), pp.159-178. For 

a different view, see N. Ganesan, ‘Rethinking ASEAN as a Security Community in Southeast 

Asia,’ Asian Affairs: An American Review 21:4 (Winter 1995), pp.210-226. 
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common codes of conduct and transparency in weapon acquisitions and 

defense doctrines may also be cited in support of the argument.20 Finally, 

analysts sometimes point to the absence of inter-state conflict following the 

resolution of the Cambodian situation as evidence of the existence of a 

security community. 

Despite these observations, it may be argued that ASEAN does not yet 

constitute a security community, although it is perhaps moving in a that 

direction. The simple reason is that when Karl Deutsch identified the 

prerequisites of a security community, the absence of inter-state threat 

perceptions was one of the most important criteria. The absence of conflict is 

meant to derive from such a fundamental condition, as is the case with the 

United States and Canada. It is clear that ASEAN is far from meeting this 

important prerequisite. In fact, the structural changes associated with the end 

of the Cold War have raised rather than lowered intramural threat perceptions. 

Threat perceptions and defense doctrines of ASEAN member states 

typically do not preclude geographically proximate states as basic sources of 

threat on a wide range of conventional and non-conventional issues. Rather, a 

careful examination of the situation will prove that defense doctrines and 

weapon acquisitions of many ASEAN states are premised exactly on such 

conceptions of threat. The absence of the previously ideologically defined 

threat perceptions and the introversion in policy output of member states 

since the Asian financial crisis of 1997 have led to competitive rather than 

complementary perceptions of threat.21 Domestic political contestation and 

regime change in many of the ASEAN countries have also led to a process of 

readjustment between states. In this regard, it is interesting to note that much 

of ASEAN’s ideological convergence derived from external forces and 

structures.

The constructivist school has been the most articulate proponent of 

describing ASEAN as a security community, drawing on the evolution of 

norms and elite pronouncements regarding cooperative tendencies.22 Whereas 

20 See Michael Leifer, The ASEAN Regional Forum, Adelphi Paper 302 (Oxford: Oxford 

University Press, 1996). 

21 N. Ganesan, ‘Domestic and Regional Responses to the Asian Financial Crisis in Southeast 

Asia,’ in Purnendra Jain et al., eds., Crisis and Conflict in Asia: Local, Regional and International 

Responses (New York: Nova Scientific, 2002), pp. 91-106. 22 Amitav Acharya, The Quest for Identity: International Relations of Southeast Asia (Singapore: 

Oxford University Press, 2000). Also see Sorpong Peou, ‘Realism and constructivism in 

Southeast Asian security studies today: a review essay,’ The Pacific Review 15:1 (2002), pp.119-

138.
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such pronouncements and desires may be genuine, the national interests of 

member states continue to take precedence over regional designs. Additionally, 

the absence of inter-state conflict since the 1990s is a necessary but insufficient 

condition to characterize ASEAN as a security community. A causal 

relationship between the two variables cannot be clearly established and the 

high level of tension in the bilateral relationships of many ASEAN countries is 

hardly symptomatic of an absence of intramural threat perceptions. 

ASEAN AS AN ECONOMIC COMMUNITY 

Among the four types of communities discussed thus far, ASEAN is 

perhaps weakest as an economic community. There are numerous reasons for 

this assertion.23 First, development levels between many of the countries are 

uneven, leading to different requirements to cope with economic 

development. Second, many ASEAN countries produce similar primary 

commodities such as rubber, palm oil, cocoa, and timber for export. This 

convergence extends into the manufacturing sector as well. Third, the 

products of most ASEAN member states are destined for similar markets in 

Europe, North America, and Japan. Fourth, some member states have either 

expressed an interest in protecting domestic infant industries (Indonesia and 

Malaysia, for example), or have protectionist tendencies (the Philippines). 

Fifth, tariffs are an important source of revenue for many of the ASEAN 

member states and reducing them significantly will reduce state revenues, with 

all the attendant repercussions. 

Western-style trade liberalization is being viewed suspiciously since the 

onset of the Asian financial crisis. Economic nationalism in Indonesia, 

Malaysia, and Thailand has been instrumental in obtaining regime legitimacy 

recently and there is widespread suspicion that trade and investment 

liberalization is meant to fulfill a Western-inspired agenda that depletes the 

savings and resources of regional states.24 Accordingly, there is now far greater 

23 See Harold Crouch, Domestic Political Structures and Regional Economic Cooperation (Singapore: 

Institute of Southeast Asian Studies, 1984) and Hans Indorf, Impediments to Regionalism in 

Southeast Asia (Singapore: Institute of Southeast Asian Studies, 1984). 24 Structural reforms associated with loan disbursements from the international financial 

community, especially the removal of food subsidies was one of the major factors leading to 

the collapse of the Suharto government in Indonesia. In Malaysia, elite differences between 

Prime Minister Mahathir and his Deputy, Anwar Ibrahim, centered among other things, on 

appropriate policy responses to the Crisis. Similarly, the incumbent Thai Rak Thai government 

of Prime Minister Thaksin Shinawatra campaigned on a platform of economic nationalism 

against Chuan Leekpai’s Democratic Party in 2001. 
NARAYANAN GANESAN

131

reluctance on the part of ASEAN states to enthusiastically endorse trade and 

investment liberalization. Attendance to national economic reconstruction has 

also meant less effort expended for regional economic integration. The clearest 

evidence of this trend is the way AFTA has stalled, despite the optimistic 

pronouncements at annual meetings. In fact, it is as a result of the frustrations 

associated with the slow implementation of APEC initiatives and AFTA that 

Singapore has negotiated its own bilateral Free Trade Arrangements (FTAs) 

since 2000. 

ASEAN does, however, provide an important lobbying platform for the 

economic interests of individual member states. Similarly, it is an important 

platform to coordinate trade and tourism-related ‘road-shows’ to the West. 

Nonetheless, even such activities exist alongside the independent initiatives of 

member states. Unlike the case of the EU, AFTA does not provide for 

sanctions against non-compliance to norms within specified time frames. Even 

if sanctions are agreed upon, they will not be enforceable, leading merely to a 

greater deterioration of the situation. It is in light of such realities that the 

present momentum towards an economic recalibration of the region is simple 

accepted as fait accompli.

CONCLUSION

ASEAN has clearly evolved from the time of its formation in 1967 to 

become a coherent regional organization that encompasses the entire region of 

Southeast Asia. The frequent meetings between the member states and 

common position on a number of issues have led to significant levels of 

familiarity and accommodation. This organizational culture or cultural 

community has had its norms entrenched. Incumbent governments of 

member states have also evolved a policy of allowing this culture to percolate 

downwards to new elite. This organizational culture has in turn allowed 

ASEAN to act in concert in the international arena and the association 

maintains its coherence in larger fora like APEC. This diplomatic community 

that is in turn interactive with the cultural community is generally recognized 

as a bloc and treated as such, both by individual dialogue partners and 

international institutions. 

However, ASEAN is neither a security nor an economic community. It is 

not a security community because it does not fulfill the fundamental 

Deutschian criterion of the absence of intramural threat perceptions that 

undergirds the absence of interstate conflict. Bilateral tensions between 

member states on a wide variety of traditional and non-traditional sources of 

threat preclude ASEAN from obtaining this fundamental precondition. The 
ASSOCIATION OF SOUTHEAST ASIAN NATIONS

132

absence of intra-state conflict since the 1990s is a necessary but insufficient 

condition to conclude that ASEAN is a security community. Similarly, 

ASEAN is also not an economic community. The economic agenda of 

member states is essentially nationally rather than regionally driven. ASEAN 

states exhibit a certain level of economic nationalism and in the aftermath of 

the Asian financial crisis of 1997, have also become suspicious of Western 

pressures for trade and investment liberalization. In fact, a number of recent 

governments in ASEAN have capitalized on economic nationalism to bolster 

regime legitimacy. 

The four conceptions of community or domains addressed in this chapter 

are interactive in a variety of ways. It was earlier noted that the existence of an 

internal cultural community facilitated the evolution of a diplomatic 

community, in terms of interest aggregation and representation at the internal 

level. This diplomatic community, despite being weakened by the absence of 

Indonesian leadership, continues to make possible the benefits that accrue to 

member states on the basis of bargaining as part of a larger and more 

established platform. Both these conceptions of community have the potential 

to generate sufficient spill-over effects for ASEAN to become a security 

community. Such conditions are, however, absent at the present time. The 

evidence thus far also indicates that national economic priorities of member 

states are sufficiently discrete and entrenched to preclude the formation of an 

economic community in the near future. 

The conditions that determine ASEAN’s evolution as a community, in all 

its various manifestations, are a function of both internal and external pulls 

and pushes. Internally, political will and perceptions are major determinants of 

progress and externally, ironically, powerful perceptions of threat have made 

ASEAN cohere better. External pressures come in the form of specific issues 

like terrorism or attractive extra-regional groupings like APEC. For an external 

pressure to be effective in weakening ASEAN cohesion, it must be sufficiently 

appealing to meaningfully accommodate the national interest of a member 

state. ASEAN’s progress is therefore a dialectical condition contingent on 

centrifugal and centripetal forces from within and without. 
SAARC: NOT YET A COMMUNITY

ATIUR RAHMAN1

If many minds can come together in any occasion surely there will be

great yields. In a community where this tendency of coming together

is in-built as an intrinsic value, definitely its members do create and

nourish civilization. The attribute of a civilization is the power of 

uniting the diverse.

— Rabindranath Tagore 

INTRODUCTION: SAARC YET TO ‘GROW UP’ 

In December 2003 the South Asian Association for Regional Cooperation

(SAARC) celebrated its 18th anniversary. There was, however, no jubilation in 

the streets of South Asian capitals. The high hopes that were raised in the mid1980s by the concept of South Asian regional cooperation have not even 

partially materialized. Today the region houses about 600 million people who 

earn less than one dollar a day.2

 It is home to perhaps the largest concentration 

of poor in the word, accounting for nearly half the world’s total. This vast 

poverty persists in South Asia despite some notable gains in economic growth 

and a number of interesting experiments in the areas of poverty reduction

through micro-credit and women’s empowerment. Apparently, there has been

a massive failure in governance in almost all South Asian countries leading to a 

huge gap between economic growth and poverty reduction. 

Beyond this, the region suffers from deep-rooted mutual suspicions, 

nuclear proliferation, violent ethnic cleavages and a decline in regional social 

capital as shown in interstate and trans-state relationships. The Indo-Pakistani

rivalry has been at the center of the depletion of most traits of an age-old 

South Asian identity. In an age of massive globalization, instead of closing 

their ranks for greater economic and social integration, South Asians have 

opted for further isolation from each other. This has been happening despite 

SAARC. While most other regional blocs are emerging as close-knit 

communities, SAARC has not been growing at all. It is still in its infancy. The 

1 I am grateful to Mahfuz Kabir, Research Officer, BIDS for assisting with necessary materials

in preparing this chapter.

2 World Bank, World Development Report 2002 (Washington DC: World Bank 2002), pp.234-5.

133
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

134

promises made by its main architects remain far from fulfilled.3 It has become 

more of an occasional talking shop for officials and ruling elites than a venue 

for substantive action.4 SAARC stood by individual member states experienced 

major gains or failures, without playing any effective role. This when it could 

have played a coordinating role in bridging the gaps in economic policies vis-àvis globalization and learning replicable lessons from the innovative 

developmental activities related to poverty eradication pursued by some 

member states. Except for establishing two commissions on poverty 

alleviation, SAARC has not done enough in either of these areas. Only very 

recently has it started compiling a South Asian poverty profile to address 

abysmal poverty. 

A number of interesting things, both positive and negative, have happened 

in the region despite SAARC. Bangladesh has found its own way forward in 

terms of establishing institutional democracy, reducing poverty by more than 

one percent annually, empowering women, developing a broad-based 

environmental consciousness, and fostering creative developments in the arena 

of micro-credit. Sri Lanka has shown promising signs of ending its 18-year 

ethnic rebellion. On the other hand, Pakistan has witnessed a return of military 

government notwithstanding its latest bid for ‘democratization’, the rise of 

religious ethnic groups in politics, and a spate of terrorist attacks. Both India 

and Pakistan have gained nuclear status, mobilized and demobilized armed 

forces along their border, and experimented with missile development. India, 

of course, has shown better results in economic reforms and technological 

development. Nepal, unfortunately, has seen tragic bloodshed in its royal 

palace, the rise of a Maoist insurgency and the crumbling of democratic 

edifices in the face of massive failures in governance. 

SAARC has played no part in any of these vital issues affecting South 

Asians. The citizens of each member state of SAARC have, as a result, felt 

betrayed by this passive regional body which has played little, if any, role in 

revitalizing the South Asian community. This is quite frustrating at a moment 

when immense opportunities and challenges have been created by 

globalization. The millennium development goals set by the UN cannot be 

realized unless the elite of South Asia decide to come together and learn from 

each other’s success stories, mainly created by the ordinary, hard-working 

citizens of the region. 

3 Iftekharuzzaman, ‘Reforming SAARC: In Spite of Governments’, S. Afroze ed., Regional

Cooperation is South Asia: New Dimensions and Perspectives (Dhaka: BIISS, 2002), pp.18-19. 4 Ibid, p.19. 
ATIUR RAHMAN

135

There are indeed strong imperatives for the leaders of South Asia to work 

together despite differences in their security perceptions, governance style and 

ethnic values. Their citizens earnestly aspire to a higher level of human 

development, parity in intra-regional trade, an end to the bitter communal 

conflicts of the past, and mutual trust so that South Asians can move forward 

into an era of love, well-being, harmony and intimacy—the intrinsic values of a 

community. Indeed, South Asians badly need this vision. 

SOUTH ASIA STILL TRAPPED IN HISTORY 

Historically, South Asia was one political entity with many decentralized 

structures. Each sub-region had its own shade of culture. This unity in 

diversity continued even after colonization by Britain. However, some kind of 

standardization, particularly in legal and administrative frameworks, tied 

together the diverse units during the British era. When colonial rule ended, 

those diverse units got truncated, leaving behind not only unprecedented 

ethnic flows of population across the borders but also a permanent source of 

ethno-religious discord.

Colonial rulers had largely created the South Asian states by executive 

orders. The burden of resolving the unresolved and bitter territorial or border 

disputes fell on subsequent national elites. The concept of nationhood was 

often negotiated by colonial powers and materialized in truncated forms. In 

many cases the creation of a state went against territorial, ethnic, religious or 

cultural traditions. Very often, national governments were imposed on a 

society, which was itself divided by the gap between traditional beliefs and 

modern attitudes, and by sectoral differences, religious beliefs or differential 

access to power. The state, in order to assert its domination, most often 

became bureaucratic and coercive and became entrenched well before a 

coherent idea of nationhood could develop.5

 There are also at least two 

nations (Pakistan and Bangladesh) in the region that experienced ‘neocolonialism’ and ‘internal colonialism’ and therefore have a bitter past. The 

internal difficulties faced by most South Asian governments have contributed 

to a deterioration in law and order, increasing ethnic and sectarian conflict, the 

theocratization of societies, degradation of the environment, rampant 

corruption, massive violation of human rights and the marginalization of the 

5 A. Rahman, Imperatives for Regional Cooperation in South Asia: Creating an Environment for Sharing 

Expenditures of Knowledge-based Development (New Delhi: Sage Publications, 2000), p.219. 
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

136

poor and the weak.6 Given the regional politico-economic divide, substantial 

cooperation in the region cannot be achieved overnight.

Notwithstanding this difficulty, SAARC has developed itself into a fairly 

elaborate institutional infrastructure. Some core areas of economic cooperation 

such as poverty alleviation and intra-regional trade in the form of the South 

Asian Free Trade Area (SAFTA) have been gradually included in the agenda. 

Though differentiated in pace and content, all the South Asian countries have 

embraced economic liberalization. On the more optimistic side, SAARC has 

also shown potential for emerging as a forum for dialogue, negotiations, 

preventive diplomacy, and confidence and peace building. This potential is, 

however, clearly far from been effectively tapped, perhaps due to institutional 

bottlenecks and lack of strong political will among ruling elites.7

The South Asian community ‘personality’ broadly depends on three interlinked economic and political factors: First, the character of economic 

transactions such as formal and informal trade relationships and whether there 

has been an honest attempt at reducing trade imbalances; second, how leaders 

feel about the outstanding regional problems, especially bilateral ones, such as 

the Indo-Pakistan conflict, India-Bangladesh border disputes, and those 

leaders’ efforts to minimize these tensions; and third, the level of 

consciousness among citizens of the region toward the status of human rights 

in the region, and specifically, how they feel about states which at times, 

instead of promoting freedoms, curb them.

THE SOUTH ASIAN ECONOMY 

The South Asian economies are summarized in Table 1. Clearly, there is a 

considerable diversity in economic performance. There is a great fear in 

smaller countries about India’s domination in trade. India is the largest country 

in the region, with the largest production capacity in industrial and traded 

goods, and therefore has a natural advantage over others. Unfavorable trade 

balances with India create enormous psychological burdens in the smaller 

states, much more so than from the negative trade balances many of them 

have with the world’s industrially developed countries. Even after seventeen 

years of existence, SAARC has very little to show by way of cooperation on 

the trade and economic front.8

 The regional body has impacted only 

6 Ibid. 7 Iftekharuzzaman, op cit, p.19. 8 Q.A.M.A Rahim, Economic Cooperation in SAARC: Getting on Act Together, Speech, BIISS, 

Dhaka, 2002, p.3. 
ATIUR RAHMAN

137

marginally on the flow of intra-regional trade, which is generally taken as an 

effective indicator of regional economic cooperation. While the average share

of intra-regional flows in the Association of South East Asian Nations

(ASEAN), established in 1967, was 22 percent for exports and 15 percent for 

imports in the 1990s, the corresponding shares in SAARC were 4 percent and 

3.5 percent, respectively.9

Table 1: Key Economic Indicators of the South Asia Region

Country Population

millions

2001

Per

capita

GNI

(US $)

2001

Life

expectancy

at Birth

2000

Population

below

National

Poverty

Line

FDI

US $ m

2000

ODA

per

capita

US$

2000

External

Debt US 

$ m

2000

Bangladesh 131.21 370 61 44.3

(2000) 280 9 15,609

Bhutan 0.8 640 61 - - - -

India 1,033.4 460 63 35.0

(1994) 2315 1 99,062

Maldives 0.3 2,040 - - - - -

Nepal 23.6 250 59 42.0

(1995-96) 4 17 2,823

Pakistan 141.5 420 63 34.0

(1995) 308 5 32,091

Sri Lanka 19.6 830 73 25.0

(1995-96) 173 14 9,065

Sources: Bangladesh Economic Survey 2002, MoF, GoB, and Preliminary Report of

Household Income and Expenditure Survey 2000, BBS, GoB.

In Southeast Asia, the Association of Southeast Asian Nations’ (ASEAN) 

free trade arrangement, AFTA, was implemented in 2002 with the objective of 

having almost all goods traded within a 0-5 percent tariff range and averaging 

3.2 percent. South Asia compares poorly, with a tariff burden of 30 percent

and a plethora of non-tariff barriers. South Asia is not yet ready for an 

equivalent free-trade arrangement, SAFTA (the South Asian Free Trade 

Area).10 Even if the current preferential trade agreement, SAPTA, is successful,

it may be restricted only to trade in goods. If such trade is agreed through

9 K. Raipuria, ‘ASEAN and SAARC: Select Futuristic Scenarios’, Economic and Political Weekly,

Mumbai, 2002. 

10 A. Rahman, ‘Track II Diplomacy as a measure of confidence building in South Asia for 

Regional cooperation’, BIISS Journal, 2002. 
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

138

negotiations, there is a fear that it can be still restricted through non-tariff 

measures and other barriers.11

A group of South Asian leaders tried to create a sub-regional South Asian 

Growth Quadrangle (SAGQ) between Bangladesh, Nepal, Bhutan and India—

the eastern end of the sub-continent—but this remained trapped inside 

political folders. Sub-regional initiatives in South Asia have raised large 

questions, concerns and political passion rather than providing any answers or 

creating growth mechanisms and cooperative understanding. By contrast, 

Southeast Asia already has witnessed some decades of sub-regional growth 

driven by factor inputs, economic complementarities, and the twining of 

market forces and the private sector, all serving as engines of growth. By 

adopting a notion of interdependent development, ASEAN mobilized its 

collective strength and developed itself as a truly merchandise trade-oriented 

society creating a momentum towards a modified structure for sub-regional 

growth.

It seems that a credible modified structure for sub-regional growth remains 

beyond the imagination of South Asian leaders, who are quite simply trapped 

in their inability to develop policies, prisoners of their own political trappings.12

The SAGQ region lacks the political will to convert the huge geography and 

population into a thriving market, serious policy coordination to maximize the 

complementary gains, infrastructural facilities to exploit the latent potentials 

and the will to make use of socio-cultural similarities for collective 

enhancement in the quality of life of their citizens.13

THE SUPREMACY OF ‘MINDLESS’ POLITICS

The failure of the region to run regular air flights between the South Asian 

capitals and the closure of a modest train connection, the Samjhanta Express,

which once existed between India and Pakistan, speaks volume about the 

supremacy of ‘mindless’ politics over people’s concerns. Societal desires for 

substantive cooperation in the fields of developing natural resources, human 

resource and infrastructure remain unsated. Specific areas of cooperation in 

the fields of natural gas, water resources, ports and waterways, transportation, 

communications and hydropower remain to be explored. Vast areas of the 

11 Rahim, op cit, p.3. 12 A. Kalam, ‘Sub-regional Growth Mechanisms: SAGQ and IMS-GT in Comparative 

Perspective’, Afroze, op cit. p.197 13 M.P. Lama, (2000:6); South Asia Growth Quadrangle: Opportunities, Policy Interventions and Growth 

Prospects, Conference Paper (Dhaka: BIISS, 2002), p.6. 
ATIUR RAHMAN

139

service sectors and human development opportunities utilizing regional human 

development infrastructures have remained out of focus. The present low-level 

of intra-regional trade is a result of bad policy. Kashmir and other border 

conflicts have been used as instruments for the deprivation of the people of 

India and Pakistan from economic and social opportunities by some influential 

policy makers. The leaders have not been trying earnestly to reduce 

intimidation and state-sponsored violence against people of the related regions. 

What South Asians face today is a deep absence of pro-people governments 

and policies for reducing poverty, ending violence, arresting environmental 

degradation and improving human development status, balancing inter- and 

intra-regional trade, and fostering peace and harmony.14

There has been a lack of enthusiasm and interest among the people and 

their leaders in the region in Track I initiatives, or official-level diplomacy, 

which is heavily formal, procedural, and complex. On the other hand, Track II 

initiatives, or ‘beyond the state’ diplomacy has been widely recognized as more 

likely to lead to better steps in confidence building towards the reconstruction 

of South Asia as a community.15 In understanding people-to-people 

cooperation and interactions towards making a community, as a proxy for 

necessary state-to-state cooperation, we need to focus on at least three types of 

issues: integrative factors, constraining factors and possible areas of nongovernmental interventions.

INTEGRATIVE FACTORS 

Regional communities such as the European Union and ASEAN have 

flourished due to a number of integrative factors. SAARC, on the other hand, 

has not experienced these integrative factors in any substantive way and will 

need to if the region is to develop any sense of community. 

Political Will 

The political will of the leaders of Europe and Southeast Asia to come 

together despite differences in size, level of development and security 

perception has been substantial. The moves in those regions towards the 

14 A. Rahman, ‘Imperatives for Regional Cooperation in South Asia: Creating an Environment 

for Sharing Experiences of Knowledge-based Development’, South Asian Survey 7:2, 2000. 15 The initiatives include academia, research institutions and various professional groups 

including the media, aid workers, election observant, accountants and management experts, 

engineers, educators, business representatives, students and youth, even political parties, trade 

unionists, parliamentarians and speakers. See, Iftekharuzzaman, op cit, p.25. 
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

140

common goal of enlarging regional markets for intra-regional as well as interregional trade reflected a conscious choice by the leadership. 

This will has not only been missing in South Asia, but also at times 

regional leaders have helped to dissipate any residual good will and energy for 

mutual cooperation. The biggest harm has been caused by persistent conflict 

between India and Pakistan. SAARC can never take off until this is issue is 

resolved. The people of South Asia feel betrayed by this tension. There is a 

strong perception in the region that India fears a ‘gang-up’ by smaller states led 

by Pakistan and hence does not encourage SAARC to grow. Yet there is 

another view that Pakistan wants to stall the progress of the association 

because it fears that India will dominate it. The smaller states, of course, find 

themselves caught in between these two perceptions and are hesitant to move 

either too close to India or too far from it. In that sense Indo-centric 

perceptions still haunt most South Asian states, including Pakistan. This is 

acting as a brake against natural growth of the South Asian community. 

South Asian leaders have lacked the political will to address these 

perceptions for the greater cause of improving the lot of South Asia’s timid 

millions through effective cooperation. The only exception has been the 

relatively short interlude of Indian Prime Minister I.K. Gujral (1997-1998), 

including his tenure as foreign minister, when South Asians began to break 

most barriers and come together. Even the tensions between India and 

Pakistan began to ease. The Indo-Bangladesh relationship reached a new 

height and two of the most pressing problems, the Chittagong Hill Tract 

ethnic crisis and the Ganges water-sharing problem were tackled up front, 

mainly because of Goral’s proactive foreign policy initiatives. All this created 

an atmosphere of mutual trust between both the leaders and the people of the 

region as a whole. However, this was a short-lived period of peace and 

harmony in South Asia. With the fall of the Gujral government, the ‘Gujral 

Doctrine’ was quickly eclipsed. Indeed, the subsequent regimes both in India 

and its neighbors opted to reverse completely the good will created in the 

Gujral period. Divisiveness has been further accentuated recently, leading to 

SAARC becoming almost a non-entity.

Social Acceptability 

Regional economic integration has to be preceded by social acceptability of 

the regional personality both among elites and the people. South Asia had a 

common past, a common heritage and culture.16 The contemporary leaders of 

16 N. Acharya, ‘South Asia: our common home’, South Asian Regional Dialogue, South Asia: 

Vision & Perspective, (Lahore, 1994), p.43. 
ATIUR RAHMAN

141

South Asia need to revive that commonality among its people as has been 

done in both Europe and Southeast Asia. They too need their version of 

civilizations. This is a very slow process and at times quite difficult. But 

farsighted leaders must arouse consciousness about the virtue of regional 

cooperation among both ordinary people and opinion makers. 

Mutual Benefits 

Strong regional cooperation will never be effective unless both people and 

their leaders can comprehend the mutual benefits of coming together. Unless 

the comparative advantages of intra-regional trade are realized by trade and 

economic leaders, and until the cost of non-cooperation is calculated by the 

elites of each member country, the development of SAARC as a community 

will remain a far cry.17

Globalization

Globalization has unleashed both opportunities and challenges. It has been 

proceeding at such a pace that unless South Asian states act together there is 

every possibility that they will be left behind in repeating these opportunities 

by the fast-moving train refueled by the World Trade Organization. As yet 

South Asia has been unable to act together, even in terms of articulating 

common ills like poverty while dealing with global leaders who are setting the 

tunes of future trade, environmental protection, and poverty reduction 

strategies throughout the World.18

CONSTRAINING FACTORS 

There are obviously serious constraints against South Asian cooperation. 

Some of these constraining factors are: 

x Indo-centric strategic perceptions both among India’s neighbors as well as 

among the big players in global diplomacy.19 This has created problems and 

natural impediments for equal participation in SAARC. The fear of Indian 

domination has largely guided diplomatic and politico-security decision 

making in Pakistan, Sri Lanka and Bangladesh. 

x Lack of trust among South Asian elites. Moreover, the ruling elites in South 

Asia, from the very inception of their nation-states—partly due to nationalist 

17 Research and Information System for the Non-Aligned and other Developing Countries 

(RIS), SAARC Survey of Development and Cooperation (New Delhi: RIS, 1998/99), p.62. 18 SAARC has recently begun compiling a regional poverty profile. South Asian heads of 

governments have also initiated a Second Commission for poverty alleviation in South Asia. 

19 A. Rahman, Relations Between South Asia and ASEAN Bangladesh Country Paper (Sri Lanka: 

UNITAR, 1985), p.7. 
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

142

passion and inter-state conflicts inherited from the past but mostly to 

preserve their vested interests—embarked upon a development strategy that 

featured a preponderance of security considerations over socio-economic and 

politico-cultural development.20

x Weak financial positions, reflected through the trade imbalances of smaller 

states vis-à-vis the larger states, especially India, encourages the former to go 

for extra-regional trade and aid arrangements. 

x Poor infrastructure negates greater levels of intra-regional trade. Also, South 

Asian countries share some basic economic similarities such as low incomes, 

abundant labor, and comparative advantages in similar commodities such as 

tea, ready-made garments and similar non- or low-value-added commodities. 

These common characteristics often reduce the potential for intra-regional 

trade driven by comparative advantages. The low level of per capita income 

also constrains the potential for intra-industry trade.21

x Leaders have obviously not made serious cost-benefit analyses of the cost of 

non-cooperation versus the benefits of cooperation.22

x SAARC was born with disabilities and constraints, which were essentially 

self-imposed. It adopted a functional approach of cooperation in noncontroversial areas like social and cultural fields, hoping that if successfully 

carried forward, opportunities for cooperation in more vital areas could open 

up. Moreover, SAARC follows the principles that all decisions have to be 

made unanimously and that no bilateral and contentious issue can be on the 

SAARC agenda.23 This clearly exhibits a weaker inter-state relationship 

toward equitable participation in policy making for South Asian people. 

x The smaller countries in the region feel uncomfortable about their trade 

relationship with India because under the present tariff structure India runs a 

large trade surplus with its neighbors.24 Also, India’s volume of informal trade 

with most of its neighbors is substantial.25

x Inter-state relations in South Asia are marred by mistrust, mutual threat 

perceptions, confrontation and hostility. Sources of conflicts are mostly 

structural in nature. Divergences in security perception between states are 

20 A.K.M.A. Sabur, ‘Regional Cooperation in South Asia: Problems of Conflict Management’, 

Afroze, op cit, p.111. 21 D. Weerakoon and S. Sayawriya, ‘Economic Integration in SAARC with Special Reference 

to the Role of FDI in Regional Integration’ (Conference Paper Dhaka: BISS, 2002), p.10. 

22 RIS, op cit, p.62. 23 Iftekharuzzaman, op cit, p.18. 24 Ibid, p.20. 25 For example, Bangladesh’s volume of informal border trade with India is substantial. See, A. 

Rahman, A. Razzaque, ‘Informal Border trade between Bangladesh and India: An Empirical 

Study in Selected Areas’, F.E. Cookson and A.K.M.S. Alam eds., Towards Greater Sub-regional 

Economic Cooperation: Limitation, Obstacles, and Benefits Dhaka: UPL, 2002), pp.129-213. 
ATIUR RAHMAN

143

compounded as threats to territorial integrity; political stability and economic 

development are considered to originate from neighbors. Citizens also are 

caught up in the cobweb of history. They are still victims of the traumatic 

transition to new national entities from a larger entity and the tragedies of 

communal violence, loss of wealth and identities that followed the end of 

colonial rule. As a result, they have not yet been able to generate sufficient 

demand for regional cooperation within their own countries. However, a 

number of exchanges have taken place between various groups of 

enlightened citizens from different SAARC countries, showing some hope 

for developing a peaceful South Asian community. But high hopes raised by 

these groups remain to be fulfilled. Indeed, these hopes can be shattered by 

terrorist and communal attacks from time to time. 

As well, there are problems with the SAARC processes: 

x Hard and fast rules followed by the SAARC secretariat; 

x Bureaucratic hassles and paperwork at the secretariat, which is run by 

national bureaucrats drawn from different member states; 

x Many unnecessary formalities; 

x The requirement of consensus decision-making even for small things which 

could be solved bilaterally; 

x A lack of political will and mutual trust among official leaders; 

x The inability of leaders and officials to visualize the potential benefits of 

regional cooperation; 

x The near-war situation prevailing in some border areas; often accentuated by 

accusations of terrorist infiltration; 

x Deep-rooted skepticism about the viability of the South Asian regional 

project arising from the ideological schism between religious and secular 

nationalisms, internal problems of ethnic conflicts, lawlessness and poverty; 

and

x Lack of any collective new vision for a rejuvenated South Asia even in the 

face of the overwhelming pressure of globalization. 

Given these limitations in the official approaches to cooperation, the 

citizens of South Asia cannot be oblivious of lost opportunities for their own 

prosperity and well-being. Indeed, they are well aware of the imperatives for 

closer cooperation between the nations of South Asia. The need to build a 

South Asian identity based on their common values rooted in the historical, 

cultural, social, and ethnic and civilization traditions can hardly be 

overemphasized. Historically, as hinted earlier, South Asians are closer to each 

other in their way of life, philosophy, ethics, literature, music, dance, paintings, 

and architecture than to countries of other regions. But the legacy of 

confrontation has overtaken these positive commonalties. It is, therefore, time 

to reinvent the wheel of South Asian identity through increased citizen 
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

144

activism, which will lead to a better environment for confidence-building 

among the formal elites of South Asia and in turn lead to a better South Asia. 

Despite these constraints, many believe that there is ample scope for 

meaningful non-official initiatives to enhance further confidence-building in 

the region so that leaders cannot continue to shy away from formal regional 

engagements.

POSSIBLE AREAS OF NON-GOVERNMENTAL INTERVENTION

A fear of aggression, domination or embarrassment haunts most leaders 

of South Asia and prevents serious governmental initiatives. As a result, 

SAARC remains moribund and South Asian leaders tend to shy away from 

each other. As discussed above, a number of non-official initiatives have 

already been taken in South Asia. In order to create a better ground for mutual 

cooperation among the mainstream leaders, Track II diplomacy (i.e. nonofficial engagements) can prove fruitful. 

CITIZENS’ ACTIONS

Regional cooperation should be organized around non-governmental 

organizations in their respective civil societies. This is, of course, happening to 

some extent. SAARC, though at a lower scale, has been instrumental in 

bringing NGOs together and letting people talk to each other, and share ideas 

and information. They are indeed drawing inspiration from each other and 

learning many lessons from best practices in individual countries. For example, 

the success of micro-credit initiatives for poverty reduction in Bangladesh (the 

Grameen Bank initiative) has been widely shared by other non-governmental 

actors in South Asia. This non-state cooperation could be further accelerated 

by activities such as: 

x More pro-active interaction between business leaders (such as SAARC 

chambers of commerce and industries) for furthering cooperation in trade 

and investment; 

x Organizing many more citizens’ press conferences, deliberations in public 

fora, seminars and workshops by academics and researchers highlighting the 

benefits of mutual cooperation and activation of Track 1 cooperation; 

x Encouraging exchanges through video conferences and use of Internet 

facilities to strengthen the trust-building initiatives that are already in 

operation; 

x Actions by the media (particularly the electronic media) to bring the people 

of South Asia closer. This is happening to some extent, though in a mostly 

Indo-centric way; and 
ATIUR RAHMAN

145

x An increase in joint-venture initiatives in the service and educational sectors. 

Today, Bangladeshi and Nepali students and patients flock to Indian 

educational and medical institutions. This no doubt helps to bridge the 

cultural gap. However, it is simultaneously contributing to trade imbalances 

in the service sector. Further joint-venture initiatives in these sectors can be 

yet another form of people-to-people cooperation. 

Civil-society organizations have been working together to bring eminent 

citizens together in many commissions, policy advocacy initiatives, dialogues, 

peace initiatives, etc. All these initiatives can be better coordinated if a South 

Asian network (or parliament) comprising representatives selected by nongovernmental organizations (including think tanks) could be organized. They 

could even work with the tacit approval of national governments and be 

promoted by SAARC. In other words, there is a need for creating a greater 

space for the citizens of South Asia so that they can come together to shape a 

better future. The nation-states should come out of their restrictive shells and 

allow their citizens to intermix and intermingle for a better understanding of 

their regional, national and local identities. This kind of opening up at the 

people-to-people level will create moral pressure on leaders to strengthen the 

Track 1 approach of cooperation between the state actors. 

CONCLUSION AND RECOMMENDATIONS 

A move towards a South Asian community can be cemented and 

accelerated only if a number of policy initiatives and actions, both at the 

governmental and non-governmental levels, are taken by South Asian leaders. 

Some of these economic, political, social and cultural initiatives are mentioned 

below.

Economic initiatives: 

x Experimentation with cooperation at smaller sub-regional levels (such as 

perhaps, Bangladesh-West Bengal, Bangladesh-Nepal-India) to develop 

sub-regional growth quadrangles. 

x India has to play a more accommodating role to build up 

confidence/trust among smaller neighbors (for example, road transit 

between Nepal and Bangladesh should be allowed to flourish). 

x In the face of speedy trade liberalization, there is a need for the 

monitoring of policy changes (such as the introduction of tariffs, or price 

controls) at the regional level for greater coordination and a more 

effective response to the challenges of globalization. The fallout of 

globalization needs to be monitored and appropriate coping mechanisms 

must be devised both at the national and regional levels. 
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

146

x Smaller states should be allowed to benefit from the higher levels of 

development in the information technology sector in India.26

x There is a need to expand trade and investment in the emerging global 

context to strengthen the regional economic bloc.27

x Facilitate greater contacts among citizens of South Asia by further 

improving road, rail and air travel facilities. There are, for example, no 

easy air connections between the major cities of South Asia. One has to 

go to Bangkok to reach Colombo from Dhaka. Similarly, Pakistanis need 

to go to Dubai or Bangkok to reach Kathmandu. All of these practical 

hurdles diminish the potential for people-to-people contact in South 

Asia.

x There is a crucial need for economic policy coordination to curb rivalry 

in regional and international markets, stemming from South Asian 

nations’ similar production and trade profiles. The development of 

integrated production networks and joint-export activities is necessary 

for this. 28

x Learning from each other’s successes in responding to poverty, such as 

the micro-credit program in Bangladesh or decentralization in some 

states in India. 

Specifically, in order to create greater economic cooperation, SAARC’s 

institutional needs are:

x Establishing a free trade area by eliminating all trade tariff and non-tariff 

barriers—that is, realizing the South Asian Free Trade Area.; 

x Facilitating the freer flow of financial and physical capital and also 

streamlining the movement of personnel in the region; 

x Targeted uplifting of the production and export base of the weaker 

economies in the region; and 

x Establishing a South Asian identify in terms of brand names, quality, 

standards, investment regimes, and other areas where a common approach 

would be to the benefit of all.29

26 A. Rahman, ‘Imperatives for Regional Cooperation’, op cit. 27 B.S. Gupta, ‘A profile of the initiative’ South Asian Regional Dialogue, op cit, p.9. 28 RIS, op cit, p.139. 29 ibid, p.137. 
ATIUR RAHMAN

147

Political Initiatives: 

x As most disputes and apprehensions are Indo-centric, India has to be more 

tactful and should present a low profile to gain the confidence of its smaller 

neighbors.30

x SAARC should emphasize the need for resolution of outstanding bilateral 

issues and thus pave the way for mutual cooperation. While resolving those 

issues, it should be ensured that all negotiations are based on respect for the 

principles of sovereign equality, territorial integrity, political independence 

and non-interference in the internal affairs of other states.31

x Exploited and weak segments of communities in the region should be 

liberated, not through violent means, but by a democratic process. 32

x States should act as the people’s agents to improve levels of development, 

welfare and economic freedom. 

Social Initiatives: 

x All types of people-oriented organizations—political, civic, professional and 

NGOs—should participate actively to promote constructive dialogues and 

exchanges, and contribute towards building consensus within the region for a 

new order in South Asia based on recognition of the peoples’ priorities.33 As 

there is popular demand for greater South Asian cooperation, efforts should 

be made to increase people-to-people exchanges, sharing the common 

heritage and culture.34

x There is a need to build a coalition of people across boundaries. Ultimately it 

is only by empowering the people and granting them control over their 

destinies that the shared goal of making South Asia a community can be 

realized.

x There is a need to build a South Asian identity based on common values 

rooted in the historical, cultural, social, and ethnic and civilization traditions.35

Success depends on state patronization of civil society or in ‘beyond the state’ 

initiatives.

x There is a need for advocacy by civil society for further democratization. 

30 ibid. 31 ibid. 32 B.S. Gupta, op cit, p.11. 33 K. Hassain, ‘A New Order for South Asia’; South Asian Regional Dialogue, op cit, p.38. 34A. Rhaman, Recent global developments and new imperatives for South Asian Regional 

Cooperation, paper presented at the international seminar on New Imperatives for Regional 

Cooperation in South Asia, organized by Peace Council, Dhaka, 1992. 

35 ibid.
SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

148

Other Initiatives: 

x More studies into the potential benefits of sub-regional/regional 

cooperation and proper dissemination of those findings is needed.36

x There should be greater exchanges of academics, poets, and cultural 

troupes among the South Asia Growth Quadrangle (SAGQ) countries, in 

particular, and South Asia in general. 

x There should be easy access to each other’s TV and other electronic 

news and programs. 

Despite all the bottlenecks discussed above, South Asians should continue 

to work hard to come together in making a community for the people of the 

region. People-to-people interactions should continue to flourish even when 

leaders do not see each eye-to-eye. We may conclude by quoting Tagore: 

We know that during our childhood when we were alone we used to 

be afraid of ghosts. Indeed, this fear of ghosts was the fear of one’s 

own weakness while one was lonely. Three-quarters of our fear relate 

to this fear of ghosts. This simply shows that we could not unite; we 

remained isolated from each other. The fear of poverty is likewise 

the fear of ghosts. We can cope with it provided we stand together.37

Together we will surely survive. Divided we will perish. 

36 Centre for Policy Development, Growth Zones in South Asia: What Can We Learn From South 

East Asia? (Dhaka: CPD, 2000), pp.10-11. 37 Rabindranath Tagore, ‘On Cooperation’, Collected Works of Tagore (in Bangla), Vol. 14, p.313. 
RIVAL REGIONS? EAST ASIAN REGIONALISM AND

ITS CHALLENGE TO THE ASIA-PACIFIC

DAVID CAPIE

This chapter addresses new patterns of multilateral cooperation in Asia, 

focusing on new sets of connections emerging between what have traditionally 

been distinct sub-regions. In particular, it addresses the burgeoning linkages

between Southeast and Northeast Asia that have crystallized in the ASEAN + 

3 (APT) process. The chapter is in three parts. The first section reviews recent 

developments in East Asian regionalism and examines the motivations behind

this new track of institutional cooperation. The second section critically

examines the prospects for success, particularly whether APT will be able to 

overcome the political and strategic obstacles that stand in the way of some of 

its more ambitious goals. The third section considers the extent to which new 

East Asian institutions will prove to be complementary to, or competitive 

with, the existing Asia-Pacific framework. 

THE RISE AND FALL OF THE ASIA-PACIFIC 

The old saw about the Asia-Pacific was that it was a region without

regionalism. With the exception of the ill-fated SEATO and the largely inwardfocused ASEAN, for the duration of the Cold War the region had no 

important or effective governmental multilateral institutions. The most 

important security arrangements were the bilateral ‘hub and spokes’ alliance 

ties across the Pacific between the United States and its Asian partners. 

Despite countless proposals for a regional economic organization, as the Cold

War drew to a close the Asia-Pacific region still lacked any effective regionwide governmental institutions.1

The 1990s changed all that. This was a decade of remarkable institutional 

creativity and growth. At the track one or inter-governmental level the process

1 Aaron Friedberg, ‘Ripe for Rivalry: Prospects for Peace in a Multipolar Asia’, International

Security, vol.18, no.3 (Winter 1993-94) pp.5-33; Barry Buzan and Gerald Segal, ‘Rethinking East

Asian Security’, Survival, vol. 37, no.1 (Summer 1994); Richard Betts, ‘Wealth, Power and 

Instability: Prospects for Peace in a Multipolar Asia’, International Security, vol.18, no.3 (Winter

1992/93) pp.32-75.

149
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150

of Asia-Pacific Economic Cooperation (APEC) began in Canberra in 1989 and 

was strengthened after 1993 with the creation of an annual Leaders Meeting.2

ASEAN grew from its five founding members to include all ten states of 

Southeast Asia by the end of the 1990s. In 1994 it extended its model of 

regional security by leading the creation of the ASEAN Regional Forum 

(ARF), which brought together states from Southeast and Northeast Asia to 

discuss security issues with representatives from North America, Australasia, 

and Europe.3 The ARF itself was soon augmented by inter-regional 

institutional ties with the creation of the Asia-Europe Meeting (ASEM) and 

the Forum for East Asia-Latin America Cooperation (FEALAC).4

Alongside these governmental linkages, track two or unofficial-level 

dialogues proliferated at a remarkable pace. While many non-governmental 

meetings were informal and essentially ad hoc arrangements, there were also 

attempts to add some institutional structure to these interactions. The first 

effort was the North Pacific Cooperative Security Dialogue (NPCSD), which 

ran from 1990 to 1992, with representatives from all eight North Pacific states, 

including North Korea. It was succeeded by the smaller and rather less 

successful ‘track one and a half’ Northeast Asia Cooperation Dialogue 

(NEACD), which has had only intermittent participation from North Korea.5

In 1993, the track-two community formed the Council for Security 

Cooperation in the Asia Pacific (CSCAP) as a way of contributing to efforts 

towards regional confidence building and enhancing regional security through 

dialogues, consultation and cooperation.6 These initiatives, governmental and 

non-governmental, shared a common, ambitious, goal of creating an AsiaPacific community. They sought to create habits of dialogue to overcome 

security dilemmas and misperceptions and to forge closer political, economic 

and social ties between states on both sides of the Pacific. 

2 Yoichi Funabashi, Asia Pacific Fusion: Japan’s Role in APEC (Washington: Institute for 

International Economics, 1995). 

3 Michael Leifer, The ASEAN Regional Forum: Extending ASEAN’s Model of Regional Security,

Adelphi Paper 302, (London: International Institute for Strategic Studies, 1996). 

4 Christopher Dent, ‘The ASEM: managing the new frame work of the EU’s economic 

relations with East Asia’ Pacific Affairs, vol.70, no.4, Winter 1997-1998.The 27 country 

FEALAC, formerly known as the East Asia-Latin America Forum (EALAF) held its first 

meeting in Singapore in September 1999.It was renamed in 2001. 

5 For a discussion of the meanings and etymology of terms like ‘track one’, ‘track two’ and 

‘track one a half’, see David Capie and Paul M. Evans, The Asia-Pacific Security Lexicon,

(Singapore: Institute for Southeast Asian Studies, 2002). 

6 Paul Evans, ‘Building Security: The Council for Security Cooperation in the Asia Pacific’, The 

Pacific Review, vol.7, no.2 (1994) pp.125-139. 
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151

For all the creativity and euphoria of the mid-1990s, however, by the end 

of the decade there was a common perception that these Asia-Pacific regional 

institutions had either stalled or were in decline.7 ASEAN, long criticized by 

some for its consensus-based norms, its insistence on informality, and its lack 

of European-style legalistic institutions, was increasingly regarded as stagnant, 

even by some of its admirers.8 The addition of four new members since 1995 

had led to creation of a two or even a three-tier organization. ASEAN proved 

incapable of taking collaborative action to address problems such as the ‘haze’, 

East Timor, the economic crisis, or the 1997 coup in Cambodia.9

These problems spilled over into the Asia-Pacific institutions that had been 

built on the normative foundations of ‘the ASEAN way’.10 Constrained by a 

lack of consensus and the refusal of ASEAN and China to modify the norm of 

non-interference in internal affairs, the ARF found itself unable to move 

beyond a confidence-building phase to tackle preventive diplomacy in any 

substantive fashion, let alone address the goal of conflict resolution. Despite 

the admission of India (in 1996) and North Korea (in 2000), the ARF 

developed a reputation as a talk-shop rather than a forum capable of offering 

practical solutions to the region’s most pressing security problems. 

The same proved true for APEC. In the wake of the regional economic 

crisis there was disappointment from some quarters that the organization had 

not been able to do more to prevent the collapse of the Southeast Asian 

economies. Its liberalization agenda lost steam following the crisis and notions 

of ‘concerted unilateralism’ and ‘Early Voluntary Sectoral Liberalization’ 

rapidly lost credibility.11 Even those defending APEC’s ongoing utility had to 

fall back on the relevance of the annual Leaders’ Meetings to deal with 

7 Douglas Webber, ‘Two funerals and a wedding? The ups and downs of regionalism in East 

Asia and Asia-Pacific after the Asian crisis’, The Pacific Review, vol.14, no.3 (2001) pp.339-372. 

8 Amitav Acharya, Constructing a Security Community in Southeast: ASEAN and the Problem of 

Regional Order, (London: Routledge, 2001) pp.194-208. 

9 C. Fred Bergsten, ‘The New Asian Challenge’, Institute for International Economics 

Working Paper No.4 (March 2000) 7, available online at 

http://www.iie.com/catalog/wp/2000/00-4.pdf. 

10 Amitav Acharya, ‘Ideas, Identity and Institution-Building: From the ASEAN Way to the 

Asia-Pacific Way?’ The Pacific Review (1997). 

11 John Ravenhill, APEC and the Construction of Pacific Rim Regionalism (Cambridge: Cambridge 

University Press, 2001) pp.186-222. 
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‘surprise’ issues like East Timor, international terrorism, the North Korean 

nuclear program and the threat from SARS.12

It might have been expected that in the wake of these trials and 

tribulations, particularly those since 1997, the region’s institution builders 

would settle for a period of reflection and consolidation. However, the 

contrary has happened. There has actually been an expansion of regional 

multilateral activities, at a pace that is remarkably rapid by recent Asian 

standards. In particular, there has been an impressive rise in the last few years 

in multilateral contacts on an East Asian basis.

RECENT DEVELOPMENTS IN MULTILATERAL 

COOPERATION

The most important recent developments in multilateral cooperation in 

Asia have been between states and non-governmental actors across the region 

coming to be known as East Asia. In particular, the last five years have seen 

the rapid rise of the APT process, bringing together leaders, ministers, and 

senior officials from the sub-regions of Southeast and Northeast Asia. 

The APT began in very modest circumstances in 1996 when the foreign 

ministers of China, Japan and South Korea were invited to join their ASEAN 

counterparts for an informal lunch prior to a human rights meeting in 

Bangkok.13 Heads of State soon became involved and met in Kuala Lumpur in 

1997 as part of the celebrations marking ASEAN’s thirtieth anniversary. They 

came together again in Hanoi in December 1998. At that meeting, South 

Korean president Kim Dae-jung proposed the establishment of an East Asian 

Vision Group (EAVG) to develop a road map for regional cooperation on an 

East Asian basis. A third APT leaders meeting was held in Manila in 

November 1999 under the banner of ‘East Asian Cooperation’ and addressed 

for the first time eight fields of functional and economic cooperation. It issued 

a ‘Joint statement on East Asian Cooperation’ that set in motion a series of 

meetings between foreign, finance and economic ministers. By the time of a 

fourth meeting in Singapore in 2000 two broad trends were becoming evident. 

The first was the possible development of formal institutional links between 

Southeast and Northeast Asia. The second was the potential development of 

an East Asian free-trade area. Reflecting a cautious optimism about the future 

of East Asian regionalism, Singaporean Prime Minister Goh Chok Tong said, 

12 Brad Glosserman, ‘SARS – An Opportunity for APEC’, PacNet Newsletter, no.17, 23 April 

2003.

13 Hadi Soesatro, ‘Asia at the Nexus: APEC and ASEM’, Panorama, 2001, no.4 , p.22. 
DAVID CAPIE

153

‘I see no problem in ASEAN + 3 evolving, if that’s the desire of leaders, into 

some kind of East Asia Summit’.14

While its institutional evolution to date has been cautious and pragmatic, 

the APT has succeeded in establishing a number of concrete forms of 

cooperation between the members of ASEAN and the three Northeast Asian 

states. The most significant of these have come in the area of financial 

cooperation, most notably the Chiang Mai Initiative (CMI), established in May 

2000 to establish a regional currency-swap mechanism to enable states to 

protect themselves better against any future financial crises. The initiative 

creates a network out of existing swap arrangements. According to one analyst, 

it is a ‘modest but important step for regional currency stability, since 

committed support under the bilateral swap agreements [already in place] 

would not be enough to deal with another crisis like that which hit the region 

in 1997’.15 The CMI may be a harbinger of greater financial or monetary 

cooperation among East Asian states. One financial writer has called it a 

‘watershed in a new regional financial architecture in East Asia’.16 Dieter and 

Higgott see it as no less than ‘the beginning of a new era of regionalism’.17

Monetary cooperation has also been accompanied by a host of proposals 

for bilateral and regional free-trade areas across East Asia. In November 2001, 

Chinese Premier Zhu Rongji proposed the creation of a free-trade zone with 

ASEAN within ten years, and created a negotiating committee to work on its 

implementation. Stung by China’s initiative, Japanese Prime Minister Koizumi 

responded with a call for a ‘Japan-ASEAN Comprehensive Economic 

Partnership’ and announced the creation of a study group to look at creating a 

free-trade regime. The 2001 report of the East Asian Vision Group, Towards an 

East Asian Community, called for a region-wide East Asian Free Trade Area 

(EAFTA) made up of all thirteen states and Taiwan.18 There have also been a 

plethora of proposals for bilateral free-trade arrangements, most notably three 

14 Quoted in Ibid. 15 Tsutomu Kikuchi, ‘East Asian Regionalism: A Look at the ‘ASEAN plus Three’ 

Framework’, Japan Review of International Studies, (Spring 2002) 1-23, p.8. 

16 Pradumna B. Rana, ‘Monetary and Financial Cooperation in East Asia: A Survey’, Panorama,

2002, no.1, pp.17-34. 

17 Cited in Webber, op.cit., p.341. 

18 East Asia Vision Group, Towards an East Asian Community: Region of Peace, Prosperity and 

Progress, (October 2001) para 28. 
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154

between Singapore and Japan, Singapore and the United States and Singapore 

and New Zealand.19

These financial and trade projects have been augmented with more 

adventurous proposals such as former Filipino President Estrada’s call in 

November 1999 for a common East Asian currency. While such ideas 

currently remain implausible, they are taken increasingly seriously, not just by 

academics and regional cheerleaders, but also by leaders and senior officials 

around the region. 

MOTIVATIONS FOR EAST ASIAN REGIONALISM 

What has driven East Asian multilateral cooperation at a time when other 

regional institutions have been foundering? According to most analysts, the 

evolution of the APT process has been propelled by two distinct sets of 

motivations, some ‘positive and even visionary,’ others ‘defensive and 

reactive’.20

First, from the perspective of neofunctionalist theory, the creation of East 

Asian political institutions is a natural accompaniment to growing levels of 

economic integration between Asian states.21 A number of economists have 

stressed the value of deepening economic and political cooperation as a way to 

reduce transaction costs, sustain economic growth and manage the increasingly 

complex regional economy.22

Others, however, make the argument that APT cannot be seen as a simple 

response to greater interdependence. Intra-regional trade among East Asian 

states actually declined from the end of 1995 onwards, unlike NAFTA where 

the share of intraregional trade for members rose consistently and accelerated 

after the signing of the free-trade agreement. This leads John Ravenhill to 

suggest that closer political collaboration in East Asia has not been driven by 

19 Mari Pangestu, ‘China and Southeast Asian Regional Trade Cooperation’, Panorama, 2002, 

no.2, pp.54-68, 63. 

20 Bergsten, op.cit. 21 Jessie P H Poon, ‘Regionalism in the Asia Pacific: is geography destiny?’ Area, vol.33, no.3, 

(2001) pp.252-260. For a classic statement of the neo-functionalist perspective see Ernest B. 

Haas, The Uniting of Europe: Political, Social and Economical Forces 1950-1957 (Stanford: Stanford 

University Press, 1958). 

22 Wendy Dobson, ‘Deeper Integration in East Asia: Regional Institutions and the 

International Economic System’, The World Economy, vol.24, no.8 (August 2001). 
DAVID CAPIE

155

growing interdependence, bur rather is a calculated response to the regional 

economic crisis that interrupted a trend of greater integration.23

In this view, East Asian regionalism is, at least in part, a defensive response 

or ‘hedge’ strategy to parallel developments in Europe and North America. 

With the expansion of the European Union to include former Eastern Bloc 

states in 2004, and the likely completion of a Free Trade Area of the Americas 

(FTAA), Asian leaders have been given a strong incentive to pursue closer 

relations to give the region balance against the possible development of an 

exclusive bloc elsewhere. In one view, the APT and its associated economic 

projects, represent ‘counter-regionalism’ and contain the potential for the 

creation of what Ravenhill has called ‘a three bloc world’.24

Some of this ‘counter-regionalism’ is undoubtedly driven by resentment 

towards the West, in particular Washington’s slow response to the East Asian 

economic crisis.25 Fred Bergsten has said that ‘most East Asians feel that they 

were both let down and put upon by the West’ during the economic crisis.26

Tsutomu Kikuchi has described a post-crisis sense of shared ‘humiliation’ on 

the part of Asians as an important motive for East Asian cooperation.27 Asian 

regionalism is also being driven by a desire to reduce dependence on ‘the 

[International Financial Institutions] IFIs based in Washington, the authorities 

of the United States, and the private (predominantly Anglo-Saxon) markets 

that took their cues from both’.28 But while this approach has influential 

proponents (for example, Malaysian Prime Minister Mahathir) the ‘balancing’ 

argument need not have entirely negative connotations. As Paul Evans has 

argued, ‘put in its more positive form, there is the argument that East Asia 

23 Ravenhill, APEC, op.cit., p.212. 

24 John Ravenhill, ‘A Three Bloc World? The New East Asian Regionalism’, International 

Relations of the Asia-Pacific, vol.2, no.2 (2002) pp.167-195. On ‘counter-regionalism’, see Naoko 

Munakata, ‘Whither East Asian Economic Integration?’ Center for Northeast Asian Policy 

Studies, Working Paper (Washington D.C.: Brookings Institution, 2002), p.2. 

25 Richard Higgott, ‘The Asian Economic Crisis: A Study in the Politics of Resentment’, New

Political Economy, vol.4, no.1 (March 1998). 

26 Bergsten, ‘The New Asian Challenge’, op.cit. 27 Tsutomu Kikuchi, ‘East Asian Regionalism: A Look at the ‘ASEAN plus Three’ 

Framework’, Japan Review of International Studies, (Spring 2002) pp.1-23, 2. 

28 Bergsten, op.cit.., p. 3. 
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156

needs to have a stronger voice in global institutions including the WTO and 

IFIs’.29

Richard Stubbs has argued that APT reflects a desire to advance a uniquely 

‘Asian’ form of capitalism. This ‘East Asian form of capitalism’, he says 

‘emphasizes production rather than consumption, and results rather than 

ideology, and tends to place a premium on market share as opposed to short 

term profits. East Asian capitalism is also based much more on social 

obligation and social trust than the rule of law’.30 A greater sense of solidarity 

among East Asian states has also emerged as a by-product of the loss of 

interest in APEC on the part of ‘Western’ regional players such as Australia 

and the United States. 

A third impetus for East Asian regionalism is an embryonic sense of 

shared identity. In this view, it is only natural that Asians should come together 

to discuss matters of concern in the way that European or American leaders 

do. Pekka Korhonen has pointed to the much greater interest in Tokyo to 

developing relations with its Asian neighbors, a trend reflected in recent 

initiatives like the creation of the Miyazawa Fund, its push for an Asian 

Monetary Fund (AMF) as well as support for the APT.31 Some writers argue 

there are common cultural foundations or shared norms that underpin the 

emerging East Asian region. The 2001 report of the East Asian Vision Group 

(EAVG) for example, refers to the ‘many common historical experiences and 

cultural norms and values’ among East Asian states, and asserted that East 

Asia is a ‘distinctive and crucial region of the world’.32

CHALLENGES FOR TEN-PLUS-THREE 

In a very short period of time APT has moved from being an informal set 

of ad hoc meetings attended warily by some participants, to one of the leading 

forums in Asia. Richard Stubbs has described it as having ‘the potential to 

become the dominant regional institution in East Asia’.33 The Australian 

economist Peter Drysdale has gone so far as to call it ‘the most important 

29 Paul M. Evans, ‘Between Regionalization and Regionalism: Policy Networks and the 

Nascent East Asian Institutional Identity’, manuscript for a volume, edited by T. J. Pempel, 

Remapping Asia (forthcoming 2004) p.4. 

30 Richard Stubbs, ‘ASEAN Plus 3: Emerging East Asian Regionalism?’, Asian Survey, vol. 

XLII, no.3 (May/June 2002), p.445. 

31 Pekka Korhonen, Japan and the Pacific Free Trade Area (London: Routledge, 1994). 

32 East Asia Vision Group, Towards an East Asian Community, p.9. 

33 Ibid, p.441. 
DAVID CAPIE

157

political development in Asia in the last thirty years’.34 But while the new East 

Asian regionalism has taken large strides in a comparatively short period of 

time, a number of significant obstacles stand in the way of deeper, more 

formalized cooperation.

First, there are ongoing political and strategic differences between some of 

the APT’s members. For all the warm talk about a shared identity and 

common vision, there also remain deep suspicions and latent conflicts. Of 

these, what Nicholas Kristof has called the ‘problem of memory’ is especially 

important. 35 Many Asian leaders still clearly recall Japanese militarism and 

expansionism in Asia during World War II. They remain to be convinced that 

Japan has come to terms with its actions during the war and are suspicious 

about Japanese leadership ambitions in East Asia. Incidents like Prime 

Minister Koizumi’s visit to the Yasukuni Shrine in Tokyo, where convicted 

war criminals are buried along with ordinary soldiers, only reinforce these 

perceptions and serve to undermine closer regional relations. Related issues 

like compensation for Korean ‘comfort women’ and revisionist school 

textbooks remain an impediment to Japanese-Korean and Sino-Japanese 

rapprochement.36

There are also suspicions across East Asia about the future role of China. 

These fears reached a peak in the middle of the 1990s when Chinese forces 

seized the disputed Mischief Reef in the South China Sea and the PLA lobbed 

missiles around Taiwan prior to the 1996 presidential elections. Since that 

time, accomplished Chinese diplomacy has seen its relations with Southeast 

Asian states improve significantly. Beijing has been a skillful participant in 

regional forums and, with its offer to conclude a free-trade agreement with 

ASEAN, has gone some way to assuage fears of a hegemonic China dominant 

over Southeast Asia.37 But China’s sheer size, its proximity and its authoritarian 

character make it hard for it to dispel all these fears. 

A second problem standing in the way of more formalized multilateral 

cooperation is the extraordinary diversity of the region. Political systems range 

the entire spectrum from oppressive military regimes to robust liberal 

democracies, with the majority of states maintaining some kind of illiberal 

34 Peter Drysdale, personal communication, Institute of Asian Research, University of British 

Columbia, Vancouver, 11 October 2002. 

35 Nicholas D. Kristof, ‘The Problem of Memory’, Foreign Affairs, November/December 1998. 

36 Gilbert Rozman, ‘Flawed regionalism: reconceptualizing Northeast Asia’, The Pacific Review,

vol.11 , no.1 (1998) pp.1-27. 

37 See generally, Evan S. Medeiros and M. Taylor Fravel, ‘China’s New Diplomacy’ Foreign 

Affairs, November/December 2003 
RIVAL REGIONS

158

government. In terms of economic models, a similarly wide range is evident, 

with everything from centrally planned economies to free-market city-states. 

The presence of many weak states in the region, both in terms of lacking 

strong domestic economic and political institutions and accepted territorial 

boundaries, makes the process of region building extremely difficult.38 All of 

these create obstacles when it comes to the pooling of sovereignty usually 

associated with even modest forms of regional cooperation. This is evident in 

the senior officials’ East Asia Study Group report, which pushed almost all of 

the more ambitious proposals to come out of the track two East Asia Vision 

Group into the basket of ‘medium and long term measures and those that 

require further studies’.39

This extreme diversity is further exacerbated by the failure of regional 

leaders to import new regional understandings into their domestic societies. So 

far there has been no attempt in any of the forms of Asian regionalism to take 

publics and populations along with government policies. Community building 

has been statist and socialization has been almost exclusively at the elite level. 

Even within a well-established regional institution like ASEAN, few Thais or 

Indonesians consider themselves ‘Southeast Asians’ in the way that Italians 

and Swedes consider themselves Europeans. There is as yet no reason to 

suppose that they will be more likely to consider themselves as East Asians, at 

least not any time soon. This permits parochial attitudes and prejudices about 

neighbors to persist, impeding closer regional ties. 

A third obstacle concerns the topsy-turvy distribution of economic power 

and political influence within East Asian institutions. According to one 

estimate, the combined GDP of the three Northeast Asian economies totals 

more than thirteen times the GDP of the ten ASEAN states.40 China is a 

nuclear power and a permanent member of the United Nations Security 

Council. Despite that, the APT currently assigns the much weaker ASEAN 

states a dominant, agenda-setting role in the process. This replicates the 

situation in the ARF, where ASEAN formally has the ‘driver’s seat’, something 

that has left many regional states dissatisfied and one that is increasingly 

resisted by larger regional actors. Mari Pangestu notes that even within 

ASEAN economic cooperation has been difficult. Given these challenges, she 

says, ‘it is difficult to see that ASEAN can be the focal point in expansion of 

38 Kikuchi, op.cit., p.15. 39 East Asia Study Group, Final Report of the East Asia Study Group, 4 November 2002, p.4. 

40 Soesastro, op.cit., p.24. 
DAVID CAPIE

159

regional cooperation’.41 For the time being, ASEAN’s leadership probably 

helps matters in that neither China nor Japan have to take on an explicit 

leadership role. But ASEAN will have to give up influence in APT in the 

future to let Northeast Asian states play a role commensurate to their 

economic and political power. So far it has not shown any willingness to do so. 

Indeed, some ASEAN leaders have expressed concerns about the future of 

ASEAN within an East Asian framework. Singaporean Prime Minister Goh 

Chok Tong, for example, has said of the East Asian Summit idea, ‘I myself 

would not recommend a hasty evolution. I would recommend a gradual move 

to that because it has impact on ASEAN’.42 The November 2002 report of the 

East Asian Study Group (EASG) prepared by APT senior officials concluded 

that ‘discussions have also revealed concerns that ASEAN may be 

marginalized if the transition towards an [East Asian Summit] moves too 

fast’.43

A final potential complication concerns the attitude of the most important 

non-member of the APT, the United States. While many Asian governments 

are putting greater emphasis on developing links with their neighbors, bilateral 

relationships with the United States remain the most important for most 

countries in the region. This is particularly the case in Northeast Asia where 

the US is the single most important relationship for China, South Korea and 

Japan. In Southeast Asia, the ‘war on terrorism’ has prompted closer 

diplomatic and military relations between Washington and several regional 

partners.44 While new dialogue mechanisms are welcomed by regional leaders, 

all recognize that the bilateral alliance system remains the most important 

security structure in the region. East Asian states, including China, continue to 

defer to Washington for leadership in responding to regional security crises 

such as North Korea’s nuclear program. 

Washington’s attitude to proposals for any East Asian regional institution 

will be critical in determining their prospects. The last time a plan for the 

creation of an East Asian institution was put forward was in 1990 when Prime 

Minister Mahathir advanced his vision of an East Asian Economic Group—a 

self-consciously ‘Asian’ group that excluded the United States by design. This 

was watered down and renamed after the United States objected to what 

41 Pangestu, op.cit., p.63. 

42 Transcript of remarks to the media by Prime Minister Goh Chok Tong, on the discussion of 

the ASEAN+3 Summit, 24 November 2000. 

43 East Asia Study Group, Final Report of the East Asia Study Group, 4 November 2002, p.5. 44 David Capie, ‘Between a Hegemon and a Hard Place: The ”War on Terror” and Southeast 

Asian-US Relations’, The Pacific Review, vol. 17, no.2 (forthcoming 2004) 
RIVAL REGIONS

160

Secretary of State James Baker called ‘drawing a line down the Pacific.’ 

Extensive US pressure on Japan and South Korea effectively killed the EAEG 

plan.45

To date, there has been little reaction from Washington to developments 

with the APT, despite the fact that the current Bush administration contains 

many of the same officials who opposed the EAEG in 1990. What comment 

there has been has been quietly supportive. In the words of one analyst the US 

has taken a position of ‘benign neglect’.46 Assistant Secretary of State James 

Kelly has called APT ‘an interesting development’ and ‘a very healthy kind of 

dialogue within East Asia’.47 US Trade Representative Robert Zoellick has said 

the US welcomes closer regional integration in Asia and ‘is not worried about 

exclusion’ from any East Asian economic institution.48 Whether this 

cautiously supportive attitude continues remains to be seen. One regional 

survey concludes that ‘US policymakers seem wary of the potential for 

ASEAN +3 to become an anti-US bloc, on both political and economic 

fronts’.49 Based on the stated views of some American officials it seems likely 

Washington would oppose any institution that provided China with a vehicle 

to dominate East Asian politics. If the US were to take a more disapproving 

attitude to East Asian regionalism it could certainly make it extremely difficult 

for allies like South Korea and Japan to move ahead with closer ties on an East 

Asian basis. 

Whither East Asian regionalism? Is APT a harbinger for a new kind of 

economic and political order in Asia, or simply the creation of another regional 

talk shop? For the time being the prospects seem mixed. Some see ‘monetary 

regionalism’ as a sign that a more ambitious and formal political and trade 

agenda will follow. Others see the sheer number of competing Chinese and 

Japanese proposals for regional free-trade arrangements as a gloomy sign, 

noting ‘It is difficult to avoid the rather depressing conclusion that the name of 

the game is national rivalry and vying for regional influence rather than sinking 

45 According to Ravenhill, Secretary of State James Baker told South Korean Foreign Minister 

Lee Sang Ock ‘Malaysia didn’t spill any blood for this country, but we did.’ Ravenhill, APEC,

op.cit., p.94. 

46 Drysdale, personal communication. 

47 ‘Dialogue’ Transcript of Assistant Secretary of State James Kelly’s statement on the 

Upcoming ASEAN Regional Forum, US Embassy, Tokyo, 18 July 2001. 

48 ‘Dialogue’ Transcript of USTR Robert Zoellick’s press conference, US Embassy, Tokyo, 11 

April 2002. 

49 Brookings Institution, Northeast Asia Survey 2001-2002, (Brookings Institution, Washington 

DC, 2002) p.90. 
DAVID CAPIE

161

national differences.’50 Even sympathetic regional scholars conclude that ‘the 

development of ASEAN + 3 will be modest in speed and scope, and warn 

that regional integration will be undermined by ‘the practice of talking 

regionally and acting unilaterally’.51 Generally speaking, however, if opinions 

differ about the likely scope of the APT agenda and the pace at which it will 

proceed, there is widespread agreement that intra-Asian cooperation is here to 

stay and will only become more important in the future.

EAST ASIA AND THE ASIA-PACIFIC: RIVAL REGIONS? 

Assuming East Asian regionalism does continue to move forward, even at 

a modest pace, it raises the question of what these new dialogues will mean for 

the region’s existing ‘alphabet soup’ of trans-Pacific institutions. This means 

not only APEC and the ARF but also ASEAN itself. 

Any analysis along these lines must remain largely in the realm of 

speculation. It is simply too soon to discern the form that regional cooperation 

will take in Asia in the future. There is certainly little agreement among the 

economists and political-economists over the likely direction of regional 

economic cooperation. Some see East Asia as propagating and defending a 

unique form of capitalism or moving towards exclusive regionalism without 

the United States, while others see the growth of cooperation as part of a 

natural adjustment to globalization.52 Paul Evans has likened this literature to 

a ‘Rorschach test that tells us as much about the observer as the 

phenomenon’.53

Critical examination of the rhetoric of East Asian regionalism indicates 

that supporters have been careful to couch their goals in terms that sound 

open and engaged with the rest of the world and complementary to existing 

arrangements. In terms of economic cooperation, officials always stress that 

the agenda is consistent with earlier ideas about ‘open regionalism.’ Gone is 

the exclusive language of Prime Minister Mahathir’s EAEG proposal. There 

are no hints of a new Fortress Asia or of drawing a line down the Pacific. The 

EAVG report describes an East Asia pursuing the objective of ‘economic 

50 Anthony Rowley, ‘Will it take a war to unite East Asia?’ Business Times, 25 July 2002. 

51 Kikuchi, op.cit., pp.21, 22. 

52 Stubbs, ‘ASEAN Plus 3: Emerging East Asian Regionalism?’; Paul Bowles, ‘Asia’s PostCrisis Regionalism: Bringing the State Back In, Keeping the (United) States Out’, Review of 

International Political Economy, vol.9, no.2 (May 2002) pp.230-256; Dobson, ‘Deeper Integration 

in East Asia’, op.cit. 53 Evans, ‘Between Regionalization and Regionalism’, op cit., p.7. 
RIVAL REGIONS

162

integration through the liberalization of trade and investment’.54 It urges the 

adoption of a liberalization agenda that is more ambitious than that laid out in 

APEC’s Bogor Declaration including the creation of a region-wide EAFTA. 

While the report recognizes that ‘growing regionalism elsewhere has created 

the need for East Asia to pay more attention to securing regional common 

interests in the multilateral trading arena,’ it also recommends that any 

‘regional integration arrangement should be consistent with World Trade 

Organization (WTO) agreements’.55

The substance of the APT agenda to date also reflects this engagement. 

The Chiang Mai currency-swap initiative was structured in such a way as to be 

a regional supplement to the International Monetary Fund, and not a separate 

fund as some states—for example, Malaysia—had hoped.56 Ninety per cent of 

any funds disbursed by the CMI are to be conditional on the acceptance of 

conditionalities imposed by the IMF.57

Similarly, whatever discontent exists towards the United States because of 

its perceived slow response to the Asian economic crisis, there have not been 

calls for an exclusive economic arrangement. As John Ravenhill has argued, if 

a ‘greater sense of East Asian identity [exists] post-crisis, for many 

governments of the region such a development need not come at the expense 

of linkages with extra-regional partners. The potential for the development of 

a closed East Asian economic bloc is no greater five years after the crisis than 

it was before’.58

Proponents of East Asian regionalism are also conscious of the need to 

avoid duplication at the governmental level. In terms of competing with 

established institutions, the EAVG report calls for the creation of an East 

Asian Summit and ‘the institutionalization of regional dialogues including 

regular meetings of foreign ministers’.59 It says ‘sub-regional security dialogues 

shall be encouraged where appropriate,’ a subtle reference to the only Asian 

sub-region bereft of a dialogue forum—Northeast Asia.60 But despite this, the 

report also notes that ‘[w]e must ... avoid duplication of the work of other 

54 Towards an East Asian Community: Region of Peace, Prosperity and Progress [hereafter EAVG

Report], p.13. 

55 EAVG Report, pp.13-14. 

56 Kikuchi, p.8. 

57 Ibid. 58 Ravenhill, ‘A Three Bloc World?’, p.193. 

59 EAVG Report, p.20. 

60 Ibid, p.21. 
DAVID CAPIE

163

related organizations and regional frameworks and instead complement their 

contributions.’61

Traditional national security issues, however, seem to be one area where 

existing arrangements will retain their importance. There is no doubt that 

security dialogue will be a part of any future East Asian regional institution, 

even if it does not formally appear on the agenda. Indeed, according to some 

regional officials, the quality and intensity of discussions on the margins of 

APT is already equivalent to discussions that take place at the annual APEC 

Leaders Meeting.62 Despite this, the architects of East Asian regionalism have 

focused predominantly on a non-traditional security agenda, urging 

cooperation and consultations on mechanisms for addressing ‘piracy, drugtrafficking, illegal migration, smuggling of small arms, money laundering, cyber 

crime, international terrorism and other issues affecting human security’.63

There has been a great deal of caution about expanding beyond a nontraditional security agenda. Regional sensitivities among members of the APT 

are one reason, but others have expressed the concern that including security 

discussions might provoke Washington or undermine the US presence in the 

region.64

This attitude may change slowly over time, as regional states develop a 

level of comfort in their interactions. It was noteworthy that China and 

ASEAN agreed to conclude their November 2002 agreement on a Code of 

Conduct for the South China Sea at the APT meeting in Phnom Penh.65 This 

despite the fact that such agreements had been explicitly ruled out as a topic 

for discussion under the rubric of the APT only a short time earlier. However, 

it seems likely that for the time being at least, the ARF, for all its limitations, 

will remain the focus of hard security dialogue in the region. Proponents of 

East Asian regionalism recognize this and the EAVG report actually urges 

governments to ‘strengthen the ASEAN Regional Forum so that it can serve 

as a more effective mechanism for cooperative security’.66 However uneasy 

some East Asian states may be about a more assertive and unilateral United 

States in the wake of the war in Iraq, there is nothing in the APT process that 

suggests the development of any mechanisms that could rival the importance 

of the bilateral alliances. 

61 Ibid, pp.11-12. 

62 I am grateful to Paul Evans for sharing this insight with me. 

63 EAVG Report, p.21. 

64 Kikuchi, op.cit., p.13, fn11. 

65 John Ruwitch, ‘China expects sea code of conduct with ASEAN’, Reuters, 28 October 2002. 

66 EAVG Report, pp.20-21. 
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164

CONCLUSION

This chapter makes three broad arguments. The first is that intra-Asian 

regional cooperation is a new and significant component of the region’s 

security and economic architecture. A common theme in almost every analysis 

of the emerging East Asian regionalism is that it is too soon to know for sure 

what form East Asian regional arrangements will take and how they will be 

institutionalized. What is not disputed, however, is that intra-Asian regionalism 

is here to stay. Whether organized as APT or an East Asian Summit, with or 

without Australasian membership, regional interactions among the states of 

East Asia are certain to continue and seem likely to develop further. 

Second, while interactions among East Asian states will increase, progress 

will be evolutionary rather than revolutionary and political and strategic 

obstacles will prevent the fulfillment of the more ambitious goals that have 

been set for the process, at least in the foreseeable future. If a shared East 

Asian identity is emerging through interaction and socialization, then it 

remains extremely fragile. Even leaving aside the extraordinary number of 

practical challenges in the way of forging deeper economic integration between 

East Asian states, the problem of memory and deeply established regional 

norms against formal institutionalization will make pooled sovereignty or a 

more structured political community impossible in the short and medium 

term. As it tries to progress beyond dialogue towards greater regional 

functional cooperation, APT is encountering the same challenge that ASEAN 

has confronted in Southeast Asia since 1997: how to reconcile norms of ‘soft 

institutionalization’ and non-interference with effective and wide-ranging 

regional cooperation. ASEAN’s inability to successfully create a formula to do 

just that does not auger well for the larger and more diverse APT. 

Finally, while there is some potential for duplication in the tasks performed 

by new East Asian institutions and their Asia-Pacific counterparts, the former 

is unlikely to eclipse the latter for some time to come. Partly, this is because 

East Asian institutions will only develop slowly. Also, despite their problems, 

Asia-Pacific institutions such as APEC and the ARF remain attractive and 

useful for many East Asian states. In particular, trans-Pacific multilateral 

institutions will retain their comparative advantage in the area of security. 

While dialogue on the margins of the APT will continue and intensify, it is 

unlikely that its formal agenda will reflect hard security issues for some years. 

Rather, the APT process seems content for the time being to address the 

significant number of non-traditional security threats that trouble the region. 

As a result, what we are likely to see in the next few years is not the creation of 
DAVID CAPIE

165

rival regions in East Asia and the Asia-Pacific, but the development of a set of 

multiple and overlapping regional arrangements which will help build 

confidence, but which will not dramatically transform the existing regional 

order.
KOREA: CHALLENGES FOR DEMOCRATIC

CONSOLIDATION

CARL BAKER

INTRODUCTION

In December 2002, South Koreans elected their fourth president since the 

country’s transition to procedural democracy in 1987. The significance of 

these elections is that to all outside appearances, they demonstrate that South

Korea has made a successful transition to a fully democratic system of 

government. Today, unlike in the years immediately following the 1987

elections and even as recently as the 1997 Asian financial crisis, there is general

consensus that a return to the pre-1987 days of military involvement in the 

political process or usurpation of power by an incumbent president has 

become virtually impossible. The military has become sufficiently professional 

to dismiss any speculation about a possible military coup. The election process

appears to be firmly entrenched in South Korean society with a growing 

expectation that campaigns will be run fairly, or at least with increasingly less

visible corruption. Political parties, while still vulnerable to personality 

dominance and a lack of ideological distinction, are generally recognized as the 

legitimate means for articulating political demands within the society.

Even more to the point of a maturing democracy within South Korea,

there has been a growing demand by civic groups and individual citizens for 

fair and responsive leaders. Civic activism for identifying and isolating corrupt

and incompetent politicians within the system has grown over the years.

Recent presidents Kim Dae-jung and Kim Young-sam have seen their sons

prosecuted for political corruption. Prominent businessmen have been 

prosecuted for financial misconduct, several politicians have been removed 

from power for political corruption and the generals have been removed from

the political process. In the words of Adam Przeworski, South Korea is

approaching the minimum structural conditions for democratic consolidation

where democracy ‘becomes the only game in town...[and] all the losers want 

166
CARL BAKER

167

to do is to try again within the same institutions under which they have just 

lost’.1

This apparent success in establishing democracy in a country without a 

democratic tradition, along with the juxtaposition of the last Stalinist holdout 

in North Korea, has made South Korea one of the more interesting cases of 

democratic transition among the countries that have undergone the transition 

to democracy as part of the third wave of global democratization.2 With June 

29, 1987(the date that Roh Tae-woo promised to institute direct presidential 

elections, among other initiatives) isolated as the defining moment in the 

transition, South Korean democratization has been the subject of investigation 

by a variety of scholars with a wide range of perspectives. Indeed, with its 

spectacular economic growth under the authoritarian regimes of Park Chunghee and Chun Doo-hwan in the 1970s and 1980s followed by the increase in 

civil protest supported by the new middle class, South Korea served as a 

textbook example of the economic preconditions theory of democratic 

transition. South Korea also represented a classic case for those interested in 

the cultural aspects of democratic transitions.3

 Given the political intrigue 

associated with the presidential elections in 1987, some have also presented 

Korea as a classic case of elite contingency calculations driving the transition 

process.4 Regardless of the theoretical orientation of the analysis, the common 

conclusion is that by all accounts South Korea has made a successful transition 

to democracy. In fact, there is general consensus in the comparative politics 

literature that the transition to direct presidential elections with suffrage 

extended to a relatively high percentage of the adult population and a 

reasonable opportunity to vote for the opposition is firmly in place—the 

fundamental characteristics of the political order Dahl refers to as polyarchy.5

1 Adam Przeworski, Democracy and the Market: Political and Economic Reforms in Eastern 

Europe and Latin America (Cambridge: Cambridge University Press, 1991), p.26. 

2 For a discussion on the waves of democratic transition see Samuel Huntington, The Third 

Wave: Democratization in the Late Twentieth Century (Norman: University of Oklahoma Press, 

1991).

3 See for example Geir Helgesen, Democracy and Authority in Korea: The Cultural Dimension in 

Korean Politics (Richmond: Curzon Press, 1998) and Daniel Bell et. al., Towards Illiberal Democracy 

in Pacific Asia (New York: St Martin’s Press, 1995). 4 Manwoo Lee, The Odyssey of Korean Democracy (New York: Preager, 1990) and Hyug Baeg, ‘The 

Politics of Democratic Transition From Authoritarian Rule in South Korea’, Sang-Yong Choi, 

ed., Democracy in Korea: Its Ideals and Realities (Seoul: the Korean Political Science Association, 

1997), pp.71-92. 

5 Dahl specifically refers to polyarchy as being distinguished by two broad characteristics: 

Citizenship extended to a relatively high proportion of adults and the rights of citizenship 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

168

Beyond the transition itself, scholars have examined how South Korean 

political institutions and political values have been modified and adapted 

through the consolidation phase of the democratization process. Here we find 

much less optimism regarding the institutionalization of democracy in the 

country. Although again argued from various perspectives, there appears to be 

a general consensus among analysts that South Korea has yet to achieve a fully 

consolidated democracy however the analyst chooses to define the term. For 

example, Diamond and Kim introduce their edited volume analyzing the 

institutionalization of democracy in South Korea by stating that, ‘its political 

institutions remain shallow and immature, unable to structure meaningful 

policy courses and to provide the responsiveness, accountability, and 

transparency expected by the South Korean public’.6 Throughout the volume, 

individual contributors point consistently to a pattern of interplay between 

political institutions, political culture and political behavior that has 

contributed to the general ‘weakness’ of democracy in the country. Elsewhere, 

in a more structural analysis of the democratization process, Croissant argues 

that since the transition in 1987 the usurpation of power by the executive 

branch, the corresponding weakening of the legislative branch and the ongoing 

ineffectiveness of the judiciary have precluded democratic consolidation for 

now or in the near future.7

 Others have attempted to show the general 

incompatibility between Korean civic or political culture and the democratic 

institutions established with the founding of the republic in 1948.8 The 

conclusion drawn is that the consolidation of democracy is fundamentally 

including the opportunity to oppose and vote out the highest officials of the government. 

More specifically, he specifies seven institutions that distinguish a polyarchy. They are: elected 

officials, free and fair elections, inclusive suffrage, right to run for office, freedom of 

expression, alternative information and associational autonomy. Robert A. Dahl, Democracy and 

its Critics (New Haven: Yale University Press, 1989), pp.220-221. 6 Larry Diamond and Byung-kook Kim, ‘Introduction: Consolidating Democracy in Korea,’ in 

Larry Diamond and Byung-kook Kim eds., Consolidating Democracy in Korea (Boulder: Lynne 

Reinner Publishers, 1991), p.2. 

7 Aurel Croissant, ‘Strong Presidents, Weak Democracy? Presidents, Parliaments and Political 

Parties in South Korea’, Korea Observer, Vol. 33, No. 1 (Spring 2002), pp.1-45. 8 Sunhyuk Kim in ‘Civic Mobilization for Democratic Reform,’ in, Larry Diamond and Doh 

Chull Shin eds., Institutional Reform and Democratic Consolidation in Korea (Stanford: Hoover 

Institution Press, 1999), pp.279-303 argues that while citizen mobilization was instrumental in 

achieving the transition, the inability to channel their energies into political parties has been a 

detriment in the consolidation process. In a more expansive argument, Helgesen op. cit., argues 

that the general incompatibility of Korean culture with western democratic structures 

precludes full consolidation of liberal democracy in Korea. Also see Doh Chull Shin, Mass

Politics and Culture in Democratizing Korea (Cambridge: Cambridge University Press, 1999). 
CARL BAKER

169

different, and indeed more difficult, than the transition to democratic 

institutions as a means of government.

The critics take up several themes seen as the primary challenges to further 

consolidation of democracy in South Korea. First, there are the predominant 

arguments that some sort of institutional reorganization is needed either (or 

both) on the input side to allow for better articulation of political demands 

within Korean society or on the output side to provide better delivery of 

political decisions by the government. Second, there is the notion that both the 

political elite and the Korean people must somehow become more committed 

to democracy as a superior form of government. In other words, the argument 

here is that there is some sort of flaw in Korea’s political culture that has to be 

modified. Third, the emergence of a stronger civil society complete with 

voluntary organizations that helps sustain popular involvement in the political 

process is viewed as necessary to provide momentum for institutional reform 

and fostering trust in the political process.9

The emergent pattern is that while there is general satisfaction with the 

transition to democracy, the consolidation of democracy is somehow more 

difficult and perhaps there is something inherently defective about the 

consolidation of democracy in South Korea. The task is to evaluate that 

proposition in the context of how the concept of democracy was introduced in 

Korea and the role the concept has played in the transition process. This 

chapter begins with a brief review of the structural evolution of democracy on 

the peninsula. With that basic framework in place, I highlight some of the 

most common criticisms of the consolidation process and examine their root 

causes. The chapter concludes with some thoughts regarding the way forward 

for the development of a truly Korean style of democracy. 

The essential distinction between the terms ‘democratic transition’ and 

‘democratic consolidation’ is that the transition phase is the initial movement 

away from an authoritarian system during which there is a replacement of the 

non-democratic institutions and procedures. Necessary aspects of this 

transition are the implementation of new rules governing the political process 

and an initial willingness on the part of political actors to follow these newly 

established rules. The transition ends with the first democratic elections and 

the assumption of power by the democratically elected government.10 The 

9 Diamond and Kim, op. cit., pp.1-20. 10 Aurel Croissant, op. cit., pp.6-7, attributes the notion of conceptually separating of the 

transformation phase from the consolidation phase to Guillermo O’Donnel and Philippe 

Schmitter, ‘Transition from Authoritarian Rule: Tentative Conclusions about Uncertain 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

170

consolidation phase is more complex and generally involves the process of 

making the new democratic institutions and procedures a routine part of the 

political process within the country. During this phase, the adaptation of the 

new rules and procedures leads to a persistence of process and a stable 

democratic system. Not surprisingly, the more open-ended nature of this 

phase has also led to a much wider diversity in the way it is characterized in the 

literature.11

In his paper on the consolidation of democratic institutions in Korea, 

Croissant presents a model to argue that the consolidation process occurs in 

three dimensions.12 First, the constitutional dimension involves the ability of 

constitutional organs and political institutions (e.g., electoral system, head of 

state, parliament) to function both as independent institutions as well as in 

conjunction with the other components. This dimension involves vertical 

consolidation within each institution as well as horizontal consolidation 

between the various institutions. Second, the representational dimension refers 

to the ability of political parties to serve as ‘gatekeepers’ of the political system. 

Essentially, the consolidation in this dimension reflects the ability of the party 

system to transform societal demands into effective policy options that serve 

as a channel for realizing political aspirations for the majority of citizens. The 

third dimension is attitudinal and associational consolidation, which refers to 

the attitudes towards the political system and the perceived legitimacy of the 

democratic process within the country. With full consolidation, a democratic 

ethos would permeate the society with an expectation that democratic 

principles would be applied to all aspects of political, economic, social and 

cultural life.

Democracies,’ in O’Donnell, Schmitter and Lawrence Whitehead eds., Transition from 

Authoritarian Rule: Prospects for Democracy (Baltimore: Johns Hopkins University Press, 1990). 11 Hyug Baeg Im, ‘South Korean Democratic Consolidation in Comparative Perspective,’ in 

Diamond and Kim eds., op cit, pp.21-23 presents the range of views on the issue of 

consolidation. He suggests that minimalist conceptions that limit consolidation to 

institutionalization of competition through elections are too narrow. However, it should be 

noted that there is a general lack of consensus regarding the concept of political consolidation 

in the comparative politics literature. In her article, Andreas Schedler suggests there are at least 

five conceptions of the process (avoiding breakdown, avoiding erosion, completing, 

organizing and deepening) used in the political science literature. The first two conceptions 

focus on preventing breakdown of democracy while the other three focus on the process of 

institutionalizing democracy’s basic ground rules for some implicit or explicit idealized model 

of democratic government. 

12 See Aurel Croissant, op. cit. Within the presentation, Croissant attributes much of his 

conception of the three dimensions to Wolfgang Merkel and Leonardo Merlindo. 
CARL BAKER

171

The attractiveness of this model as a starting point lies in the fact that it 

encompasses the general themes mentioned above that run through much of 

the current literature on the consolidation process in South Korea, namely the 

strengthening of democratic institutions and the role of political or civic 

culture. One of the possible shortcomings of the model is that it tends to be 

based on a normative model of democracy in that it assumes there is a desired 

model of democracy that can be observed through the behavior of political 

actors in the context of the democratic institutions established in the transition 

phase of democratization. The potential problem is that eventually one must 

go beyond the institutions of democracy and examine the basis for Korean 

attitudes about them, namely Korean culture and its particularistic history. 

DEMOCRATIC TRANSITION IN SOUTH KOREA 

There is a body of historical evidence that suggests there was what John 

Kie-Chang Oh refers to as a ‘proto-democratic’ movement in Korea associated 

with the Minjung (peoples’) movement of the later Yi Dynasty, which 

culminated in the Tonghak (Eastern learning) rebellion of the late1800s. In 

referring to the teachings of the Tonghak movement, Oh states that they ‘held 

the first identifiable embryos of what may be called ‘populist’ concepts.13

Elsewhere, the Tonghak rebellion is also identified as the inspirational source 

for Korean resistance movements over the years.14 The significance of this 

connection is that these resistance movements are now becoming the 

inspirational source for much of the enthusiasm for Korean nationalism 

among the younger generation of Koreans. Perhaps because these resistance 

movements have never been particularly successful in gaining any meaningful 

political power, analysts examining the development of democracy in Korea 

have generally ignored them.

A large part of the reason that South Korea has attracted the attention of 

scholars interested in democratic transition is the dramatic way in which the 

political institutions of the Republic of Korea were established. Prior to the 

first constitution in 1948, South Korean society had no real experience with 

democratic institutions. Following thirty-five years of Japanese occupation, 

which ended along with World War II, most Koreans had no understanding of 

13 John Kie-Chang Oh, ‘Kim Dae-jung and a Populist (Tonghak) Origin of Korean 

Democracy,’ in The Korea Society Quarterly (Spring 2001), p.54. 14 See Soon-kwon Hong, ‘Korean Minjung’s Resistance and the Growth of Modern 

Consciousness from 1876 to 1910 in Korea,’ International Journal of Korean History, Vol. 2, 

(December 2001), pp.137-157. Also see Kenneth Wells ed., South Korea’s Minjung Movement: The 

Culture and Politics of Dissidence (Honolulu: University of Hawaii Press, 1995). 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

172

democratic institutions or representative politics. The election of members to 

the first National Assembly and drafting of the first constitution were based 

on a decision by the US Military Government in Korea to establish a separate 

Korean state south of the thirty-eighth parallel; this after three years of military 

occupation in the face of a communist regime in the Russian-occupied zone 

north of the thirty-eighth parallel that refused to agree to UN supervised 

elections. Not surprisingly, the structure of the First Republic was strongly 

influenced by the American presidential system. The first president, Syngman 

Rhee, who was educated and spent nearly forty years in exile in the United 

States, was nominally elected by the National Assembly, but clearly chosen by 

the United States to be the first leader of the country.15 The unicameral 

National Assembly was made up of two hundred legislators, of which eightyfive were officially listed as independent. The remaining 115 members 

represented fourteen different political parties.

This rather abrupt establishment of a democratic government without 

significant participation by the South Koreans themselves also created a 

serious void on the representational side of the process. With no national-level 

parties and more than 340 officially registered parties formed by individual 

politicians as vehicles for personal or, at best, local interests, there was no 

effective means for aggregating political demands in the legislative system.16

To complicate matters even further, with the imminent threat of communist 

subversion from both within and from the north, there was little opportunity 

for the development of an ideologically coherent opposition to the president, 

while there was an urgent need for decisive action to deal with the triple crises 

of economic development, rebellion and eventually war. Given the 

circumstances, it is perhaps not surprising that Rhee became increasingly 

powerful by the end of the Korean War in 1953. After the war, Rhee was 

elected by popular vote by increasingly large margins in 1956 and 1960. 

However, in the face of abysmal economic conditions, growing protests in 

South Korea and weakening support from the United States, Rhee eventually 

went into exile in Hawaii.17

15 Bruce Cummings, Korea’s Place in the Sun: A Modern History (New York: W.W. Norton, 1997), 

p.195.

16 Aurel Croissant, ‘Electoral Politics in South Korea,’ in Aurel Croissant ed., Electoral Politics in 

Southeast and East Asia (Bonn: Freidrich-Eibert-Stifung, 2002), pp.234-235 refers to these more 

than 340 parties as proto-parties. 

17 Based on electoral statistics provided by the National Election Commission, Aurel 

Croissant, ‘Electoral Politics in South Korea’, op. cit., p.264, shows that Rhee garnered 70 

percent of the vote in 1956 and 100 percent of the vote in 1960. Also see John Kie-Chiang 
CARL BAKER

173

The disillusionment with the Rhee presidency led, in 1960, to a new 

constitution which provided for a parliamentary form of government with a 

bicameral National Assembly. With the explicit goal of developing a 

democratic system that would prevent the abuses of power experienced during 

the Rhee administration, the new constitution greatly reduced the role of the 

president while expanding individual freedoms of assembly and association. 

Although the Democratic Party, which had been the main opposition party 

during the later days of the Rhee presidency, won a vast majority of seats in 

both houses of the parliament, a split in the party within months of the 

elections led to legislative gridlock. With continuing economic problems, 

accusations of corruption within the government, and widespread student 

demonstrations demanding punishment for the Rhee government, the Second 

Republic was replaced by a military junta led by Major General Park Chunghee in 1961, ushering in an extended period of strong military influence in 

South Korean politics. 

After a nearly two-year period of transition under the control of a military 

junta led by Park, the Third Republic was established in 1963. A new 

constitution with a strong presidential system and a weakened National 

Assembly was adopted through national referendum. During the transition, 

Park ensured his own role in the future civilian government by eliminating 

potential rivals from the ranks of the military, banning more than four 

thousand politicians from previous regimes and eventually retiring from the 

military.18 The presidential elections held in 1963 were conducted in a relatively 

fair manner with Park winning by a slim margin with 46.6 percent of the vote. 

Park was elected to a second term in 1967 with 51.4 percent of the vote. In 

both 1963 and 1967 the Democratic Republican Party, also held a slight 

majority in the National Assembly.19

The Park government’s immediate focus was on economic development 

and control of the population to ensure full implementation of the centrally 

formulated economic development plans. Throughout the 1960s the 

Oh, Korean Politics (Ithaca: Cornell University Press, 1999), pp.40-43 for a summary of the 

street protests and the withdrawal of support from the United States following the 1960 

elections.

18 Han Sung Joo, ‘South Korea: Politics of Transition,’ in Sang-Yong Choi ed., Democracy in 

Korea: Its Ideals and Realities, (Seoul: The Korean Political Science Association, 1997), pp.30-31. 19 Election results show that in 1963 Park Chung Hee won 46.6 percent of the vote in a field 

of five candidates with Yun Po-sun, who had been President during the Second Republic, 

coming in second with 45.1 percent. In 1967 Park won by a wider margin over a field of six 

with Yun Po-sun again coming in second with 40.9 percent of the vote. Aurel Croissant, 

‘Electoral Politics in South Korea’, op. cit., pp.235, 265-268. 
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174

Economic Planning Board, managed by professional economists, and the 

Korean Central Intelligence Agency (KCIA), managed by former military 

colleagues, served as personal instruments for the implementation of Park’s 

vision for a strong anti-communist South Korea. The strength of this 

centralized bureaucracy served to further marginalize an already 

constitutionally weak National Assembly. Under the KCIA’s control of 

internal affairs, opposition politicians were under constant threat of being 

declared a communist or North Korean sympathizer under the National 

Security Law. Political parties served as personal extensions of their leaders, 

which reinforced the perception that the best avenue for articulating political 

demands was through personal networks. As had been the case under the 

increasingly centralized system of Rhee in the 1950s, one of the primary 

venues for expressing political demands throughout the 1960s remained largescale street demonstrations, typically led by student organizations. 

By the end of the 1960s, with Park taking full credit for a rapidly growing 

economy, a national referendum was held to approve an amendment to the 

constitution to allow for a third presidential term. In 1971 Park won the 

presidential election over Kim Dae-jung, who was portrayed by the Park 

campaign as being ‘pro-Communist’. However, the relatively close margin of 

victory (53.2 to 45.3 percent) was at least partial motivation for Park to insulate 

himself, in the name of national security, from ever facing elections again. In 

October 1972, Park declared martial law, dissolved the National Assembly, 

banned political parties and closed all national universities and colleges in the 

name of ‘developing democratic institutions best suited for Korea’.20 Following 

the declaration of martial law, the constitution was again amended and ratified 

through a national referendum. Significant changes included a provision to 

prolong Park’s presidency indefinitely through indirect elections by a tightly 

controlled National Conference for Unification, the right of the president to 

nominate one third of the National Assembly member for election by the 

NCFU, and to dissolve the Assembly whenever he deemed necessary.21 The 

new constitution, which was referred to as Yushin (revitalization), ushered in 

the Fourth Republic and a new era of repression in which Park became 

increasingly isolated and paranoid about criticism of the government. By 1979, 

when Park was assassinated by his KCIA director, the country was once again 

being torn apart by violent street demonstrations led by students, but 

increasingly supported by a rapidly growing middle class. 

20 Oh, op. cit., , p.60. 21 Ibid., p.59. 
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175

Clearly Park, in his nearly 20 years as leader, had a tremendous impact on 

the development of South Korea’s political system. By the end of his tenure, 

the system was uniquely designed to support the continuation of the Park 

regime. When he died, there was no viable mechanism to replace him. 

Therefore, it is not surprising that despite an attempt by the interim 

government to revise the constitution and eliminate the more draconian 

measures of the Yushin system, another military junta, this time led by Chun 

Doo-hwan, took control of the central government in the name of ensuring 

national security.22 Once again, martial law was declared, the National 

Assembly was dissolved and political parties were banned for nearly a year 

while a new constitution was developed to serve as the basis for the Fifth 

Republic. With the new constitution completed, a newly formed electoral 

committee elected Chun as president for a seven-year term and National 

Assembly elections were held in 1981.

In many respects, Chun’s tenure was a shortened replay of the Park era in 

that the government maintained tight control over both economic 

development through the conglomerate patronage system and became 

increasingly brutal in its attempts to control an increasingly large segment of 

the population that was resorting to street demonstrations. In the absence of a 

meaningful system for aggregating political demands, the newly expanded 

middle class grew more and more willing to support increasingly violent 

demonstrations by students and labor unions. One important difference was 

that from the beginning Chun promised to work towards a peaceful transfer of 

power at the end of his tenure. Despite attempts by Chun to create a party 

system that would ensure the ruling party would retain power after the 

transition, by 1985 the opposition party, led by Kim Dae-jung and Kim 

Young-sam and emboldened by growing pressure from the increasingly violent 

street protesters, had grown strong enough to engage in a serious push to 

revise the constitution prior to the 1987 elections. 

Certainly Chun and his handpicked successor and military academy 

classmate Roh Tae-woo recognized the need for change. Accordingly, Roh, 

with the explicit support of Chun, drafted a democratization package, which 

was presented by Roh on June 29, 1987 as the ‘Declaration of 

Democratization and Reforms’ in a somewhat obvious attempt to avoid defeat 

22 The transitional government led by Ch’oe Kyu Ha revoked several of the ‘emergency 

decrees’ of the Park regime, restored civil rights of Park’s main political rivals and other 

academic, labor and religious leaders who had been accused of communist sympathizers by 

Park. Oh, op. cit., pp.74-75. 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

176

in the upcoming elections. 23 In October 1987 the National Assembly drafted, 

and a national referendum subsequently approved, a new constitution that 

contained much of the contents of the declaration, including the direct election 

of presidents to single five-year terms, a strengthened role for the National 

Assembly that included the right to impeach the president and inspect state 

affairs, political neutrality for the armed forces and a reaffirmation of civil 

rights and due process. 

Despite the transparent manipulation, Roh surprised many by winning the 

election in 1987, although the reason was probably tied as much to the 

unwillingness of both Kim Dae-jung and Kim Young-Sam to join forces to 

defeat him. Roh won the election with 35.9 percent of the vote, while Kim 

Young-sam and Kim Dae-jung received 27.5 and 26.5 respectively.24

Nevertheless, the election served as a watershed in Korean politics. Roh, a 

former Major General, served as a good compromise between the previous 

attempt at democracy in 1960, when the system was gripped in gridlock, and 

the authoritarian regimes of Park and Chun. With a strengthened National 

Assembly in which the three opposition parties and the independents held a 

majority of the seats, Roh adapted remarkably well to party politics. After two 

years of being pushed around by a somewhat raucous National Assembly and 

accused of incompetence in dealing with pressing economic issues, he, along 

with Kim Young-sam (the former political activist) and Kim Jong-pil (Park’s 

erstwhile assistant), formed a three-party alliance that gave them a sizeable 

majority in the National Assembly. Although it was another transparent case 

of political manipulation, the significance of this turn of events should not be 

understated. It was the first time that the president chose to engage the 

opposition within the confines of the constitution rather than attempt to 

solidify control through vertical integration of the executive branch using 

coercive means. In other words, the Roh administration’s actions reaffirmed a 

commitment by the political elite to the idea of party politics as a means for 

maintaining political support. 

The elections in 1992 brought the next important test for democracy in 

Korea. After a realignment of power among the parties during the National 

Assembly elections that reduced the strength of the ‘super-party’ created by 

23 The eight specific items included in the declaration include a call for direct presidential 

elections, a revision of the presidential election law, amnesty and restoration or civil rights for 

dissidents, strengthening of all basic rights in the new constitution, promoting freedom of the 

press, increased local autonomy, improved climate for the growth of political parties and social 

reforms to built a clean and honest society, Oh, op. cit., pp.93-101. 24 Aurel Croissant, ‘Electoral Politics in South Korea’, op. cit., p.266. 
CARL BAKER

177

the coalition in 1990, the presidential elections fielded three primary candidates 

with no military background or significant military support. In fact, the armed 

forces took a deliberately neutral stance despite the fact that one of the 

candidates (Kim Dae-jung) was viewed by many as being too radical. The 

winner, Kim Young-sam, in many respects represented the compromise 

solution much as Roh had in 1987. Although he had aligned himself with the 

mainstream in the 1990 coalition, he still represented a moderate voice of 

protest from the past. During his administration, Kim actively worked to 

further institutionalize democracy by taking a series of measures explicitly 

designed to discourage military involvement in politics, to reduce corruption 

within the executive branch, and strengthen the legislative system through 

local autonomy and election reforms. 

Perhaps the most memorable undertaking of the Kim Young-sam 

administration was the public trial of former presidents Chun and Roh for 

political corruption for amassing illegal wealth through bribes as well as mutiny 

and treason for their roles in the 1979 coup and the ensuing 1980 Kwangju 

massacre. The unmistakable message was that Kim Young-sam intended to 

show that the judicial system was capable of handling the toughest of cases. It 

certainly did not wipe away all the abuses of the military-dominated rule, 

however it did serve to advance the primacy of the rule of law under a civilian 

government and enhance the constitutional authority of the Supreme Court. 

Together with other reforms, there was a sense that constitutional 

consolidation had been completed by the end of the Kim Young-sam 

administration.

With the 1997 election of the opposition party candidate Kim Dae-jung 

serving as convincing evidence that democracy had passed its first ‘turnover 

test,’ the South Korean democratization process demonstrated a remarkable 

ability to incorporate what had been radicalized elements into the mainstream 

of the South Korean political process.25 Clearly, the institutional structure was 

now well within Dahl’s definition of polyarchy and its focus shifting to 

representative consolidation.26

Beyond the election, Kim Dae-jung did for relations with North Korea 

what Kim Young-sam had done for domestic politics. As a person who had 

been characterized and imprisoned as a communist sympathizer, Kim Dae25 Kim Dae-jung’s role in the democratization is legendary, having been the target of both the 

Park and Chun regime’s vengeance. Almost miraculously he survived everything from political 

exile to imprisonment, to a death sentence to at least two assassination attempts. John KieChiang Oh, Korean Politics, p.60, 232. 26 Note 3 above. 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

178

jung was under considerable scrutiny early in his tenure by conservative 

elements in South Korean society. Through his characteristic persistence and 

careful implementation of the policy of engagement with North Korea, 

commonly referred to as the ‘Sunshine Policy’, one of his major contributions 

was the opening up of the ideological debate regarding South-North dialogue. 

Prior to his administration, South Korean debate on the subject was basically 

limited to ways in which the North would be eliminated from the international 

scene. By the end of the administration it was possible for Roh Moo-hyun to 

win the next presidential elections by taking an ideological position that openly 

advocated a continuation of a peaceful dialogue with the North versus Lee 

Hoi-chang’s position that North Korea should be contained. 

The financial crisis of 1997 served as an important milestone in the 

democratization of the domestic agenda in South Korea. As I have suggested, 

both military coups and much of the justification for the authoritarian regimes 

of the past were predicated on the failure of civilian governments to deal 

effectively with economic issues. The fact that the country could deal with the 

crisis without resorting to the centralizing tendencies of the past reinforces the 

notion that South Korea had come to place increasing trust in the civilian 

leadership for resolving issues. For the first time since Park embarked on the 

economic development quest, there was a willingness to engage in a national 

dialogue about pro-development versus pro-democracy. Beyond the crisis, 

there has been a further reduction in the role of the large conglomerates in 

politics and an increased willingness by the military to remain under civilian 

control.

In many ways the election of Roh Moo-hyun in 2002 represents the 

culmination of the textbook case of democratic consolidation. As a civil rights 

lawyer who advocated the removal of US forces in the 1980s Roh represents 

the antithesis of the restrictive ideological perspective and tight central control 

present at the start of the consolidation in 1987. The process of systematically 

incorporating increasingly radical elements of the population into the political 

system with each subsequent administration has been truly remarkable. 

Certainly much of the success of the consolidation should be attributed to men 

like Kim Dae-jung whose faith in the system kept him coming back for thirty 

years despite so many disappointments and challenges. It is also a testament to 

the growing acceptance of the democratic process following the rather vague 

ideal put forward by the original constitution.
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ASSESSING PROGRESS TOWARD DEMOCRATIC CONSOLIDATION 

However, as the extensive research on the subject testifies, there are some 

significant structural problems remaining for Korea’s process towards 

democratic consolidation, especially in the areas of representational 

consolidation and the horizontal integration between the various branches of 

government.27 These structural deficiencies continue to make South Korean 

politics vulnerable to manipulation by individuals with personal or restricted 

agendas and may lead to the institutional gridlock that in the past led to a 

reversion to centralized control. 

In terms of representational consolidation there continues to be a lack of 

ideological distinction between the parties. For example, during the 2002 

presidential elections there was still a great deal of shifting within the party 

structure. The near collapse of Roh’s Millennium Democratic Party following 

mass defections by National Assembly members, the truncated campaign by 

Chung Mong-joon under a newly created party and the alignment of Park 

Kyun-hye with Lee Hoi-chang just weeks before the election all suggest that 

there is still a lack of ideological distinction between the parties. This continual 

shifting of loyalty between parties and the emergence of parties based on the 

personal perspective of individual politicians reflects a certain structural 

weakness of parties to broaden their ideological bases to deal with nationallevel interests.

The lack of horizontal consolidation within the government continues to 

plague relations between the president and the National Assembly. As 

Croissant correctly asserts, the relationship between these two ‘generally 

oscillates between the two extremes of hyper-presidential dominance on the 

one hand and institutional gridlock on the other’.28 The danger of this 

oscillation was clearly demonstrated during the Kim Young-sam 

administration, which began its tenure with a long series of executive decrees 

under a strong popular mandate to implement a wide range of reforms only to 

27 Two edited volumes, Larry Diamond and Byung-Kook Kim eds., Consolidating Democracy in 

South Korea (Boulder: Lynne Rienner, 2000), and Larry Diamond and Doh Chull Shin eds., 

Institutional Reform and Democratic Consolidation in Korea (Stanford: Hoover Institution Press, 

2000), have been published to specifically address the consolidation of democracy in Korea. 

Within, these volumes, individual authors address a wide variety of topics dealing with the 

difficulties associated with institutional reforms needed to complete the consolidation of 

democracy initially envisioned in the Roh Tae Woo’s 1987 declaration to the National 

Assembly.

28 Croissant, ‘Strong Presidents, Weak Democracy?’, op. cit., p.14. 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

180

end up in failure, as it was unable to build a strong supporting coalition in the 

National Assembly to complete the reforms. As a result, the administration 

achieved initial success in the areas of anti-corruption among the elite, but was 

unable to complete wider economic and social reforms later in the 

administration as it was unable to coordinate its efforts with the opposition 

parties in control of the National Assembly.29 Similar dilemmas have faced the 

Roh Tae-woo and Kim Dae-jung administrations when they were faced with a 

majority opposition in the National Assembly and in each case, the tendency 

has been for the president to resort to his decree authority—reminiscent of the 

solution sought by the strongman regimes of Rhee, Park and Chun. Proposed 

solutions have ranged from minor modifications to the election process such 

as linking the National Assembly and presidential elections or switching to a 

parliamentary form of government.30 The point is that unless these structural 

weaknesses are addressed in a systematic way they will continue to make the 

political process in South Korea vulnerable to a wide range of problems 

including corruption, cronyism, and regionalism, all of which eventually lead to 

the potential for institutional paralysis. 

Another area that has received critical attention throughout the 

consolidation phase of Korean democratization is that of individual rights and 

freedom of expression. Much of the criticism leveled against the central 

government is associated with the persistence of the notorious National 

Security Law. Promulgated in 1948 to protect the ‘State’ from ‘enemies’ 

defined in one Article as ‘any person who defames constitutional organs,’ the 

law has been used over the years to prosecute political opponents.31 It was 

paradoxical that the law was still in place after five years of the administration 

of Kim Dae-jung, who had been sentenced to death under its provisions. 

However, there remains a general reluctance to significantly modify the law, 

partly in deference to the large portion of the population that continues to 

believe the law prevents North Korean subversion, especially among the 

student population.

As have previous administrations, the Kim Dae-jung administration also 

came under criticism by the annual Press Freedom Survey conducted by 

Freedom House for its continued political and economic pressure especially 

29 Young Jo Lee, ‘The Rise and Fall of Kim Young-Sam’s Embedded Reformism,’ in Diamond 

and Shin, op. cit., pp.97-126. 30 Larry Diamond and Doh Chull Shin, ‘ Introduction: Institutional Reform and Democratic 

Consolidation in Korea,’ in Diamond and Shin, op. cit., p.39. Also see Hoon Juang, ‘Electoral 

Politics and Political Parties,’ in Ibid., pp.43-71. 31 Oh, op. cit., p.37. 
CARL BAKER

181

on the print media.32 Elsewhere, Human Rights Watch has actively protested 

the continued detention of human rights advocate Suh Joon-sik, while the 

International Press Institute placed South Korea on its watch list in 2001 for 

harassment of independent media.

One area of representational consolidation that has seen a dramatic 

improvement, as the political process has expanded to incorporate larger 

segments of the population, is that of civic organizations. There is an 

assumption that legitimate civic organizations replace radicalized protest 

movements as the mechanism for aggregating political demands as the country 

matures as a democracy, Croissant argues that these organizations, which grew 

in number from 1,322 in 1984 to 2,181 in 1996, with 75 percent being founded 

between 1987 and 1996, have, in fact, replaced the older student groups, labor 

union activists and farmer dissident groups.33 However, it is also the case that 

following the 1997 financial crisis, the government was actively engaged in 

suppressing labor-union organizations involved in protesting measures to 

eliminate restrictions on firing workers. Similarly, several student organizations 

such as the Hanchongryon continue to be the subject of government sanctions in 

the name of the National Security Law. 

South Korean attitudes towards the progress made in terms of institutional 

reforms have been somewhat skeptical. In an extensive analysis of the political 

attitudes, Doh Chull Shin refers to a large segment of the population as ‘critical 

democrats,’ meaning those who broadly accept democracy as a preferred 

alternative to the authoritarian regimes of the past, while remaining skeptical 

of the daily performance of the government and suspicious of political 

institutions.34 One conventional indication of this scepticism is the declining 

participation in elections. For example, participation in the presidential 

elections has declined each year since 1987 when 89.2 percent of the registered 

voters participated to the 2002 race when 70.2 percent participated.35

32 Annual Press Freedom Survey. Freedom House, 2002. The report was specifically critical of 

the Kim Dae-jung administration’s decision to bring a massive tax evasion suit against the five 

largest daily newspapers in what appeared to be retaliation for printing negative stories about 

its North Korean engagement policy and showed a downtrend in the degree of press freedom 

in South Korea. http://www.freedomhouse.org/research/pressurvey.htm. 33 Croissant, ‘Strong Presidents, Weak Democracy?’, op. cit., p.34 34 Doh C. Shin, Mass Politics and Culture in Democratizing Korea (Cambridge: Cambridge 

University Press, 1999), p 124. 

35 Aurel Croissant, ‘Electoral Politics in South Korea’, op. cit., p 266 and ‘North Asia,: 

Assessing the Implications of Roh’s Victory, in Asiaint.com, January 2003. . 
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182

What becomes apparent in trying to isolate aspects of attitudinal 

consolidation is that while institutions are important in terms of providing a 

framework within which democratic transition occurs, they are marginally 

useful in understanding actual attitudes towards democracy itself. They are 

both cause and consequence. In other words, it is true that a strong civil 

society does help build a strong basis for aggregating political demands. 

However, it is equally true those civic organizations are likely to prosper in a 

context where people know that they are the primary mechanism for 

aggregating political demands. Similarly, while it is true that strongly 

institutionalized political parties help consolidate attitudes towards democracy, 

it is equally true that the consolidation of democracy helps strengthen and 

institutionalize political parties. This fact, then, is an interesting observation, 

but not terribly informative in terms of explaining democratic consolidation.

This leads to a confrontation with a more problematic aspect of attitudinal 

consolidation in South Korea, that of cultural acceptance of democracy as a 

universal value rather than an ideology. Here we enter the generation-long 

debate about political culture introduced primarily by Almond and Verba in 

the 1960s.36 The problem arises in that there is the assumption within the 

approach that anything other than acceptance of Western or ‘modern’ attitudes 

towards democracy are ‘traditional’ and somehow inadequate to the challenges 

of a truly participatory democracy. Accordingly much of the literature on the 

cultural aspects of the democratic transition in South Korea either starts with 

the premise that Korean, or Asian or Confucian values are somehow 

detrimental to or constitute insurmountable barriers to democratic 

consolidation. The argument is succinctly summarized by Francis Fukuyama 

when he states:

If we take Confucianism as the dominant value system in Asia, we see that it describes 

an ethical world in which people are born not with rights but with duties to a series of 

hierarchically arranged authorities, beginning with the family and extending all the way 

up to the state and emperor. In this world there is no concept of the individual and 

individual rights; duties are not derived from rights as they are in Western liberal 

thought, and although there is a concept of reciprocal obligation between ruler and 

ruled, there is no absolute grounding of government responsibility either in popular 

will or in the need to respect an individual’s sphere of autonomy.37

36 Gabriel Almond and Sydney Verba are generally credited with introducing a systematic 

analysis of political culture in their book titled The Civic Culture (Princeton: Princeton 

University Press, 1963). 

37 Francis Fukuyama, ‘Asian Values, Korean Values, and Democratic Consolidation,’ in 

Diamond and Shin, op. cit., p.307-308. 
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183

For South Korea, these ‘barriers’ to democracy usually include some 

reference to Confucian reliance on authoritarianism, filial piety (veneration of 

elders), and patriarchy as being obstacles to a fully consolidated democracy 

based on Almond and Verba’s conceptualization of political culture as those 

‘political orientations necessary to achieve a truly democratic civic culture’.38

The assertion then is that these attributes of traditional Korea serve as barriers 

to the full development of democracy in Korean society. Another aspect of 

Korean culture cited as inhibiting democratic consolidation is Korean 

familism, which is frequently attributed to Korean shamanism and blamed for 

a patronage system that encourages politicians to reward votes with favors and, 

more generally, political corruption. Here the charges are that this ‘traditional’ 

feature of Korean culture prevents effective party consolidation at the national 

level, promotes bias in regional economic development and sustains crony 

capitalism.

This mindset that there are some universal Confucian principles that drive 

Asian societies away from democracy is found on both sides of the ‘Asian 

values’ debate. On the one hand are scholars such as Fukuyama and 

Huntington who view the notion of a Confucian democracy as a sort of 

contradiction in terms.39 Essentially, the argument is that the Confucian 

emphasis on authority over liberty and social responsibility over individual 

rights precludes the adoption of democracy in cultures influenced by 

Confucian thought. On the other hand are scholars such as Bell and Jurasuriya 

who argue that although there is the potential for compatibility between the 

two, it is more a matter of justifying democracy in terms of its value in 

promoting equality and familial ways of life rather than individual freedoms 

and rights.40 In both cases, however, there is an assumption that Confucianism 

is a somewhat monolithic force that ignores other contending values that 

influence evolving political systems in the region.

In a somewhat different vein, the ‘natural’ regional cleavage between the 

Honam and Youngnam regions of the country is blamed for limiting the 

effectiveness of national-level parties and creating an impediment to 

democratic consolidation. The difference from the universalizing tendency of 

the Confucian compatibility debate being that although not directly attributed 

to Korean culture, there is a tendency to transfer the historical differences 

38 Almond and Verba, op. cit., p.13. 39 Huntington, op. cit., p.37. 40 Daniel A. Bell and Kanishka Jayasuriya, ‘Understanding Illiberal Democracy: A Framework,’ 

in Daniel A. Bell, David Brown, Kanishka Jayasuriya and David Martin Jones eds., Towards

Illiberal Democracy in Pacific Asia (New York: St. Martin’s Press, 1995), pp.1-16. 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

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between the two regions onto the modern political system as if direct 

presidential elections re-ignited some primordial hostility between the 

regions.41 Again, this sort of analysis falls short in that it focuses the attention 

on historical antecedents as the root cause rather than on how the modern 

elites such as Japanese colonialists and the Park and Chun regimes used those 

antecedents to maintain control of the political processes in the country. The 

difference is not insignificant. 

The persistence of these universalizing analytical approaches is reflected by 

Diamond and Shin when they conclude that South Korean ‘support for 

democracy...tends to remain superficial, fragmented and mixed with 

authoritarian habits’.42 In fact, what remains superficial is the South Korean 

embrace of the democratic institutions that do not seem to fit very well in 

South Korean society. As a result, there are essentially two languages present 

in South Korean politics. On the one hand there are the formal 

acknowledgements of liberal democracy and capitalism that are enshrined in 

the constitution and the institutions adopted in 1948 as an ideological vaccine 

against communism. On the other hand, there are the informal relationships 

that serve as a pragmatic and functional underpinning of Korean acceptance of 

liberal democratic principles in terms of Korean culture. For example, 

although political parties have been present since 1948, the fact is that they 

continue to serve as platforms for individual candidates from the Presidential 

candidates to the lowest local assembly official to consolidate support in a 

highly personalized network that is readily recognizable as an adaptation of 

Korean familism to the institutional framework of liberal democracy.43

41 It should be noted that Wonmo Dong in ‘Regional Cleavage in South Korean Politics,’ Korea 

Observer, Vol. 26, No. 2 (Summer 1995), pp.1-26, correctly identifies the discriminatory policies 

of the Park Chung Hee regime in the 1960s and 1970s as exacerbating the regional cleavage 

between the two regions. However, he goes on to suggest that the problem originated in the 

center-periphery antagonism that developed during the Chosun (Yi) Dynasty (1392-1910), or 

perhaps even earlier during the Silla Kingdom (668-935), which was centered on the nobility 

from the Youngnam region. Also see Gregory Henderson, The Politics of Vortex (Cambridge: 

Harvard University Press, 1968) for a discussion regarding the impact of the centralized 

bureaucracy of the Chosun Dynasty on the development of modern political relationships in 

South Korea. 

42 Diamond and Shin, ‘Institutional Reform and Democratic Consolidation’, op. cit., p.35. 43 Byung-Kook Kim, ‘Party Politics in South Korea’s Democracy: The Crisis of Success,’ in 

Diamond and Kim, op. cit., pp.63-66, attributes the origins of familism in Korea to 

Confucianism. Helgesen, op. cit., suggests that Shamanism, which he suggests has a longer 

history in Korea than Confucianism and persists in Korea despite official prohibition, has an 

equally important role in reinforcing the importance of familism and patriarchy in Korean 

society. 
CARL BAKER

185

Elsewhere, others argue that the two Confucian concepts of minben (power 

and authority are derived from and based on the masses) and winmin (elites 

pursue public interest and serve the masses) form the moral basis for Korean 

understanding of electoral democracy and political legitimacy.44 This basis, 

coupled with a pragmatic imperative for social order and economic prosperity, 

made the acceptance of democracy quite tolerable despite the obvious 

contradiction that the military strongmen of the pre-1987 era represented to 

the Western world. Without any deeper basis in Korean culture, Kim ByongKook argues that these adaptations represent a serious danger to the 

persistence of democracy in that they have delayed the recognition of any 

viable political cleavages on which to base party politics. Instead, political 

parties have been formed around regional cleavages, which he correctly notes 

are superficial and cannot serve as a long-term basis for meaningful political 

cleavages because they are derived from the extended familism practiced by 

the politicians of the pre-1987 democratic era and not actual ideological 

differences between people from the regions.45

We are left to conclude that with the disappearance of the ideological basis 

(that is, a means for resisting communism) and the achievement of its 

procedural goal of conducting free and fair presidential elections, democracy 

has lost its way in South Korea. For Kim, the failure is attributed to the 

inability of Korean culture to adapt to the structural imperatives of liberal 

democracy.46 In effect, he is arguing that South Korea represents democratic 

endurance rather than any consolidation of democratic institutions in support 

of universal liberal democratic principles. The challenge then becomes finding 

some political cleavage to help foster a sense of democratic competition 

among political parties.

The 2002 presidential election was interesting in this respect in the 

ideological cleavage that emerged over how to deal with North Korea, 

characterized in the words of the Roh Moo-hyun campaign slogan ‘peace or 

war’. However, this would appear to be a rather temporary cleavage in that it 

seems extremely unlikely that with the generational shift occurring in the 

country that there could ever be a shift back to a hostile policy towards the 

44 Byung-Kook Kim, op. cit., pp.71-72. Also see Viren Murthy, ‘The Democratic Potential of 

Confucian Minben Thought,’ Asian Philosophy, Vol. 10, No. 1, 2000, for a more complete 

explanation of the concepts in the context of Confucian philosophy. 

45 Byung-Kook Kim, op. cit., pp.79-80 describes Korean regionalism as ‘an amorphous 

sentiment of belonging without a specific program of policy action’. He further argues that the 

voters themselves rejected the notion of regionalism as a legitimate organizing principle. 

46 Ibid.
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

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North without some sort of catastrophic event similar to a replay of the war. 

Rather, the fact that it appeared late in the campaign and only after more 

traditional approaches such as coalitions of political convenience and grand 

promises to virtually all constituencies appeared to be failing, suggests that the 

highlighting of the difference was indeed temporary. 

Perhaps a more interesting part of the Roh Moo-hyun campaign has to do 

with the fact that in the later days of the campaign he spoke the unspeakable 

when he suggested that South Korea would not automatically support the 

United States if it chose to take military action against North Korea. The fact 

that this could be said at all is testament to the notion that the old ideological 

basis for democratization has deteriorated to the point that people no longer 

see the threat of communism from the North as a basis for making political 

choices. Further, this sentiment reflects the rapidly rising sense of Korean 

nationalism, a nationalism that traces its origins to the Tonghak (Eastern 

Thought) movements of the late 1800s and more recently the Minjung 

(people’s) movement of the 1980s. In this context, it is important to recognize 

that the ideological foundation of the revitalized Minjung movement in the 

1980s is based on two essential tenets. First, the ideology asserts that the 

fundamental problem in Korea is the separation of the country following the 

end of World War II, which has led to a dependence on the United States. In 

that sense the US has been viewed as a successor to the Japanese colonialists 

and the Yangban (ruling elite) of the Chosun Dynasty. A second assertion from 

the ideology is that, based on that dependency, all the US-backed regimes 

served to repress the people (minjung) the nation (minjok) and democracy 

(minju).47 Given these ideological roots, it should not be surprising that, once 

elected, the rather pragmatic Roh Moo-hyun has quickly distanced himself 

from the more radical elements of the current anti-American protests. 

Nevertheless, it is important to remember that there is a strong undercurrent 

of mistrust and resentment against not only a continued American military 

presence in the country, but also the generally dominant role the US has played 

in South Korean politics since the inception of the Republic in 1948.

What is important about the emergence of nationalism is that it appears at 

a time when there is a search for a new ideological basis for democracy within 

Korea. Given the fact that South Koreans have come to embrace democracy 

as ‘the only game in town,’ the challenge for its further consolidation is to 

recognize the need to root future changes in the institutional structure of 

democracy in the cultural foundations of Korean nationalism. As if the 

47 Oh, op. cit., p.88. 
CARL BAKER

187

challenge of attempting to consolidate political institutions was not difficult 

enough, the Koreans face a second challenge of reconciling those institutions 

with a populist movement that has grown over the decades as a challenge to 

the ideological basis of the institutions themselves. Certainly, the suppression 

of the populist movements by previous regimes makes the task more difficult, 

though the passing of the Kim presidencies will ease the burden if only 

because there is no longer pressure to accommodate the factions of the 

original democracy movement.

PROXIMATE TASKS OF DEMOCRATIC CONSOLIDATION 

Given the context of the incomplete institutional consolidation and the 

shifting ideological basis for democracy, there are four proximate tasks 

associated with democratic consolidation in Korea. These tasks will not 

complete the consolidation task. However, they will provide a useful 

framework for further consolidation in terms of the current disjunction 

between popular attitudes towards political action and the political institutions 

of democracy.

The first proximate consolidation task (a challenge for each president since 

the inception of the Republic) is the need to reduce the level of corruption in 

both the daily operation of the government as well as in the election process. 

Or, perhaps more accurately, the challenge is to better institutionalize the 

corruption in more acceptable ways than has been done in the past. This task 

takes on increased importance today because with the new generation that is 

coming into power there is the opportunity to demonstrate in a visible way 

that the practices institutionalized during the ‘strongman’ era and continued by 

the first generation of democracy advocates are no longer necessary to achieve 

political success. First, in terms of the election process, the fact that Rho Moohyun was selected as the Millennium Democratic Party nominee through a 

primary election process suggests that there is an opportunity to 

institutionalize the selection process while minimizing the influence of 

‘backroom’ negotiations. From an institutional perspective, the campaigns of 

both Roh and Lee relied much more on the support of civic organizations 

than past elections, which should at least help institutionalize campaign 

financing even if it does not eliminate all of the corruption. Second, it will be 

equally important for the Roh administration to continue and strengthen anticorruption measures initiated by both Kim Young-sam and Kim Dae-jung 

with the specific purpose of avoiding a perception of bias in political 

appointments and involvement of his family in political deal-making. This 

becomes critical in Korea as further movement toward democratic 
KOREA: CHALLENGES FOR DEMOCRATIC CONSOLIDATION

188

consolidation will increasingly require the political elite to identify themselves 

with the democratic ‘rules of the game,’ which includes an agreement to treat 

everyone equally before the law—something that appears to have been lost on 

families of the previous generation of democratic leaders in Korea.

A second task to be undertaken sooner rather than later is to reduce the 

importance of regionalism on national-level politics. Although it is generally 

recognized that much of the problem with regionalism stemmed from the Park 

regime’s deliberate favoritism towards the Youngnam region, the fact remains 

that regionalism continues to be an issue in South Korean politics as evidenced 

during the 2002 elections, when Roh Moo-hyun won well over 90 percent of 

the vote in the Honam provinces of North and South Cholla and Lee Hoichang won 77.7 percent in Taegu City and 73.4 percent in North Kyongsang 

province in the Youngnam region.48 Despite the anticipation that the problem 

of regionalism will disappear with the passing of the Kim era, the election 

results suggest that there will have to be explicit policies implemented to 

further reduce the importance of regional politics in future presidential 

elections. Given that Roh Moo-hyun is from the Youngnam region and will be 

under less pressure to compensate for previous abuses than was Kim Daejung, it should be comparatively easy to avoid the pattern of appointing his 

staff and Cabinet based on regional considerations as Kim Dae-jung has been 

accused of doing. However, the huge disparity in the voting patterns between 

the two regions in the 2002 elections suggests that it will require more than 

symbolism on the part of the Roh Moo-hyun administration to demonstrate a 

movement away from regional favoritism in both economic development 

initiatives and political appointments.

To make effective progress in these tasks a third task that must be 

undertaken is for the political elite to acknowledge and accept the non-Korean 

origins and aspects of the Republic. Specifically, this will mean an 

acknowledgement that the Syngman Rhee government was to a large extent 

‘installed’ by the US and that the Republic itself was established in response to 

the threat of communism in the North rather than as an expression of Korean 

nationalism or cultural demand for democracy. That fact does not delegitimize the current government as much as it allows for a more factual 

accounting of the decisions made during the period of the democratic 

transition prior to 1987. As I have shown, the political system during that 

period was almost exclusively controlled by the elite, and political demands of 

48 So, Su-min, ‘Regionalism Manifested Again in Election—West for Roh, East for Lee’, Korea

Times, December 21, 2002, http://www.korealink.co.kr/times/times.htm.
CARL BAKER

189

the larger population were left to the same mechanisms that had served as the 

outlet for popular demands since at least the 1860s when the Tonghak

movement began. 

Another aspect in recognizing the non-Korean origins will be the 

acknowledgement of the Japanese origin of much of Park Chung-hee’s effort 

to develop the economy.49 The effects of this acknowledgement are already 

well underway in that the large Korean conglomerates have been gradually 

dismantled following the 1997 financial crisis. What has been missing is the 

explicit recognition that much of the economic and political infrastructure that 

helped sustain those conglomerates was based on a Japanese model despite the 

consistent government policy of making it illegal to import Japanese culture. 

Further manifestations of the shift have been the gradual shift away from 

American influence and the easing of restrictions on Japanese culture during 

Kim Dae-jung’s presidency. This aspect is difficult for the South Korean 

government in that it partly affirms the criticism leveled by the North that the 

successive governments in the South were ‘puppets’ of the United States and 

Japan. Nevertheless, as the ideological basis for the government shifts more 

explicitly to nationalism, the acknowledgement of Japanese influence becomes 

both easier and more necessary. It becomes easier because it signals a 

willingness to incorporate an element of South Korean society into the 

mainstream of the political system. It becomes more necessary because an 

unwillingness to acknowledge the nationalist heritage would eventually alienate 

the political elite from the popular sentiment.

Along similar lines, the fourth proximate task is to acknowledge the 

authoritarian past, both in terms of the tendency in historical Confucianism 

toward centralized control in the name of the social control and the emphasis 

on the ‘output’ institutions that have characterized previous South Korean 

governments.50 Here it is important to distinguish between an 

acknowledgement and fatalistic acceptance. In other words, the fact of the 

authoritarian past should not be used as an excuse for the continuation of a 

‘so-called’ illiberal democracy or a reversion back to the control mechanisms 

for the purpose of intimidating those who disagree with government policies 

that have characterized the Kim Young-sam and, to a lesser extent, the Kim 

49 Cummings, op. cit., pp.358-359 and Oh, op. cit., pp.48-50. 50 Han Sung Joo, ‘South Korea: Politics of Transition,’ in Democracy in Korea: Its Ideals and 

Realities (Seoul: The Korean Political Science Association, 1997), p.67 refers to the ‘overdevelopment of output institutions’ especially the military and civil control institutions such as 

the KCIA and the Economic Planning Board during the Park regime as the natural extension 

of Confucian tendency to centralized control as exacerbated by the Japanese colonialists. 
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190

Dae-jung administrations. One of the most urgent mandates that must be 

undertaken is the elimination or at least serious revision of the National 

Security Law. As written, the law is violated every day there is contact between 

the South and the North and no longer serves any real purpose other than to 

potentially intimidate private citizens who make contact without explicit South 

Korean governmental approval.

In terms of Confucian tendency to centralization, the argument is not 

about tradition versus modernity or, in other terms, to replace Confucian 

‘social harmony’ values with Western ‘civic culture’ values. Instead, the need is 

to recognize that in Korea, the tendency has been to treat popular protests as 

an aberration rather than as a voice of legitimate public concern with aspects 

of the political system. As long as the political elite resists incorporating these 

demands into the political process, there will be the need to take dramatic 

action after the protests have become such an obvious scar on social harmony 

that they can no longer be ignored. Therefore, the recognition should that this 

sort of denial is actually rather detrimental to social harmony and that 

incorporating these voices into the mainstream political process would actually 

be a fulfillment of Confucian values. 

DEVELOPING KOREAN-STYLE DEMOCRACY 

A major theme that emerges from the examination of the democratization 

process in South Korea is that the consolidation of democracy is a 

fundamentally different problem from that of the initial transition. Essentially, 

what we have seen is that prior to 1987 during the transition phase democracy 

was a goal focused on the normative belief that democracy and its supporting 

market mechanisms were superior to the communism adopted in the North. 

Despite this, the fact is that the leadership during this period exhibited 

behavior that suggested they were less than fully committed to Dahl’s 

polyarchic principles of individual freedoms and free and fair elections.51

However, during the consolidation phase, the ‘practice’ of democratic politics 

should extend to ever-larger circles of citizens beginning with the political elite 

of the opposition and hopefully expanding to the most radicalized elements of 

society. In Korea, we have seen that clearly the opposition elite represented by 

Kim Young-sam and Kim Dae-jung were included in, and demonstrated 

extraordinary faith in, the democratic process even before 1987. During the 

consolidation phase there has been a growing sense of democratic expansion 

as evidenced by the expansion of civic organizations involved in aggregating 

51 Note 3 above. 
CARL BAKER

191

political demands in a systematic fashion rather than in the form of street 

protests.

However, we have also seen that especially in the ‘opposition phase’ of the 

consolidation process, there is a growing sense of dissatisfaction with the 

political institutions and government adoption of democratic practices.52 Some 

of the dissatisfaction stems from the shift in the ideological basis for 

democracy from the Cold War debate over democracy versus communism to 

one grounded in Korean nationalism. Evidence that the shift has not yet been 

completed manifests itself in several areas. Much of the nationalist movement 

remains outside the mainstream of Korean politics, largely based on the 

expectation that student groups espousing nationalism represent subversive 

elements supported by the North. Similarly, the protest movement against 

American troop presence on the peninsula, which has come to represent 

adherence to the former ideological basis, remains largely a street movement, 

although the fact that both candidates in the 2002 election ended up calling for 

a re-examination of the rules governing the presence of US military on the 

peninsula suggests that there is a general recognition by the political elite that it 

will be necessary to include the issue in future political discourse. Within 

Korean policy circles the emphasis on the need for a dismantlement of the 

Cold War structure on the peninsula also suggests that the shift to an 

ideological basis for democracy grounded in Korean nationalism is rapidly 

becoming a behavioral norm that will allow the inclusion of at least a major 

portion of the indigenous populist movement dating back to the Tonghak 

rebellion into the mainstream of Korean politics.

The assessment of the institutional aspects of democracy and the 

proximate tasks associated with the representational consolidation suggest a 

more fundamental dilemma facing any assessment of Korean attitudes towards 

democracy, namely a reconciliation of Korean culture and democratic norms. 

The immediate problem faced in this context is the matter of measuring norms 

based on observed behavior. Using this approach, we can examine the record 

of Kim Young-sam and Kim Dae-jung and conclude that, as outlined earlier, 

because their administrations acted in non-democratic fashion in dealing with 

political adversaries or in financing their respective election campaigns, they 

52 Here I am referring to the Kim Dae-jung administration as the opposition phase of the 

consolidation process based on the definition of polyarchy provided by Dahl in that the Kim 

administration represented the first successful election of the opposition party. Despite his 

identity as the opposition prior to 1987, the election of Kim Young-sam in 1992 should not be 

viewed as the first election of the opposition based on his alliance with Roh Tae Woo and the 

majority party in 1990. 
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were not fully committed to democratic norms. Some scholars take it a step 

further and suggest that it represents the incompatibility between traditional 

Korean culture and democratic norms.53 There are two important 

considerations to remember here. First, individual actors within the system are 

acting on any number of norms beyond those ascribed to some ideal form of 

democracy. Therefore, it would be wrong to conclude an administration is 

‘non-democratic’ based solely on observed behavior. Until norms of 

democracy that are different from the observed behavior they are supposed to 

explain are articulated, it will be difficult to attribute causality of behavior. 

Second, the notion that traditional Korean culture competes with democracy 

suggests that both democracy and culture are static systems that simply 

compete in a world of cultural norms. 

Democratic consolidation in Korea or any place else is not about 

modernity versus tradition. Instead it is about the gradual adaptation of a 

variety of norms in the context in which they are acted upon. The longer 

democracy remains the dominant political ideology, the more it becomes 

accepted as a dominant norm and the more it becomes a dominant norm the 

more it becomes the dominant ideology. So, democracy has changed Korea 

and Korea has changed democracy. Along the way a host of influences have 

impacted on Korean attitudes towards democracy well beyond a static notion 

of Confucianism. In fact there are a number of influences that have had a 

major influence on so-called traditional norms of behavior since the adoption 

of democracy in 1948. For example, South Korea has become a largely urban 

society with a very internationalized citizenry. There has been a shift in 

religious orientation so that today nearly fifty percent of those claiming 

religious affiliation describe themselves as Christians. The country has 

experienced a civil war and a generation of military strongman leadership along 

with an extended presence of US forces. Similarly, there have been the 

moderating influences on the ‘American style’ democratic institutions 

including Confucianism, Buddhism, vestiges of Japanese colonialism and 

Korean nationalism.

The real underlying challenge in the consolidation process then is the 

adaptation of Korean identities into the democratic process. That is why 

reconciliation between Korean nationalism and the institutional arrangements 

that were put in place during the transition phase of democratization is so 

53 This follows the argument made by Kwang Yeong Shin and Chulhee Chung in a conference 

paper titled, ‘Cultural Tradition and Democracy in South Korea,’ (ND) available at 

http://www.arts.monash.edu.au/korean/ksaa/conference/papers//04chulheechingkwangyeo

ngshin.pdf, downloaded 30 November 2002. 
CARL BAKER

193

critically important. This relationship represents the nexus between the two 

separate democratic identities that have evolved in Korea. They are the merger 

between the populist identity from the later days of the Chosun Dynasty and 

the liberal democratic identity that was formed among the political elite since 

1948. The reconciliation will enable creative Korean solutions to the unique 

Korean issues related to the adoption of democracy grounded in Korean 

identity.

How this reconciliation plays itself out should be observable in the four 

proximate tasks discussed above. As there is a growing acknowledgement of 

the non-Korean origin of the institutional organization of the present 

government, one would expect to see a greater willingness to examine 

alternatives to the existing constitutional arrangement and representational 

mechanisms. Certainly, there must be some recognition that dealing with the 

issue of regionalism and political corruption will involve re-examining these 

issues as problems that are unique to Korea since the practical arrangements 

that have allowed these practices evolved outside the controls of modern 

democracy and were blamed on traditional culture. However, the practices also 

evolved outside the constraints of any traditional moral norms and were 

blamed by others on the introduction of democratic institutions. The challenge 

then is to find a set of ‘game rules’ that provide for the aggregation of political 

demands that is recognized by participants as being fair and consistent with 

norms associated with fair representation and family or regional identities. 

Clearly these solutions cannot be based on any normative universal from an 

idealized form of liberal democracy. Rather they must be grounded in the 

emerging Korean identity that takes into account its entire past in the search 

for a truly representational democracy. 

In conclusion, Korea is at the threshold of democratic consolidation. It is 

clear that Korea has moved well beyond the threat of returning to the military 

strongman politics of the 1960s and 1970s. The demand for civilian 

government elected through free and fair elections is firmly entrenched and 

there is general acceptance of the notion of opposition parties and ideologies. 

However, there remains a disjuncture between populist and political elites that 

occurred at least partially as a result of the circumstances surrounding the 

development of democracy in Korea. With the ideological basis of democracy 

moving in the direction of nationalism, there is an excellent opportunity to 

reconcile this disjuncture. In addition, the consolidation of Korean attitudes 

towards democracy requires the reconciliation of existing political institutions 

with Korean identity. Reconciliation must be a mutually reinforcing process, 

whereby the institutions are modified to adjust to Korean identities just as the 
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194

existence of these institutions over the past 50 years have modified Korean 

identity with traditional political values. What is clear is that there is no 

particular aspect of Korean identity that precludes the development of liberal 

democracy. Although the particular form Korean democracy ultimately takes 

almost certainly will be different from that found in the United States or, for 

that matter, Western Europe. Nevertheless, if the Korean people are allowed 

to find an appropriate balance between the need for the community values that 

are valorized in traditional identity structures and the individual freedoms that 

are valorized in liberal democracy in the context of its own historical 

circumstances, it will be a happy place.
THE TRANSITION TO DEMOCRACY IN INDONESIA:

SOME OUTSTANDING PROBLEMS

IKRAR NUSA BHAKTI

INTRODUCTION

In the five years since the fall of President Suharto, Indonesia has had

three presidents—B.J. Habibie, Abdurrahman Wahid, and Megawati 

Sukarnoputri—all of whom took power by democratic means. Most people 

have enjoyed freedom of expression and opinion, freedom of information, 

checks and balances between the executive and legislative branches of 

government, and a depoliticized military. 

However, if we ask Indonesians for their opinions on the current political

situation in Indonesia, we receive mixed answers. A number of political 

analysts, such as Dr. Mochtar Pabottingi, a senior researcher at the Research

Center for Political Studies in the Indonesian Institute of Sciences, says that

the present Megawati administration is actually the second coming of Suharto’s 

New Order government (Orde Baru Jilid Dua).1 Another analyst, Jeffrey 

Winters, goes further, saying Megawati’s surname should not be Sukarnoputri 

(‘daughter of Sukarno’) but ‘Suhartoputri’, because her political behavior is 

similar to Suharto’s. Other analysts or observers characterize Indonesian

politics as being marked by one step forward and two steps back.

Moderate political analysts are of the opinion that there has been some

progress toward consolidated democracy but that Indonesians still face many 

challenges, both from within and outside the country. These include a lack of 

capacity among political elites, terrorism, problems at the political level, and a 

culture and society that is mostly still paternalistic, patrimonial and emotional. 

Last but not least, Indonesia still has problems with law enforcement, and 

there can be no democracy without the supremacy of the law. 

What are the opinions of people on the streets? Their answers may 

surprise us. Many will say that they miss Suharto. During Suharto era, 

according to them, security was the top priority, their daily income was higher 

1 Suharto’s government was described as the ‘New Order’ government to contrast it from the

period of disorder under Sukarno’s ‘Guided Democracy’.

195
DEMOCRACY IN INDONESIA

196

than today and the price of daily necessities was quite low and certainly 

affordable for ordinary people. In the end, they wish Suharto was still in power 

or that a situation similar to the Suharto era, in which the military played the 

dominant role in Indonesian politics, was still in place. Most of the ordinary 

people in Indonesia were not aware that Suharto’s regime created a lot of 

problems for Indonesians, including human suffering, corruption, collusion, 

nepotism, economic dependency on foreign debt, and economic collapse. 

Apart from that, during the Suharto period, there was no political freedom at 

all.

Many NGO activists who have been active in empowering the economic 

capacity of village people beleive that poor village communities have been 

apathetic towards politics or have even been very antithetical towards political 

parties because politicians have never delivered on their promises. One NGO 

activist , states that: 

Democracy is a project of capitalism to secure free-market 

competition. Democracy does not solve the unjust economic 

exploitation of the poor by the economically rich. We do not need 

democracy, we need socialism. In essence, democracy is only needed 

by a small number of elites and political scientists in Jakarta, but not 

by the majority of the poor people.2

We may come to the conclusion that during this transition period from the 

authoritarian regime of Suharto to consolidated democracy, many people have 

been disappointed with the current political, economic and security situation in 

the country. Many people felt that freeing Indonesia from the authoritarian 

regime would raise standards of living. This is a challenge not only for the 

government, but also for pro-democracy supporters seeking to convince the 

electorate that a democratic system of government is better than an 

authoritarian regime. Indonesia still has a long way to go to become a mature 

democracy. Therefore, the country needs political endurance to answer the 

many challenges. 

INDONESIA’S EXPERIENCE WITH THREE TYPES 

OF DEMOCRACY 

Indonesia has been struggling with democracy for decades. It has 

experience with three types of democracy, all of which failed. First was the 

failed attempt at parliamentary democracy (1949-1957) which led to the 

2 Conference, ‘Transition Towards Democracy in Indonesia’, Hotel Santika, Jakarta, 18 

October 2002. 
IKRAR BHAKTI

197

transition from parliamentary democracy to guided democracy (1957-1959), in 

which President Sukarno established the so called Zaken or Functional 

Cabinet, a business cabinet which consisted of members of political parties, 

economists and the military. Second, there was another attempt at ‘Guided 

Democracy’ under President Sukarno (1959-1965). The third and longest 

period was that of ‘Pancasila Democracy’ under President Suharto from March 

1966 to May 1998.3

Constitutional Democracy 

The period of Parliamentary democracy has various names. Herbert Feith 

calls it ‘constitutional democracy’.4 Most in the Indonesian political 

community, writers and commentators call it ‘liberal democracy’, the term 

popularized by President Sukarno. However, ‘liberal democracy’ was used by 

Sukarno, more to mock Western democratic practices such as voting, which he 

criticized as ‘fifty percent plus one democracy’. 

Feith defines six distinct features characteristic of constitutional 

democracy. First, civilians played a dominant role; second, parties were of 

great importance; third, the contenders for power showed respect for ‘rules of 

the game’ which were closely related to the existing constitution; fourth, most 

members of the political elites had some sort of commitment to symbols 

connected with constitutional democracy; fifth, civil liberties were rarely 

infringed; six, government used coercion sparingly.5

It is still a subject of unending debate in Indonesia as to whether ‘liberal 

democracy’, ‘parliamentary democracy’ or ‘constitutional democracy’ really did 

fail in 1957. Many political scientists are of the opinion that liberal democracy 

did not fail; it was killed by Sukarno and the military. If there is a failure, then 

it is a logical consequence of a power game between the army and the 

president’s office vis-a-vis the social and political forces within the civil society. 

The dissolution of the Konstituante (Constituent Assembly) and the reinstitution 

of the 1945 Constitution have been taken as watershed events in the end of 

3 See, for example, Daniel Dhakidae, ‘The Long and Winding Road: Constraints to Democracy 

in Indonesia’, in R. William Liddle, ed., Crafting Indonesian Democracy (Bandung: Mizan in 

Cooperation with PPW-LIPI and The Ford Foundation, 2001), pp.67-74. See also, M. Syafi’I 

Anwar, ed., Menggapai Kedaulatan Untuk Rakyat. 75 tahun Pro. Miriam Budiardjo (Bandung: Mizan 

in cooperation with Ummat, 1998), pp.132-158. 

4 Herbert Feith, The Decline of Constitutional Democracy in Indonesia (Ithaca and London: Cornell 

University Press, 1973 [1962]). 

5 Ibid., p.xi. 
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constitutional democracy and the beginning of the next period in Indonesian 

political history, that of Guided Democracy. 

From the idealist’s perspective, the failure of constitutional democracy was 

the result of a lack of sufficient institutional backup for democracy, namely a 

lack of education, a lack of democratic culture, and an insufficient economic 

base.

Guided Democracy 

Demokrasi Terpimpin (guided democracy) concentrated power within the 

executive, particularly the president. Guided democracy was a great contrast to 

liberal democracy. While liberal democracy put the emphasis on the process, 

guided democracy emphasized the attainment of one major objective; ‘a just 

and prosperous society’, only to be achieved by a ‘systematic and planned 

democracy’. President Sukarno loved to call it ‘democracy with leadership’. 

Guided democracy was implemented in Indonesia from July 1959 to 

October 1965. After six years, however, the ‘systematic and planned 

democracy’ failed to achieve a healthy economic system. Indonesia’s economic 

situation was dire in 1965. Production had slowed dramatically. Exports and 

imports came to a halt and hyperinflation of more than 600 percent crippled 

the country. This economic collapse was followed by a struggle for power 

between the army and the Indonesian Communist Party. The murder of six 

army generals and one lieutenant by a left-wing elements in the Army6 capped 

the political and economic chaos and led to the Army coup d’etat on 11 March 

1966 to bring down President Sukarno and his guided democracy.7

Pancasila Democracy (1966-1998) 

Pancasila democracy is a form of democracy guided by five principles of 

national ideology (Pancasila). When General Suharto came to power he used 

the term Orde Baru or the ‘New Order’ and called Sukarno’s guided democracy 

Orde Lama, or the ‘Old Order’, the latter implying a rotten, bankrupt system. 

At first, the New Order seemed set to inaugurate a fresh new era when it freed 

6 Sukarno referred to the movement on the early morning of 1 October 1965 as Gestok, an 

abbreviation of Gerakan Satu Oktober, while the Suharto regime called it Gestapu, similar to the 

Gestapo in Nazi Germany or G-30-S/PKI, an abbreviation for Gerakan 30 September

(September 30 Movement), which the Indonesian Communist Party (PKI) was accused of 

masterminding. 

7 On 11 March 1966 President Sukarno was forced by the Army generals to sign a letter 

transferring power to General Suharto. In Indonesia, Sukarno’s letter was known as ‘Super 

Semar’, an abbreviation of ‘Surat Perintah Sebelas Maret’ (Letter of Order of the 11 March). 

However, from a Javanese Shadow puppet (wayang) story, Semar is a royal servants known for a 

powerful spirit and strength. 
IKRAR BHAKTI

199

political detainees, and freed the press by lifting restrictions on newspapers, 

closed down by Sukarno. In other words, a process of liberalization was 

introduced by Suharto. 

As the years passed, however, the New Order moved slowly and surely in 

the direction of dictatorship. The Indonesian Communist Party and the 

Indonesian Nationalist Party could still make their voices heard and thus 

compete with the Army. The New Order, in reaction, drifted toward a full 

military regime to stifle such dissenting voices. The Army created the so-called 

Functional Group (Golongan Karya, or Golkar) as a political tool to gain 

legitimacy from the people through general elections.8 Suharto’s ties to the 

Army started to weaken when he asked B.J. Habibie to establish and chair the 

Association of Indonesian Moslem Intellectuals (Ikatan Cendekiawan Muslim 

Indonesia, or ICMI) in 1991. During the early period of the 1990s, the rise of 

ICMI to power highlighted the division of the military into so-called 

‘nationalists’ officers, nicknamed ‘red and white officers’ (after the colors of 

the national flag), as opposed to ‘green officers’, a color associated with Islam.9

After that, the political interests of the ‘red and white’ Army became clearly 

different from those of Suharto.

During the New Order period, Suharto’s regime was outwardly a success. 

There was a long period of security and the maintenance of political and 

economic interests between Suharto and the Army. After the Indonesian 

economy collapsed in July 1997, national security and stability were upset by 

mass killings and riots in Jakarta in May 1998. At that point, military interests 

inexorably diverged from those of the Suharto family, leading to his down fall. 

THE FOUR PHASES OF THE DEMOCRATIZATION PROCESS 

This chapter argues that the demands for reformasi (reform) and democracy 

were not only demands for a change of regime, but also for a change of 

political system. Such demands require an overhaul of all political, social and 

economic institutions and relations, and the establishment of a stable 

framework within which democratic practices can take root. 

Juan J. Linz and Alfred Stepan define the core criteria of democracy as: 

Legal freedom to formulate and advocate political alternatives with 

the concomitant rights to free association, free speech, and other 

8 During the New Order period, Golkar was not seen formally as a political party but as a 

functional group, a strategy aimed at discrediting political parties. 

9 Since Endriartono Sutarto, from the group of officers commissioned in 1971, became the 

Army Chief of Staff, he has successfully united the Army. 
DEMOCRACY IN INDONESIA

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basic freedoms of person; free and nonviolent competition among 

leaders with periodic validation of their claim to rule; inclusion of all 

effective political offices in the democratic process; and provision for 

the participation of all members of the political community, 

whatever their political preferences. Practically, this means the 

freedom to create political parties and to conduct free and honest 

elections at regular intervals without excluding any effective political 

office from direct or indirect electoral accountability.10

To establish how far any given country has gone towards a transition to 

democracy, Linz and Stepan argue that: 

A democratic transition is complete when sufficient agreement has 

been reached about political procedures to produce an elected 

government, when a government comes to power that is the direct 

result of a free and popular vote, when this government de facto has 

the authority to generate new policies, and when the executive, 

legislative and judicial power generated by the new democracy does 

not have to share power with other bodies de jure.

11

Theoretically, transition from an authoritarian regime to democracy is 

understood to take place within various phases. There are at least four phases 

that Indonesian politics have supposedly undergone, namely: pre-transition, 

liberalization, democratic transition, and democratic consolidation. The final 

stage of democracy (maturation) is predicted to take place within a longer 

period.12

The first phase (pre-transition) began during the period of Indonesia’s 

economic crises in 1997. Various anti-Orde Baru groups emerged to establish a 

reform movement as a political rival to the New Order regime. This period 

was marked by sporadic detentions and disappearances by the state apparatus 

against anti-New Order political activists. Meanwhile, the ongoing economic 

crises had worsened the image of the state. The credibility of the New Order 

as a strong and powerful regime crumbled everywhere, and this finally paved 

the way to mass movements and social unrest in several provinces. The 

shooting of four Trisakti University students on 12 May 1998 initiated strong 

10 Juan J. Linz and Alfred Stepan, ‘Defining and Crafting Democratic Transition, 

Constitutions, and Consolidation’, in R. William Liddle, Crafting Indonesian Democracy (Bandung: 

Mizan in cooperation with PPW-LIPI and the Ford Foundation, 2001), p.18. 

11 Ibid., p.19. 12 Gerry van Klinken divided those transitions into four other steps, namely: decay of the 

authoritarian system, transition, consolidation, and finally maturation. See Gerry van Klinken, 

‘How a democratic deal might be struck,’ in Arief Budiman , et al, Reformasi: Crisis and Change in 

Indonesia (Clayton: Monash Asia Institute Monash University, 1999), p.59. 
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criticism against the New Order, domestically and internationally. The political 

turmoil led to three days of social unrest in the days immediately following the 

shootings, in Jakarta and several other major cities in Indonesia. This was 

followed by student demonstrations in Jakarta and the occupation of 

parliament by students from 18 May 1998 until the fall of Suharto on 21 May 

1998. Suharto transferred his presidency to B.J. Habibie.13

What the people and especially the students wanted was a new democratic 

constitution; one that was accountable and transparent. They also wanted 

reform of the justice system, freedom from ‘KKN’ (Corruption, Collusion and 

Nepotism) and for the Indonesian Armed Forces (Tentara Nasional Indonesia, or

TNI) to be kept out of politics. This ‘early stage of political transition’ from 

Suharto to Habibie was also an opening to the next stage of political 

liberalization from authoritarianism, and was marked by the withdrawal of five 

old political laws and the implementation of three new political laws.14 Habibie 

also embraced many democratic procedures, such as provisions for press 

freedom, free and fair elections, the decentralization of regional government 

and the release of political prisoners.

This period also was marked by its first genuinely democratic election since 

1955. The 1999 election campaign had some similarities and differences with 

those of elections held during the New Order. The campaign itself took a 

similar form, such as public gatherings and festivals. The main differences, 

however, were in the wholesale re-politicization of society, the freedom of the 

media to report on the election, and the issues discussed. In the 1999 election, 

the media were free to report on the activities of all parties regularly, including 

live debates among party candidates. The issues debated were also different 

from those during the New Order period. The media, politicians, and the 

public were free to level any kind of criticism at the government. Among the 

popular issues was the need to stamp out ‘corruption, collusion and nepotism’ 

and the promise to bring Suharto and his cronies to justice. However, apart 

from this, the candidates repeated themes similar to New Order campaigns, 

such as the improvement of wages for the laboring classes, the elimination of 

poverty, the struggle for justice, and a more equal distribution of wealth.

Although Habibie successfully portrayed political liberalization as the first 

step in the transition toward democracy, he failed to maintain his power 

13 For a good historical background on this period, see, Geoff Forrester and R.J. May, eds., The

Fall of Suharto (Bathurst, Australia: Crawford House Publishing, 1998). 14 Law No.2/1999 on Political Parties, Law No.3/1999 on General Elections and Law 

No.4/1999 on the Structure and Position of the MPR/DPR (Parliament). 
DEMOCRACY IN INDONESIA

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because most Indonesian elites saw him as too close to the authoritarian 

Suharto regime. Apart from that, the political liberalization under his 

administration was not seen as a sincere personal political conviction, but 

rather as an expedient measure. It was believed that Habibie would never have 

allowed freedom of the press or the establishment of political parties without 

political pressure from the opposition, particularly university students.15 On the 

positive side during the Habibie period, there were no serious efforts to 

resume past human rights atrocities as practiced by the New Order regime.

Larry Diamond labels this era of transition in Indonesia as falling into ‘a 

gray area’ of democracy ‘that is neither clearly democratic nor clearly 

undemocratic’.16 Although the 1999 general election was largely free and fair, 

Diamond noted some incidents of fraud and dubious conduct. 

The 1999 election was won by the Indonesian Democratic Party of 

Struggle (PDIP) under Megawati Sukarnoputri, with Golkar (the perennial 

party in power under Suharto) as the runner-up. B.J. Habibie lost his chance to 

be re-elected President by the People’s Consultative Assembly (the MPR) 

because the assembly rejected his accountability speech, mostly related to East 

Timor Issues. And although PDIP was the electoral winner, the MPR elected 

Abdurrahman Wahid as the fourth Indonesian president. 

During the transition toward democracy in Indonesia, it is important to 

bear in mind that a compromise between authoritarian and democratic powers 

took place. The Abdurrahman Wahid government had to face one of the 

‘paradoxes of democratic transition’, when New Order groups, both through 

parties such as the former ruling party, Golkar, and through powerful 

individuals, had to be accommodated because of their important political and 

economic roles. 

The next important stage should be the consolidation of democracy. In 

theory, in the consolidation phase, democratic values spread and take hold in 

society. In Indonesia, however, these values have not yet become embedded. 

Many of the political elites state that they are committed to supporting 

democracy and reform, but in reality they practise the kinds of politics that 

15 See for example, Syamsuddin Haris, ‘Konflik Elite Sipil dan Dilema Konsolidasi Demokrasi Pasca 

Orde Baru’ (Conflict among civilian elites and the dilemma of democratic consolidation in the 

Post Suharto Era), in Maruto MD and Anwari WMK, eds., Reformasi Politik dan Kekuatan 

Masyarakat. Kendala dan Peluang Menuju Demokrasi (Political Reform and the Strength of the 

Society. Problems and Prospects toward Democracy) (Jakarta: LP3ES, 2002), pp.3-21. 16 Larry Diamond, ‘The Global State of Democracy’, Current History 99, no. 641 December 

2000, p.414.
IKRAR BHAKTI

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demonstrate their lack of political ethics—ethics that are essential for the 

development of democracy. 

During the Abdurrahman Wahid (also known as Gus Dur) government, 

political elites busied themselves with partisan struggles for power with little, if 

any, effort to advance the process of democratization. In a democratic system, 

the winning party in the election logically has the right to form the 

government. However, Indonesia’s system is, in some ways, disorderly, and 

may not reflect the will of the people. Megawati, who came ahead in the 

general election, was chosen only as Vice-President, and not President, causing 

much anger among her supporters. Meanwhile, the Poros Tengah (Axis Forces), 

acting as the coalition group of various Islamic political parties, succeeded in 

getting Gus Dur inaugurated as the fourth President. Furthermore, the system 

based on the 1945 Constitution does not make clear the relationship between 

Parliament and the President. Both have equal constitutional power and this 

has caused conflict between the two branches of government. 

The government that emerged from the 1999 election comprised a loose 

coalition of parties. The government was formed in October 1999 and initially 

consisted of figures from the leading parties, including PDI-P leaders, because 

of Megawati’s role as Vice-President. There were two concerns with such a 

coalition. The first was whether the government would be fragile because it 

was formed by an unsteady and ad hoc coalition, with Gus Dur himself coming 

from a minority grouping within this loose coalition. 

Juan Linz describes what constitutes a consolidated democratic regime: 

... when no significant national, social, economic, political, or 

institutional actors spend significant resources attempting to achieve 

their objectives by creating a nondemocratic regime or by seceding 

from the state. Additionally, a democratic regime is consolidated when 

a strong majority of public opinion, even in the midst of major 

economic problems and deep dissatisfaction with incumbents, holds 

the belief that democratic procedures and institutions are the most 

appropriate way to govern collective life, and when support for antisystem alternatives is quite small or is more or less isolated from prodemocratic forces. Constitutionally, a democratic regime is 

consolidated when governmental and a-governmental forces alike 

become subject to, as well as habituated to, the resolution of conflict 

within the bounds of the specific laws, procedures, and institutions 

that are sanctioned by the new democratic process...17

17 R. William Liddle, Crafting Indonesian Democracy (Bandung: Mizan, 2001), p.28. 
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Unfortunately, the Gus Dur administration failed to provide those 

preconditions. Political crises remained and were marked by clashes of 

interests between parties in the cabinet. His presidency found no mass support 

in the midst of ongoing violent conflicts in several regions; specifically, 

communal conflicts in Ambon, Maluku, and Poso and separatist movements 

in Aceh and Papua. 

This crisis of leadership was brought to a point of no return by the Bulog 

scandal, leading to opposition in the Parliament.18 Ultimately, Gus Dur was 

brought down by a coalition of forces including parties within his government 

and the TNI. A Special Assembly was held in July 2001 in the Parliament 

Building to impeach Gus Dur and this paved the way for Megawati to become 

the fifth President. 

The new administration is now facing serious challenges to its own 

legitimacy, ranging from the lack of a domestic economic recovery, security 

problems, and international criticism of its efforts to stamp out terrorism. The 

political situation is still fraught with problems since there has been no clear 

decision on constitutional amendments, not to mention inconsistencies in the 

political system. Constitutional crises could also become endemic since, on the 

one hand, Indonesia has a presidential system, but on the other, it also allows 

for impeachment. However, the fourth amendment to the 1945 Constitution, 

amended by the People’s Consultative Assembly in August 2002, now makes it 

difficult for the parliament to impeach the president. 

As has previously been described, Indonesia’s political system is in a 

‘political gray zone’ under Megawati’s administration. Indonesia’s political 

transition has not moved forward but rather backward. There is no guarantee 

that the transition will move forward into a democracy per se. Indonesia’s 

democratic transition is marked by a situation in which democratic procedures 

take place, but substantial democracy is ignored.19

The October 2002 night-club bombing in Bali has also worsened the 

‘democratic consolidation’, as the TNI has attempted to regain their previous 

domination of policy through a new Law on Terrorism, regarded by many as a 

new threat to democracy.20 The implementation of this will not only endanger 

the democratization process in Indonesia, but will strain relations between the 

18 A scandal relating to the operations of the centralized state purchasing and distribution 

agency, the Bureau of Logistics (Bulog). 

19 Kompas, 20 July 2002. 20 Government Regulation (regarded as National Law) No.1/2002 and No.2/2002 on 

Terrorism (Peraturan Pemerintah Pengganti Undang-Undang or Perpu).
IKRAR BHAKTI

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Megawati government and Islam as well. The government was accused of 

being a puppet of the United States in the global war on terrorism.

The United States, as part of its response to international terrorism, will 

also hamper the democratization process in Indonesia, because of US 

intentions to reintroduce a military-to-military relationship with Indonesia at 

the expense of democracy. Most observers in Jakarta believe that the present 

Bush administration is more focused on the war on terrorism than on 

democracy; a quite different policy from that of the previous administration. 

The US government’s intention to increase military and police cooperation 

with Indonesia must be balanced with a policy to support democratization in 

Indonesia. Indonesia is not America, where there is trust between the people 

and the security apparatus. In most cases, people are still traumatized by what 

was done by the security apparatus (ABRI, which included the armed forces 

and the police) during the New Order period. Fear of politicization of the 

military is still very real. On one hand there is a need to make the security 

apparatus become professional, on the other hand there is still public distrust 

towards the military (and even to the police). It is a dilemma for Indonesia, 

where democracy is still fragile. If the fight for democracy is lost, it means that 

terrorists, whoever they are, win. 

In today’s situation, pro-democracy movements are facing two kinds of 

danger. On one hand, there is a strong tendency for the old status quo 

elements to try to regain power through Golkar and the military forces. The 

latter is clearly the strongest among the support pillars of the Megawati regime. 

On the other hand, pro-democracy groups do not share any agreement on 

how to run the reformasi process. Many hoped that non-governmental 

organizations (NGOs), intellectuals, and student movements would be able to 

influence political reform, but they also face internal weaknesses such as a lack 

of professional management skills to run their organizations, and a lack of 

networking and formulation of ideas. This situation leads to weak 

organizational accountability, and is taken advantage of by status quo groups.21

The political elites, on the other hand, have already begun early political 

maneuvers for the elections scheduled for 2004. This has turned their attention 

from the real problems facing the nation. In other words, we are facing a 

leadership crisis, in which the leaders, both executive and legislative, are more 

concern with their future political positions than the people’s interests. 

21 Mashudi Noorsalim, ‘Egoism a hindrance to progress in reform’ The Jakarta Post, 4 April 

2002.
DEMOCRACY IN INDONESIA

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CONCLUSION

One conclusion often mentioned by Indonesian intellectuals on 

Indonesia’s political transition concerns its uncertainty. Divergent interests 

(none necessarily related to the needs of the country) of various the political 

adversaries have become more common. Reformasi as a driving force toward a 

democratic transition has remained empty jargon.

Apart from that, political developments in 2003 show that a number of 

political parties have tried to delegitimize Megawati’s administration since the 

government increased prices in three areas: fuel, electricity and telephone 

usage. They are not only making many political statements on those issues, but 

they also criticize the government’s policy of privatizing some public 

companies, particularly in the case of Indosat (Indonesian Telecommunication 

and Satellite). The government, based on intelligence analysis, has accused a 

number of political figures, namely retired Army general Wiranto, Fuad 

Bawazir (former minister during the Suharto era), Eros Djarot (a journalistturned—politician who used to be close to Megawati), Adi Sasono (former 

minister during the Habibie government) and Rizal Ramly (former economic 

minister during the Abdurrahman Wahid government), as being behind 

student, worker, and other demonstrations in early 2003. Most of the 

demonstrators not only demanded the cancellation of the price increases, but 

also that Megawati and Vice-President Hamzah Haz step down. 

It seems that most of political parties are more concerned with narrow 

party interests than the people’s or the nation’s interests. They have been busy 

with political maneuvering, either inside Parliament or outside, as part of their 

preparations for the 2004 general election. Both supporters and opponents of 

the Megawati administration are not fully aware that if civilian politicians fail to 

consolidate democracy in Indonesia, the gate will open for the military 

(particularly the Army) to take over the government. Present student and mass 

demonstrations show that the ‘parliament of the street’ is still alive as a 

consequence of the failure of political parties to aggregate and articulate 

people’s aspirations.

In conclusion, a lack of any democratic culture among students and 

political elites, and the tendency of the Army to see itself as ‘the guardian of 

the state’, threaten the transition to consolidated democracy in Indonesia. 

Whether or not democracy in Indonesia is stalled depends on whether political 

elites bear in mind what happened to the liberal democracy of the 1950s.
THE TRANSITION TO ‘GUIDED’ DEMOCRACY IN

PAKISTAN

AQIL SHAH

INTRODUCTION

On 12 October 1999, the Pakistani army under General Pervez Musharraf 

deposed the democratically elected government of Prime Minister Nawaz

Sharif after Sharif tried to oust the General. Musharraf’s justifications for the 

coup echoed refrains similar to those offered by his military predecessors:

Not only have all the institutions been played around with, and

systematically destroyed, even the economy is in a state of collapse...

Self-serving policies have rocked the foundations of the Federation

of Pakistan. My singular concern has been the well being of our

country alone...the armed forces have moved in as a last resort to

prevent any further destabilization.1

Since its inception more than fifty years ago, Pakistan has experienced four

military coups. The first was staged by General Ayub Khan (1958), followed

by General Yahya Khan (1969), General Zia ul-Haq (1977) and, finally,

General Pervez Musharraf (1999). While the failure of democratic institutions 

in Pakistan is typically attributed to constitutional and judicial weaknesses, the

poor quality of political leadership and the lack of socio-economic

development, the structural constraints imposed on democratic

institutionalization by the ‘political militarism’ of the Pakistani army remain 

generally underanalyzed.2

Democratic transitions have failed primarily because of repeated military 

interventions. Not one civilian government has been allowed to complete its

tenure since independence in 1947. Elected authorities in Pakistan have been

continually subject to policy embargoes in key domains of state policy, namely

Pakistan’s India and Afghanistan policies, the nuclear weapons program,

defense expenditures, external intelligence and similar national security areas.

1 General Musharraf, televised address to the nation, 13 October 1999.

2 The concept of political militarism is discussed at length in Kees Kroonings and Drik Kruijt 

eds., Political Armies: Military Politics and the Mission of Nation Building (London: Zed Books, 2002).

207
PAKISTAN’S ‘GUIDED’ DEMOCRACY

208

The roots of authoritarianism in Pakistan can be traced back to the early 

years of independence when a host of internal, regional and external factors 

tilted the civil-military equation in the army’s favor.3 ‘Only the militarybureaucratic-intelligence elite that has guided Pakistan’s destiny since 1947’, 

argues noted Pakistani political analyst Ahmed Rashid, ‘has had the right to 

determine the nature of threat to Pakistan’s national security and its 

solutions—not elected governments, parliament, civic organizations or even 

common sense’.4

This chapter explores three closely related questions: Why did Pakistan’s 

transition to democracy fail when civilian rule was restored in 1988? How 

central do structural and institutional factors remain in explaining the 

transitional outcome? Against the backdrop of a failed transition, and the 

military’s ongoing attempts to embed its role in the constitution, what is the 

most likely outcome of the current transition to civil democracy? 

The chapter is divided into three sections. The first will briefly explore the 

origins, development and nature of authoritarianism in a historical perspective. 

The second section will critically examine the eleven-year civilian interregnum 

(1988-1999) to assess the impact of a lingering legacy of authoritarianism and 

the continued political dominance of the military on the outcome of the 

democratic transition. The last section will offer a brief overview of the 

Musharraf period (1999-2003) to understand the nature and dynamics of the 

purported transition to civil democracy. 

AUTHORITARIANISM: ORIGINS, EVOLUTION AND 

CONSOLIDATION

When the British ceded power in 1947, the Muslim League was entrusted 

with the task of nation building in a multi-ethnic state. With few or no 

support-bases in the areas that constituted the post-colonial state, the migrant 

League leadership sought refuge in centralized rule, swiftly adopting the 

Government of India Act 1935 as an interim constitution which provided for a 

3 See Ayesha Jalal, Democracy and Authoritarianism in South Asia (Lahore: Sange Meel 

Publications, 1995). 

4 Ahmed Rashid, Taliban: Militant Islam, Oil and Fundamentalism in Central Asia (New Haven: 

Yale University Press, 2001), p.210. 
AQIL SHAH

209

federal parliamentary structure but one with highly centralized features and 

minimal autonomy for the federating units.5

Pakistan’s cold war alliance with the United States driven in most part by 

its perceived insecurity vis-à-vis India, as well the inchoate nature of its political 

institutions and civil society, provided the military bureaucratic elites the 

opportunity to gradually expand their role within the power structures of the 

state.6 This institutional imbalance more than any other development would 

impede the development of democratic institutions. After the country’s first 

constituent assembly tried curtailing his powers, for instance, GovernorGeneral Ghulam Muhammad disbanded the assembly on 24 October 1954.7

By the time the Second Constituent Assembly was convened, ‘it could do little 

more than follow the framework established by the governor-general. Instead 

of a decentralized legislature-dominated system, a form of presidential 

government emerged’.8

The country’s first constitution, promulgated in 1956, envisaged general 

elections within two years. Wary that holding elections would entail handing 

over power to elected officials, President Iskander Mirza declared martial law 

on 7 October 1958. On 27 October 1958, the military under General Ayub, 

which had backed the President’s earlier action, deposed him to assume direct 

political power. Ayub quickly moved to ban political parties, disqualify 

politicians from seeking public office and gag the press.

While generous aid from the United States helped the junta achieve 

impressive economic growth rates, per capita gains were to remain restricted to 

a small urban industrial elite. Within a decade, the negative political fallout 

from military’s misguided adventure in Indian-administered Kashmir, 

pervasive economic inequalities and growing political polarization along 

regional and class lines had begun to erode Ayub’s legitimacy, prompting 

populist forces like Zulfiqar Ali Bhutto’s Pakistan People’s Party to mobilize 

5 Samina Ahmed, ‘The Fragile Base of Democracy in Pakistan’, in Amita Shastri and A. Wilson 

(eds.) The Post Colonial States of South Asia: Democracy, Identity, Development and Security (Surrey: 

Curzon Press, 2001), p.42. 

6 Jalal, op.cit. 7 While the Sindh High Court declared the Governor-General’s actions as unconstitutional, the 

central government’s appeal against the ruling was upheld by the Federal Court. For a 

discussion, see Hamid Khan, Constitutional and Political History of Pakistan (Karachi: Oxford 

University Press, 2001), pp.136-143. 

8 Charles Kennedy, ‘‘Constitutional and Political Change in Pakistan: The Military Governance 

Paradigm,’ paper prepared for ‘Prospects for Peace in South Asia’ Conference, Stanford 

University, February 21, 2003, p.3. 
PAKISTAN’S ‘GUIDED’ DEMOCRACY

210

public opposition (students, trade unions and professional associations) to the 

authoritarian state.

In East Pakistan (present-day Bangladesh), widespread grievances over the 

unequal distribution of economic and political resources had galvanized a 

popular movement for provincial autonomy under Sheikh Mujeeb’s Awami 

League. Isolated and unable to control the rising tide of resistance to his 

authority, Ayub handed over power to General Yahya Khan who called for 

Pakistan’s first general elections in 1970. While the Pakistan People’s Party 

(PPP) scored a convincing victory in West Pakistan, the Awami League swept 

the polls in East Pakistan. Unwilling to transfer state power to civilian 

politicians, much less to the majority Bengalis, Yahya dispatched the army to 

crush the popular opposition in East Pakistan. A bloody civil war ensued and 

India intervened, ultimately paving the way for East Pakistan’s secession from 

Pakistan in December 1971.9

Transition to civilian rule proved short lived. In July 1977, the army under 

General Zia deposed Bhutto amidst allegations of electoral rigging and 

manipulation by the Pakistan National Alliance (PNA), an umbrella grouping 

of nine opposition parties. Zia imposed martial law, dissolved parliament and 

put the 1973 constitution in abeyance. Why did Bhutto fail to neutralize the 

military when its public credibility in the wake of the military defeat in East 

Pakistan was at an all-time low? Bhutto had tried to dilute the military’s 

political influence, if only to secure his grip on power. The 1973 Constitution 

put the armed forces firmly under the ‘command and control’ of the federal 

government (Article 243). Moreover, military officers had to swear not to 

engage in any political activities.10 Article 6 made the abrogation of the 

constitution punishable by death. A Cabinet Defense Committee headed by 

the Prime Minister was to serve as the highest decision-making body in 

matters of policy making, the military high command was restructured, several 

senior officers were sacked or reassigned, and a Federal Security Force was 

created to reduce the civil government’s dependence on the army for the 

maintenance of law and order. But these constitutional sanctions, though 

necessary, were hardly sufficient to keep the military at bay. The PPP 

government’s intrusions into what the military perceived as its internal affairs 

only increased the contempt of the senior ranks for the Prime Minister. The 

9 For details, see Hasan Zaheer, The Separation of East Pakistan - The Rise and Realization of Bengali 

Muslim Nationalism (Karachi: Oxford University Press, 1994). 10 Article 244 enjoins military personnel to take the following oath, ‘I do solemnly swear that I 

will...uphold the Constitution of the Islamic Republic of Pakistan...I will not engage myself in 

any political activities whatsoever’. 
AQIL SHAH

211

ruling party’s weak organizational base and intra-party divisions meant that 

Bhutto would come to rely excessively on the coercive arms of the state to 

preserve and enhance his power.11 Before long, an opportunistic military high 

command would use the political deadlock between the PM and his opposition 

to displace yet another elected government. 

Upon assuming power, General Zia had pledged to restore democracy and 

hold elections within the constitutional timeframe of 90 days. Lacking both 

domestic legitimacy and a broad support base, he postponed this for almost 

eight years. In the meanwhile, he enlisted the support of the religious right by 

embarking on a sweeping Islamization program, introducing parallel Islamic 

institutions in the judiciary and the economy and enacting discriminatory 

legislation against minorities and women. After rigging a presidential 

referendum in 1984 to extend his tenure for another five years, Zia used a 

rubber-stamp parliament to indemnify all the laws, acts and orders issued by 

his government. The eighth Amendment to the 1973 Constitution 

empowered the president to dissolve the National Assembly, appoint military 

service chiefs, judges of the superior courts, and provincial governors. With his 

flanks secured, General Zia formally lifted martial law and handed over power 

to a civilian government in October 1985.12

RETURN TO CIVIL RULE (1988-1999): CONTINUITY OR CHANGE? 

Zia’s death in a mysterious plane crash in August 1988 paved the way for 

the restoration of civilian rule. Convinced that its corporate interests would be 

served best by restoring democracy, the military agreed to transfer power to 

the PPP and its leader Benazir Bhutto only after ensuring that it would retain 

its institutional autonomy as well as an exclusive monopoly over significant 

external and internal policy areas including foreign and defense affairs. 

Hamstrung by these awesome structural constraints and preoccupied with 

maintaining its narrow parliamentary majority, the first PPP government failed 

to live up to the expectations of its electorate.13 After barely two years in 

11 Jalal, op.cit. 12 In August 1988, General Zia used his constitutional powers to dismiss Prime Minister 

Mohammad Khan Junejo’s government on trumped up charges of corruption and 

mismanagement. Zia’s action was, however, prompted by growing rifts between him and the 

PM. Divergent views on Pakistan’s Afghan policy and the Prime Minister’s attempts to 

investigate the Ohjri Camp disaster (in which a military ammunition depot blew up, killing 

scores of innocent civilians) seem to have sealed his fate. 

13 In 1990, 5.8 percent of GDP was allocated for defense and 1.1 percent for health. See 

UNDP Human Development Report 2003 (New York: Oxford University Press, 2003). 
PAKISTAN’S ‘GUIDED’ DEMOCRACY

212

power, the Prime Minister’s attempts to assert control over the military 

resulted in the dismissal of her government in 1990 by President Ghulam 

Ishaq Khan on charges of corruption and inefficiency.14 Two successive 

civilian governments—the 1990-93 Pakistan Muslim League-Nawaz (PML-N) 

government of Prime Minister Nawaz Sharif, and the 1993-96 PPP 

government—were dismissed on similar charges of corruption and 

mismanagement. In October 1999, Musharraf’s coup abruptly ended the 

country’s already faltering transition to democratic rule. Analysts have 

described Pakistan’s return to military rule as ‘the single most serious reversal 

during the third wave of democratization’.15 The country’s latest democratic 

breakdown puts into sharp focus the possibility that democratization is not a 

predictable, sequential process of incremental steps that follows the end of 

authoritarian rule as idealized in the transition literature.16

Why did Pakistan’s democratic transition breakdown? Did the institutional 

and structural legacy of authoritarianism play any role in the failure of 

democracy to take root? If so, how important were these factors in 

determining the outcome of the transition? 

Experience with post-authoritarian democracy, whether in sub-Saharan 

Africa or the former communist countries, shows that the ‘specific 

institutional legacies of predecessor regimes deeply affect (and shape) the 

outcome of attempted transitions’.17 Zia’s authoritarian legacy included a 

militarised society, a stifled political process, weakened civil institutions and a 

culture of pervasive political and administrative corruption. Besides, 

constraints on democratic transitions are even more severe when a ‘unified, 

hierarchically-led military’ oversees the transfer of power.18 In such cases, the 

military imposes an interlocking set of limits on the policymaking capabilities 

of democratic governments through ‘reserve domains’ and ‘military 

14 See Saeed Shafqat, Civil Military Relations in Pakistan: From Zulfiqar Ali Bhutto to Benazir Bhutto

(Boulder, CO: Westview Press, 1997). 

15 Larry Diamond, ‘Is Pakistan the (Reverse) Wave of the Future?’ Journal of Democracy 11:3 

(July 2000), p.92. 

16 Guillermo O’Donnell challenges the teleology of the transition paradigm in ‘Illusions About 

Consolidation,’ Journal of Democracy 7 (April 1996): 34-51. For a response to O’Donnell’s 

argument, see Richard Gunther, et al. ‘O’Donnell’s Illusions: A Rejoinder,’ Journal of Democracy 

7 (October 1996), pp.151-159. 

17 See Thomas Carothers, ‘The End of the Transition Paradigm,’ Journal of Democracy 13: 1 

(2002), pp.5-21. 

18 Juan J Linz and Alfred Stepan, Problems of Democratic Transition and Consolidation: Southern 

Europe, South America and Post-Communist Europe (Baltimore: The Johns Hopkins University 

Press, 1996).
AQIL SHAH

213

prerogatives’.19 Thus facing confining limits on their authority and the 

constant threat of coups and removal from power, elected leaders of both the 

PPP and PML-N were expected to perform the formidable task of 

simultaneously consolidating democracy and reforming the economy. 

Inexperienced politicians, forcefully excluded from state power for decades, 

proved too weak to resist the temptation to maximize their hold over power 

through patronage politics. Personalization and centralization of power 

invariably translated into the emasculation of alternative centres of state power 

(judiciary, civil bureaucracy, legislature), eroding democratic accountability and 

undermining public confidence in state institutions.

Throughout Pakistan’s history, the military has claimed that its 

intervention was necessary to counter the threats to national security posed by 

the corruption and mismanagement of civilian politicians. There is no doubt 

that civilian rule in the 1990s was marked by pervasive political and 

administrative corruption. But it is interesting to note that the alleged 

corruption of elected governments hardly ever triggered their dismissal. On 

the contrary, civilian governments (in 1988, 1990, 1993, 1997, and 1999) were 

ousted only after they crossed the lines drawn in their powersharing scripts 

written by the military. The October 1999 dismissal of the Sharif government 

is a case in point. Upon assuming power once again in 1997 with a resounding 

majority, the PML-N under Nawaz Sharif repealed article 58 (2) B, eliminating 

the president’s power to dismiss elected governments.20 Acutely aware of 

Pakistan’s precarious economic situation, Sharif was keen to divert the 

country’s limited economic resources from defense to development.21 By 

entering into a substantive dialogue with New Delhi, the prime minister had 

also hoped to ease bilateral tensions and sideline the military internally. Not 

unsurprisingly, the army sabotaged his peace overtures to India by sending 

troops into Kargil. Wary of the army’s discontent, Sharif made a futile attempt 

to remove General Musharraf when the former was on a trip to Sri Lanka. The 

army then seized power, dismissed the Prime Minister, and suspended the 

parliament and the constitution. 

Politicians must also share the blame for giving short shrift to democratic 

and parliamentary norms, engaging in confrontational politics and abusing 

19 Ibid. 20 Also repealed was article 112(2)(b) that empowered governors to dismiss provincial 

governments. 

21 The United States, Japan and most western governments had imposed economic sanctions 

on Pakistan after Islamabad responded to India’s nuclear tests by detonating its own nuclear 

devices in May 1998. 
PAKISTAN’S ‘GUIDED’ DEMOCRACY

214

public office for personal gain. While in opposition, political leaders often 

clamoured for military intervention as a temporary step to pave the way for reelections. In doing so, however, they ignored the fact that once in power, the 

military has a notorious tendency to develop its own political ambitions and 

perpetuate its stay in power to the detriment of civilian models of governance. 

Legal sanction accorded to military interventions by the country’s judiciary 

has also played no small part in undermining the prospects of democratic 

institutionalization. The Supreme Court validated Ayub Khan’s coup on the 

grounds that coups d’etat were an internationally recognized legal method of 

changing a constitution.22 Similarly, Zia’s assumption of power was legalized 

on the grounds of state necessity.23 In May 2000, the Supreme Court once 

again invoked the doctrine of necessity to rule that Musharraf’s coup was 

justified. However, blaming the judiciary for legalizing military rule reveals only 

one side of the coin. Military rulers have deftly pre-empted any opposition 

from the judiciary by ‘encouraging the superior judiciary to be compliant and 

to mandate their extra-constitutional practices’.24 For instance, Zia 

promulgated his own Provisional Constitution Order (PCO) requiring judges 

to take a fresh oath of office. Refusal (by four supreme court judges) resulted 

in their retirement. Similarly, an executive order issued by General Musharraf 

on 31 December 1999 decreed that superior court judges take a fresh oath 

under his PCO. Six justices of the Supreme Court and nine judges of the High 

Courts who refused to take the new oath were promptly retired. 

RECONSTRUCTING ‘REAL’ DEMOCRACY (1999-2002): 

RHETORIC AND REALITY 

Musharraf’s Coup: Acting in the ‘National Interest’? 

When General Musharraf assumed power, he justified his coup on the 

grounds that destroying the ‘sham’ democracy of past civilian governments 

was necessary for restoring a ‘real’ one. Justifying interventions on the promise 

of democratic reforms is a time-tested tradition in Pakistan. The armed forces, 

said General Ayub as early as 1958, were forced to impose military rule ‘with 

the fullest conviction that there was no alternative expect the disintegration 

and complete ruination of the country’ by corrupt and self-serving politicians. 

22 State vs. Dosso PLD 1958 SC 533. See the discussion in Khan, op.cit. 23 Begum Nusrat Bhutto vs. Chief of Army Staff PLD 1977 SC 657.

24 Kennedy, op.cit., p.12.. Also see Paula Newberg, Judging the State (Cambridge: Cambridge 

University Press, 1995). 
AQIL SHAH

215

The military’s only objective, he stressed, was to give the country ‘a sound 

democratic system and lay the foundations for a stable future’.25

Like military rulers before him, Musharraf too vowed to eliminate 

corruption, revive the economy, depoliticise state institutions, and establish the 

foundations of genuine democracy at the grassroots level. Collective 

frustration with the brand of democracy practiced in the 1990s led many in 

civil society to lend their support to the military’s reform agenda, ostensibly in 

the hope that Musharraf was serious about putting Pakistan back on track. In 

their view, democratic governments had only undermined state institutions, 

mismanaged the economy and plundered the national exchequer. After three 

years in power, the military regime’s much-touted governance reforms remain 

stalled as it focuses more on tailoring democracy to its needs than on 

delivering good governance. 

Given the state’s preoccupation with the threat from India, the military’s 

political role is generally tolerated, if not considered wholly legitimate, by the 

public. But military interventions clearly distort the political process. While 

pro-military groups benefit from authoritarian rule, mainstream political 

parties are often coerced or sidelined to neutralize opposition.26 General 

Musharraf’s military regime is no exception. Politicians from the two 

mainstream parties, the PPP and PML-N, have been the primary targets of a 

selective and arbitrary anti-corruption campaign, which explicitly leaves out 

military officers and judges. 

Like his predecessors, General Musharraf has rarely disguised his desire to 

exercise absolute control over state power. ‘I am a soldier, I don’t believe in 

sharing power,’ he proclaimed cynically in a televised address last year, ‘I 

believe in the unity of command’.27 In August 2001, he had named himself 

President in the ‘national interest’. In the wake of the 11 September 2001 

terrorist attacks on the United States, Musharraf, sensing an opportunity to 

secure international acceptance for his coup, quickly rallied Pakistan behind 

the US-led anti-terror coalition. The US Congress waived democracy 

sanctions (imposed under Section 508 of the US Foreign Operations 

Appropriations Act after the military coup) as well as those triggered by 

Pakistan’s nuclear tests. Japan and European donors followed suit, 

25 General Ayub Khan’s first broadcast to the nation, 8 October 1958 in Hasan Askari Rizvi, 

The Military and Politics in Pakistan 1947-1997 (Lahore: Sunge Meel Publications, 2000), p.293. 26 Leo E. Rose and D. Hugh Evans, ‘Pakistan’s Enduring Experiment’, Journal of Democracy 8 

(January 1997): 83-96. 

27 At www.pak.gov.pk/President_Addresses/ presidential_addresses.htm, downloaded 

November 2002.
PAKISTAN’S ‘GUIDED’ DEMOCRACY

216

rescheduling loans and extending grants in aid. International support boosted 

Musharraf’s domestic standing, providing him the chance to further entrench 

his powers. On 6 October 2001, the very eve of the US military strikes on 

Afghanistan, Musharraf extended his tenure as the chief of the army staff 

indefinitely.

Since military interventions are usually undertaken in response to real or 

perceived national crises, or as a ‘last resort’ in General Musharraf’s own 

words, they confer only temporary legitimacy on the coup makers. Hence 

military rulers ‘tend to look for institutional mechanisms that can prolong 

their rule and give it a stable and permanent legitimate foundation’.28

Institutionalization often entails the creation of new legal and constitutional 

mechanisms for ‘neutralization of the existing political arena and 

subordination of the state to the military hierarchy’.29 In April 2002, the 

general got himself elected for another five years through a fraudulent 

referendum. In August of that year, he promulgated the Legal Framework 

Order (LFO) that empowers him to dismiss the elected government, dissolve 

the national assembly, appoint military services chiefs and approve 

appointments to the superior judiciary. A supra-parliamentary National 

Security Council, headed by Musharraf, was created to oversee the 

performance of the civilian government.

Engineering Elections 

The Supreme Court decision upholding Musharraf’s coup had also 

enjoined him to hold elections within three years, i.e. by October 2002. In the 

run-up to the elections, the military regime deployed the army-led National 

Accountability Bureau (NAB) as well as intelligence agencies to coerce 

opposition parliamentary candidates and force them to join the pro-Musharraf, 

Pakistan Muslim League-Quaid-e-Azam (PML-Q), a breakaway faction of the 

PML-N. General Musharraf also introduced several legal measures to stack 

the process against his political opposition. The 'Qualification to Hold Public 

Offices Order, 2002', barring anyone from holding the office of prime minister 

twice, clearly targeted the two former prime ministers, Sharif and Bhutto. 

Another, the 'Political Parties Order, 2002', prevented those disqualified from 

seeking election to parliament on corruption and other criminal convictions 

under Article 63 of the 1973 constitution from holding party posts. The LFO 

amended Article 63 to include non-payment of utility bills and loans as well as 

convictions for absconding from court as grounds for disqualification. The 

28 Koonings and Kruijt, op.cit., p.26. 29 Ibid.
AQIL SHAH

217

'absconder' clause was Bhutto-specific as she had earlier been convicted for 

failing to appear in court in a corruption case.30 In addition, the holding of a 

bachelor’s degree was made compulsory for contesting elections. While this 

condition disqualified almost half the members of the National and Provincial 

Assemblies dissolved after the October coup, candidates of the Islamic parties 

emerged unscathed as most of them hold madrassa degrees that were granted 

equivalence. The military regime also resorted to other forms of what 

opposition politicians call ‘pre-poll rigging’, namely gerrymandering and 

delimiting constituencies to assist the PML-Q, and other parties in the promilitary Grand National Alliance.

In the 10 October polls, no single political party was able to score a clear 

majority at the national level, indicating a hung parliament. The regime-backed 

PML-Q secured the highest number of seats, though it was far short of the 

simple majority needed to form a government. More notably, the Muttahida 

Majlis Amal (MMA), a coalition of six religious parties, secured the thirdlargest tally of seats in the national assembly besides sweeping the ballot in the 

Northwestern and Baluchistan provinces. Systematic suppression of the 

moderate political parties (and the public resentment against the US-led war on 

terror) has played into the hands of the Islamists in a structural shift that 

could become entrenched as the new reality of Pakistani politics.31 Meanwhile, 

the military is pressuring and persuading opposition politicians to back the 

PML-Q in parliament. Musharraf has issued legal ordinances to encourage 

independent candidates to join the PML-Q and facilitate floor-crossing.32

Facilitated by the military’s pressure tactics and the suspension of a 

constitutional ban on floor crossing, the party eventually secured enough votes 

to form a coalition government at the center. 

Why did the military restore the processes of democracy if it was not 

willing to transfer real state powers to civilians? Given the unmistakable 

international preference for democracy, even during the war on terror, the 

Pakistani military clearly sees its corporate interests served best by transferring 

power to a ‘guided’ civilian government, while retaining tutelary powers over it. 

Thus the military will leave the thankless job of running the day-to-day affairs 

30 To avert disqualification, the PPP created the PPP Parliamentarians (PPPP) to contest the 

polls.

31 Shah, op.cit., 2002. 32 Through an ordinance promulgated on the eve of the elections, independent candidates 

were given three days to join a party after winning the elections. 
PAKISTAN’S ‘GUIDED’ DEMOCRACY

218

of the government to the elected government, while cloaking itself in ‘formal 

respectability and democratic compliance’.33

CONCLUSION

The military’s consistent refusal to subject itself to legitimate civilian 

authority lies at the heart of Pakistan’s democratic failure. Barring a 

fundamental restructuring of civil-military relations, the prospects for 

meaningful democratization remain grim. Given the country’s critical reliance 

on external economic and military aid, pressure from the international 

community, especially the United States, could play an instrumental role in 

influencing political liberalization in the direction of civil democracy. 

However, the Pakistani military’s strategic importance to the US anti-terror 

campaign against al-Qaida and Taliban remnants means international pressure, 

if any, will remain limited to mild diplomatic rebukes. By holding elections and 

promising to transfer authority to an elected government, moreover, the 

military may already have neutralized international concerns.

While opposition to Musharraf’s LFO by the PPP, PML-N and the MMA 

resulted in a parliamentary deadlock that lasted for a year, the Musharraf 

government, in late December 2003, was able to reach a separate negotiated 

settlement with the Islamist alliance. In return for agreeing to retire as army 

chief by December 2004, Musharraf secured the MMA’s consent to the 17 

Constitutional Amenment Bill that allows him to remain in office till 2007 

after receiving a formal vote of confidence from parliament, vests in him 

presidential powers to dismiss an elected government and allows him to 

appoint military service chiefs albeit in ‘consultation’ with the prime minister.34

The National Security Council is to be created through an act of parliament. 

Far from civilianizing the political system, the new amendments institutionalize 

a hybridized authoritarian one in which the army high command retains its 

grip over the state apparatus behind an electoral facade. 

33 Koonings and Kruijt, op.cit., p.32. 34 For the text of the bill see http://www.dawn.com/2003/12/30/top2.htm, downloaded 12 

March 2004. Qazi Hussain Ahmad, MMA's parliamentary leader, stated on 2 January 2004 that 

while the agreement included concessions that his side had made reluctantly, it was the best 

deal that could have been secured under the circumstances. 

See http://www.dawn.com/2004/01/03/, downloaded 12 March 2004. 
FREE-TRADE AGREEMENTS IN THE ASIA-PACIFIC:

COMPETITIVE ASPECTS OF SUB-REGIONAL TRADE 

INSTITUTION BUILDING

YOICHIRO SATO

INTRODUCTION

Many scholars are now questioning APEC’s efficacy in achieving free

trade. The Asia-Pacific Economic Cooperation forum’s ‘open regionalism’ and 

the extension of trade concessions to non-members were praised in the years

following APEC’s 1989 founding as a model of good regionalism that was 

consistent with global free trade. However, slow progress and a lack of 

significant trade concessions have frustrated free-trade hopefuls in academia

and the business world alike. The lack of progress is a result of diverse 

interests and differing approaches in the region toward free trade. Rather than

focusing on and pursuing an ‘APEC model’, the region is characterized by 

several competing approaches to free trade, reflecting diverse domestic 

interests and complex strategic and tactical alliances. This chapter identifies key 

differences in the domestic interests of the major actors and analyzes how

these differences have shaped the patterns of free-trade areas and proposals in 

terms of partners and contents.

FREE TRADE AND TRADE BLOCS 

Economists are increasingly in agreement that free trade will bring longterm overall benefits to the world economy. These benefits will not be shared 

equally, and some countries in the short term will suffer more in the process of 

structural adjustments. However, the assumption is that all countries in the 

long term will find some industries in which they have a comparative 

advantage. The ideological triumph of neo-classical capitalism and its belief in 

free trade has been underlined by the bankruptcy of the Soviet Union, Eastern 

Europe, and state-interventionist Latin America, and later by the conversion of 

state-guided capitalism in East Asia—following the Asian economic crisis—to 

a more market-oriented model. The neo-liberal conversion has largely been

promoted by developed Western countries, but the increasing acquiescence of 

219
FREE-TRADE AGREEMENTS

220

developing countries is evident as they attempt to lure foreign investors into 

their countries. 

Global free trade, envisioned in the immediate post-war period as a 

promoter of peace, never materialized. Only Western capitalist countries 

joined the framework of the General Agreement on Tariffs and Trade 

(GATT). Even among GATT members, differing interests and politically 

significant protections delayed tariff reductions and blocked removal of nontariff barriers (NTBs). The transformation of economies in the most 

developed countries from manufacturing to the service and technology sectors 

has also expanded the focus of trade negotiations to include these industries. 

The newly launched World Trade Organization deals not only with the 

merchandise trade envisioned by GATT, but also service trade (dealt with 

under the General Agreement on Trade in Services—GATS) and intellectual 

property rights under its Trade-Related Intellectual Properties (TRIPs) rules. 

On the lower-end of the industrial progression, agriculture remains a 

politically sensitive area for many countries in both the developed and 

developing worlds. Generally, developed countries in the temperate zone with 

large territory and low population density (such as North America and 

Australasia) have industrialized agriculture that is internationally competitive. 

In contrast, many Western European countries, Japan, and the newly 

industrialized Asian economies (with the exceptions of Hong Kong and 

Singapore, which have little arable land anyway) have protected their 

agriculture sectors. Among the developing countries, there is a division 

between those with inefficient semi-subsistence agriculture (like India) and 

those with highly competitive export agriculture (such as Argentina). The 

Cairns Group within the WTO (the group of agricultural exporting countries 

promoting free trade and a reduction of subsidies in agriculture) is made up of 

both developed and developing countries. 

TRADE CREATION AND TRADE DIVERSION 

The GATT Uruguay Round was launched in 1986 (seven years after the 

conclusion of the previous Tokyo Round in 1979) to tackle inter alia the

difficult issues of agriculture and service trade liberalization. The fact that the 

Uruguay Round took a further eight years to conclude indicated that global 

free trade was clearly facing very difficult obstacles. In this circumstance, two 

important developments took place. The first was the creation of an integrated 

European market in 1992, and the second (partly in response to the first) was 

the creation of the North American Free Trade Area (NAFTA) in 1993. 
YOICHIRO SATO

221

The creation of regional trade blocs at a time when global trade 

liberalization faced difficulties signaled a possible return to the closed trade 

blocs and mercantile rivalries of the pre-war era. Based on the lesson that this 

approach was partially to blame for the start of the World War Two, GATT 

encompassed provisions to contain ‘bad’ regionalism, while leaving room for 

‘less bad’ regionalism. Regional trade blocs are by definition discriminating and 

inconsistent with the non-discriminatory principle of GATT. Even a lowering 

of tariffs limited to the bloc members has a ‘trade-diverting’ effect, favoring inbloc exporters over outside exporters. Nevertheless, for practical reasons, 

trade blocs are accepted under GATT so long as they do not raise the existing 

tariff levels, thereby encouraging overall growth of trade.1

GATT RULES AND EFFECTIVENESS 

In accepting regional trade blocs, GATT required that such agreements be 

consistent with its rules. However, enforcement of GATT compliance was 

rather weak until the WTO came into existence, and its enhancement is yet to 

be seen under the WTO. 

GATT, being an inter-state agreement without its own large bureaucracy, 

simply responded to voluntary requests to evaluate the consistency of regional 

agreements with GATT rules. Without such requests, many regional 

agreements have not been evaluated at all. Under GATT, complaints against 

regional agreements that were deemed to be in violation of GATT had to be 

handled with the consent of the accused party—an unlikely proposition. It 

was only after the WTO dispute settlement body (DSB) was given additional 

power to impose mandatory dispute-resolution mechanisms that a more 

thorough evaluation of regional trade blocs became technically possible. 

(Whether this newly given power will be sufficient is yet to be seen.) 

EMERGING ISSUE AREAS AND TRADE BLOCS 

There is no concise and universally accepted definition of what constitutes 

a ‘free’ trade agreement. To avoid mushrooming of ‘partially-free’ or ‘not-so1 This ‘building blocks’ versus ‘stumbling blocks’ debate is found in almost any discussion of 

regional FTAs. Cohn gives a brief overview of this debate and GATT’s (legal) treatment of the 

FTAs in Theodore H. Cohn, Global Political Economy: Theory and Practice (New York: Longman, 

2000), pp.238-240. Frankel, in Jeffrey A. Frankel, Regional Trade Blocs in the World Economic 

System (Washington, D.C.: Institute of International Economics, 1997), pp.207-227, provides a 

detailed economic examination of the FTAs from both positive and negative perspectives, 

with a focus on inclusion/exclusion of countries. 
FREE-TRADE AGREEMENTS

222

free’ trade agreements, GATT Article XXIV requires that such agreements 

must eliminate tariffs and trade barriers on ‘substantially all trade’. As 

developed economies have transformed, new industries and services have 

emerged and the concepts of properties expanded. Now there is growing 

disagreement as to what must be covered by a ‘free trade’ agreement.2

Regional trade agreements may deliberately exclude certain sectors because 

of domestic opposition in the member countries. Exclusion of the agricultural 

sector in some regional and bilateral free-trade agreements is most problematic 

in the view of GATT consistency, and such moves are opposed by most 

progressive trade liberalizers. On the other hand, including enhanced service 

sector access and/or intellectual property provisions in bilateral free-trade 

agreements has become a common tactic for more developed countries, whose 

similar attempts in the multilateral WTO negotiations have been blocked by 

the more numerous developing countries. Developed countries also tend to 

demand higher local-content ratios, stricter environmental and labor standards, 

and limited labor mobility provisions in their dealings with less-developed 

partners.

APEC AND GLOBAL FREE TRADE 

It is now well known that APEC was a joint creation of Japan and 

Australia, despite the former’s ‘leadership from behind’ that gave full credit to 

Australia. Having considerable trade relations, not only in Asia, but also with 

the European Union (EU) and North America, the two countries’ interests lay 

in bridging the Asian and North American markets, thereby creating the 

largest market which, the two countries hoped, would dissuade the EU from 

retreating into its own closed market. Despite its initial scepticism about 

APEC, the United States has judged that its interests in access to the fastgrowing Asian market and creating a counterweight to the EU also coincided 

with the aim of APEC. In addition to competing against the EU in promoting 

free trade with Latin America, the United States seeks free trade on its own 

terms with the Asia-Pacific, prioritizing its relations with key free traders, such 

as Australia, New Zealand, and Singapore. Thus, on a fundamental level, key 

APEC members share common interests in creating the world’s largest market 

and preventing the EU from isolating itself.3

2 Cohn, op. cit., pp.247-251. 3 Regionalism is viewed as a launching base into global competition. See Christopher Brook, 

‘Regionalism and Globalism’, in Anthony McGrew and Christopher Brook, Asia-Pacific in the 

New World Order (London and New York: Routledge, 1998), pp.231-232. 
YOICHIRO SATO

223

VOLUNTARISM/NON-BINDING APPROACH 

Within the broad and general agreement, however, there is a growing 

division among APEC members in regard to how to approach free trade. At 

the core of APEC are the members of the Association of Southeast Asia 

Nations (ASEAN), whose preference for the preservation of state sovereignty 

has posed a large obstacle to adopting a supranational institutional approach. 

Even the GATT/WTO-like multilateral bargaining process was viewed with 

scepticism by these younger states. The fact that Japan took the initiative from 

early on, whereas the United States committed itself to APEC at a much later 

stage, also made APEC more sensitive to the voices of the ASEAN countries, 

with which Japan has carefully nurtured relations throughout the post-war 

period.

Major differences remain between the NAFTA countries, Singapore, and 

the Australasian states on the one hand, and Japan and most of the East Asian 

states on the other. Within the latter camp, a growing political and economic 

rivalry between Japan and China also has impacts on the course of East Asian 

integration.

What has emerged as the APEC approach is a combination of highly 

publicized annual summit meetings, less publicized but more tangible trade 

ministers’ meetings, and numerous and sectionalized technical meetings. At 

each stage of meetings, voluntarism and consensus building are emphasized as 

the appropriate method of decision-making.

OPEN REGIONALISM 

In order to ensure that other trade blocs will not close their markets in 

anticipation of APEC becoming closed and adopting protectionist measures, 

APEC extends its agreed liberalization measures to non-members. Therefore, 

APEC does not even amount to a customs union like the European 

Community was before full EU market integration.4 Since most APEC 

members are also WTO members (with the notable exception of Russia), the 

Most Favored Nation principle governs tariff and quota concessions made 

during the APEC negotiations. At the same time, various Non-Tariff Barrier 

(NTB) reductions and standardization of import procedures also aim at not 

only smoothening intra-APEC trade, but also at setting the standard for global 

trade.

4 Ibid, p.233. 
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BOGOR TARGETS 

The voluntary and consensus-oriented approach by APEC has been 

criticized by the more progressive trade liberalizers as ineffective and timeconsuming. These states, notably with the United States in the forefront but 

with some others on its coattails, prefer a more contractual approach to trade 

liberalization. The 1995 meeting in Bogor, Indonesia, resulted in a declaration 

of target years for complete free trade, 2010 for the developed countries and 

2020 for developing countries. The target years were differentiated to allow 

more time for developing countries to adjust their industrial structures, but no 

penalty was stipulated for non-implementation. 

ASSESSMENT

Critics of the APEC approach point to a lack of progress in achieving 

increases in regional trade. The EU’s success was measured by some by its 

increasing intra-EU trade, where national markets were fully integrated. In 

APEC, complete market integration has not been achieved, and APEC’s aim is 

not a closed economic bloc. (The EU does not espouse such a closed system 

either, at least officially, but it has various protective measures, such as its 

Common Agriculture Policy, that form a de facto closed system). 

Some assessments, focusing on average tariff rates, have also disappointed 

trade liberalizers. Japan’s average tariff rates indeed went up recently. 

However, tariff rates alone are not a good indicator of trade liberalization, as 

import quotas are often replaced by high initial tariff rates as a result of the 

tariff scheme under the GATT Uruguay Round. 

APEC’s various working groups address import procedures and NTBs. 

However, quantitatively measuring these achievements is extremely difficult as 

causes of trade increases or decreases cannot be easily isolated. It seems that to 

measure the overall success of APEC, it suffices to look at the trade volume 

per GDP of each APEC member. In this measurement, most APEC members 

have shown a significant increase in trade dependency. Indeed, it seems that 

the declining trade dependency of the entrepot economies of Singapore and 

Hong Kong is attributable to trade diversion by other economies to new open 

markets within APEC. 
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SUB-REGIONAL FREE-TRADE PROSPECTS WITHIN APEC 

As pan-regional free trade becomes ever more difficult, there are 

increasing moves for sub-regional agreements. These are being promoted 

within and between sub-regions and seem to have two motivations. The first is 

to compensate for the lack of progress at APEC and the second to attempt to 

protect groups of economies in case other groups develop closed trade blocs 

rather than the ‘open regionalism’ that APEC is supposed to promote. The 

final size and shape of the regional economic groupings is not yet clear, but it 

seems likely that by about 2015 East Asia and North America could have 

developed into ‘super blocs’ and that there will be a periphery of smaller 

groupings around and connected to these. The dominant question is the 

degree to which these groupings will be open or closed. 

The NAFTA Bandwagon and the PACFIVE 

The North American Free Trade Area (NAFTA) entered into force in 

1994 with the United States, the world’s second-largest economy (after the 

European Union), at its core. NAFTA was a product of both globalization and 

domestic compromise. For major US manufacturers, Mexican and (to a lesser 

extent) Canadian firms had become major suppliers of technologically lesssophisticated parts, as well as an assembly base from which to export the final 

products back to the US market and to Europe and Asia. Free trade binding 

the three North American countries was to further enhance the regional 

production, integration and division of labor. In the United States, however, 

the agreement faced fierce opposition from labor unions and congressional 

Democrats. A particular fear was that Mexico would become a cheap assembly 

base for non-US firms as well, using imported non-US components. As a 

result, NAFTA included tough local-content requirements, making sure that to 

qualify for free trade, products must meet high locally produced values. 

Because of its size and proximity, NAFTA attracts a large amount of 

interest from South American countries and has the potential to develop into a 

Western Hemisphere free-trade zone, a concept known as the Free Trade Area 

of the Americas (FTAA). This alarms countries outside the Americas because 

of the possibility of their exclusion. This fear is further exacerbated by 

NAFTA’s relatively high local-content requirements, which tend to divert US 

imports from non-NAFTA countries to NAFTA members. The United States 

is still cautious about further expansion of NAFTA, especially into the 

developing countries of South America. For the United States, as the largest 
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market in the Americas, having prospective members come to its own terms is 

a logical strategy. For the same reason, most of South America (except Chile) 

is cautious in approaching the United States on this matter. The United States 

aims to realize the FTAA by 2005, but this prospect is increasingly in doubt 

due to the financial crisis that spread from Argentina to other South American 

countries and increasing criticism of US farm subsidies and steel safeguard 

tariffs.5

The US strategy in FTA talks in the Asia Pacific is to start with the most 

liberal traders: Singapore and Australia. The addition of Canada (already a 

NAFTA member), Chile (which recently signed FTAs with the United States), 

and New Zealand (which is not yet formally negotiating an FTA with the 

United States, but is a progressive free trader), would make up the so-called 

Pac Five grouping. 

Related Agreements 

In the face of NAFTA’s delayed expansion, NAFTA’s smaller partners, 

Canada and Mexico, are considered stepping stones for those countries that 

wish to join free trade with the United States, but seek better terms than the 

United States would accept. Since the early stage of NAFTA’s inception, Chile 

has demonstrated its willingness to join NAFTA. Chile has already signed 

bilateral free-trade agreements with Canada and Mexico, and these agreements 

include service sector liberalization—a prerequisite for membership in 

NAFTA as it stands. Chile also signed a bilateral FTA with the United States 

in June 20036

, and an FTA with Korea, though ratification in Korea is still 

pending due to the political sensitivity of anticipated fishery imports. 

Mercosur

MERCOSUR (Mercado Común del Sur, or the Southern Common Market 

Treaty), which comprises Argentina, Brazil, Paraguay, and Uruguay, currently 

stands as a customs union, but not a free-trade area. Development efforts of 

the 1970s were backed by socialist ideologies and did not lead to the creation 

of competitive export-manufacturing industries in most of South America, but 

instead left massive debt burdens for these countries. As the countries reengaged US capital and markets in the 1980s, MERCOSUR served two 

objectives. First, consistent external tariffs across the region assured some 

continued protection against imports without hindering the adjustments of 

each national economy and the relocation of industries within the region. 

Second, by providing a united front, MERCOSUR members try to avoid being 

5 Yomiuri Shimbun, 28 July 2002. 6 Yomiuri Shimbun, 7 June 2003. 
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swallowed one by one into a Western Hemisphere free trade on NAFTA’s 

terms rather than their own. Chile has joined MERCOSUR as an associate 

member (because its voluntary tariff reduction had already achieved lower 

tariff levels than the MERCOSUR’s common tariffs), and is positive about a 

greater Latin American integration. However, Chile’s ‘overzealous approach’ in 

FTAA negotiations is a source of disunity among the South American states. 

As the FTAA negotiation stalls over US farm subsidies, and the United States 

pursues bilateral FTA talks with smaller central American countries, 

MERCOSUR has countered such move by signing an FTA with three 

members of the Andean Community in December 2003.7

EAST ASIAN CAUTION AND COMPETITION 

East Asia as an economic group demonstrates great diversity. The degree 

of industrialization and economic development varies from rich Japan to the 

poor Indochinese trio. In addition, the most industrialized countries in the 

region (Japan, Korea, Taiwan) have politically significant agriculture sectors, 

constituting an ‘Achilles heel’ in their pursuit of free trade. This problem is 

shared by several less-developed countries such as Malaysia, Indonesia, and 

China. This, however, contrasts with the most competitive agricultural 

exporters of the region, such as Thailand, and the city economies (Singapore 

and Hong Kong), which have no farm sector to protect.

Regional trade growth has largely reflected increasing Foreign Direct 

Investment (FDI), regional integration of the production processes, and their 

interdependence. Following the Japanese model, earlier import substitution 

industrialization gradually gave way to export promotion, resulting in steady 

reduction of tariffs on industrial material and goods. Each country has 

politically favored sectors that have resisted liberalization, and this has 

occasionally collided with the regional approach. 

A consensus-oriented approach, long practiced in ASEAN and 

incorporated into APEC, has allowed trade liberalization to proceed at a pace 

tolerable to the least efficient countries. However, pressure from the more 

competitive farm producers, domestic industrial sectors that promote free 

trade, and competitive demands of globalization on national economies have 

all forced the ASEAN countries to revise this approach and seek more 

proactive liberalization. An informal meeting of ASEAN economic ministers 

in August 2002 abandoned the traditional convoy system of trade and 

investment liberalization, and adopted a new approach to allow early 

7 Yomiuri Online, 17 December 2003. 
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228

liberalization by some members.8 Thus, the consensus approach of the APEC, 

first challenged by the Pac Five nations, is now threatened from its ASEAN 

core.

ASEAN Free Trade Area 

The ASEAN Free Trade Area (AFTA) was set up to promote economies 

of scale and division of labor in industrial production among the ASEAN 

countries. Beginning in 1993, tariff reductions were to be implemented on all 

tariff rates on manufactured products to between zero and five percent by the 

end of 2007 (the target year was later moved forward first to 2003 and later, 

for many items, to 2002).9 AFTA deliberately excluded unprocessed 

agricultural products and services from its liberalization scheme. While the 

approach was consistent with the needs of the region’s main investor, Japan, 

preparation for further integration and accommodation of new members 

(Vietnam, Laos, Cambodia, and Myanmar) required that free trade be extended 

to cover non-processed agricultural products. Therefore, a new protocol was 

signed in 1999 to phase in sensitive and highly sensitive products into the 

previously agreed FTA scheme by 2010 (2013 for Vietnam, 2015 for Laos and 

Myanmar, and 2017 for Cambodia). 

East Asian Economic Caucus 

Frequent confrontation between the East Asian states and non-Asian 

members of APEC (notably the United States, Canada, Australia, and New 

Zealand), combined with Malaysian Prime Minister Mahathir Mohammad’s 

frequent calls for ‘Asianism’ led to proposals for an East Asian Economic 

Caucus (EAEC) within APEC. The United States, fearing the creation of an 

illiberal trade bloc that would undermine aggressive American efforts to 

promote free trade, opposed such a sub-regional trade bloc. Japan also was not 

eager to offend the United States, despite their disagreement over treatment of 

the farm sector. The compromise outcome was a sub-regional caucus, which 

only loosely bundled ASEAN states with Japan, Korea, China, Hong Kong, 

and Taiwan. While the idea of free trade in this format has been proposed and 

is said to produce the most attractive market for both the EU and the NAFTA 

members to engage with, both political divisions and economic gaps within the 

8 Yomiuri Shimbun, 8 July 2002. 9 However, the final tariff rate on highly sensitive products for Malaysia and Indonesia was set 

at 20 percent, considerably higher than the 0-5 percent target on other goods, with the rate for 

the Philippines to be determined. 
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grouping are likely to necessitate that an integration of this scale start with 

smaller units. This will probably be through the so-called ASEAN + 3 

grouping which links the ASEAN states with Japan, Korea and China, initially 

through a series of bilateral free-trade agreements. 

ASEAN-China

Within the East Asia grouping of states, China has demonstrated an 

increasing desire for leadership. Sub-regional unity has been tested since the 

1997 Asian monetary crisis, and China has constantly asserted itself as a leader 

to challenge Japan’s predominant status. While China cooperated with Japan 

and other Southeast Asian countries in starting the Chiang Mai Initiative 

establishing a regional joint currency reserve (after opposing Japan’s proposal 

for an Asian Monetary Fund in which Japan would play a more dominant 

role), it claimed credit for not devaluing the yuan during the Asian financial 

crisis, overshadowing Japan’s assistance to stricken nations. China’s proposal 

in 2002 for free trade with ASEAN to be achieved within ten years was 

announced in this context. The first concrete Chinese proposal offered tariff 

removal on selective agricultural products that ASEAN members produced 

(meat, fish and seafood, fruits, dairy products, flowers, and animals and animal 

products, including material for Chinese medicines) by 2007, and China 

continues to negotiate on other farm products of concern to ASEAN 

members, such as rice, palm oil, and lumber, with a possibility of early 

liberalization on a bilateral basis.10 Gradual expansion of trade liberalization on 

most other products is proposed to take place beginning in 2005 and conclude 

between 2010 and 2016, according to the framework agreement signed in 

November 2002. The alternative deadlines are set due to possible conflicts 

with the previously agreed AFTA among ASEAN members, especially in 

regard to the delayed liberalization schedules for Vietnam, Cambodia, Laos, 

and Myanmar. Considering China’s own problems with state-owned 

enterprises in the manufacturing sector, inefficient agriculture, and the 

protected financial sector, its free-trade agreements may diverge from the 

‘significantly all trade’ provision of GATT. 

10 Asahi Shimbun, 13 September 2002. 
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JAPAN’S GLOBAL, REGIONAL, AND BILATERAL TRADE 

STRATEGIES

During the Uruguay Round of the GATT negotiations, in which 

agricultural trade liberalization became an agenda item, Japan’s complete ban 

on rice imports continued to be an obstacle to Japan’s proactive trade policy 

stance and one of the major obstacles to conclusion of the whole round. 

Agricultural negotiations continued under the newly established WTO, 

although launching of a new comprehensive round was not yet in sight. Japan 

adopted a policy of minimum access for foreign rice, allowing progressively 

increasing imports from four percent of domestic consumption to eight 

percent between 1995-2000. In 1999, Japan decided to forego the minimumaccess arrangement and shifted to a tariff-based import with a 1,000-percent 

markup. The agriculture minister announced prior to a WTO agriculture 

negotiation in December 2000 that Japan would negotiate on the basis of 

maintaining controlled imports of rice through a tariff-rate quota, minimum 

access, and state trade systems.11 Japan continued to withhold its farm card and 

demanded an early start of a new comprehensive round. 

At the Doha meeting of the WTO in 2001, Japan’s efforts focused on 

linking the concessions Japan has floated on farm products with other issues, 

including further reduction of tariffs on industrial products, enhancing WTO 

discipline against national anti-dumping and safeguard rules, and enhancing 

multilateral investment rules.12 In the aftermath of the Doha ministerial 

meeting, Japan’s Ministry of Foreign Affairs was satisfied with the 

comprehensive coverage of the coming round, while agricultural sector 

bureaucrats implicitly suggested that the achievements in negotiations on 

agriculture since the Uruguay Round did not necessarily set a bottom line for 

negotiations in the coming round.13

In submitting a proposal to the WTO on negotiations on non-agricultural 

market accesses, Japan reiterated that a comprehensive range of products be 

considered and no exception should be set in advance. In regard to tariff 

11 ‘WTO nogyo kosho nihon teian no kettei ni atatte’, speech by Minister of Agriculture, Forestry, 

and Fishery, 8 December 2000. [www.maff.go.jp/wto/wto_daijin_danwa.htm] 

12 International Herald Tribune, 27 January 2001; ‘WTO Doha kakuryo kaigi ni muketa nihon seifu no 

tachiba’, November 2001. [www.mofa.go.jp/mofaj/gaiko/wto/tachiba.html]. 13 MAFF, ‘Dai yonkai WTO kakuryo kaigi no kekka ni tsuite’, speech by Minister of Agriculture, 

Forestry, and Fishery, 14 November 2001. 

[www.maff.go.jp/wto/wto_mc4th_daijindanwa.htm]; MOFA, ‘WTO shin raundo (Doha 

kakuryo kaigi ikou no kongo no mitooshi)’ [www.mofa.go.jp/mofaj/gaiko/wto/d_iko.html] 
YOICHIRO SATO

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cutting, Japan proposed a ‘formula cut’ by which member states would cut 

their tariff rates depending more on each country’s stage of development than 

on the existing level of tariffs.14 This proposal aimed at easing developing 

countries’ fears of cutting tariffs on industrial goods, while urging developed 

countries (mainly the United States and EU) to bring their tariff levels on 

industrial goods lower and closer to those of Japan. 

Japan in APEC 

While Japan has been criticized for not making sufficient concessions on 

market access in APEC’s Early Voluntary Sectoral Liberalization (EVSL) talks, 

particularly in regard to its agricultural sector, Japan also views APEC as losing 

efficacy in achieving its earlier objectives. APEC’s successes have shifted from 

liberalization of trade and investment to other areas, such as standards and 

conformance, customs procedures, and competition policy that smoothen 

trade transactions by reducing associated costs.15 Japan sees the positive 

outcome of the 2002 APEC trade ministers meeting as being its agreement to 

set a deadline to decide the processes for non-agricultural product negotiations 

for future WTO rounds and its acceptance of the ‘path-finder’ approach, in 

which plural economies would accelerate implementation of the Bogor target 

of complete liberalization.16 The sugar-coated language masks the crude reality. 

The former is a de facto admission that APEC has not only failed to promote 

agricultural trade liberalization, but also deferred the non-farm products to the 

WTO. The ‘path-finder’ approach, moreover, is a post hoc admission that some 

countries (possibly including Japan itself) will not be able to meet the Bogor 

target.

Japan-ASEAN

Japanese Prime Minister Junichiro Koizumi’s visit to ASEAN members in 

2002 followed China’s surprise announcement of the free-trade proposal to 

ASEAN. Japan quickly announced its own version of free trade with ASEAN, 

yet lack of domestic consensus prevented Japan from proposing more specific 

measures beyond rhetoric during his visit. However, competition between 

14 MOFA, ‘Hi-nousanbutsu shijo akusesu kousho ni kansuru nihon no teian (kouken bunsho)’, 2 August 

2002. [www.mofa.go.jp/mofaj/gaiko/wto/sgstn020802.html] 

15 Speech by MOFA Economics Bureau Chief (Sasae), 5 September 2002. 

[www.mofa.go.jp/mofaj/press/enzetsu/14/sei_0905.html] 

16 MOFA, ‘APEC boueki tantou daijin kaigo’, 30 May 2002. 

[www.mofa.go.jp/mofaj/gaiko/apec/2002/boeki_gh.html] 
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China and Japan may accelerate free trade with ASEAN by both, and 

eventually throughout East Asia. 

Japan is playing catch-up with the AFTA free-trade process in that AFTA 

has accelerated its pace of liberalization due to the Pac Five’s aggressive freetrade promotion and the need to compete for foreign direct investments vis-àvis China. On the other hand, there still is resistance against complete 

liberalization of the farm trade within ASEAN. Therefore, it is likely that Japan 

will not rush free trade with ASEAN, despite China’s recent initiative, until the 

prospect of tougher discipline on agriculture trade and related policy at WTO 

negotiations appears imminent, at which stage Japan is expected to propose 

moderate measures to open its farm markets, closer to the AFTA standard. 

The course of Japan’s action will also be influenced by who in Japan holds 

initiatives. The economic and trade ministry (METI), with little regard for the 

farm sector, is more willing to pursue ‘significantly all’ free trade with ASEAN 

collectively, whereas MOFA, having to listen to the Agriculture Ministry, 

prefers to minimize farm trade liberalization and pursue bilateral FTAs with 

ASEAN member countries to enhance Japan’s bargaining power for this end. 

Based on a recommendation of the joint expert group, the ASEAN-Japan 

Economic Ministers meeting in September 2002 agreed to recommend that 

their leaders develop and consider a framework of future talks, including the 

guiding principles, establish a committee of senior economic officials within 

2003 and complete an FTA ‘as soon as possible within 10 years’.17 In 

November 2002, following the China-ASEAN framework agreement for an 

FTA, Prime Minister Koizumi and ten ASEAN leaders signed a joint 

declaration to seek an FTA within ten years, based on the agreement at the 

economic ministers meeting.18 Following the first official governmental 

discussions in March 2003, the parties agreed to finalize the negotiation 

framework in August to be signed at the summit meeting in October 2003.19

OTHER BILATERAL RELATIONSHIPS 

The bilateral agreement between Singapore and Japan gives the latter a 

bridgehead into the ASEAN market. At the same time, the selection of 

17 ASEAN, ‘The Ninth Consultation Between the ASEAN Economic Ministers and the 

Minister of Economy, Trade and Industry of Japan’, 13 September 2002, Bandar Seri 

Begawan, Brunei Darussalam, Joint Statement. 

[www.asean.or.id/print.asp?file=newdata/aem34_doc5.htm] 

18 ‘Japan, ASEAN sign deal to pursue ‘economic partnership’,’ Japan Times, 6 November 2002. 19 Yomiuri Online, 10 March 2003. 
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Singapore and the agreement’s complete exclusion of agricultural products 

indicate Japan’s reluctance to open up its agriculture market. 

Thailand and Japan have entered preparatory discussions toward an FTA, 

but access to Japan’s rice market has been the major obstacle. Thailand 

proposed a three-staged negotiation framework in which liberalization of 

politically sensitive products to be dealt with in the third stage can be delayed 

by ten years or even indefinitely.20 Japan’s senior economic organizations 

announced their preference for an early start of the official FTA negotiation.21

However, the Koizumi-Thaksin meeting in June 2003 failed to launch an 

official negotiation.22 Likewise, the meeting between Prime Minister Koizumi 

and President Arroyo of the Philippines in the same month to discuss progress 

toward a Japan-Philippines FTA only established an enlarged working group 

including industry, government, and academic representatives. The Philippines’ 

request that Japan open its health-care services sector has met opposition in 

Japan.23 Malaysia has been a reluctant player in the recent FTA bonanza, but it 

chose Japan as the first negotiation partner. The two countries started 

preparatory discussions in 2003. In December 2003, a special Japan-AEAN 

summit meeting produced an agreement to start bilateral FTA negotiations 

with these three ASEAN countries in early 2004 and between Japan and 

ASEAN as a community from 2005 with completion by 2012, two years later 

than the earliest likely date for a China-ASEAN free trade agreement..24

Japan and Korea have informally discussed free-trade area concepts since 

the mid-1990s. However, progress has been limited, partly due to the already 

deep interaction between their economies, which inevitably involves complex 

calculations of sectoral loss and gains.25 After a summit meeting between 

Korean President Kim Dae-jung and Japanese Prime Minister Yoshiro Mori in 

2000, business leaders from Korea and Japan launched the Korea-Japan 

Business Forum, discussing among other things a possible FTA.26 Japanese 

Prime Minister Koizumi’s meeting with Kim in Seoul in March 2002 further 

produced an agreement to launch a joint study group made of industrialists, 

academics, and policymakers. The group will work for the next two years to 

20 Yomiuri Online, 11 March 2003; 12 May 2003. 21 Yomiuri Online, 21 May 2003. 22 Yomiuri Online, 7 June 2003. 23 Asahi.com, 4 December 2002; 17 January 2003; Yomiuri Online, 7 June 2003. 24 Yomiuri Online, 11 December 2003. 25 Korea Times, 22 March 2002. 26 Asia Times Online, 8 September 2001. 
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produce its recommendation.27 In June 2003, Korean President Roh Moohyun visited Japan and met Koizumi, but they only agreed to ‘an effort to start 

the official negotiation as early as possible’.28 The first official negotiation with 

Korea was held on 22 December 2003, and the two countries aim at 

concluding agreements in six areas (rules and dispute resolutions, merchandise 

trade tariffs, non-tariff measures—such as quarantine and labor issues, services 

and investments, other issues—such as intellectual properties, government 

procurements, and competition policies, and economic cooperation) by 2005.29

In June 2001, Japan and Mexico established a panel of Japanese and 

Mexican experts to conduct a feasibility study for a Japan-Mexico FTA. The 

group released a report in July 2002, recommending the governments of 

Mexico and Japan start FTA negotiations. The Japanese motivation is that it 

has already invested in the US-Mexico border area special export-processing 

zone (known as Maquiladora), but the Japanese factories there have suffered a 

comparative disadvantage vis-à-vis the Americans and Europeans, who signed 

FTAs with Mexico in 1994 and 2000, respectively. Expiration of the tariff-free 

imports of raw material and components (to be assembled and exported into 

the US market) in 2001 is pushing Japan’s manufacturers to seek free trade 

with Mexico.30

Japan, however, does not appear to be ready to fully embrace free trade 

with NAFTA. Unlike Chile, Japan is not ready to quickly conform to the 

various NAFTA standards, including liberalization of agricultural and some 

service-sector trade. Even in the proposal on an FTA with Mexico alone, 

ambiguous wording was used on agriculture.31 Such a proposal is defensive of 

the status quo interests and reactive in nature, rather than proactive. At the 

APEC summit meeting in Mexico in October 2002, the two countries agreed 

to start the bilateral FTA negotiation in the following month to be concluded 

in approximately one year.32 In December 2003 negotiations were continuing 

after disagreements over market access for several specific products. 

27 Korea Times, 22 March 2002; Dawn, 24 March 2002 (internet edition); Mainichi Shimbun, 30 

June 2002. 

28 Yomiuri Online, 7 June 2003. 29 Yomiuri Online, 22 December 2003. 30 Japan Times, 23 July 2002. 31 Ibid. 32 Japan-Mexico Joint Statement, 27 October 2002 

[www.mofa.go.jp/mofaj/kaidan/s_koi/apec_02/jm_kyodo.html]. 
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AUSTRALASIAN AMBITIONS 

The geographical isolation of Australia and New Zealand and their small 

domestic markets have hindered the growth of strong domestic 

manufacturing. Their economic integration with Asia has been slow, partly due 

to the preferential trade relations they enjoyed with Britain prior to that 

country’s entry into the European Economic Community, which worked as 

disincentive against developing deeper economic relations with Asia. Although 

Japan became the most important trade partner for Australia, this was largely 

because of Japan’s imports of raw material (such as coal and iron ore) from 

Australia. By the mid-1980s, the prolonged economic slump and protectionism 

was replaced by reform-minded policies, which emphasized enhanced 

integration with Asia and removal of economic protections. 

The Closer Economic Relations (CER) pact between Australia and New 

Zealand is already ‘95 per cent of the way there’.33 In addition to the free-trade 

agreement that covers both agriculture and services, free investment relations 

and free labor movement are already in place, and there is an ongoing study of 

currency integration. 

Unlike many developing countries that have political difficulties with free 

trade with the United States both in the manufacturing and agricultural sectors, 

Australia and New Zealand stand to gain in agricultural-sector trade 

liberalization. Both countries are vehement and sincere opponents of the 

recent US farm subsidy law, unlike the Europeans who also protect their 

agriculture. New Zealand and (to a lesser extent) Australia have become 

resigned to not having mass manufacturing industries, such as consumer 

electronics and automobiles, due to the small sizes of their domestic markets 

and geographical disadvantages. The United States, on the other hand, holds 

some reservation about anticipated increases in agricultural exports from 

Australasia, as demonstrated during the lamb trade dispute of 1998-2001.34

While fruit markets, such as the apple market, are often compatible due to the 

opposite harvest season in the Southern Hemisphere, meat and processed 

food like wine (a growing industry in both Australia and New Zealand) pose 

competition to American producers. The United States and Australia are 

33 Kevin Taylor, ‘Expert queries CER priorities’, New Zealand Herald, 14 May 2002. 34 Yoichiro Sato, ‘The United States- New Zealand Lamb Dispute’, New Zealand International 

Review XXV (6), November/December 2000, 9-12; Yoichiro Sato and Stephen Hoadley, ‘US 

Import Restraints and the Asia-Pacific: Politics and the Lamb Tariff’, Asian Perspective 25(3), 

2001, pp.113-134; Yoichiro Sato, ‘The Lamb Import Dispute Revisited’, New Zealand 

International Review XXVII (3), May/June 2002, pp.25-27. 
FREE-TRADE AGREEMENTS

236

negotiating an FTA. New Zealand hopes to piggyback on an Australian deal 

via CER, but due to their differing trade-item priorities, Australia has an 

incentive to sign free-trade agreements with the United States bilaterally. New 

Zealand’s advantage is its more liberal manufacturing import policy compared 

to Australia, but its non-nuclear stance is a significant obstacle to any new deal 

with the United States.35 Both Australia and New Zealand face tough US 

demands to strengthen intellectual property protection, especially parallel 

import laws. 

For Australia and New Zealand, the closest markets of significant size are 

in Southeast Asia. Indeed, both countries consider free trade with ASEAN 

countries important. It appears that lack of progress on CER-AFTA free trade 

is due to the division within ASEAN, especially some members’ weak 

domestic agriculture. These states prefer to prolong protection of domestic 

farmers and exclude farm products from free-trade arrangements—a direct 

assault on Australasian states’ interests. Awkward security relations between 

Indonesia and Australia, and Malaysian Prime Minister Mahathir’s political 

problems with Australia, do not help either. As Australia and New Zealand 

proceed with liberal FTAs with the United States, ASEAN members may feel 

left out. 

Australia and New Zealand have pursued the possibility of an FTA 

between CER and MERCOSUR, but realized that their priorities and more 

realistic prospects lie with Asia. Australia and Singapore signed an FTA in 

February 2003, and Australia and Thailand concluded their joint FTA study 

and agreed in May 2002 to launch official negotiations.36 Australia has also 

started framework negotiations with Japan and China. 

New Zealand’s small economy is uniquely placed in the game of trade 

alliances. Its attraction as a progressive liberalizer is not matched by domestic 

market large enough to attract trade partners. New Zealand targets bilateral 

agreements with small yet strategically placed markets that set precedents for 

larger regional trade agreements that might follow. Singapore is small and has 

little farm production to protect. At the same time, Singapore provided a 

foothold into ASEAN. New Zealand hopes its liberal FTA with Singapore will 

set a precedent to follow for later deals with all ASEAN. Negotiations with 

35 Greg Ansley, ‘Howard cautious on pact with US’, New Zealand Herald, 22 June 2002; Brian 

Fallow, ‘Sutton planning US juggling act’, New Zealand Herald, 14 May 2002; Frank O’Sullivan, 

‘Free Trade and naval-gazing’, New Zealand Herald, 2 April 2002. 36 Purnendra Jain, ‘Australia-US trade pact easier said than done’, Asia Times Online, 11 June 

2002.
YOICHIRO SATO

237

Chile, a prospective new member into NAFTA, also aim at eventual access 

into the US market. New Zealand’s negotiations with Hong Kong have made 

little progress, as New Zealand’s concern over lax rules of origin enforcement 

(against Chinese exports via Hong Kong) has not been adequately met. 

SOUTH ASIA 

In South Asia, the India-Pakistan dispute has precluded regional 

cooperation in most policy areas, including promotion of free trade. However, 

India’s economic reforms and growing inward foreign investments have 

spurred its interest in free-trade agreements with countries and entities outside 

South Asia. India has proposed an FTA with ASEAN, Thailand, and 

Singapore. A declaration of intent to start negotiations has been signed with 

Singapore, which India considers to be a gateway into ASEAN and greater 

East Asia. The proposal encompasses a broad range of areas, including 

services, investments, and trade-facilitation measures.37

CONCLUSIONS

Diverse interests in the Asia-pacific region have contributed to a 

proliferation of sub-regional free-trade agreements and proposals. This has 

made trade negotiations a complex three-layered bargaining process with the 

WTO, APEC, and sub-regional arrangements both complementing and 

competing with each other. Although a lack of progress in the global and 

regional arenas has accelerated the sub-regional formations, the existing global 

and regional rules have also provided a stopgap against proliferation of subregional FTAs that are totally inconsistent. Such a stopgap is far from ideal 

from a global free trader’s perspective. Nevertheless, it is yet to be seen 

whether the evolution of global and regional rules in line with neoclassical 

liberal capitalism will keep both regional and sub-regional FTAs straight.38

Alternately, a new global trade paradigm sensitive to non-trade factors, such as 

food security, development needs, and environment, will emerge to 

accommodate diverse regional and sub-regional FTAs. 

On the question of agricultural trade liberalization, both the developed and 

the developing countries are divided among themselves, even within the AsiaPacific region. Added to this complexity are the South Asian countries that are 

37 ‘Singapore deal new territory for India’, Economic Intelligence Report, May 2003. 38 Islam and Chowdhury emphasize the APEC principle of ‘open regionalism’ as a condition 

for the regional FTAs to be ‘building blocks’ for globalism. Iyanatul Islam and Anis 

Chowdhury, Asia-Pacific Economies: A Survey (London and New York: Routledge, 1997), p.14. 
FREE-TRADE AGREEMENTS

238

active members of WTO and are interested in joining APEC. India, for 

example, is reluctant to remove its agricultural subsidies and engage in a new 

round of multilateral talks unless developed countries show more willingness 

to negotiate the protected textile sector. 

In the Asia-Pacific, three layers of competition are currently taking place. 

At the global level the forces of regionalism are based on the three pillars of 

Europe, the Americas, and East Asia and the globalization effects that connect 

them are operating simultaneously for all. With the APEC region, East Asia 

and the alliance of Americas and Australasia compete to promote differing 

paradigms of regional cooperation, especially in regard to agriculture (there is a 

somewhat more diffused division in regards to the service sector; in addition 

to Singapore and Hong Kong, Japan has an interest in promoting its service 

industry’s interests in Asia). Within East Asia, ASEAN and China compete for 

foreign investments, and China and Japan compete for leadership. However, 

competition inside East Asia is more orderly, for many of the countries have 

pursued similar development paths of simultaneously promoting 

manufacturing industries and protecting some segments of the domestic 

agriculture. Those countries which did not fit the model (such as Singapore), 

could unilaterally pursue free trade in farm products without insisting that 

others to do the same. The competitive agricultural producers (Thailand) and 

would-be followers (such as Vietnam and Cambodia) within ASEAN have 

been persuaded by the simultaneous growth model of other East Asian 

countries and accepted delayed and limited liberalization of agricultural trade 

and exemption of this sector from complete liberalization, in return for 

delayed application on them of the tariff-reduction scheme for manufactured 

goods.

Overall, despite the differing pace of preference for free-trade progression, 

competition in East Asia and the Asia-Pacific can be a promoting factor for 

free trade, as long as the global tripolar competition remains an ‘open’ process. 
NEW ZEALAND: 

DEVELOPING AND SUSTAINING 

ECONOMIC LIBERALIZATION

GARY HAWKE

NEW ZEALAND UNTIL THE 1980s1

In the early 1980s, New Zealand was sometimes seen through a romantic

haze, and indeed it still is when nostalgia revives earlier romantic myths. New 

Zealand could be conceived from overseas as an idyllic rural pleasure park. It 

was overwhelmingly green, the climate varying from subtropical to temperate

but never unpleasant for long. The snow was sufficiently well behaved to

remain on top of mountains where it did not interfere with normal traffic and 

everyday life but was ideal for winter sports. Various attractions like geysers 

and volcanic wonderlands provided variety for tourists, largely Japanese, as

they traveled from golf course to golf course, largely unimpeded by any local

population.2

 The few local inhabitants were not all that enthusiastic about 

providing services, but there were too few of them to impede holiday-makers 

from abroad. They were surprisingly complacent despite a standard of living 

that remained static and therefore fell behind what was being experienced

elsewhere.

New Zealand may still be seen like this, but there is another story also. It is 

a story of a country that developed as an agricultural supplier for Britain,

suffered the problems of relying on agriculture and a single market as the 

driver of the economy, went through a period of strong governmental control

of the economy and which has now developed as a diversified market 

economy.

1 For relevant sources, see G.R. Hawke, ‘New Zealand’, Joel Mokyr, ed., Oxford Encyclopaedia of 

Economic History (Oxford: OUP, 2003); G.W. Rice (ed.), Oxford History of New Zealand

(Auckland: Oxford University Press, 2nd ed., 1992). 

2 The image of New Zealand as a ‘beautiful, empty golf course’ was advanced by Japanese

Prime Minister Kishi on a visit to New Zealand in 1957 when memories of World War II were

still sufficiently fresh for it not to be entirely appreciated. Bruce Brown, ‘Traders and 

Investors, 1960s to 1990s’, in R. Peren ed., Japan and New Zealand: 150 Years (Palmerston

North: NZ Centre for Japanese Studies, 1999), p.154

239
NEW ZEALAND: ECONOMIC LIBERALIZATION

240

New Zealand is a society and economy built on international trade from its 

entry into the international economy in the nineteenth century. From the 

middle of the nineteenth century exports of wool, meat and dairy produce 

provided levels of real income per capita which were high by contemporary 

international standards. New Zealand skills and resources served international 

demand, choosing the market that provided the greatest economic return, 

which, for nearly a hundred years after about 1870, was mostly Britain. In line 

with conventional ideas of specialization, New Zealand used international 

trade to turn a small range of exports into a consumption pattern that was 

much like that of other relatively rich societies in the world. From the 1870s 

onwards, society demanded a range of goods and services, and many local 

activities were directed towards providing that range, often by transforming 

imported components and materials into products that satisfied the desires of 

local consumers. From early in its history, despite the composition of its 

exports, New Zealand was overwhelmingly an urban society, although 

dominated by towns that were small relative to the cities that existed overseas. 

New Zealand was a settler society in its dominant economic activities and 

social attitudes. It was informed by a belief in ‘development’, building a bigger 

society and economy while maintaining living standards that were higher than 

those being experienced in the United Kingdom, from where most of the 

settlers traced their ancestry. A bigger and better society meant that 

opportunities were created for a range of skills and aptitudes, and so tariffs and 

other devices were used to promote local industries and services. 

Similarly, the social attitudes of New Zealanders were governed by 

rejection of some aspects of European societies. New Zealanders felt that 

prestige and position should go with achievement rather than with birth; that 

achievement should be measured in terms of utility to a developing society 

rather than by ancient ideas that some occupations carried more status that 

others. There was a kind of learning by experience that culminated in 

something very like the ideas of ‘Equality’ that were eventually articulated by 

English radicals such as Tawney: 

It is possible to conceive a community in which the necessary 

diversity of economic functions existed side by side with a large 

measure of economic and social equality, and in which, therefore, 

while the occupations and incomes of individuals varied, they lived, 

nevertheless, in much the same environment, enjoyed similar 

standards of health and education, found different positions, 

according to their varying abilities, equally accessible to them, 

intermarried freely with each other, were equally immune from the 
GARY HAWKE

241

more degrading forms of poverty, and equally secure against 

economic oppression.3

These key characteristics of ‘development’ and ‘egalitarianism’ underwent 

change in the fifty years from the 1930s to the 1980s. The indigenous idea of 

equality was assimilated to the modern international concept of equality as 

measured by income distribution in terms of shares of total income according 

to placement in deciles of the population. It came to be widely believed, 

mostly erroneously, that New Zealand was characterized by an unusual degree 

of equality in that sense. And indigenous promotion of a range of activities so 

as to provide for the skills and aptitudes of New Zealanders was assimilated to 

the international endorsement of ‘import substitution industrialization’.4 There 

was uncertainty from the 1930s to the 1980s over whether industrial growth 

was sought as an instrument of economic growth and modernization or 

whether it was essentially an ‘employment sponge’. 

By the 1980s, far from being an idyllic pleasure park, New Zealand faced 

major challenges. Its society and economy had been built on an expectation of 

incomes that were high in international terms, and indeed towards the top of 

the Organisation for Economic Co-operation and Development (OECD) 

league table. While different means of measurement give different results, and 

while the precise period under consideration can significantly affect the exact 

relative ranking of New Zealand, there could be no doubt by the 1980s that 

New Zealand’s position was deteriorating.5

Fundamentally, in the international economy, agricultural trade was not 

growing as fast as industrial trade. New Zealand was not well placed in relation 

to what had become the major engine of growth in the international economy: 

the exchange of manufactured goods among pairs of industrialized economies. 

This owed something to the way in which international trade policy evolved 

through the GATT, but it owed a great deal to the relative change of 

productivity in industry relative to agriculture. 

Furthermore, among industrialized economies, Britain grew relatively 

slowly. For whatever reason, New Zealand’s major market did not facilitate 

economic growth at the level needed to maintain New Zealand’s OECD 

ranking. What is more, Britain was sharing a European predisposition to 

3 R.H. Tawney Equality (1931), p.87. 4 Henry J. Bruton, ‘A Reconsideration of Import Substitution’. Journal of Economic Literature 

XXXVI (June 1998). 

5 Peter Mawson, ‘Measuring Economic Growth in New Zealand’. New Zealand Treasury Working 

Paper 02/14 (September 2002). www.treasury.govt.nz 
NEW ZEALAND: ECONOMIC LIBERALIZATION

242

preserve its national markets for agricultural products to its own domestic 

producers.

The elements of these challenges came together in Britain’s entry into 

Europe in 1973. But while that event posed an enormous challenge to the 

assumptions and thinking of political life it merely brought into sharp relief the 

underlying economic challenge.6

Throughout the 1960s, and even earlier, while there were fluctuations in 

political and policy debates, the basic thrust of New Zealand’s policy towards 

economic growth was for ‘diversification’. The old idea of ‘development,’ 

while not dead, had given way to a search for higher average per capita 

incomes and the basic strategy was to seek higher growth through higher 

export growth, which was to be achieved by providing a greater variety of 

products to a bigger number of markets. The limitations imposed by Britain’s 

relatively slow growth would thereby be evaded. Different products would at 

least moderate the constraining effect of agricultural protectionism. 

(Diversification of products did not necessarily mean a move away from 

agricultural products or at least from primary production. Diversification 

included forest products, dairy products other than butter and cheese, and 

meat products that served new markets). Promotion of industries and services 

in New Zealand, the argument went, should be directed towards support of 

this diversification rather than to the essentially social objective of the level 

and composition of employment. 

The diversification strategy had considerable success despite the current 

tendency to look back on the 1960s as wasted time. However, the strategy 

encountered the oil crises of the 1970s. In the transfers of international 

income that resulted, there was a contraction of all of New Zealand’s major 

markets, including those that had been newly developed, often with different 

products. Diversification is a good policy against concentrated risks; it is of 

little value when all markets contract together.

Diversification was persisted with—and adapted to a search for New 

Zealand markets in those areas where the economics of oil generated higher 

incomes. The Middle East became a significant market for sheepmeat and 

even for dairy technology. Furthermore, New Zealand had some hydrocarbon 

resources and in the changed international environment, they had enhanced 

value. Policies were developed to take advantage of them. However, these 

6And is only now starting to generate serious historical scholarship as distinct from informed 

participant commentary. See Stuart Ward, Australia and the British Embrace: The Demise of the 

Imperial Ideal (Carlton Sth: Melbourne University Press, 2002). 
GARY HAWKE

243

policies were not well managed. They were driven by ideas of self-sufficiency 

and technical efficiency rather than adaptation to international market trends. 

The ‘growth projects’ were not integrated into economic adjustment in general 

but were treated as though they were independent ventures. By 1984, it was 

fairly clear that the existing broad economic strategy had reached a dead end. 

There were, however, some positives already in place. Realization that the 

economics of resource use could not be ignored in the interests of promoting 

employment had led to some practical effects. Transport delicensing had 

begun—and transport costs were significant in the topography and geographic 

position of New Zealand. Most important of all, the Australia New Zealand 

Closer Economic Relations agreement (CER) had been implemented in 1983. 

It resulted from the work of a few far-sighted officials and ministers who 

realized that generalized diversification was not going to be enough and that 

New Zealand activities would necessarily be more tightly integrated with the 

international economy. The importance of CER was not the ‘gains from trade’ 

of the classical economics textbooks but the political economy effect of 

building a constituency of support for economic adjustment whereby the use 

of New Zealand resources—human and natural—was guided by their value in 

international markets. 

By the early 1980s New Zealand was ready for a significant transformation 

of its economy. The components for this were in place. New Zealand was a 

long-established trading economy; even, one could say, a globalized one. In 

pursuit of transformation there was no need to -abandon the national concept 

of egalitarianism and the role of the individual in society and in the economy. 

There was no sudden change from a political entity intent on security to a new 

individualism, let alone selfishness; the nature of egalitarianism had been under 

debate for a long time, and the idea that industries should be turned from 

employment sponges to elements of diversified exports was at least as old. 

What was sought after 1984 included intensification of existing trends as well 

as dramatic change. 

THE ‘REFORMS’ 

The content of the reforms is reasonably well known.7

 A new government 

was elected in 1984, and at least partly because of the unexpected timing of a 

7 L. Evans, A. Grimes, and B. Wilkinson, with D. Teece, ‘Economic Reform in New Zealand 

1984-95: The Pursuit of Efficiency’ Journal of Economic Literature 34 (4) (1996), pp.1856-1902; B. 

Silverstone, et al, A Study of Economic Reform: The Case of New Zealand (Amsterdam, etc: Elsevier, 

1996); Graham Scott. Public Management in New Zealand: Lessons and Challenges (Wellington: NZ 

Business Roundtable, 2001). 
NEW ZEALAND: ECONOMIC LIBERALIZATION

244

‘snap’ election, it had fewer commitments to pressure groups and vested 

interests than most governments. Furthermore, it marked a change of political 

generation and was led by people whose eye was on the future and on New 

Zealand’s standing in the OECD league table, and who were not much 

concerned about preserving what had seemed to be the purely local 

achievements of reconciling social and economic aspirations. However, leading 

politicians had an unusual degree of interest in history. On several occasions 

they genuinely decided that they were less interested in the next election result 

than they were in their place in history along with the other great reforming 

governments of the past—those of the 1890s and the 1930s. The apparent 

tension between irreverence for the past and an eye on history was reconciled 

by an insistence on looking for what was really important—not the specific 

institution which could so easily become a vested interest but the gain in social 

well-being which was the ultimate objective. ‘Equity and efficiency’ could 

become a mere slogan, but it also drove a willingness to reassess policy from 

first principles, and to base decisions on policy analysis rather than political 

compromise.

Political influences were far from absent. There is near-consensus that the 

economic reforms of the 1980s were wrongly ordered, and there is a strong 

theoretical case that reforms should proceed such that responses to them are 

orderly. Participants in labor markets are slow to respond and therefore labor 

market reform should be early in a sequence. Financial market participants 

quickly exploit all opportunities, and consistency of social and private 

objectives will be facilitated if financial liberalization is late in the sequence of 

reform. The New Zealand reforms were in the inverse (and wrong) order. 

This owed something to the political pressures against labor market 

reform—the Labour government retained ties to the trade-union movement—

but it was in any case dictated by what was feasible. The traditional 

governmental controls on the financial sector were undermined by technical 

developments—credit cards and electronic funds transfers—and by the lack of 

credibility of governmental instructions to continue to subject payments to 

bureaucratic scrutiny. The theoretically ideal sequencing was simply not 

possible.

Political pressures were more significant in the choice of a balance of fiscal 

and monetary policy. It was apparent to informed officials that there would be 

pressures on the tradeables sector if the government relied on monetary policy 

to restrain inflation while adhering to an expansionary fiscal policy. However, 

the government felt that it could not restrain expenditure as much as 
GARY HAWKE

245

recommended because of the implications for beneficiaries of expenditure on 

education, health and social welfare. 

Politics was also significant in the general pace of reform. Although 

Minister of Finance Roger Douglas, a leading architect of the reforms, may 

well have believed that the optimal strategy was ‘crash through or crash’, as he 

later argued, and although the government did maintain the momentum of 

change so as to build a consensus for change and to avoid frustrating delaying 

tactics, in practice more pragmatic decisions were made. The better 

characterization of the process was often the ‘marshmallow theory’ of David 

Caygill, that policy-making was like the chocolate selection of one who prefers 

soft centers—press and if it gives way, press further, and if it still gives, eat; if 

it resists, turn to another choice. 

These accommodations of political pressures were probably much more 

important than any implicit compromise between different extremes of the 

political spectrum over domestic and external policy. It is sometimes suggested 

that the ‘left wing’ conceded an individualistic economic policy in turn for a 

‘radical’ foreign policy and specifically for abandonment of the ANZUS 

Treaty. There is no doubt that in the political sphere, some people thought 

along those lines. But domestic policy was not a simple adoption of something 

different from traditional Labour Party values—the simplest statement is that 

it sought traditional objectives in modified ways that suited changed 

international circumstances, although there was always room for debate over 

whether unintended consequences were being properly evaluated. Foreign 

policy choices were not entirely dictated by specific political positions either; 

the ANZUS decisions, while controversial, had much cross-party support, 

especially by organizations such as International Physicians Against Nuclear 

War. The decision of the National Party to concede on ANZUS and nuclear 

issues generally before the 1990 election reflected its reading of the balance of 

opinion in the electorate and among its own supporters. 

The important link between economic policy and the spheres of 

international relations and security strategy lay elsewhere. The dimensions of 

security most affected were ‘human security’—satisfying the material 

aspirations of New Zealanders, and giving a sense of confidence and assurance 

in looking outwards to the Asia-Pacific region and the world. The strongest 

implications in international relations were in creating links to the fastestgrowing components of the world economy, most of which were in Asia, 

while taking care to provide buffers against adverse events in the international 

economy, buffers which were appropriate and sufficient for the circumstances 

of New Zealand. 
NEW ZEALAND: ECONOMIC LIBERALIZATION

246

The reforms were built on a wish to use market signals to facilitate the 

derivation of higher incomes in New Zealand through the use of New Zealand 

labor, skills, and materials to service international demands. The continuity 

with ‘diversification’ is obvious. But the change was also great. The basic idea 

was to abandon a strategy that could be characterized as identifying New 

Zealand resources, using them to generate products, and transporting those 

products to a grateful world(and then feeling betrayed because the world was 

not only far from grateful but seemed determined to erect additional barriers 

against those products). That strategy should be replaced by one that began by 

identifying markets, made sure that there were good communications of all 

kinds between the ultimate consumers and producers in New Zealand, ensured 

that New Zealand had the skills needed to service the market demand, and 

only then worried about the material and other resources which would be used 

in doing so. That drew on international thinking, especially on economic 

thinking, and it was a challenge to inherited and familiar ideas in New Zealand, 

especially ideas that were familiar to those whose specific knowledge was not 

in economics. 

The change in strategy was effected in practical steps whose connections 

and rationale were not always apparent. Protection was removed in order that 

the allocation of resources within New Zealand should be guided by 

international market signals. It was more comfortable for New Zealand trade 

negotiators who would no longer have to justify New Zealand protection; but 

that was a minor motivation. Domestic interests found it hard to comprehend 

that the end objective of activity was not the promotion of exports but the 

efficient use of New Zealand resources; they thought they were being asked 

for something new and at the same time required to be more self-reliant and 

genuinely private-sector in nature; but that was not the motivation either. 

The strategy generated public-sector reforms, initially in the 

corporatization and privatization of state trading activities, and then in the 

management of core public-service departments as well. Again, discussion 

often revolved around ‘reliance on the market’, the relative performance of 

public and private sectors, and even the sale of public assets to reduce fiscal 

imbalances, but the key strategy was that enhanced efficiency of resource use 

could not be achieved if large proportions of total land and capital were tied 

up in an inefficient state trading area, or if regulatory policy did not create 

incentives in line with international market signals. 

And the signals would not be read properly if relative price changes were 

buried in general inflation. While the Reserve Bank Act (1989) had political 

intentions in ensuring that information could not be concealed from the 
GARY HAWKE

247

electorate, its fundamental rationale was clarification of market signals—that 

is, of what international consumers valued most highly among the potential 

outputs of New Zealand activities. 

One of the issues about the reforms was always their duration. 

Throughout the 1980s, there were many who accepted that change was 

necessary but who wanted it to be finite. The reforms should be expedited, 

and then terminated so that life could return to normal. The world did not 

stand still, however. Nevertheless, nostalgia soon substituted for reality in 

looking back to the 1960s.

The 1990s were in part a continuation of the 1980s but also saw moves 

into new directions, sometimes influenced by the swing of the political 

pendulum, and sometimes responding to changes in the international 

economy. The Fiscal Responsibility Act (1994) clearly continued the public 

sector reforms of the 1980s, joining the Reserve Bank Act in ensuring that key 

economic and fiscal activities had to be communicated to the electorate. 

As in any democracy, government determines the goals, but the legislation 

now provides for regular public statements (by officials rather than politicians) 

commenting on them. The Secretary of the Treasury and the Governor of the 

Reserve Bank are both required to tell the electorate whether current policy 

stances can indeed be expected to further the government’s goals. 

The National Government, elected in 1990, tried to move forward with 

strategic policy development built around ‘economic opportunity’ and ‘social 

cohesion’.8

 The choice of these objectives is interesting in that each of the key 

objectives has both economic and social elements. This proved to be too 

difficult for popular understanding and could not be preserved against the 

attractions of the familiar ‘economic’ and ‘social’ simplified dichotomy. 

Integration of ‘economic’ and ‘social’ had long loomed large in policy debate 

and practice—within the idea of ‘development’, in the discussion of ‘equality’, 

in the objectives of industrialization, in the Task Force on Economic and 

Social Planning in 1976 which led to the foundation of the New Zealand 

Planning Council (1977-91), in the ‘equity and efficiency’ focus of the 1980s, 

and in the strategic planning of the 1990s. It still looms large in the 

‘transformation’ strategy of the current government. No stable equilibrium has 

8 ‘National’ is the name of a political party and ‘National Government’ is not a coalition 

government such as is often found in periods of national crisis in many countries. From 1936 

to 1996, the National and Labour parties were the two dominant contestants for political 

office. Since 1996, a changed electoral system has seen them joined by other contestants. 
NEW ZEALAND: ECONOMIC LIBERALIZATION

248

been reached—that is, in no case has there been a widespread consensus that 

social and economic integration has been achieved. 

‘ECONOMIC LIBERALIZATION’? 

I have written about the New Zealand experience as a major change of 

direction with economic and non-economic implications. Is it correctly 

characterized as ‘economic liberalization’? It involved a great deal of economic 

thinking and can be regarded as including giant steps toward economic 

orthodoxy. I have not had space for all of them in this chapter; the switch 

from heavy reliance on direct taxation to a mix of direct and indirect tax and 

the choice of a ‘value-added tax’ being perhaps the most obvious adoption of 

economic orthodoxy which has not been discussed here. (The name ‘goods 

and services tax’ was the only concession to political correctness, ‘value-added 

tax’ sounding like a tax on something which the Labour Party had long related 

to the ‘development’ objective in that it wanted to add value to primary 

products before they were exported. The New Zealand tax was exemplary in 

its maintenance of the purity of the best international economic thinking.) 

I emphasize that the orthodoxy I have in mind is the orthodoxy of 

theoretical economics, not the predominant fashion in economic policymaking. There were some parallels between the New Zealand reforms of the 

1980s and ‘Reaganism’ or ‘Thatcherism’ but so there were with the Accord of 

the Hawke and Keating governments in Australia or with the ‘quality of life’ 

strategic policy of the Japanese governments of the 1980s influenced by the 

Miyazawa plan. All those governments were responding to economic and 

social trends of the time and it would have been extraordinary if all responses 

had been entirely different. Equally, a few elements in common do not 

establish a number of derivatives from a common source. American and 

British commentators who see the world as copying Reaganism or 

Thatcherism are simply wrong.

The New Zealand reforms were ‘economic’ in that they gave a new 

importance to incentives, and towards the achievement of social goals by 

creating social structures within which individuals pursuing their interests 

would incidentally create social optima. My language is chosen to echo Adam 

Smith, but also modern thinking about the roles of government in creating 

conditions in which markets can work effectively.9

 All of this is far removed 

9 John McMillan, Reinventing the Bazaar: A Natural History of Markets (New York & London: 

Norton, 2002). 
GARY HAWKE

249

from ‘minimalist government’, ‘leave it to the market’, or ‘the private sector 

knows best’. 

The difference is best illustrated by the corporatization and privatization 

processes in which a great deal of effort was devoted to ensuring that 

regulatory regimes were designed to generate competitive business rather than 

rent exploitation. The degree of success remains controversial but the profits 

achieved by some private buyers do not necessarily imply that the original 

decisions were wrong—they may reveal that the potential for growth was 

greater than recognized. (This was undoubtedly at least in part the case with 

telecommunications, where it is hard to believe that new possibilities would 

have been exploited with anything like the pace achieved had the industry not 

been privatized.) Certainly, however, learning proceeded with experience. 

Initially, the biggest source of gain was expected to be the monitoring of asset 

allocation and management by capital markets once enterprises were 

privatized, but in practice the main gains came from having shareholders who 

were less risk-averse than governments. The argument that economic thinking 

was more important than fashions in economic policy applies less to 

experience than to the design of the reform policies. The corporatization and 

privatization policies are reasonably concrete; those familiar with economic 

reasoning would recognize the centrality of the point about prices as 

transmissions of information. 

Even at the level of policy formation, the ‘economic liberalization’ 

character of the reforms was distant from the usual political rhetoric. New 

Zealand policy had long been conceived in terms of foreign-exchange 

constraints—exports were not sufficient to finance the imports which were 

desired at full employment. The ‘foreign exchange constraint’ idea was 

developed within New Zealand, but it was also a framework of analysis much 

used internationally—especially in the form of the ‘Scandinavian model’ but 

also in relation to the United Kingdom.10 The ideas of externally constrained 

export growth and the theoretical construct of the income elasticity of demand 

for imports is a fruitful starting point for analyses of various kinds. 

It can of course be misused. Economic analysts can take too mechanical an 

approach to the given nature of export growth or to the constancy of the 

income elasticity of demand for imports. It is even more possible for policy 

analysts to confine their attention too readily to the immediate applications of 

the theoretical construct. New Zealand analysts were right to emphasize 

10A.P. Thirlwall, Balance of Payments Theory and the United Kingdom Experience. (London: 

Macmillan, 1980). 
NEW ZEALAND: ECONOMIC LIBERALIZATION

250

barriers to agricultural trade relative to barriers to manufactured exports; 

indeed, we might think that the New Zealand policy machine was slow to 

recognize the way that trade in manufactured goods had reversed the pattern 

of the interwar years and become an engine of growth in the 1950s and 

1960s.11 However, it did not follow that export growth rates were entirely 

beyond the reach of policy influence, or that policy influence must necessarily 

be through a simple idea of market or product diversification rather than 

looking more closely at how New Zealand activities could service international 

consumer demand. Similarly, one might have thought that given the history of 

‘great constants of economics’ which proved to move almost as soon as their 

constancy was postulated—the wage-income ratio, the incremental capitaloutput ratio—there might have been more attention to the determinants of the 

income elasticity of demand for imports, going somewhat beyond the idea of 

import substitution.

The foreign-exchange constraint was a tool for analysis and exposition, not 

a direct source of policy recommendations. Quick fixes are attractive, and not 

only in New Zealand,12 and it was all too easy for analysis of how New 

Zealand had developed up to any particular date to be used for inappropriate 

advocacy of policy stances from that date onwards. Furthermore, the line of 

thinking could easily be extended into a ‘public administration’ notion of 

management from the center. The foreign-exchange constraint approach 

diverted attention from incentives and indirect effects. When the foreignexchange constraint was discarded in favor of satisfying international 

consumer demand—first by Treasury analysts, and then by government 

policy—incentives and indirect effects moved back to central focus. This was 

the core of the revival of economics. Treasury analysts did not dictate 

government policy—the balance of fiscal and monetary policy would have 

been different and many other policy choices would have been decided 

differently if they had—but they did bring a new primacy to economic 

thinking by their impact on the central strategy of policy. It could have come 

from elsewhere. In Australia, emphasis on foreign exchange constraints had 

11 It was even slower to recognize that the international environment had moved from the 

initial IMF design of exchange rates which were fixed except in the case of fundamental 

disequilibrium to one where exchange rates floated and traders across international boundaries 

gained assurance from market instruments rather than from government commitments about 

exchange rates. 

12 The Cairncross diaries are fascinating for showing how similar rules of thumb dominated 

the formulation of much policy advice in Britain in the 1960s. Alec Cairncross, The Wilson 

Years: A Treasury Diary, 1964-69 (London: The Historians’ Press, 1997). 
GARY HAWKE

251

subsided earlier, being replaced by emphasis on the consistency of labor 

market settlements with the trend of inflation-adjusted real output which 

brought into focus the internal consistency of decentralized decisions. 

However, in New Zealand, the change came in 1984. And not surprisingly, 

while non-economists did not quite know why their standing had been 

reduced, they soon knew it had been, and resisted.13

My analysis so far starts from ‘liberalization’ in the sense of ‘individual 

freedom within defined social constraints’. ‘Liberalization’ also has specific 

connotations for external economic policy, reflecting the deep 

interconnections in economic thinking and in nineteenth century British policy 

development between free trade and laissez faire (in its scholarly rather than 

debased sense). We have already noted the related significance in New Zealand 

in the 1980s between the reforms in general and the switch to an ‘outwardlooking economic stance’. It had a head start in CER, and removal of 

protection was important in several ways—using international price signals to 

guide resource allocation, concentrating attention on markets rather than 

disposal of produce, and demonstrating that government intervention would 

be guided by efficiency and equity and not by what was customary. It also 

meant that New Zealand was well placed to respond to changes that became 

general in the Asia-Pacific Region. 

There was, and is, substance as well as PR hype in notions like ‘Pacific 

century’. New Zealand’s first interest in the mid-1980s was in deepening 

relationships with any and all of the world’s fastest-growing economies, and 

many of them were in the Asia-Pacific Region. CER had shown that it was 

possible to use international agreements to promote liberalization even if the 

agreement was with an economy that was not itself especially noted for a 

liberal economic policy. CER was widened and deepened on an accelerating 

timetable, and it continued to throw up an agenda of new liberalization issues. 

New Zealand policymakers were ready to listen to ideas like the ‘open 

regionalism’ propounded by the Pacific Economic Co-operation Council even 

if there were many skeptics, some intelligently so and some unwilling to 

contemplate any departure from standard Anglo-Saxon analysis of trade 

diversion and trade promotion. At the end of the 1980s New Zealand 

policymakers were receptive to the development of the regional organization 

among governments, the Asia Pacific Economic Co-operation community 

(APEC), and the government of the 1990s participated enthusiastically in its 

development. It resisted misunderstanding, genuine and deliberate, of the 

13 G.R. Hawke, ‘After the world had changed’, New Zealand Books 6(1) (March 1996), pp.19-21 
NEW ZEALAND: ECONOMIC LIBERALIZATION

252

meaning of Asia-Pacific, and it was well placed as further apparently 

oxymoronic concepts were developed. In particular, ‘concerted unilateralism’ 

posed no problems for New Zealand given its acceptance of the argument that 

dismantling of protectionism was justified in its own interest. ‘Concerted 

unilateralism’ was no more than the mutual support of governments taking 

actions in their individual interests, and it made very good sense politically 

even if it puzzled the literally minded. New Zealand could enthusiastically 

participate in APEC as it took attention away from the legalistic processes of 

exchanging preferential entry rights to national markets and focused on 

something more like the economic integration that was at the center of 

theoretical economics.

Enthusiasm for the reduction of protection fluctuated during the 1990s, 

and so did commitment to APEC processes, as they did among the 

membership of APEC generally.14 New Zealand society registered many 

debates about its own nature and about its place in regional and international 

affairs. They overlapped with the ANZUS issue; an especially valuable project 

led from the East-West Center in Hawaii explored how social, political and 

economic trends in the US, Australia and New Zealand had diverged in ways 

that were often not well-understood and which were related to the position of 

each of those societies relative to the wider Asia-Pacific Region.15

New Zealand had its resident puritans and political activists, such as those 

who challenged the Multilateral Agreement on Investment and disrupted the 

Seattle conference of the WTO. But their effect was merely to promote 

reconsideration of some of the implications of a policy switch that had indeed 

entrenched ‘economic liberalization’ in any of its established meanings. 

14 See also John Ravenhill, APEC and the Construction of Pacific Rim Regionalism (Cambridge: 

CUP, 2001), although his expectations of APEC are too demanding. Had he evaluated GATT 

after ten years, he would have concluded that it would never amount to much, let alone 

develop into the WTO. 

15 Richard W. Baker, Australia, New Zealand, and the United States: Fifty Years of Alliance Relations. 

Report of a Study Project (Honolulu, Hawaii: East-West Center, 1991); Richard W. Baker ed., 

Australia, New Zealand, and the United States: Internal Change and Alliance Relations in the ANZUS 

States (New York, Westport, Conn. & London: Praeger, 1991); Richard W. Baker and Gary R. 

Hawke eds., ANZUS Economics: Economic Trends and Relations among Australia, New Zealand and 

the United States (Westport, Conn. & London: Praeger, 1992); Richard W. Baker ed., The

ANZUS States and Their Region: Regional Policies of Australia, New Zealand, and the United States 

(Westport, Conn: Praeger, 1994). 
GARY HAWKE

253

THE ECONOMIC TRANSITION 

‘Economic liberalization’ is entrenched, but it is sometimes questioned. 

Key elements such as the Fiscal Responsibility Act and the Reserve Bank Act 

have not been overturned, although there has been some fine-tuning in respect 

of the latter, as there has been of the State Sector Act. Sometimes, what has 

been presented as a major step in a new direction is no more than a 

clarification returning to the original intent of a reform which was obscured in 

the course of implementation—as with the supposed emphasis on policy 

outcomes in relation to departmental ‘outputs’ in the ‘new public 

management’; the high-level objective was always to articulate what 

departments did to promote the objectives of the elected government through 

dialogue between ministers and officials, and to make that consistent with 

defining what was expected from departments so that their performance could 

be monitored and appraised. But those who were deflected into sterile debates 

of ‘outcomes’ and ‘outputs’ thought they were reversing reforms in returning 

emphasis to the former. Similarly, economic liberalization in relation to trade 

policy had to be repackaged as ‘closer economic partnerships’ rather than 

bilateral trade agreements, and as ‘fair trade’ rather than ‘free trade’. But the 

core liberalization, while slowed down, has not been reversed. 

Nevertheless, there has been apparently serious political debate and public 

discussion over the question, ‘have the reforms failed?’ Some parts of the 

media even continue to answer in the affirmative. 

The reform process began with a decision that a change of direction was 

required and that the direction of change was undoubtedly in the direction of 

liberalization. There was no need and no time to define explicitly the 

objectives sought or the milestones expected. What are now the standard 

processes of public sector management came after the reform process was 

begun. There was, therefore, no statement of expectations to establish a 

framework within which the success or failure of the ‘reforms’ could sensibly 

be discussed. 

Furthermore, as we observed, the idea of a discrete reform process was 

always nonsensical. The world moved on. Economic experience depended on 

many factors of which policy was only one, and policy was a sequence of 

decisions rather than a single package. There were responses to every policy 

initiative, and after a while, experience owed as much to varied responses to 

subsequent reforms as they did to the initial reform. 

The overall performance of the New Zealand economy in relation to 

economic growth and in relation to comparative income growth rates and 
NEW ZEALAND: ECONOMIC LIBERALIZATION

254

levels within the OECD depends critically on the period within which 

comparison is made, and assessment of the relative force of various 

determinants requires care. The most persuasive recent study argues that in 

explaining disappointing outcomes, international variables and even climate are 

more important than failed policy influences. And the level of disappointment 

that is justified is less than is often alleged.16

My own view is that the best single summary statistic is that from the 

Reforms of the 1980s, the long-run average annual growth rate of total factor 

productivity of the New Zealand economy has increased from about one per 

cent per annum to about 1.5 per cent per annum. Had we been told in 1984 

that we were engaging in both the pain and the excitement of the 1980s and 

1990s in order to achieve a fifty percent increase in our fundamental growth 

rate, I have little doubt that we would have proceeded. It is difficult to take 

seriously any simple notion that the reforms failed. 

We now find an emphasis on ‘transformation’. The idea has become 

prominent in papers written in an effort to give strategic direction to 

government thinking and from there it has migrated to political discussion. It 

feeds on analogy with successful economic ‘transformations’ in the past—the 

Industrial Revolution, the rise of the ‘newly industrializing economies’ of 

Asia—and it might have been linked to ‘structural adjustment’ if that term had 

not been pre-empted by the IMF and developing economies and thereby been 

associated with the rhetoric of failure. In the literature of New Zealand history, 

the term ‘transformation’ has been associated with technological progress, and 

especially with the impact of refrigeration, on society as well as on the 

economy.17 The only link between that and the current idea is wishful thinking 

about the ‘new economy’—one could even regret that there is no 

understanding that just as refrigeration added to the wool-growing industry 

and did not displace it, so the impact of information and communication 

technologies on New Zealand is likely to be through agriculture rather than 

substituting something in its place.

We could quickly come to think that ‘transformation’ is currently a 

solution in search of a problem, empty political rhetoric rather than a policyrelevant idea. However it pays to remember that rhetoric about development 

16 Robert A. Buckle, Kunhong Kim, Heather Kirkham, Nathan McLellan, and Jared Sharma, 

‘Towards an Understanding of the New Zealand Business Cycle: Analysis Using a SVAR 

Model of the New Zealand economy’, New Zealand Treasury Working Paper (December 2002) 

www.treasury.govt.nz

17 Tom Brooking, ‘Economic Transformation’, in Geoffrey W. Rice Oxford History of New 

Zealand (Auckland: Oxford University Press, 2nd edition, 1992), chapter 9. 
GARY HAWKE

255

in the nineteenth century also incurred incredulity and ridicule, and that the 

rhetoric of the First Labour Government in the 1930s was little developed 

before it was implemented. The clarity of even ‘diversification’ owes a lot not 

only to hindsight but also to historical perspective. We cannot yet do more 

than make disciplined conjectures about how transformation will appear in the 

future. My guess is that just as the changes of the 1980s were motivated above 

all by recognition that New Zealand had fallen behind other countries in 

average living standards, so ‘transformation’ will be seen as a response to 

similar pressures. The relevant concept of living standards in the 1980s was 

wider-than-average real per capita income, and the current pressures are wider 

still—they include average real per capital income but extend into the 

employment and social experiences available to New Zealanders in a much 

more interdependent international economy, continuing our history of 

integrating economic and social objectives, and they include realization that 

valued aspects of New Zealand society are under threat. The notion of 

equality, which was already an uneasy combination of equality as expounded 

by Tawney and similar thinkers and half-knowledge of European social 

insurance ideas, can no longer provide guidance to policy development. 

‘Transformation’ is a step in a process towards evolving—by experience as 

well as by thinking—a new understanding of the balance of collective and 

individual as we search again for higher economic growth rates. 

THE SOCIAL AND POLITICAL TRANSITION 

The ‘transition posed challenges to political and social attitudes and 

institutions. The political challenge is clearest in the replacement of a first-pastthe-post (FPP) political system with a mixed member-proportional 

representation system (MMP), which makes vastly more difficult the kind of 

dramatic change in policy direction experienced in the 1980s. It is often said 

that the electorate delivered its verdict on ‘economic liberalization’ by ensuring 

that it could not happen again. There is no doubt that dissatisfaction with the 

state of the world, with politicians, and with government policies contributed 

to the referendum results that led to the introduction of MMP. ‘Economic 

liberalization’ was certainly within the mix of influences that generated that 

dissatisfaction, but just how important it was is far from clear. Furthermore, it 

tends to be forgotten that the adoption of MMP resulted from an intellectual 

study of democratic government from first principles and that the choice 

between MMP and FPP was between continual monitoring of the executive by 
NEW ZEALAND: ECONOMIC LIBERALIZATION

256

a representative legislature and occasional direct popular judgment on the 

executive in an election.18

The challenge to social institutions is often presented as a loss of 

egalitarianism, illustrated by the standard distribution of incomes according to 

deciles. It is often asserted that New Zealand started from an unusual degree 

of equality in such terms rather than from an income distribution not much 

different from average OECD experience, albeit with a compressed wage 

distribution, but the case is far from made. Furthermore, experience in the 

1980s and 1990s cannot be expressed simply, and comparisons of deciles at 

specific points of time can be misleading. The distribution of lifetime incomes 

probably moved much less than the standard snapshots. The widening of 

income differentials was an international phenomenon rather than one unique 

to New Zealand and probably owed most to changes in technology which 

made cognitive skills and educational capabilities much more important than 

they had been. To the extent that New Zealand policy decisions were 

significant, the most important element was probably the unemployment that 

resulted from economic adjustment. Policy decisions about border protection, 

labor market regulation, and tax and benefit obligations and entitlements 

probably came well down the queue of influences. 

In any case, this discussion probably focuses on the wrong sense of 

‘equality’. Discomfort with the social transition owes much more to 

displacement of the established. Those who had standing no longer have it. 

We heard and hear a great deal about ‘cuts’ in government support, and when 

we explore we find that existing providers have lost ground to new entrants—

often Maori or women. Established NGOs welcomed the support to new 

groups but claimed that their share of government expenditure should not be 

reduced. We might think of various kinds of impossible dreams as described 

by Swift: 

These unhappy people were proposing schemes for persuading 

monarchs to chose favourites upon the score of their wisdom, 

capacity and virtue; of teaching ministers to consult the public good; 

of rewarding merit, great abilities and eminent services; of instructing 

princes to know their true interest by placing it upon the same 

foundation with that of their people: of choosing for employment 

persons qualified to exercise them; with many other wild impossible 

chimeras, that never before entered into the heart of man to 

conceive, and confirmed in me the old observation that there is 

18 G.R. Hawke (ed.), Changing Politics? The Electoral Referendum, 1993 (Wellington: IPS, 1993). 
GARY HAWKE

257

nothing so extravagant and irrational which some philosophers have 

not maintained for truth.19

‘Displacement of the established’ also has an aggregate aspect. There had 

been at least some aspects of Tawney’s notion of equality. Differences existed 

but within a common range of experiences. To give a concrete example, most 

New Zealanders experienced the same conditions of public transport and were 

not divided into those who belonged to airline frequent flyer clubs and those 

who did not. The greater comfort of those with assets was less visible. But 

changes were occurring. Those with assets were less exclusively those who had 

gained them through their own achievements; smaller family size meant that 

inheritance was more important than it had been. From the 1980s, change 

accelerated, because of trends in consumption copied from overseas, because 

of continuing changes in demography, because of the impact of international 

trends in technology, and because of local policy decisions. Public 

understanding did not keep pace with change, and while economic analysis was 

more influential on public policy, financial rewards to individuals looked to 

owe more to luck. 

After this relatively dramatic economic liberalization we now have several 

important dimensions of consistency vying for their place in a coherent 

conceptual framework. There are significant elements in place—the inflation 

regime of monetary policy and the fiscal framework of the Fiscal 

Responsibility Act being the most important. But the integration of economic 

and social objectives is far from obvious to much of the community interested 

in policy debates. I would conjecture that a key element will prove to be 

transforming the concern with ‘equality’ away from distribution at a point of 

time to managing distribution through time, especially where this interacts with 

a choice between collective and individual actions. Key issues will be the 

environment and superannuation, and we will be driven by both experience 

and international thinking.20 The ability of the new MMP political system to 

develop consensus will be well tested. 

The New Zealand experience therefore has implications for the regional 

understanding of transitions. Every economic transition will have international 

experiences and local peculiarities. Economic change poses challenges to social 

and political stability, but is as likely to promote regional integration as to 

engender international rivalries. 

19 Jonathan Swift ‘A Voyage to Laputa, etc.’ Gulliver’s Travels (1726) ch. 6. 20 But see also N. Barr, The Welfare State as a Piggy Bank: Information, Risk, Uncertainty and the Role 

of the State (Oxford: OUP, 2001). 
NEW ZEALAND: ECONOMIC LIBERALIZATION

258

The clearest lesson of all is the desirability of managing expectations. The 

governments of the 1980s and the 1990s put their faith in policy analysis rather 

than political management. The current government is not making that 

mistake. Nevertheless, the challenge of managing change has not diminished—

not since the time of Machiavelli’s Italy: 

And it ought to be remembered that there is nothing more difficult 

to take in hand, more perilous to conduct, or more uncertain in its 

success, than to take the lead in the introduction of a new order of 

things. Because the innovator has for enemies all those who have 

done well under the old conditions, and lukewarm defenders in those 

who may do well under the new. This coolness arises partly from 

fear of the opponents, who have the laws on their side, and partly 

from the incredulity of men, who do not really believe in new things 

until they have had a long experience of them. Thus it happens that 

whenever those who are hostile have the opportunity to attack they 

do it like partisans, whilst the others defend lukewarmly, in such wise 

that the prince is endangered along with them.21

21 N. Machiavelli, translated by W.K. Marriott, The Prince (London: Dent & New York: Dutton, 

1908), pp.47-8. 
INDIA TRYING TO LIBERALISE:

ECONOMIC REFORMS SINCE 1991

CHARAN D. WADHVA1

INTRODUCTION

The foundation of credible national security is based on the level of 

economic prosperity and well-being of the population of any country. This is 

especially so for developing countries like India. The attainment of sustained 

high economic growth is a necessary condition for improving the national 

security and the quality of life of the people throughout the country.

Many developing countries in the Asia-Pacific region, including China and

India where nearly one third of the world’s population live, are currently going 

through economic transitions. The central objective of transition through 

economic liberalization is to improve the competitive efficiency of the

economy in the global marketplace to sustain accelerated rates of economic

growth and thereby continuously improve the security and well being of the 

people.

India launched its market-oriented economic reforms in 1991. China

launched similar reforms from 1978 and is now well ahead of India in

integrating its national economy with the global economy. However, India is 

slowly but surely catching up in this race. The contrast in the experiences of 

these two countries with economic reforms under radically different political

systems is remarkable. While comparisons between China and India are often

made by development analysts and are inevitable when we discuss economic 

transitions in Asia, a more realistic assessment of the experiences of both these 

major countries of Asia can only be made if we explicitly take into account the 

stark contrast in their political systems.

In India, post-1991 economic reforms have been evolutionary and

incremental in nature. There have been delays and reverses in some areas due

to the interplay of democratic politics, coalition governments, and pressure 

groups with vested interests. However, each of the five successive 

governments that have held office in India since 1991 have carried on these

1 I thank Dr. N K Paswan for his help in preparing the statistical tables included in this paper.

259
ECONOMIC REFORM IN INDIA

260

economic reforms, which have been based on market liberalization and a 

larger role for private enterprise.

WHY THE POST-1990 REFORMS? 

It is well known that from 1951 to 1991, Indian policy-makers stuck to a 

path of centralized economic planning accompanied by extensive regulatory 

controls over the economy. The strategy was based on an ‘inward-looking 

import substitution’ model of development. This was evident from the design 

of the country’s Second Five-Year Plan (1956-61), which had been heavily 

influenced by the Soviet model of development.2

 Several official and expert 

reviews undertaken by the government recommended incremental 

liberalization of the economy in different areas, but these did not address the 

fundamental issues facing the economy.3

India’s economy went through several episodes of economic liberalization 

in the 1970s and the 1980s under Prime Minsters Indira Gandhi and, later, 

Rajiv Gandhi. However, these attempts at economic liberalization were halfhearted, self-contradictory, and often self-reversing in parts.4

 In contrast, the 

economic reforms launched in the 1990s (by Prime Minister P V Narasimha 

Rao and Dr. Manmohan Singh as his Finance Minister) were ‘much wider and 

deeper’5 and decidedly marked a ‘U-turn’ in the direction of economic policy 

followed by India during the last forty years of centralized economic planning.6

THE DRIVING FORCES BEHIND THE REFORMS 

As in many developing countries, India also launched its massive economic 

reforms in 1991 under the pressure of economic crises.7 The twin crises were 

reflected through an unmanageable balance of payments crisis and a socially 

2 See Government of India, Second Five-Year Plan, (New Delhi, 1956). 3 Reference may be made to following illustrative books for tracking down these ‘tinkering’ 

changes in the thinking of Indian policy makers and planners : Bimal Jalan ed., The Indian 

Economy: Reforms and Prospects, (New Delhi : Viking Publishers, 1991); Charan D Wadhva ed., 

Some Problems of India’s Economic Policy (New Delhi : Tata McGraw Hill, 2ed 1977); and Charan 

D Wadhva, Economic Reforms in India and the Market Economy (New Delhi: Allied Publishers, 

1994), Ch. II. 

4 See for example, John Harris, ‘The state in Retreat? Why has India experienced such Halfhearted Liberalization in the 80s? IDS Bulletin (Institute of Development Studies, Sussex, 

U.K.), Vol. 18, No. 4, 1987. 

5 Jeffrey D Sachs; Ashutosh Varshney; and Nirupam Bajpai eds., India in the Era of Economic 

Reforms (New Delhi, Oxford University Press, 1991), p.1. 6 Charan D Wadhva, Economic Reforms, op.cit., p.xviii 7 For details of magnitude and diagnosis of causes of this economic crisis, see Ibid.
CHARAN WADHVA

261

intolerably high rate of inflation that were building up in the 1980s and 

climaxed in 1990-91.8 This can be seen from the data provided in Table 1.9

The current account deficit as a percentage of GDP peaked at a high of 3.1 

percent (compared to an average level of 1.4 percent in the early 1980s). The 

inflation rate (as measured by point-to-point changes in the Wholesale Price 

Index) had also climbed to the socially and politically dangerous double-digit 

level, hitting 12.1 percent in 1990-91. 

TABLE 1: SELECTED MACRO ECONOMIC INDICATORS 1989-2003

Indicators 1989-90 1994-95 1999-00 2000-01 2001-02 2002-03

A. Growth of GDP (%) 5.6 6.3 6.1 4.4 5.6 4.4

B. GDP Growth by Sectors (%):

 i. Agriculture & Allied 2.7 4.9 0.3 -0.4 5.7 -3.1

 ii. Industry, of Which Manufacturing 6.7 8.3 4.0 7.3 3.4 6.1

 iii. Services 6.7 6.0 10.1 5.6 6.8 7.1

C. Inflation Rate (WPI Index (%)) 9.1 10.4 4.8 2.5 5.2 3.2

D. Current Account Balance as % of GDP -3.1 -1.1 -0.5 -0.5 na

E. Foreign Exchange Reserves (US $ Bn.) 3.37 19.65 35.06 39.55 51.05 69.89

F. Exchange Rates (Rs/US $) 16.6 31.4 43.33 45.51 47.69 48.44

G. Rate of Growth of :

 i. Exports (%) 18.9 18.4 10.8 21.0 -1.6 20.4

 ii. Imports (%) 8.8 22.9 17.2 1.7 1.7 14.5

 iii. Exports as % of GDP 6.4 9.6 9.1 10.4 9.9 na

 iv. Imports as % of GDP 9.3 10.5 12.4 11.8 11.6 na

H. Fiscal Deficit as % of GDP 7.9 4.7 5.4 5.6 5.9 5.5

I. Revenue Deficit as % of GDP 2.6 3.1 3.5 4.1 4.2 3.9

J. Saving Ratio as % of GDP 22.3 24.9 24.1 23.4 24.0 na

K. Investment as % of GDP 24.9 25.4 25.2 24.0 23.7 na

Source: Ministry of Finance, Government of India, Economic Survey, (New 

Delhi, various years). 

Most economic policy makers and analysts held widely convergent views 

on the causes of the unprecedented economic crisis faced by India in 1990-91. 

The root cause of the twin crisis could be traced to macro-economic 

mismanagement throughout the 1980s as reflected in an unsustainably high 

8 This can be seen from all references cited in footnotes 1,2,4 and 5. In addition see, Vijay 

Joshi and I.M.D. Little, India’s Economic Reforms 1991-2001 (Delhi, Oxford University Press, 

1997).

9 Other data used in the text (that is, not in the tables) is taken from Ministry of Finance, 

Government of India, Economic Survey (New Delhi, various years) unless otherwise noted. 
ECONOMIC REFORM IN INDIA

262

fiscal deficit, in particular the revenue deficit and the monetized deficit.10 The 

central government’s fiscal deficit alone peaked at 7.9 percent as a percentage 

of GDP in 1989-90. Thus growing fiscal profligacy (and irresponsibility) and 

the unviable financing patterns of the fiscal deficit prevailing in the 1980s 

made high levels of annual GDP growth (peaking at 5.6 percent in 1989-90) 

unsustainable.11 Foreign-exchange reserves dwindled to a low of US$2.2 billion 

(with less than 15 days’ cover against annual imports). India stared bankruptcy 

in the face as it struggled to meet external debt obligations. 

Prime Minister Narasimha Rao converted the prevailing economic crisis 

into an opportunity to launch massive economic reforms. First, he introduced 

an economist (rather than a politician) into the Cabinet as Finance Minister 

and gave the new Minister his full support, allowing him to evolve and 

implement path-breaking economic reforms. The new economic policies 

radically departed from the economic policies and regulatory framework 

pursued in India during the previous forty years.12

The Rao government recognized in 1991 that the time had come to 

reshape India’s economic policies by drawing appropriate lessons from the 

‘East Asian Miracle’ based on more export-oriented and more globally 

connected strategies of development, as successfully practiced earlier by Japan 

and South Korea and also by the South East Asian tigers Malaysia, Singapore, 

Indonesia and Thailand.13 The East Asian development model had been 

remarkably successful in achieving sustained high growth rates accompanied 

by rapid growth in the living standards of the people in just two decades. India 

had missed on both these fronts by relentlessly pursing import substitution 

and a relatively closed economy model of development. 

The Rao government, after launching the relatively aggressive (by past 

Indian standards) reforms, was soon confronted with the political constraints 

of ‘competitive populism’ during elections held at the state level in 1993. 

Therefore, the government adopted a ‘middle path’, furthering the economic 

10 For further details, see Wadhva, Economic Reforms, op.cit., ch. I. 11 Thus the claim that India had clearly transcended the so-called ‘Hindu rate of growth’ of 

GDP at 3.5 percent per annum (trend annual growth rate) achieved for the two decades of 

1960s and 1970s and had moved over to higher annual average growth rate of 5.5 percent in 

the 1980s could not be accepted since the latter jump proved to be financially unsustainable. 

12 The major economic reforms launched during the full five-year tenure of the Narasimha 

Rao Government (1991-96) are highlighted below. 

13 There are of course, lessons to be learnt by India from the ‘East Asian debacle’ of 1997-98 

(the so-called ‘East Asian Financial Crisis) but these need not detract us here as most South 

Asian and Southeast Asian countries had overcome this crisis by 1999. 
CHARAN WADHVA

263

reforms in an ‘incremental’ fashion in order to continue to extending their 

width and depth during the remainder of the government’s term. 

The government took two years to get over the immediate macroeconomic crisis, initially with the help of a balance of payments loan facility 

from the International Monetary Fund. The government came out with a clear 

enunciation of its vision and the objectives of its economic reforms only after 

regaining macro-economic stability. This was contained in the Discussion 

Paper on Economic Reforms brought out by the Ministry of Finance in July 

1993. To quote: 

The fundamental objective of economic reforms is to bring about 

rapid and sustained improvement in the quality of the people of 

India. Central to this goal is the rapid growth in incomes and 

productive employment... The only durable solution to the curse of 

poverty is sustained growth of incomes and employment.... Such 

growth requires investment: in farms, in roads, in irrigation, in 

industry, in power and, above all, in people. And this investment 

must be productive. Successful and sustained development depends 

on continuing increases in the productivity of our capital, our land 

and our labour. 

Within a generation, the countries of East Asia have transformed 

themselves. China, Indonesia, Korea, Thailand and Malaysia today 

have living standards much above ours.... What they have achieved, 

we must strive for.14

MAJOR ECONOMIC REFORMS

Economic reforms launched since June 1991 may be categorized under 

two broad areas: 

x major macro-economic management reforms; and 

x structural and sector-specific economic reforms

Naturally, the attention of the new government that took office in June 

1991 was primarily focused on crisis management dealing with the balance of 

payments. It was of the utmost importance to restore India’s international 

credibility by meeting its scheduled external debt liabilities and through 

maintaining a more realistic exchange rate consistent with market obligations. 

Achieving macro-economic stabilization was also an urgent priority, 

necessitating control of intolerably high inflation. It was recognized that 

14 Government of India, Ministry of Finance, Department of Economic Affairs, ‘Economic 

Reforms : Two Years After and the Task Ahead’, Discussion Paper, New Delhi : July 1993, 

pp.1-2.
ECONOMIC REFORM IN INDIA

264

macro-economic stabilization would provide a sound foundation for mediumand long-term structural economic reforms and accelerate the rate of 

economic growth in a sustained manner. This would be possible by removing 

distortions created by controls and by improving the competitive edge for 

Indian goods and services in global markets as well as in the markets of major 

regional trading blocs.

I describe below the major economic reforms, with greater focus on 

structural economic reforms in selected sectors of the economy.15

MACRO-ECONOMIC MANAGEMENT REFORMS

Macro-economic management reforms have focused on controlling the 

politically difficult problems of reducing the fiscal and (even more so) revenue 

deficits. The capital account deficit does not pose long-term problems as 

investment in productive capital made in the present, if prudently carried out, 

will generate an adequate income stream to pay for capital costs incurred and 

generate positive returns in the future. 

India’s problem is primarily in the area of revenue deficits. From 1950 to 

1980 the national budget was usually characterized by revenue surpluses and 

capital account deficits . However, after 1980, all (democratic) governments 

for political reasons had willingly allowed the revenue deficit to rise over the 

years to dangerously high levels, and had found it increasingly difficult to 

reduce. The revenue deficits reflected an excess of annual consumption 

expenditure by the government over its annual income. The deficit was caused 

by excessive employment in the government sectors, uneconomical pricing of 

goods and services by public sector enterprises, a growing interest burden, 

mounting subsidies, and rising defense expenditures. Downsizing the 

government (through the bureaucracy or public sector enterprises and banks) 

was also difficult and met staff resistance from the organized employees.

Attempts at Reducing the Fiscal Deficit 

Faced with the necessity of reducing the fiscal deficit in the crisis year of 

1991-92, Finance Minister Singh attempted to reduce fertilizer and food 

subsidies in 1991-92 and to some extent in 1992-93. Simultaneously, he (and 

several subsequent finance ministers) resorted to the softer options of 

reducing public investment expenditure and reducing public expenditure on 

social welfare services from 1991 to 1995. These measures did help reduce the 

fiscal deficit of the central government to 4.8 percent of GDP at the end of 

15 I have drawn upon various annual issues of Economic Survey produced by the Government of 

India (Ministry of Finance) for this section. 
CHARAN WADHVA

265

1992-93. However, further cuts in fertilizer and food subsidies could not be 

carried out as these measures were opposed in Parliament and proved suicidal 

for the ruling Congress Party, which lost power in state elections in 1993-94. 

Meanwhile, the fiscal position of the state governments also started 

deteriorating. The combined fiscal deficit of the central government and the 

states climbed to the unacceptably high level of 10-11 percent of GDP in 

2002-03. Some state governments have begun to address their fiscal deficit 

problems. The central government has recently started linking further transfers 

of resources to the states to the progress of state-specific economic reforms 

aimed at reducing deficits.16

The good news for macro-economic management reforms is that the pre1990 pattern of ‘deficit financing’ (that is, the printing of currency) to meet the 

fiscal deficit has now been effectively curbed. The autonomy of the central 

bank (the Reserve Bank of India) in regulating the money supply to control 

inflation has been assured within the limits of monetary policy. This has led 

the government to resort to larger and larger domestic borrowing.

The bad news is that government borrowings have risen so high that the 

economy is moving towards an ‘internal debt trap’.17 Further growth of 

internal debt needs to be curbed but the government is in no mood to close 

off this easy way of financing its rising fiscal deficit. The finances of most state 

governments are in even poorer shape and some have occasionally resorted to 

market borrowings to meet their payrolls. 

Tax Reforms 

Since 1991 several efforts have been made through the annual budget 

process to achieve tax reforms.18 These have focused on: (i) expanding the tax 

base by including services (not previously taxed); (ii) reducing rates of direct 

taxes for individuals and corporations; (iii) abolishing most export subsidies, 

(iv) lowering import duties (covered below by us under structural reforms 

relating to trade policies/external sector); (v) rationalizing sales tax and 

reducing the cascading effect of central indirect taxes by introducing a 

Modified Value Added Tax and a soon-to-be implemented nationwide Value 

Added Tax; (vi) rationalizing both direct and indirect taxes by removing 

unnecessary exemptions; (vii) providing for tax incentives for infrastructure 

16 For details see Government of India, Economic Survey 2002-03. 17 It is estimated that the interest payments currently pre-empt more than 60 percent of the 

total revenue of the central government leaving very little resources for fresh public 

investment. See Economic Survey 2002-03. 18 For details see the relevant official annual documents for the Union Budget usually 

presented by the Finance Minister to the Parliament each year on February 28, 2003. 
ECONOMIC REFORM IN INDIA

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and export-oriented sectors, including setting up special (Export) Economic 

Zones; and (viii) simplification of procedures and efforts for improving the 

efficiency of the tax administration system especially through 

computerization.19

Resource Generation through Divestment 

The governments of India, both at the central and state government levels, 

have initiated divestment programs to sell government equity in several 

public-sector enterprises. Unfortunately, the sales proceeds have mostly been 

used to finance fiscal deficits rather than for fresh public investment, socialsector spending, or reducing the interest burden on ballooning public debt. 

STRUCTURAL ECONOMIC REFORMS

Structural reforms since 1991 have been sector-specific. The sectors 

subjected to reform have been carefully selected and the coverage of sectors 

under structural reforms has been extended over time. The major structural 

economic reforms carried out since 1991 have been primarily in the following 

areas: Trade Policy/External Sector; Industrial Policy; Infrastructural Sector 

Policies; Divestment/Privatization Policies; the Financial Sector; and in 

Policies for Attracting Foreign Direct Investment.20

The thrust of the reforms in all areas has been to open India’s markets to 

international competition, remove exchange rate controls, encourage private 

investment and participation in industry and, in the finance markets, to 

liberalise access to foreign capital and to ensure that foreign investment is not 

penalized merely for being foreign.21

19 For the latest proposals for tax reforms, see the two (published) reports of the Committee 

on Reforms of Direct and Indirect Taxes (Chairman Dr. Vijay L Kelkar), New Delhi : 

Government of India, Ministry of Finance, 2003. 

20 It may be pointed out that in the vital areas of macro-economic policy including fiscal policy 

monetary policy and exchange rate policy, there is an overlap between macroeconomic 

stabilization policies and structural reforms. The long-term growth inducing roles of all macroeconomic policies can be considered under structural reforms. We focus here on sectorspecific reforms although overlaps exist with agro-economic policies in our discussion. For an 

annual overview of structural reforms carried out in India, see Government of India Economic

Survey for the relevant year (latest available being 2002-03). 21 Financial sector reforms were initiated on the basis of two reports by the Narasimham 

Committee. Government of India, Ministry of Finance, Report of the Committee on Financial 

System (Chairman : Mr. M Narasimham), New Delhi : November 1991; and Report of the 

Committee on Banking Sector Reforms (Chairman : Mr. M Narasimham), New Delhi 1996. 
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267

Reorientation of Planning 

Consistent with the spirit of the market-oriented and private sector-led 

economic reforms launched since 1991, the government has reoriented the 

role of planning in India. It has been recognized that market forces and the 

state should be given roles that play to their comparative advantages and that 

they should work together as partners in the economic development of the 

nation. While private initiative should be encouraged in most areas of business 

activities, the state should increasingly play a pro-active role in areas in which 

the private sector is either unwilling to act or is incapable of regulating itself in 

the social interest. The areas in which the state has a comparative advantage 

over the private sector include poverty alleviation programs; human resource 

development; provision of social services such as primary health and primary 

education; and similar activities categorized as building human capital and 

social infrastructure. The state also has a new role in setting up independent 

regulatory authorities to encourage genuine competition and to oversee the 

provision of services by the private sector in critical areas such as utilities, 

water supply, telecommunications, and stock market operations to avoid the ill 

effects of speculation and to maintain a workable balance between the interests 

of the producer and the consumers. 

Economic liberalization in the organized manufacturing sector (subjected 

to rigid labor laws for retrenchment) has led to growth with very little 

additional employment. This can create serious social unrest and fertile ground 

for terrorist and other anti-social activities that attract unemployed youths in 

the absence of gainful employment. Market-based economic reforms also 

often lead to increasing disparities between the rich and the poor and between 

infrastructurally backward and more developed states. The government has to 

intervene and calibrate the contents and speed of market-based economic 

reforms to more effectively address the specific areas of ‘market failures and 

weaknesses’ to optimize growth with social justice. 

The new role assigned to planning, consistent with market-based economic 

liberalization, can perhaps best be illustrated with the goals and the strategies 

incorporated in India’s Tenth Five-Year Plan (2002-07).22 The Plan has 

targeted an annual growth rate of eight percent. Along with this growth target, 

the government has laid down targets for human and social development. 

Timely corrective actions will be proposed to ensure growth is accompanied 

by social justice. The key indicators of human and social development targeted 

22 See, Government of India, Tenth Five Year Plan 2002-07 (in three volumes) (New Delhi : 

Planning Commission, 2002). 
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under this Plan include: a reduction of the poverty rate by five percentage 

points by 2007; providing gainful employment to at least those who join the 

labor force during 2002-07; education for all children in schools by 2003; and 

an increase in the literacy rate to 75 percent by March 2007. 

The development strategy adopted for the Tenth plan envisages: 

redefining the role of Government in the context of the emergence 

of a strong and vibrant private sector, the need for provision of 

infrastructure and the need for imparting greater flexibility in fiscal 

and monetary policies. With a view to emphasizing the importance 

of balanced development of all states, the Tenth plan includes a 

state-wise break-up of broad developmental targets including targets 

for growth rates and social development consistent with national 

targets. The Tenth Plan has emphasized the need to ensure equity 

and social justice, taking into account the fact that rigidities in the 

economy can make the poverty-reducing effects of growth less 

effective. The strategy for equity and social justice consists of making 

agricultural development a core element of the Plan, ensuring rapid 

growth of those sectors which are most likely to create gainful 

employment opportunities and supplementing the impact of growth 

with special programs aimed at target groups.23

THE POLITICAL ECONOMIC DIMENSIONS OF THE REFORMS 

India’s heterogeneity and unity in diversity through a stable democratic 

system must be appreciated. A country like India, with more than one billion 

people, some 16 officially recognized major languages, and vast ethnic and 

religious diversities, poses major governance challenges. India has achieved 

remarkable success in holding the country together. 

India had governed its economy through a policy regime of centralized 

planning accompanied by an extensive regulatory framework for more than 

forty years before it launched economic reforms in 1991. It has, therefore, not 

been easy to change the mindsets of policy makers (especially at the lower 

levels of bureaucracy) and of other beneficiaries of the entrenched regime. 

Building a political consensus on economic reforms across the various 

political parties with their vastly different ideologies has been a very difficult 

process. This has been especially true under coalition governments but also 

even when a single party has held a majority. Consensus building and reform 

23 As summarized in Government of India, Economic Survey 2002-03, pp.41-42. 
CHARAN WADHVA

269

implementation is complicated further when the central government and the 

states are in the hands of different parties (or coalitions).

The rapidly increasing frequency of elections at the central and state levels 

during the post-1990 period of economic reforms has led the incumbent 

governments and the contesting opposition parties to resort to ‘vote-bank’ 

politics or ‘competitive populism’. The vested interests of groups such as trade 

unions, producers with licenses and holding monopoly interests, and 

bureaucrats with ‘rent seeking’ capabilities have often scuttled or delayed 

further market-based economic reforms. These factors explain well India’s 

‘stalled’ reforms in certain areas directly hurting vested interests of selected 

lobby groups.24 The growth of regional parties and their assumption of power 

in many Indian states has further delayed the percolation of central-level 

economic reforms down to the state level. 

Weiner has recommended the need for a change in the mindsets of state 

policy makers: 

The pursuit of market-friendly policies by state governments requires 

a change in the mindsets of state politicians, new skills within the 

state bureaucracies, and a different kind of politics. More 

fundamentally, it requires rethinking on the part of state politicians, 

activists in non-governmental organizations, journalists and 

politically engaged citizens as to what is the proper role of 

government, and how and to what end limited resources should be 

used.25

Considering the compulsions arising from the above political factors, 

Montek S. Ahluwalia explains the rational for adopting the ‘gradualist’ 

approach in implementing of economic reforms and the resultant ‘frustratingly 

slow’ pace of reforms (compared to East Asian standards): 

The compulsions of democratic politics in a pluralist society made it 

necessary to evolve a sufficient consensus across disparate (and often 

very vocal) interests before policy change could be implemented and 

this meant that the pace of reforms was often frustratingly slow. 

Daniel Yergin (1998) captures the mood of frustration when he 

wonders whether the Hindu rate of growth has been replaced by the 

Hindu rate of change!26

24 See, ‘Introduction’ in Jeffrey D. Sachs, Ashutosh Varshney and Nirupam Bajpai, op.cit. 25 Myron Weiner, ‘The regionalization of India’s Politics and It’s Implications for Economic 

Reforms’ in Ibid., Ch. 8, pp.292-3. 26 Montek S Ahluwalia, ‘India’s Economic Reforms: An Appraisal’, in Ibid., pp.26-27. See also 

Daniel Yergin, The Commanding Heights, New York: Simon and Schuster, 1998. 
ECONOMIC REFORM IN INDIA

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Finally, most (if not all) political parties implementing market-based 

economic reforms since 1990 have failed to ‘market’ these reforms to the 

masses as being highly beneficial for them. The opposition parties have often 

termed these reforms as ‘pro-rich’ and ‘anti-poor’. Ironically, even the 

Congress Party, which initiated the economic reforms when in power, has, as 

an opposition party, opposed some of them (such as further public-sector 

divestments) Varshney has made a valid distinction between ‘elite-based’ 

reforms versus ‘mass-based’ reforms. Market-based reforms have not drawn 

mass appeal nor aroused mass passions. This dichotomy between the concerns 

of the urban elite and the mass of the population has clearly defined the limits 

to economic reforms in India.27

STATE-LEVEL ECONOMIC REFORMS 

To increase the effectiveness of the post-1990 economic reforms, they 

must be simultaneously extended from central to state governments and below 

to the third tier of local governments.

The maladies afflicting the finances of the state governments are similar in 

nature to those afflicting the central finances described earlier. According to 

the Reserve Bank of India, the Gross Fiscal Deficit of all the states of India 

(including the Union Territories) was estimated at 3.3 percent in 1991-92.28

Throughout the 1990s the state governments also experienced a rapid rise in 

their revenue expenditures mainly through salaries, pensions, interest payments 

and subsidies (including free power to farmers in some states out of political 

considerations). This trend has ‘severely constrained the states’ ability to 

undertake development activities’ and to devote more funds to provide social 

services such as primary education.29 The situation worsened after the states 

were forced to follow the center to implement generous pay increases for 

government employees recommended by the Fifth Central Pay Commission in 

1997-98. 

Despite initial resistance in the Communist Party-ruled state of West 

Bengal, all state governments (including West Bengal), in their own ways and 

suiting their own conditions, implemented economic reforms in the 1990s and 

are continuing these reforms broadly in line with the ongoing national 

economic reforms. This owes in part to enlightened self-interest combined 

27 For further details, see Ashutosh Varshney, ‘Mass Politics or Elite Politics?’, in Jeffrey D 

Sachs, Ashutosh Varshney and Nirupam Bajpai, op.cit., Ch.7. 28 Reserve Bank of India, ‘Finances of state Governments : 1992-93’, in the Reserve Bank of 

India Bulletin, March 1993. 29 Government of India, Economic Survey 2002-03, op.cit, p.5. 
CHARAN WADHVA

271

with a healthy competitive spirit designed to improve their position and 

ranking among the states. There is also the states’ desire to avail themselves of 

larger transfers of development funds from the center, which the central 

government linked to economic reforms at the state level. Every state has 

recognized the need to attract private investment flows from both domestic 

and foreign investors. State governments have therefore progressively 

liberalized their policies and procedures on a competitive basis. Several of 

them have also explicitly recognized the need to improve human resource 

development and have progressively expanded activities to provide a better 

quality of life to the population of their states. 

Incentives and Conditionalities 

The government of India has introduced a scheme called the States’ Fiscal 

Reforms Facility (2000-05). Under the Facility, the central government set up a 

five-year incentive fund ‘to encourage states to implement monitorable fiscal 

reforms’. Additional amounts by way of ‘open market borrowings’ are allowed 

if the state is faced with a structural adjustment burden. State governments 

may draw up a Medium Term Fiscal Reforms Programme (MTFRP) to achieve 

specified targeted reductions in their consolidated fiscal deficit, especially the 

revenue deficit.

The coverage of the MTFRP has been extended to cover a Debt Swap 

Scheme in order to help state governments reduce their growing public debt. 

This scheme is designed to help liquidate the burden of high-cost loans taken 

from the central government through the allocation of additional market 

borrowings at currently prevailing lower interest rates. 

The major structural reforms carried out by several state governments 

include:

(i) Measures to improve quality of life through improvements in basic 

public services such as primary health, primary education, and rural 

infrastructural services such as electricity, water, and roads. Madhya Pradesh 

has brought out the first state-level Human Resource Development Report. Other 

states have followed suit. The Planning Commission has also published a 

comprehensive National Human Development Report assessing human 

development nationwide and in the major states.30

(ii) Clustering high-tech industries and services (for example, in software 

parks).

30 Government of India, National Human Development Report 2001 (New Delhi : Planning 

Commission, 2002). 
ECONOMIC REFORM IN INDIA

272

(iii) Setting up Special Economic Zones and Agri-Economic Zones to 

promote exports. 

(iv) Formulating state-level industrial policies to attract investments. 

(v) Power-sector reforms that restructure state Electricity Boards by 

separating generation, transmission and distribution activities, encouraging 

independent power producers in the private sector to invest in the power 

sector, and setting up independent state Electricity Regulatory Authorities. 

THE PERFORMANCE OF THE INDIAN ECONOMY

Despite the slow pace of implementation of the economic reforms and 

certain hiccups and delays caused primarily by the compulsions of democratic 

politics, the performance of the Indian economy under the reforms carried out 

so far shows a mixed picture of notable achievements and weaknesses. The 

performance has been impressive on some fronts, satisfactory on several other 

fronts, and inadequate in certain respects. India has still to launch deeper (socalled ‘second-generation’) reforms in various areas to get the best results. 

Areas of Impressive Performance 

Through reform, India overcame its worst economic crisis in the 

remarkably short period of two years. Macro-economic stabilization reforms 

(along with structural economic reforms) were launched in June 1991. 

Through prudent macro-economic stabilization policies including devolution 

of the rupee and other structural economic reforms the balance of payments 

crisis was clearly over by the end of March 1994. Foreign exchange reserves 

had risen to the more than adequate level of US$15.07 billion and the current 

account deficit as a percentage of GDP was nearly eliminated. Export growth 

rate at 20.0 percent in 1993-94 over the previous year was quite encouraging. 

Macro-economic stability has endured in the ten years of economic 

reforms to 2003. Foreign-exchange reserves peaked at US$70 billion at the end 

of March 2003 (and touched US$80 billion in June 2003).31 The current 

account ‘recorded a surplus—equivalent to 0.3 percent of GDP—in 2001-

02’.32 Food stocks with the Food Corporation of India, held to ensure national 

food security, peaked at sixty million tons (compared to the required twenty 

million tons). It took longer to control inflation but this led to relatively more 

enduring results (excluding the impact of externally determined fuel prices). 

Since 2002, the country has enjoyed a low interest-rate regime. These 

31 The Rupee had started appreciating against US$ after April 2003. 

32 Government of India, Economic Survey 2002-03, op.cit., p.3. 
CHARAN WADHVA

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performance indicators have helped to provide an ‘enabling environment for 

the macroeconomic policy stance.’33

India has also increasingly integrated its economy with the global economy. 

After half a century of inward-orientation, the share of India’s trade as a 

proportion of GDP rose from 13.1 percent in 1990 to 20.3 percent in 2000. By 

Indian standards this is an impressive performance.

India’s economy has also successfully moved into a higher trajectory of 

growth and displayed strong dynamism in selected sectors. This encouraging 

performance brightens the prospects for stepping up India’s growth rate and 

improving the competitive edge in the years to come through further 

appropriate economic reforms. 

The average annual growth rate of 5.8 percent achieved by the Indian 

economy during the years of economic reforms since 1992 is encouraging. 

Currently, after China, India is among the fastest-growing countries in Asia. 

Since the annual rate of population growth has slowed significantly to nearly 

1.8 percent during the 1990s, per capita income has been growing at a healthier 

real rate of four percent per annum. 

India’s growing middle class of more than 350 million people, with a 

reasonably affluent standard of living, provides a huge market for foreign 

corporations, especially since April 2003, when all quantitative restrictions on 

imports were lifted.

Along with its fairly good growth rate (which, however, is far below the 

potential growth rate of eight percent targeted by India’s Tenth Five-Year 

Plan), India has been successful in reducing poverty. The poverty ratio (that is, 

people below the poverty line as a percentage of the population) as estimated 

by the Planning Commission at the national level came down from 36 percent 

in 1993-94 to 26.1 percent in 1999-2000. The poverty ratio during this period 

declined both in rural areas and in urban areas. There is little doubt that 

poverty in India has been reduced during the last decade. The Planning 

Commission has set a poverty ratio target of 19.3 percent by the end of the 

Tenth Plan period (to March 2007). 

An important indicator of gains from economic reforms, reflecting the 

attractiveness of India as an investment destination, is shown by the increasing 

inflows of both FDI and Foreign Institutional Investment (FII) into India. 

Inflows of both FDI and FII into India has increased in the decade to 2002. 

On average, according to the Ministry of Finance’s Economic Survey, India has 

33 Reserve Bank of India, Annual Report 2001-02, Mumbai, Reserve Bank of India, p.1. 
ECONOMIC REFORM IN INDIA

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been attracting US$2.5 billion to US$3 billion and nearly US$4 billion in 2001-

02 in FDI per annum mostly in various infrastructural sectors such as large 

power and telecommunication projects.

India’s economy under the reforms has made rapid strides in selected 

industrial areas and knowledge- and skill-intensive services. These specific 

growth areas have experienced significant restructuring under more 

competitive conditions in the marketplace through mergers and acquisitions 

and technological and managerial innovations. This has led to the achievement 

of recognizable increases in international competitiveness in a number of 

sectors including auto components, telecommunications, software, 

pharmaceuticals, biotechnology, research and development, and professional 

services provided by scientists, technologists, doctors, nurses, teachers, 

management professionals and similar professions. The spillover effects of 

India’s increasing international competitiveness have helped in improving the 

rate of growth of export earnings. They have also directly benefited Indian 

consumers by making better quality, lower-priced goods available. 

Areas of Weakness 

The most notable weakness of the reform process has been in fiscal 

consolidation. Indian governments at both the central and state levels have 

failed miserably to reign in growing revenue deficits and reduce the overall 

fiscal deficit. The foundations for a sustainable high growth rate in any 

economy lie in maintaining fiscal discipline. This has not been adequately 

achieved by Indian policymakers. Excessive use of market borrowing to cover 

budget deficits has often put upward pressure on interest rates and pre-empted 

(‘crowded out’) borrowings by the private sector. The structure of revenue 

expenditure and political obstacles to any reduction of subsidies and 

downsizing the government at all levels have been primarily responsible for 

the lack of progress on fiscal reforms. The real issue in restructuring 

government finances is ‘right-sizing’ the government by adequately increasing 

government expenditure on infrastructure of both the hard and soft varieties, 

based upon growing resources. 

India’s record on social development expenditure has been poor 

considering Indian requirements and poor also in relation to many developing 

countries, including some of the least developed countries in Sub-Saharan 

Africa. The abysmally low ranking of India on the Human Development 

Indices computed by the United Nations bears testimony to this assertion.34

Dreze and Sen remarked in 1995 that India’s social development indicators in 

34 United Nations, Human Development Report, available annually at http://hdr.undp.org. 
CHARAN WADHVA

275

1991 (when reforms were launched) were lower than in several East and 

Southeast Asian countries three decades ago.35

India must bridge this social development gap by significantly increasing its 

public expenditure on social services if it wishes to achieve the targeted annual 

growth rate of eight percent set by the country’s Tenth Plan. As Ahluwalia has 

remarked, larger investment in the social sectors is ‘necessary not only because 

social development is an end in itself, but also as a precondition of accelerating 

growth’.36

The massive shift required in the pattern of government expenditure in 

India in favor of social sectors and infrastructure can only be carried out 

through structural fiscal reforms. The Fiscal Responsibility and Budget 

Management (FRBM) Act (2003) provides for complete elimination of the 

revenue deficit by 31 March 2008. This Act is, therefore, a step in the right 

direction. Despite ‘dilution’ of the original draft bill, it is important legislation 

because it sets the condition that the government can run a fiscal deficit only if 

borrowings are made to finance investments which will enhance productive 

capacity’.37

Another major weakness of the Indian economic reforms is the economy’s 

experience with ‘jobless growth’ in the post-1990 period. Rigid labor laws 

relating to retrenchments have constricted growth in the organized 

manufacturing sector. As a labor surplus country, there already exists a huge 

backlog of both ‘open’ and ‘disguised’ unemployment. With a growing 

population, every year adds to the labor force. Economic reforms have 

accelerated growth but failed to generate adequate employment. For example, 

the rural unemployment rate, after declining to 5.61 percent in 1993-94, rose 

to 7.21 percent in 1999-2000 as did the All-India (urban plus rural) rate of 

unemployment. If this disturbing trend is allowed to continue, it will breed 

social unrest and add to the ranks of terrorists and other anti-social elements in 

the country. 

Last but not least, the reforms have led to growing disparities between 

richer and poorer states (more and less developed, especially in terms of 

infrastructure) within India. Although the all-India average annual growth rate 

in the reform era has been on the order of 5.8 percent, this masks wide 

35 Jean Dreze and Amartya Sen, India : Economic Development and Social Opportunities, (New Delhi : 

Oxford University Press, 1995). 

36 M S Ahluwalia, op.cit., p.74. 37 C Rangarajan, ‘Focus on Revenue Deficit’, Business Line (New Delhi), June 10, 2003, p.4 
ECONOMIC REFORM IN INDIA

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variations in inter-state growth rates, growth of per capita income, and social 

development.

Most state governments are not well prepared to meet the challenges 

posed by globalization. The farming sector and the innumerable small-scale 

industrial units are vulnerable to the impact of global competition. The 

government and economic players in the private sector need to work more 

closely as partners to evolve strategies to meet the challenges of global 

competition more effectively. 

THE ECONOMY IN THE INTERNATIONAL ARENA

The Indian economy has been moving towards closer integration with the 

global economy and with the leading regional trading blocs. This can be seen 

using three indicators: (i) Trade in goods and services as a proportion of GDP; 

(ii) Gross Private Capital (In)flows; and (iii) Gross Foreign Direct Investment 

as a proportion of GDP. In all three areas, China has had the most 

outstanding performance and is clearly far ahead of India. However, within the 

constraints of democratic politics (which have forced India to adopt 

incremental and relatively ‘softer’ economic reforms), and despite being a late 

starter in the economic reform process, India can be seen to have done 

‘reasonably well’ in globalizing its economy. The ratio of trade to GDP 

increased from 13.1 percent in 1990 to 20.3 percent in 2000. The proportion 

of Gross Capital Inflows to GDP during the same period increased from 0.8 

percent to 3.0 percent. Gross Foreign Direct Investment as a percentage of 

GDP (which was zero in 1990) rose to 0.6 percent in 2000. 

India’s trading relations with major regional trading blocs in 1990 and 2000 

can be seen in Table 2. For the year 2000, APEC countries were India’s largest 

trading partners, accounting for 47.4 percent of India’s global exports and 57.4 

percent of global imports. India has, therefore, shown keen interest in joining 

this forum. Unfortunately, APEC has currently imposed a moratorium on new 

membership.

There is naturally a sharp contrast between India and East Asian countries 

in their relative rates of export growth due to sharp differences in their export 

strategies. The contrast is the sharpest when we compare India and China for 

the period 1950-2000. In 1950, both had roughly similar shares in world trade. 

China pursued a more aggressive export strategy in 1978 when it created 

export-oriented Special Economic Zones in Southern China. By 2000, China 

had captured around 4.0 percent of world trade. In contrast, India’s share of 

world trade had stagnated at around 0.5 percent for the three decades 1960-90 
CHARAN WADHVA

277

due to its inward-looking policies.38 By 2000, this share had moved up to 0.7 

percent. India has formulated and is further strengthening its latest MediumTerm Export Strategy (MTES) (2002-07), coinciding with the period of the 

Tenth Five-Year Plan.

TABLE 2: TRENDS AND PROJECTIONS FOR INDIA’S EXTERNAL TRADE 2000-2025

Exports to Imports from Year

1990 2000 2020 1990 2000 2020

Actual/Projected APpAPP

India’s Global Exports 

and Imports (US $ 

Billion)

18.2 37.1 63.6 23.3 41.3 61.2

1. APEC-21 52.06 47.4 43.44 40.98 58.68 57.41

2. ASEAN-10 4.99 6.87 7.38 6.92 9.41 13.1

3. BIMSTEC-4 2.91 4.65 5.45 1.55 1.28 1.45

4. BISTEC-3 2.9 4.51 5.3 1.55 0.8 0.98

5. EU-15 27.6 24.76 25.14 36.62 25.72 23.79

6. GCC-6 5.21 7.17 7.71 8.7 21.05 32.57

7. IOR-ARC-18 13.55 19.26 22.22 13.4 20.93 30.76

8. NAFTA-3 17.13 19.65 16.08 11.2 10.14 11.01

9. SAARC-7 2.65 4.12 4.52 1.78 0.47 0.68

 Note : A-Actual and P-Projected 

APEC – 21: Asia Pacific Economic Cooperation 

ASEAN-10: Association of South East Nations 

BIMSTEC-4: Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic 

 Cooperation 

BISTEC-3:Bangladesh-India-Sri Lanka-Thailand Economic Cooperation 

EU-15: European Union 

GCC-6: Gulf Cooperation Council 

IOR-ARC-19: Indian Ocean Rim Association for Regional Cooperation 

NAFTA-3: North America Free Trade Area 

SAARC-7: South Asia Association for Regional Cooperation 

Source : Charan D. Wadhva, “India’s External Sector” Chapter - 12 in the 

 Report of Research Project on India-2025: A Study of the Social, Economic and Political

 Stability, Centre for Policy Research, New Delhi, May, 2003. 

38 As per World Bank’s annual World Development Report, various issues and other sources. 
ECONOMIC REFORM IN INDIA

278

The MTES for 2002-07 envisages the achievement of India’s target of one 

percent of global trade by 2007 and provides sector-wide targets for niche 

products and targets for selected niche markets.39 The active participation of 

state governments is being sought in establishing and strengthening Special 

Economic Zones (SEZ) modeled on Chinese SEZs and setting up AgriEconomic Zones to provide a strong push to raise the country’s export growth 

rate. The development of world-class infrastructure in the SEZs will take more 

time. A new labor policy regime allowing freedom for entrepreneurs in the 

SEZs to ‘hire and fire’ labor according to the needs of the market (as 

permitted in the highly successful Chinese SEZs) will have to be put in place 

to maximize gains from India’s SEZs. As of May 2003, eight SEZs had been 

approved and have became operational. More such SEZs will be set up in 

India in the future. 

India is trying its best to liberalize and to transform itself into a global 

player of consequence in the world economy by 2020. It has been ranked by 

the World Bank as the world’s fourth-largest nation in terms of the size of 

GNP measures in terms of Purchasing Power Parity (PPP) in 2001. Ahead of 

India in 2001 on this front were only Japan, the US, and China. The World 

Bank has projected that by the year 2020, China will take the top spot, 

followed by India.

India’s economy clearly is on the move and most certainly has the potential 

to emerge as a global economic power within next twenty to twenty-five years. 

However, this potential can be made a reality only if India mobilizes adequate 

political will and quickly commits itself to design and fully implement the next 

phase deeper ‘second-generation reforms’. 

The concept of ‘second-generation’ reforms has been in the making for 

some years. However, these are yet to take concrete shape. Considering that 

India currently has no social security system in place for nearly 90 percent of 

its labor force employed in the unorganized sectors, India needs to evolve a 

well-calibrated approach to its future economic reforms. This would also be 

necessary to meet the challenges posed by the further intensification of the 

process of globalization. However, clear prioritization of future economic 

reforms in India will have to be laid down during implementation of the most 

critically needed ‘second-generation reforms’.

39 Government of India, Export Import Policy 2002-07, New Delhi : Ministry of Commerce 

2002.
CHARAN WADHVA

279

THE NEXT GENERATION OF REFORMS 

The following are ten recommended areas of special focus in the second 

generation of economic reforms: 

1. Political Reforms for Good Governance; 

2. Re-engineering the Role of the government; 

3. Administrative and Legal Reforms; 

4. Strategic Management of the Economy with a focus on knowledgebased HRD Activities; 

5. Fiscal Prudence; 

6. Agricultural Sector Reforms; 

7. Industrial Restructuring; 

8. Labor Sector Reforms; 

9. Foreign Trade and Outward Investment Policies; 

10. Financial Sector Reforms.

Political Reforms for Good Governance 

Political reforms are urgently required in concert with economic reforms.40

Both are essential to ensure good governance. A paradigm shift is required in 

the prevailing system of governance. Serving the people and putting their 

interests above the interests of the ruling elite must be the prime motivating 

force driving the reformed system of governance. Good governance can be 

ensured through the provision of an adequate quantity of public services and 

by improving their quality. Indian politicians need to become fully aware of the 

costs and benefits of economic reforms. Ruling politicians with limited terms 

in office are often guided by narrow and short-term motivations while 

formulating policies in the national interest. The Indian public at large also 

needs to be thoroughly educated on the inevitable need to bear short-term 

pain in order to reap the somewhat uncertain longer-term gains from 

economic reforms. 

Economic reforms in the future must be more people-centered. They must 

be given a human face so as to continuously enhance the social 

empowerments of the poorer and most vulnerable sections of the society. 

They must be gender-sensitive to improve the status of women and girls. The 

burden of adjustment to structural reforms must be more heavily borne by the 

richer sections of the society. Appropriate electoral reforms, including state 

40 For a discussion of the required political reforms in India, see Subhash C. Kashyap, Political 

Reforms for Good Governance: A Policy Brief (New Delhi: Shipra Publications, 2003). 
ECONOMIC REFORM IN INDIA

280

funding of elections, will help to reduce the lobbying power of the entrenched 

vested interests. 

Re-Engineering the Role of the Government 

Reforms must be aimed at ‘right-sizing’ (often involving downsizing) the 

government. Governments must specialize in performing roles that they can 

perform better than free-market private enterprise. The government must 

expand its role in areas such as the provision of public goods, especially 

primary health, primary education and the creation of social infrastructures. 

The role of the Planning Commission must be changed to that of a strategic 

think tank. The mindset of the politicians and the administrators needs to be 

changed to accept the re-engineered role of government in the context of 

market-oriented economic reforms. The intensification of economic reforms 

at the state level needs to be given a higher priority in the future since most 

social services and infrastructural activities are primarily the responsibility of 

the state governments. 

Administrative and Legal Reforms 

No matter how good the design and intent of economic reforms, their 

success ultimately depends on efficient and speedy implementation through 

sensitive and responsive administrative and legal systems. Transparency and 

accountability must be guiding principles for the formulation and 

implementation of policies and procedures. Improved administrative systems 

should be devised to ensure that merit subsidies directly benefit the targeted 

(generally the underprivileged) sections of society. Legal support services 

should be made available with more public funding and must be strengthened 

to provide justice to genuinely aggrieved sections of society more quickly and 

affordably.41 Second-generation economic reforms also must focus on 

changing the mindset of administrators (especially at the grass-roots level) and 

of the judiciary (especially at the lower level) to support administrative and 

legal reforms that synergize with economic reforms for maximizing social 

welfare.

Strategic Management of the Economy 

Macroeconomic management must be dovetailed with a well-formulated 

strategic national vision for the economy for the year 2020 (and beyond). 

Clarity, transparency and accountability (through identifiable responsibility 

centers) with properly designed incentive (and disincentive) systems should be 

the guiding principles governing strategic management of the economy. An 

41 See Subhash C Kashyap (ed.), The Citizen and Judicial Reforms under Indian Polity (New Delhi : 

Universal Law Publishing Company, 2002). 
CHARAN WADHVA

281

appropriate code of conduct should be evolved and observed by economic 

actors under a new managerial system of governance. The strategic 

management of the Indian economy in the twenty-first century must focus on 

human resource development to promote knowledge-based and skill-intensive 

economic activities in line with India’s dynamic competitive advantage. 

Fiscal Prudence 

The fiscal deficit (especially the revenue deficit) needs to be quickly 

reduced. India must sincerely implement the Fiscal Responsibility and Budget 

Management Act . Simultaneous action is required at both central and state 

levels to raise the tax-to-GDP ratio by expanding the tax base (for example, by 

taxing services and rich agriculturists) and improving tax administration (for 

example, through computerization). The revenue deficit must be brought to 

zero within five years. 

Agricultural Sector Reforms 

While some agricultural reforms have already been carried out, these are 

highly inadequate. Primacy must be given to the agriculture sector in all future 

reforms since many more jobs can be created in the agricultural sector, broadly 

defined, including activities related to rural industrialization and overall rural 

development. Both on-farm and off-farm employment potential must be fully 

exploited. This will raise incomes of farmers and rural labor on a sustainable 

basis and provide a much-needed boost to demand for industrial products and 

services, thus spurring all-around economic growth. 

There is an urgent need to raise public investment in agriculture 

substantially. Areas needing investment include: irrigation; watershed 

development; rural infrastructure; drinking water; housing and sanitation. This 

will help raise the productivity of Indian agriculture to international levels and 

help in promoting rural (and interlinked urban) prosperity in India. 

Second-generation reforms must reduce the perennial anti-agricultural bias 

by permitting free® exports of all primary products. This will provide a major 

boost to India’s exports consistent with the rules set by the World Trade 

Organization. Simultaneously, India must improve its marketing infrastructure. 

Agricultural reform will unleash high growth rates in agriculture, on which 

nearly sixty percent of India’s population is still dependent for employment. 

Agricultural prosperity will help to markedly reduce endemic rural poverty. 

Industrial Restructuring 

Industrial reforms must be geared to explicitly improve the productivity 

and international competitiveness of Indian industry by focusing on niche 

products and niche markets. Economic policy in this respect must facilitate 
ECONOMIC REFORM IN INDIA

282

mergers and acquisitions and the winding up of terminally ill enterprises in 

both the public and private sectors by restructuring bankruptcy laws. Massive 

restructuring is required of Public Sector Units. Most non-performing public 

sector units should be quickly sold through a privatization process that also 

safeguards the interests of workers through fair compensation for loss of jobs. 

Public sector enterprises should be governed by a commercial culture in which 

government holdings are no more than 26 percent of equity and are retained 

only to preserve strategic control. It is of the utmost importance that microlevel reforms must supplement macro-level reforms in the future to achieve 

synergy. The private sector in India needs to become more international in its 

outlook to become more competitive and to increase its overseas presence 

through outward FDI. 

Labor Reforms 

A properly formulated labor policy must form the core of secondgeneration reforms. This will require viable alternative social safety nets and 

effective retraining and re-employment opportunities. Once satisfactory safety 

nets are in place, more intensive competition should be injected into the labor 

market by allowing ‘hire and fire’ policies unambiguously linked to the 

productivity and profitability of micro-enterprises. The government should 

start by exempting units in the newly created Special Economic Zones from 

the rigors of labor laws. These measures would be of great help in redressing 

inefficiency of workers in public enterprises and public services (such as health 

care in rural areas). 

Foreign Trade and Outward Investment Policies 

No economic reforms can succeed in India without ensuring adequate 

growth of exports of goods and services to ensure longer-term viability of its 

balance of payments. While anti-dumping measures need to be strengthened to 

protect Indian industry from unfair import competition, the longer-term 

reforms must continue to lower import duties to levels comparable to those in 

leading Southeast Asian countries. Simultaneously, measures should be taken 

by the government to replace quantitative restrictions (wherever they still 

remain in place) through appropriately determined tariffs. 

The second generation of economic reforms must facilitate the growth of 

India’s own Multi-National Corporations (MNCs). The government must 

further liberalize outward foreign investment to allow potentially competitive 

Indian MNCs to establish production bases abroad and trade internationally. 

Finally, industry and government must make cooperative efforts to prepare 

Indian industry to meet the new and ever-emerging challenges posed by the 
CHARAN WADHVA

283

new world trade order and the new world investment order being evolved 

under the World Trade Organization. 

Financial Sector Reforms 

India must heed the lessons of the East Asian economic crisis and 

recovery, and attached the utmost urgency the next phase of financial-sector 

reforms. The high level of Non-Performing Assets plaguing long-term 

Development Financing Institutions and commercial banks must be 

dramatically reduced. 

To summarize, greater competition in the financial sector with an 

appropriate exit policy to reduce overstaffing together, along with sound 

macro-economic policies, will help to lower the real rate of interest and spur 

investment and efficiency, thereby raising growth rates and benefiting 

consumers. Coupled with the current regime of falling interest rates, greater 

competition in the financial sector in general and among the commercial banks 

in particular will help to increase the rate of investment in the economy. 

Simultaneously, foreign insurance and pension funds should be allowed to 

operate with fewer restrictions to make more resources available to finance the 

modernizing of India’s infrastructure. Further policy and procedural reforms 

(especially in the power sector) will help to attract substantially higher 

investment in India’s infrastructural sectors. 

Finally, credible policy measures that protect investors, especially 

individual investors with small savings must be adopted. These measures, if 

effectively implemented, will help to revive growth in India’s capital and stock 

markets. It must be remembered at all times that the be-all and end-all of all 

economic activities is the consumer. Future economic reforms must aim to 

directly benefit Indian consumers through cost reductions, enhanced quality of 

goods and services, and by expanding customer choice through competition. 

CONCLUSIONS

Within the constraints of democratic politics and the relatively ‘soft’ nature 

of the economic reforms implemented since 1991, the Indian economy has 

reaped several welcome rewards from its reforms. These have strengthened 

the conviction that the broad direction of the reforms is right and, in that 

sense, made the reform process irreversible. However, India needs to launch a 

‘second generation’ of economic reforms, with a more human face, if it is to 

reap their full potential. Politicians and administrators need to display greater 

pragmatism while designing and implementing future economic reforms. The 
ECONOMIC REFORM IN INDIA

284

reforms must be based on the long-term vision of transforming India into a 

global economic power in the next twenty to twenty-five years.

It will be of the utmost importance that all sections of society are educated 

as to the long-term benefits of reform in order to mobilize public support. 

These reforms, therefore, will have to be drastically redesigned and politically 

‘marketed’. Future economic reforms must be seen and experienced as not 

only good economics but also good politics.

Two paradigm shifts in the reforms, backed up by the effective fulfillment 

of the promises made, will help to garner the support of the Indian people. 

First, these reforms must aim to raise the productivity of Indian labor and 

improve the work culture and, over time, provide significant rewards to the 

people of India by spurring growth, providing a higher level of real wages, and 

generating wider avenues for employment and re-employment. Growth with 

employment is the most effective strategy for eliminating poverty and 

improving the quality of life of the people.

Second, the reforms must aim to directly benefit Indian consumers. Over a 

reasonable time span, the reforms must reduce prices of goods and services 

(including public goods), improve their quality, and allow much more freedom 

of choice by maximizing the benefits of healthy competition. This will further 

expand the size of the market—both domestic and international—and provide 

incentives to entrepreneurs to raise their investment, output, and employment. 

A combination of more productive labor and pro-consumer economic reforms 

will be a win-win, proving to be both good economics and good politics. 

Visionary political statesmanship will be required for this. It should not be 

slogan-oriented but more result-oriented since it will likely be perceived and 

experienced as ‘pro-people’. 
VIETNAM: WHAT NEEDS TO BE DONE? 

ADAM FFORDE

INTRODUCTION

In the modern world, where so much policy study compares ‘model with 

muddle’, any situation can and must be described as imperfect, with much

remaining to be done, although, in essence, this often seems to amount to 

setting some unattainable goal, at least in this world.1

So what needs to be done in Vietnam? The country has a practice of

thinking for the long-term, of ‘playing it long’, when making changes in its 

political and economic institutions and in their relationships with society.

Vietnam in the early years of the new millennium is a paradoxical image on the 

world stage. If one wishes to play the role of ‘booster’, accentuating the 

positive, then much of what can be said appears startling since it is so

infrequently uttered. It is easier to play the role of critic. But let’s start with the 

positives.

Here is a country whose political institutions have permitted an

uninterrupted sequence of power changes at the peak that have followed the

established formal procedures laid down by the rulers: the Vietnamese

Communist Party. In 1986, at the VIth Party Congress, the Central Committee 

elected a reformist General Secretary, Nguyen Van Linh. In 1991 he was

replaced by the more technocratic Do Muoi, who was in his turn replaced by

Le Kha Phieu, whose somewhat old-fashioned politics led to his replacement 

by Nong Duc Manh at the IXth Congress in 2001. Manh is younger, a 

member of the Tay minority, and has some popular support drawing upon his 

role as Chairman of the National Assembly. He arguably reflects a return to

the more adaptive politics of the 1980s and 1990s.

Political contestation at these core events was intense. Linh was only 

elected after drawn-out discussions to do with the positions of such eminences

as Le Duc Tho and Truong Chinh following the death of old-guard leader Le 

Duan in mid-1986. Do Muoi came to power in the aftermath of the purge

1 M. S. Grindle and J. W. Thomas, Public Choices and Policy Change: The Political Economy

of Reform in Developing Countries (London: Johns Hopkins, 1991).

285
VIETNAM: WHAT NEEDS TO BE DONE

286

from the Politburo of Tran Xuan Bach for alleged ‘Yeltsinist’ tendencies. Le 

Kha Phieu entered the IXth Congress as the front-runner, supported by the 

Politburo, and was only removed after intense infighting. Yet, formal 

procedures were followed, leaders changed, and no blood was spilt. These 

three characteristics, clearly, are not common throughout most of the 

developing world or indeed Southeast Asia. 

Here, again, is a country with the deeply textured political machinery of a 

post-Stalinist if not quite post-Leninist regime: Mass Organizations, a mass 

Party, a security apparatus, deep influence over the mass media, and so forth. 

Yet, it is far from the case that policies are set arbitrarily and then enforced—

despite many ongoing issues between rulers and ruled, political control is 

arguably weaker than in countries such as Singapore, where the willingness to 

openly criticise the government is in many cases less. 

MANY PROBLEMS: COMMUNIST RULE, CORRUPTION AND 

POLITICAL INSTABILITY 

It is even easier to point to ‘negatives’ (notwithstanding the World Bank’s 

strong enthusiasm for Vietnam, expressed in its $3 billion lending agreement).2

By comparison with many definitions of what constitutes a well-governed 

modern state, Vietnam comes out rather badly. She is given very bad scores in 

international rankings on such things as corruption, the business environment, 

human rights and so forth. The US State Department website recently 

characterised the political regime as a ‘Communist People’s Democracy’. 

Despite much effort from international NGOS, there is no clear law that 

defines the position of civil-society organizations, and most bodies that carry 

out activities of that type tend to operate in the ‘shade’ of formal organizations 

under the Vietnam Fatherland Front or some such body. Indeed, the Leninist 

Mass Organizations remain in place, given responsibility for a range of tasks to 

do with monitoring state bodies, yet their funding largely comes from the state 

budget, and they are still organically linked to the Vietnamese Communist 

Party (VCP) through the ‘popular mobilisation’ sections of the Party at various 

levels (the ‘dan van’). The Party maintains organic control over the state 

through various parallel structures such as the ‘ban can su’ at Ministry and other 

levels. Thus, according to much western thinking, the relationship between 

politics and state has not developed into a separation that allows for popular 

2 IMF/IDA, Vietnam: Joint Staff Assessment of the Poverty Reduction Strategy (Washington DC: 

IMF/IDA, 2002). 
ADAM FFORDE

287

control over the state’s activities. Though change is under way, nobody would 

argue that Vietnam’s judiciary is at all independent of political interference, and 

so most activities to regulate social interactions are governed by societal rather 

than state or other extra-societal structures.

These issues result, arguably, in a situation where transactions costs are 

high and society largely ungoverned. The regime rules, but it does not govern. 

There is no clear break with the Leninist position requiring direct intervention 

in social organizations through the Mass Organizations and the Party itself, to 

one where the government ‘governs’ through a range of indirect ‘techniques of 

rule’. The result is corruption, ineffectiveness in the implementation of central 

policy measures, and a continued tendency for the population to have to resort 

to direct measures (such as demonstrations) to curb officials, or to simply bypass the state in governing social regulations. While ‘stable’, as Vietnam 

increasingly participates in the storms and winds of the modern global 

economy, this will push the burden of adjustment more and more onto those 

who can least bear it, and as business grows in power and becomes more 

concentrated, the politics of dealing with the consequences will become more 

difficult.

In essence, a market economy forces the shift from ‘rule’ to ‘government’, 

and so far the constitutional changes required by this, which would be marked 

by the emergence of an independent judiciary, effective anti-corruption 

measures and a sea-change in attitude toward what westerners would call ‘civil 

society’, are far from happening. Risks are therefore high and the current social 

and political stability not likely to endure.

PROBLEMS, YES, BUT WITH THE RIGHT HELP QUITE 

SOLVABLE

The World Bank, which has Vietnam as number 2 in its list of ‘largest 

recipients of support’ (after India), highlights positive issues, but ignores 

others.3

 Most important here is the focus upon current attempts to address key 

issues, and the notion of ‘process’: that the country is headed in the right 

direction. But does this amount to any more than ‘jam yesterday, jam 

tomorrow, but never jam today’?

This chapter takes the notion of ‘problem’ with a large pinch of salt. I 

present an outline of recent change in Vietnam, and proceed to what I think is 

most focusing the minds of those politicians, officials, and others influencing 

3 Ibid.
VIETNAM: WHAT NEEDS TO BE DONE

288

these change processes. I finish with a discussion of what now needs to be 

done, and where things may be headed. 

COPING WITH POVERTY AND WAR: COMMUNIST VIETNAM 

BEFORE 1975 

Before 1975, the area ruled from Hanoi was one with important elements 

of wartime ‘laissez-faire’, with the system of rural cooperatives being one 

where peasants ‘usually’ managed to avoid central directives,4

 where SOEs and 

the planning system were far from matching any of the models to be found in 

Soviet textbooks,5 and where the issue of the management of socialist 

construction in the north in the early 1970s was not so much one of reform, 

but of the re-establishment of the norms of democratic centralism in a 

situation where they had become, partly in thanks to high levels of aidfinanced imports from the Soviet bloc and China, normally flouted. Despite 

the rather rapid growth of industrial output in the north after the late 1960s, 

the planning system never managed to create that self-powering dynamic of 

‘expanded accumulation’ that, as other neo-Stalinist systems showed, would 

for a while produce fast but inefficient and uncompetitive growth.6

Thus, at reunification in 1975-76, the ‘problem’ facing the north was one 

of the re-establishment of order along conservative lines. Contradictorily, this 

meant that the apparatus that was responsible for the management of the 

south was itself ill disciplined and weak. Would this be capable of imposing its 

control over the south in a way that could match the requirements of rapid 

neo-Stalinist growth?

4 Adam Fforde, The Agrarian Question in North Vietnam 1974-79: a study of cooperator resistance to 

State policy (New York: M. E. Sharpe, 1989). 5 N. Tri, ed., Ve to Chuc San Xuat Trong Cong Nghiep Mien Bac Nuoc Ta (On the Organization of 

Industrial Production in the North of Our Country) (Hanoi: NXB Dai hoc va Trung Hoc Chuyen 

Nghiep, 1972). 

6 It is worth pointing out that the logic of failure to implement neo-Stalinism ‘pur et dur’ was 

apparent, arguably, before, the start of the Vietnam War, in the events in the early 1960s as the 

First Five Year Plan was implemented. A. Fforde and S. Paine, H., The Limits of National 

Liberation: Problems of Economic Management in the Democratic Republic of Vietnam (London: Croone 

Helm, 1987); A. Fforde, "From Plan to Market: The Economic Transitions in Vietnam and 

China Compared," in A. Chan, ed., Transforming Asian Socialism: China and Vietnam Compared

(Canberra: Allen and Unwin, 1999). 
ADAM FFORDE

289

COPING WITH STALINIST ECONOMICS: BREAKDOWN OF 

THE OLD SYSTEM, 1978-79 

In what has been described as the hubris of victory, the ambitions of the 

first Five Year Plan of the reunited country were very great. Access to the rice 

surplus of the Mekong delta, should, theoretically, have eased the central 

constraint to such ambitions when played out upon the stage of the povertystricken and population-saturated north. In classic Stalinist thinking, these 

resources would be extracted through the mechanisms of forced 

cooperativization and control over the rice trade.

The problem facing the country at this stage was how to cope with the 

consequences and strains of this historical push, to realise Stalinist 

development in a reunited Vietnam. The problem was solved by strangling the 

attempt at birth. As Melanie Beresford has put it so well, the ‘procurement 

strike’ in the Mekong delta in the late 1970s, coming as it did with the loss of 

Western and Chinese aid, pushed hard for change.7

In the early autumn of 1979, with the system collapsing (and important 

actors shaking the roof pillars), the VCP Central Committee met to discuss 

economic problems at a scheduled Plenum (the ‘Sixth Plenum’). At the start of 

the discussions, political positioning by the top leadership remained 

conservative, requiring ‘more efforts to implement agreed policies’. By the end, 

after senior politicians were bombarded by provincial and other leaders, the 

somewhat opaque resolution argued that almost anything could be done that 

allowed production to ‘break out’ (bung ra). And so the problem of coping with 

Stalinist economics was solved by recourse, not to directives and guided 

change, but by ‘going with the flow’: the spontaneous marketisation of the 

economy was legitimised.

COPING WITH BROKEN ICONS: SPONTANEOUS CHANGE 

AND POLITICAL RESPONSE, 1979-80 

But of course, if the very nature of politics is the ‘creation and 

maintenance of order, then what then needed to be done was to read order 

into what had been done: to look at ‘life’ (cuoc song), to apprehend the ‘law’ (quy

7 M. Beresford, Vietnam: Economy and Society (New York: Pinter, 1988); M. Beresford and A. 

Fforde, ‘A Methodology for Analysing the Process of Economic Reform in Vietnam: The 

Case of Domestic Trade’, Journal of Communist Studies and Transition Politics 13/4 (December 

1997), pp.99-128. 
VIETNAM: WHAT NEEDS TO BE DONE

290

luat) governing this, and then to produce policies and human laws that 

corresponded. And this was what was done. This is discussed in greater detail 

elsewhere.8 From the other side of the coin, that of Western analysis, what this 

implied was a need to understand Vietnamese change processes as essentially

endogenous, coming not from policy change, but from processes deep within 

the society and economy. But these could be observed through local 

apprehensions of them, that is, in the policy response.

Through 1980 an important element of Vietnam’s international situation 

was the replacement by the Soviet Union of the lost Chinese and Western aid. 

This gave them an enhanced position in the policy dialogue, conditioned, of 

course, by the military issues to do with the Sino-Vietnamese and VietnameseKhmer conflicts.

By the beginning of 1981 the spontaneous breakdown of the neo-Stalinist 

system had been addressed politically by the creation of ‘reform policies’. 

These largely solved the problems of the moment by permitting, well before 

most other socialist countries, all SOEs to trade on markets in list goods 

(outside the plan) and also allowed farmers from cooperatives to sell surplus 

goods in (free) markets. Also, the attempt to collectivise the Mekong Delta was 

abandoned, and various elements (especially in Ho Chi Minh City) were 

allowed to import and export freely. This legal ‘transitional model’ could be 

and was presented as preserving socialism, but yet (helped by Soviet aid) went 

with increases in output and incomes. 

This required no major political change in terms of the top leadership (Le 

Duan remained General Secretary), but there were certain adjustments that 

marked the underlying shift away from hard-line certainties. 

COPING WITH THE BABY TIGER: CREATIVE CHAOS AND 

POLITICAL RESPONSE, 1981-88 

The period from 1981 to 1988 can be seen as one of coping with the 

dynamic consequences of the changes that had taken place in 1979-81, for 

markets came with private interests and the increasingly powerful forces that 

supported them (even if these interests remained largely clothed in red SOE 

fabrics).

The way in which this was done was at root to ‘play it long’. It became 

increasingly clear that these underlying trends were strong and, despite various 

8 Ibid.
ADAM FFORDE

291

attempts to rein them in (which tended to backfire),9 the Party shifted to first 

an ideological acceptance of these trends with the Doi Moi VIth Party Congress 

of 1986, and then followed this up with the beginnings of a far more proactive support to these forces with various policies that reduced planners’ 

powers over SOEs, and the power of district-level officials over cooperatives.10

The late 1980s were characterised by high inflation and great distributional 

tensions. As the tax base of a planned economy collapsed, and (as in many 

other areas) a new fiscal base was yet to be created, important areas requiring 

state resources (education, health, pensions, state wages) were squeezed hard. 

Political concerns about the economy led increasingly to short-term measures 

in addition to the slower-paced move away from a planned economy and 

towards some as-yet unclear market alternative. 

Along with this more active politics in the area of the economy could be 

seen (again ‘played long’) a process of effective de-Stalinization closely linked 

to the reformist General Secretary Nguyen Van Linh, who was elected at the 

VIth Congress . By 1990, it was clear that the regime was on track for 

widespread but cautious liberalisation in areas such as foreign travel, 

ideological purity, contact with foreigners and so on, and by the early 1990s 

these trends were rather strong. 

COPING WITH THE BREAK-OUT TO A MARKET ECONOMY, 

1989-90, AND THE POLITICAL RESPONSE 

In the very late 1980s, however, the strategy of ‘playing it long’ was put 

under great pressure by the collapse of the Soviet Union, and especially the 

loss of its supply of economic assistance. But the essentially short-term 

measure taken to attack inflation had important systemic effects, pushing to 

one side the remaining elements of planning, so that the problems posed by 

the residual elements of the planned economy were, in the winds of the 

moment, simply blown away. By 1990 Vietnam had a market economy, but 

without recognisable markets in land, labour or capital. The certainty that these 

would come soon, however, yet again allowed the politics of this to be ‘played 

long’: there was time to adapt and adjust to what was coming. 

9 One of most interesting was the so-called ‘Price-wage-money’ reforms of 1985, which were 

followed by rapid inflation and major welfare problems for state wage earners, as well as the 

termination of the political careers of To Huu and Tran Phuong, who had up to then been in 

the saddle of economic management over this dynamic situation. S. de Vylder and A. Fforde, 

From Plan to Market: The Economic Transition In Vietnam (Boulder, CO: Westview Press, 1996). 10 Ibid.
VIETNAM: WHAT NEEDS TO BE DONE

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‘TIGER ON A BICYCLE’: STABILISATION AND RULE, 1990-1996 

An illustration of the situation facing the VCP in the very early 1990s, as it 

found itself ruling over a landscape lacking both the mother planners—the 

Soviet Union—and any planned economy through which to finance the 

military or state sector and act as a foundation for socialist construction) is that 

of the first Tudor King, Henry Plantagenet (Henry VII). After killing Richard 

III at the battle of Bosworth Field and crowning himself, Henry based his rule 

upon nothing other than his own act , and thereafter, his first priority was to 

stay on the throne—no easy task after the upheavals of the previous decades. 

The basic political problem facing the Tudors was not so different from those 

facing the VCP from the early 1990s:

One of the most delicate tasks that faced the Tudors, therefore, was 

the creation and education of a new ruling class and the retention of 

its loyalty. The new men had to be prevented from moving up too 

fast or too far. The drive and efficiency in economic matters which 

brought them their wealth and power also made them harsh to their 

tenants and contemptuous of the common people.11

This sense, of a ruler on the throne, surveying a dynamic situation that 

could easily, by threatening popular opposition to a new ruling class, menace 

the crown, is suggestive. The Tudor monarchs operated from the position of 

being on the throne, with new and evolving rules of the game that they could 

both influence and react to. If they were wise and lucky, they could prosper, 

but under such conditions perhaps the central issue, after staying in power, 

was to cope and adapt to events. The situation called for a mixture of tactics, 

all tending to a shift from rule to government, and to a search for political 

outcomes that institutionalised and developed rule in ways that secured the 

position of the crown.

11 C. Morris, The Tudors (London: Fontana/Collins, 1955) 25-26. See also C. Carpenter, The 

Wars of the Roses: Politics and the Constitution in England, Ca 1437 - 1509 (Cambridge: Cambridge 

University Press, 1997) for an analysis of the triadic relations between population, and 

central/local political powers in pre Tudor England which is very thought-provoking, not least 

the discussion of ‘pretending there is an effective king’ when the poor man was quite incapable 

of ruling. In many ways contemporary Vietnamese, in retaining so much of the ‘pre-modern’, 

has a thoroughly Elizabethan flavour. 
ADAM FFORDE

293

The sense of a combination of power and threat is well encapsulated by 

the expression ‘Tiger on a Bicycle’,12 which also points to the growing 

comparison at this time between Vietnam and its foreign competitors—the 

sleek and well-supported ‘Tigers’ of the region. Whether institutionally or 

financially, Vietnam increasingly appeared weak compared with the formidable 

accumulated investments in human and physical infrastructure of the emergent 

‘third tier’ of export-oriented Tiger economies of this period, well before the 

1997 regional crisis and the seismic shift of FDI away from Southeast Asia and 

towards China that occurred by the end of the 1990s. 

The problem, then, was to cope. Initially, this was done by a political 

reaction, where the sacking of Politburo member Tran Xuan Bach for ‘serious 

violations’ in 1991 marked a termination of any Yeltsinist tendencies to seek 

political power through elections. Rapidly, the resource base of the state was 

re-established through the recreation of a tax base, a relative re-closing of the 

borders (initially to secure import revenues), and imposition of some monetary 

discipline. As foreign resources started to pour in, FDI and ODA (Official 

Development Assistance) mounted, and there was little alternative to the state 

sector as a site to receive them. After the World Bank’s strategic decision in 

1991 to shift its Vietnamese interlocutor from the leading pro-market and 

reformist Central Institute for Economic Management Research (CIEM) to 

the (then) reactionary and anti-private-sector State Planning Commission 

(SPC), it was clear that some of the major dramatis personae of the international 

system were not going to be major players in this process.13

The early and mid-1990s saw important changes to central elements of a 

country with a market economy. Urban land, for example, went through the 

process of ‘commoditization’, shifting from being ownerless to being bought 

and sold, with middle-class families ending up holding assets worth hundreds 

of thousands of dollars. It became ideologically and practically normal to buy 

and sell labour (labour power as a category became acceptable to Party 

12 A. Fforde, "Vietnam: A Tiger on a Bicycle," Vietnam Investment Review (16 August 1993); A. 

Fforde, "Vietnamese Commerce: The 'Tiger on a Bicycle' Syndrome," The Columbia Journal of 

World Business (Autumn 1993). 13 See D. Dollar and L. Pritchett, Assessing Aid: What Works, What Doesn't (New York: Oxford 

University Press, 1998) for the fine statement that by 1995-96 (when World Bank resources 

could finally come in) Vietnam’s development policy stance was ‘good’, which using the 

standards of that body at the time is outrageous. Dollar had been in charge of relations with 

Vietnam at the Bank since the early 1990s. The failure of conditionality in the mid-1990s 

credits is quite clear, but was well covered up. A. Fforde, "What Works, What Doesn't. 

Donors Face Dilemmas, But, As Always, Vietnam Will Find Vietnamese Solutions to Its 

Problems," Vietnam Economic Times (December 1999), Hanoi. 
VIETNAM: WHAT NEEDS TO BE DONE

294

ideologues). It also became increasingly clear that SOEs were tending to 

operate as de facto ‘Virtual Share Companies’ (especially the smaller ones), thus 

reducing economic efficiency and helping to explain the ‘Vietnam Paradox’ of 

rapid economic growth, relative macroeconomic stability and a rising state 

share of the economy (an outcome that would have been impossible in 

archetypical Latin American or African countries). All this accompanied the 

focus upon the state sector that characterised the times.14 But the overall 

dynamic was dysfunctional. 

By around 1996 or so these tactics were running into trouble, but the 

crown had stayed on the government’s head. In general the populace had been 

quiet and, more interestingly, that fraction of Vietnam’s commercial class (the 

state sector) that had dominated the economy in the early 1990s had shown its 

shortcomings. Flooded with credits and tax breaks, stuffed with privileges, 

local monopolies and access to export markets, SOEs as the solution to this 

historical period were, increasingly clearly, very limited. They created little 

employment, either for the general population or those ‘coming up’, they did 

not create assets that were sufficiently easy to appropriate so they could be 

passed on to children and other relatives, and they could not be defended 

easily enough against predations from outsiders (whether true outsiders or 

simply other elite groups).15

Thus Vietnam went into the 1997 Asian monetary crisis with many 

pigeons coming home to roost. Additionally, there was also a failure to cope 

with local power in rural areas where, without landlords, rents were there to be 

appropriated by those well placed to do so. Corruption in the communes of 

the north created discontent, and in that year Thai Binh province (as well as 

others) saw an effective local putsch against the local administration. 

THE EMERGENCE OF GOVERNANCE, GOVERNMENT AND 

BEING GOVERNED, 1997-2002 

The most penetrating analyses of the meaning of the Vietnamese political 

context of the late 1990s are by Thaveeporn Vasavakul.16 His arguments come 

14 A. Fforde, "The Vietnamese Economy in 1996 - Events and Trends - The Limits of Doi 

Moi?" in A. Fforde, ed., Doi Moi - Ten Years After the 1986 Party Congress, Political and Social 

Change Monograph, vol. 24 (Canberra: Australian National University, 1997). 

15 M. Gainsborough, Changing Political Economy of Vietnam: The Case of Ho Chi Minh City

(London: Routledge Curson, 2002). 

16 T. Vasavakul, "Politics of the Reform of State Institutions in Post-Socialist Viet Nam," in S. 

Leung, ed., Vietnam Assessment: Creating a Sound Investment Climate (Singapore: ISEAS, 1996); T. 

Vasavakul, "Rethinking the Philosophy of Central-Local Relations in Post-Central-Planning 
ADAM FFORDE

295

down to the need to respond to the penetration and seduction of state power 

by emergent ‘new forces’; and that this was done in Vietnam both by 

recognising the problem and (as has happened many times before) shifting 

fundamentally in the overall concepts governing rule. 

Associated with this process, which remains unfinished, were various 

extremely interesting developments. The first (which appears linked to the 

local leadership of the UNDP in the early and mid-1990s and its relations to 

various eminences grise in the reform community) is the shift in focus to the 

provinces and Public Administration Reform (PAR) as key issues. By the late 

1990s, the provinces (led politically by local people as they historically always 

had been) were entering into development partnerships with donors (especially 

INGOs and bilaterals), and were furthermore becoming the sites for a range of 

experiments in the exercise of state power. In many ways, this brought 

politicians, willy nilly, closer to the people, and so prevented many of the 

normal mistakes of central government. There were, arguably, no successful 

examples of centrally initiated ‘development’.17 And PAR and the associated 

notion of the ‘Law Governed State’ (Nha nuoc Phap quyen) focused attention on 

the need to enhance state capacity per se, again linking politicians to local 

outcomes. Parallel with this can be seen the emergence of the National 

Assembly as a forum for improving both the quality of legislation and for 

exposing ministers to criticism as sessions were televised and became 

increasingly lively.

Second, the economy was rather successful. Growth continued, there was 

little inflation, and the tax base remained solid enough to finance both social 

services and infrastructure. Corruption remained, but transactions costs were 

falling and social development indicators improving. Poverty statistics showed 

rapid improvement, and it started to become possible to talk of an ‘economic 

miracle’. This surprised many people.

Third, and prior to any significant formal policy shift, a private sector 

started to emerge with confidence and vigour. Possibly forced by realisation 

among ‘younger sons’ (and southerners far from the centers of influence and 

privilege) that there were no more opportunities in the state sector, and helped 

by an understanding that money could be made, this major historical step 

Vietnam," in Mark Turner, ed., Central-Local Relations in Asia-Pacific: Convergence or Divergence?

(New York: Martins, 1999). 

17 The only counter-example that springs to mind (of success) was the 500 KV North-South 

power line, condemned by the technocrats and pushed through by Prime Minister Vo Van 

Kiet. 
VIETNAM: WHAT NEEDS TO BE DONE

296

caused no great ructions on the part of the party’s old guard. By the early years 

of the new decade, the private sector was the fastest-growing sector, soaking 

up employment; finding dynamic outlets for its energies (such as exploiting the 

recently signed Bilateral Trade Agreement with the USA); working out how it 

would address classic problems such as its relationships with the Vietnamese 

working class; whether state support was good or bad; whether it was a good 

idea to do business with relatives; and so on. 

Finally, the foreign-invested sector, predominantly Chinese of various 

origins, managed to grow to a very high proportion of the modern economy 

without leading to any major social or political tensions. Various events 

pointed to the rules of the game, such as the imposition of an early decision to 

ban street signs that displayed foreign language more prominently than 

Vietnamese, and also early publicity given to the government’s very negative 

attitude toward ‘traditional’ labour management practices by foreign employers 

(examples were made of South Koreans who beat workers). It has been argued 

that the emergent labour regime was more ‘pro-worker’ than in China.18

CONCLUSIONS

Vietnam’s recent political-economic history allows certain conclusions in 

terms of the current and medium-term context. First, in Vietnam, simply 

changing systems has not and does not threaten greatly any significant elites. 

In time, through relationships and other tactics, new wine is put in old bottles. 

To put it another way, the successful transformation of the origins of the 

power of the powerful has not greatly changed the families and personalities 

involved. Some rise, some fall, but on the whole the basic lesson is that it is 

unwise to be too conservative for too long, because opportunities are missed. 

The trick is to adapt to change in ways that preserve and enhance local 

particular interests. Thus it is the changing pattern of interests associated with 

change processes, rather than interests per se, that is the key.

Second, at times of stress, when certain groups do feel particularly 

threatened, resources are made available through the system to compensate 

and support, rather than to force exit or loss. Vietnam’s politics are thus, 

correctly, seen as ‘softer’ and more flexible than others (the comparison is 

often made with China). Fewer people are killed, jailed or beaten up; the 

security forces tend to be used to keep bounds on tensions so that coping 

18 A. Chan and I. Norlund, "Vietnamese and Chinese Labour Regimes: On the Road to 

Divergence," in Anita Chan, et al eds., Transforming Asian Socialism: China and Vietnam Compared

(Canberra: Allen and Unwin, 1999). 
ADAM FFORDE

297

measures can be put in place. Where the local state is, for dysfunctional 

reasons, incapable of doing so (for example, because of corruption), we can 

see other strategies adopted. 

Third, within the wider process, we can see, ‘fast’ and ‘slow’ change. Here, 

it is clear that the two central issues (which are themselves nested into other 

complex knots of puzzles) are corruption, and the nature and status of popular 

associations and groups (the essence of the post-Leninist conundrum). And both 

of these are related, in ways that can be debated, to ‘the economy’ and the 

benefits of growth.

These conclusions lead to some further questions. 

Globalisation: can Vietnam compete? 

This question is impossible to answer. So far, the economy seems to be 

growing at a speed that suggests that Vietnam can compete. Further, there is 

clearly scope for obtaining better competitiveness through rationalisation (such 

as of SOEs). Yet it is simply unclear whether this will be adequate. What is 

certain, however, is that Vietnamese are acutely aware of the need to compete, 

and actively seeking ways of doing so. This needs to be done. Without it, 

what?

Internal changes and political adaptation: Will a state-regulated civil 

society emerge?

Despite many pointers, there is as yet no clear conceptualisation of just 

how a post-Leninist and plan-less Communist Party will express the basic 

norms of its own rule over an increasingly diverse and dynamic country. Here 

one can start to see deep-rooted tensions created by the rise of the private 

sector. The private sector is seen by Western development doctrine as vital to 

success (and now by party reformists as essential to international 

competitiveness), yet there are profound questions posed by the presence 

within Vietnam of powerful businesses, employing, firing, dealing and so forth, 

that are only weakly connected to existing social structures, both visible and 

hidden. It is worth recalling that the rapid growth of the 1990s was largely 

mediated through SOEs and the farming family sector; SOE managers were 

NOT in control of their businesses, but had to negotiate with others, including 

workers, through the complex and highly fixable structures that Vietnamese 

find so very normal. some argue (perhaps from a Central or Northern 

Vietnamese position) that, culturally the Vietnamese simply do not like free 

markets. They do not like the uncontingent powers associated with private 

property, in its strict sense. What will happen when private businessmen insist 
VIETNAM: WHAT NEEDS TO BE DONE

298

on their legal rights to foreclose on loans, sack workers, relocate and so on? 

We will have to wait and see.

How many ways to skin a cat? Corruption and the state-society 

metaphor

Finally, corruption is in many ways the King Charles’ Head of these 

discussions. It needs to be stopped. We have the example of Hong Kong and 

Singapore as countries that managed to address the issue, but in neither was 

the position of the government quite the same as in Vietnam, coping with a 

dynamic and shifting society. But this needs to be done. Without it, the people 

will continue to see so many local examples of state activities as illegitimate 

and extractive, and, as we saw in Thai Binh in 1997, they are not likely to 

remain quiescent.

VIETNAM IN SOME COMPARATIVE PERSPECTIVE 

Vietnam is of course both unique and simply another developing country. 

Vietnamese farmers sell their rice and their coffee, and these then command 

prices on world markets that are influenced by global factors. Vietnamese 

officials negotiate with officials from organizations such as the World Bank 

whose knowledge base and careers are profoundly global in character. Yet 

both farmers and officials come from a country whose history, it is clear, has 

many specific features. 

One thing that seems of interest, within a discussion of ‘transitions’, is the 

way in which the historical theatre since 1975 has tended to be one where, for 

all the massive extent and speed of change, the basic tactic of ‘playing it long’ 

has been common and feasible. This tends to result in a sense of adaptation, of 

an evolving understanding and cognition, and a competitive politics that 

follows changing rules, both institutional and informal. While ‘understanding is 

certainly limited and misunderstanding limitless’, this history, and the current 

reality, seems orderly. The basic political task, of the creation and maintenance 

of order, seems to have been carried out. 

Following from this, or rather parallel to it, is the sense that the basic fact 

of victory in 1975 created space for this evolving order to be very local; not 

very much of the above-sketched history is to do with the outside world. The 

VIth Congress of 1986 had little to do with Gorbachev and a group of 

reformist Soviet advisers. No foreign guru can be found to explain the 

emergence of the private sector in the late 1990s. And so on. ‘What needs to 

be done’ is a Vietnamese question, first and foremost, and this statement is 
ADAM FFORDE

299

based upon analysis of what happens, rather than upon some model of what 

should happen to a newly emergent Southeast Asian economy. 

Finally, one can note that the extent of Vietnamese involvement in the 

world is now very great. The economy is very open, with perhaps fifty percent 

of GDP exported. Vietnamese businesses start to pop up in interesting places 

(not counting the well-established wheelers and dealers in Eastern Europe and 

Russia). The country remains very poor, and its market penetrations usually 

insignificant. Yet in areas where it is an important player (rice and coffee), 

Vietnamese plays are significant. When this is placed beside the extensive 

levels of spending on social areas, and the highly positive results in terms of 

social development indicators, then this is hardly surprising. Producers bear, 

and are able to bear, high levels of business risk, and this is a good platform 

for further development of trade. Land holding remains very widespread, 

given that this is a market economy. Continuing inefficiencies in various parts 

of the economy (such as SOEs) offer scope for rationalisation.

So, what needs to be done? This is clear. A more robust politics, with a 

clearer understanding of the nature of government over a market economy, 

will result in measures to curb corruption, probably within the next decade, 

and, more interestingly for an East Asian country, in a regulation and 

governing of society that meets the complex and frequently contradictory 

needs of rapid change and economic transformation. This will involve a clearer 

definition of state-society relations as that paradigm of political science 

becomes apparent. Again, this will be ‘played long’ and be a precondition for 

dealing with corruption in ways that enhance change, development, and 

growth.
TRANSITIONS IN MALAYSIAN SOCIETY AND 

POLITICS: TOWARDS CENTRALIZING POWER 

MICHAEL LEIGH & BELINDA LIP

There are many dimensions to national transition, and all are of course 

inter-related. Some transitions are a consequence of government policy; others 

take place despite the government. This chapter focuses upon a number of 

important transitions that have taken place in Malaysia over the decades since

independence. Together, they explain the kind of society Malaysia is today and

many of the tensions within Malaysian society. 

TRANSITIONS IN IDENTITY

Ethnicity has been asserted as the dividing line in Malaysian society.

Populations can identify by their culture, their mother tongue, their religion

and their locality. Each of those defining identities overlaps, but they are not

coterminous. The colonial government chose quite deliberately to organize 

people according to their ethnicity, not according to geography, religion, or

culture. The ideological justification of white colonial rule was based upon

ethnic identification, and ranking from superior to inferior on the basis of race.

The continual reinforcement of racial identity as the cutting line in Malaysian

society was not something that happened by chance, it was quite deliberate. 

The post-independence political leadership has organized its support base by 

continuing to emphasize race as the most important dividing line between 

peoples. In Malaysia, it is the Malay and Chinese communities that have been 

most loudly assertive of their identity, perhaps due to their strong differences 

in culture, as well as their political and economic pre-eminence in the national 

leadership.

Components of the Malaysian population today have quite distinct 

perceptions of their identity and status in the country from that held before

independence. The 1972 New Economic Policy (NEP) imposed a change on 

the perceived status of each ethnic community. Under the colonial policy of 

ethnic ‘divide and rule’ each community had a different perception of their

status, one that was linked to their roles and utility in society. The 

government’s affirmative action policy and subsequent grant of business 

300
MICHAEL LEIGH & BELINDA LIP

301

favors to ethnic Malays has served to enhance a perceived importance of the 

Malay community. Such an approach appealed to the Malay community’s 

insecurities and, as Crouch has stated, it also constituted an unambiguous 

symbol of Malay dominance.1 Implementation of the NEP was linked to the 

introduction of the Sedition Act, which prevents anyone from questioning the 

special rights and privileges accorded to the Malays, and the right of nonMalays to citizenship.

The Malays of the past have been extremely conscious of their status in 

what they saw as their homeland. In fact the correct translation of the name of 

independent Malaya was the Federation of Malay Lands Persekutuan Tanah 

Melayu. During colonial time, Chinese and Indians were brought in as 

immigrant laborers. The party that has led the Government since before 

independence, the United Malays National Organization (UMNO), and 

remained in power for 45 years, has depended heavily on rural Malay votes 

during elections, sometimes playing on their insecurities. Today Malays 

constitute a narrow majority (50.8 percent) of the population,2

 but the need to 

feel a sense of status in the community persists, especially among the middle 

class. The government’s favoritism towards the Malay bumiputera (sons of the 

soil) businessmen has only served to enhance the ‘perceived importance’ of the 

Malay community, whilst contributing to a persistent sense of insecurity. 

Ironically, it added to the Chinese community’s sense of importance in the 

community, especially economically. 

The changes in the perception of identity and status by individuals within 

Malaysia, are also evident amongst the younger generation, brought up in a 

distinctly different environment than their parents or grandparents. This 

younger generation does not have strong attachments to the historical 

independence ‘bargain’ that is deeply entrenched in many of the old folk’s 

minds and hearts. The post-independence generations have been born directly 

into a multiracial community, which regards Filipinos, Indonesians and 

Bangladeshis as immigrant workers, and Chinese and Indians as Malaysians. 

The perceptions of the non-Malay ethnic groups towards their status in 

Malaysia thus changed from the time when a compromise was made during 

Malaysia’s independence.3

 Any appreciation associated with the granting of 

1 H. Crouch, Government and Society in Malaysia (Ithaca: Cornell University Press, 1996), p.158. 2 Government of Malaysia, Yearbook of Statistics (Malaysia: Department of Statistics, 2000), p.35. 3 In the negotiations that led to the granting of independence in 1957, the leaders of the three 

dominant ethnic communities (Malay, Chinese and Indian) reached an understanding, the 

essence of which was that Malays would be dominant in government while the non-Malays 
TRANSITIONS IN MALAYSIA

302

citizenship to non-Malay citizens has worn off long ago. The post 

independence generations of Chinese, Indians and indigenous peoples of 

Sabah and Sarawak question the superior status granted to Malays in what they 

now perceive as their country. The old ‘motherland’ attachments to country of 

origin are but historical memories.

However, resentment towards this discrimination has been balanced, for 

many, by material improvements. Crouch states that economic prosperity has 

made it easier for the non-Malays to accept, however reluctantly, the basic 

character of the political order.4 Perhaps their perceived sense of importance 

also helps to reduce their resentment.

Former long-serving Prime Minister, Dr. Mahathir Mohammad has been 

very outspoken in his attempts to transform the mentality of the Malay 

community. While Prime Minister he repeatedly harangued his own 

community, especially at meetings of the ruling UMNO. The flavor of his 

remarks often leaves a bitter taste to Malays, and confirms caricatures held by 

other races. 

...The Malays are still weak, the poorest people and are backward. If 

we take out the Chinese and all that they have built and own, there 

will be no small or big towns in Malaysia, there will be no business 

and industry, there will be no funds for subsidies, support and 

facilities for the Malays.5

The Malays do not lack anything. They have the brains, the energy... 

If they have not succeeded after being given the opportunities many 

times, after they have been helped with all kinds of facilities and even 

money, the reason is that ...they are lazy and like to find the easy 

way and the quick way, no matter what the end results.6

What is obvious and the truth is that they, in their own country, have 

to depend on other races to build up the country’s prosperity, and 

various affairs of the community are planned and implemented by 

other races.7

were granted citizenship and assured that their position in the economy would not be 

disturbed (Crouch, op.cit., p.157).

4 Crouch, op.cit, p.195. 5 Speech by Dr. Mahathir Mohammad at the UMNO General Assembly, Putra World Trade 

Centre, Kuala Lumpur, 20 June 2002. 

6 Ibid. 

7 The Straits Times Interactive. www.straitstimes.asia1.com.sg. 
MICHAEL LEIGH & BELINDA LIP

303

The Malay status glorified in the past does not receive the same respect 

today by this outspoken leader who called for a Melayu Baru or ‘New Malay.’ 

Within Malaysia, people identify themselves according to their ethnic 

group, regardless of generation. They will debate whatever government policy 

that appears to threaten their own cultural identity, language and religion, 

elements that they see as signatory to their being Chinese, Malay, Indian, Iban 

or each of the other groups. However, outside Malaysia, self-identification 

customarily places country above ethnicity and they introduce themselves not 

as Malay, Chinese or Indian but as Malaysian. National identity and ethnic 

identity therefore become two separate identities adopted by Malaysians. Thus, 

the concept of nation (Bangsa Malaysia) outlined in Mahathir’s Vision 2020 is 

already a contingent reality. 

The persistence of the individual groups identifying themselves primarily 

according to ethnicity can be attributed to the difficulty in defining just what it 

is that constitutes a Malaysian nation. The concept of ‘Bangsa Malaysia’ is one 

that is ambiguous. The translation into English of the term bangsa can be either 

race or nation, depending upon the context. The distinction between bangsa 

(nation) and bangsa (race) is quite unclear. Lukman argues that a nation (in this 

context, people) must be present before a country is created and therefore the 

Malaysian nation was present before the formation of Malaysia.8

 That 

Malaysian nation is known as bangsa Melayu or the Malay nation. He goes on to 

say that the ‘Malaysian nation’ underwent a dynamic transformation from one 

that symbolizes a mono-ethnic Malay to one that symbolizes multi-ethnic 

Malaysians. This transformation is a result of the country’s independence and 

the need to downgrade the use of ‘Malay nation’ to ‘Malay race’ to truly 

represent the country’s three major ethnic groups as one nation. He likened 

the Malays to a people who have lost their country, like the Maori in New 

Zealand. He concludes that Malays have lost the land in which they can fully 

identify themselves, compared to the Chinese and Indians who still can 

identify themselves with China or India. 

Perception of identity is closely linked to culture, and religion as well. The 

Chinese and Malay ethnic groups in Malaysia have most often defended the 

preservation of their culture through debates on government-imposed policies 

in the fields of education and language usage.

8 Lukman Z. Mohamad, ‘Transformasi Bentuk Bangsa Malaysia dan Identiti Nasional’, Conference 

paper, August 2001, (http://phuakl.tripod.com/pssm/conference/LukmanMohamad.doc).
TRANSITIONS IN MALAYSIA

304

TRANSITIONS IN EDUCATION AND LANGUAGE 

Education and language policies in the early years of independence were 

formulated with communal identities and interests in mind. Only in the twenty 

first century have these policies been redefined to better equip the society for 

the challenge brought about by the demands of development and 

globalization. In the 1990s the issue of language in relation to communal 

identity became less prominent, having been obscured and overridden by 

discourse on Islam. However, quite recently discourse on language has 

resurfaced, with former Prime Minister Mahathir taking a very utilitarian 

approach, focusing on the need to meet the challenges from external pressures 

in the new millennium.

The establishment of a National Language was a source for political debate 

and manifestos, for the 1955 general elections. It was revived again from 1964 

when Lee Kuan Yew’s People’s Action Party pushed for a ‘Malaysian 

Malaysia,’ which was clearly contrasted to what he saw as the ruling Alliance 

Party’s preference for a ‘Malay Malaysia.’

Related to this is the debate on a national education system and its 

language medium. The proposal for the national education system was 

outlined in the Razak Report in August 1956.9

 English remained the medium 

of instruction for the middle class of all races until the end of the 1960s. 

Following the communal upheaval in 1969, a new education policy was 

introduced whereby English-language schools were converted to Malay 

beginning from the first year of primary school in 1970 and ending with the 

last year of high school in 1982.10

The subject of Malay as the National language was endlessly debated in the 

context of Malaysia as a Malay nation. The ‘sovereignty of the Malay language’ 

was generally considered a symbol of the Malay nature of the state and the 

Malay predominance over it.11 The National Language Act of 1967 aimed at 

making Malay the sole official language of the country, underlining Malay 

sovereignty. It was designed to help quell the feelings of dissatisfaction among 

the bumiputeras over their loss of exclusive rights to citizenship.

The political leaders’ gradualism towards the implementation of the 

National language and liberalism towards the use of other languages may have 

9 Margaret Roff, ‘The Politics of Language in Malaya’ Asian Survey, May 1967, p.318. 10 Crouch, op.cit, p.160. 11 Ibid., p.159. 
MICHAEL LEIGH & BELINDA LIP

305

helped reduce tensions between ethnic groups. However, many Malay leaders 

were impatient and demanded immediate and clear implementation of the 

National Language. One particular faction was the Barisan Bertindak Bahasa 

Kebangsaan (National Language Action Front), which consisted of many 

UMNO members and Alliance parliamentarians. This faction had strongly 

opposed the 1967 National Language Bill, claiming that UMNO had sold out 

the Malays. They based their claims on the pre-independence agreement 

between the Alliance partners that non-Malays are accepted as citizens in 

return for Malay being unconditionally accepted as the national and sole 

official language. This cause suspicion within the Chinese community, 

particularly those concerned with preserving their ethnic identity and 

importance, to the extent of creating dissension within the Malayan Chinese 

Association (MCA).

Roff states that the main concern underlining the strong opposition of the 

National Language Action Front (NLAF) was with the promotion of English 

vis-à-vis Malay.12 The parties that sought to diminish the prominence of 

English should be satisfied with the outcome today, whereby the Malay 

language has been deeply ingrained within the community, especially the Malay 

community, and has surpassed English in its usage in Malaysia. Upon 

reflection, the Malay language now also functions to unite a multiracial 

community through widespread use and knowledge of a common language. 

Communication cannot be expected to be effective between different ethnic 

communities if they only emphasize the importance of their distinct languages.

One of the supporting justifications for the implementation of a National 

Language in the past was that it would facilitate easier access to employment. 

However, currently one of the most important requirements that employers 

seek is the ability to speak English, especially in areas where technology and 

global business are concerned. 

Information technology has progressed rapidly in Malaysia, introducing the 

concept of a borderless flow of information, information at the fingertips, and 

online transactions worldwide. The introduction of the Internet greatly 

improved access to information and the dissemination of information. The 

Internet, however, is limiting in terms of the language of communication used, 

knowledge, and affordability. This places new emphasis on the use of English 

as the international lingua franca. The government therefore aspires to reemphasize the importance of the English language using science and 

mathematics as an avenue for its reintroduction. The Cabinet discussed this 

12 Roff, op.cit, pp.327-328.
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proposal on 17 August 2002.13 Prior to that, a new concept school was 

introduced, the Vision School. Under the Vision School concept, the 

national, Chinese and Tamil schools are housed in one complex and share 

common facilities such as canteens and playing fields.14 The concept has been 

proposed to promote racial unity. The government strategy was to bring 

students from these three ethnic-based schools together. Mahathir stated that: 

‘...we find that many (parents and students) are not interested because of too 

much politicking that the national schools now want to segregate the races, like 

for example, Muslims cannot mix with the non-Muslims’.15

The proposal was met with objections by various Chinese associations, the 

strongest coming from the Dong Jiao Zhong (the collective name for the United 

Chinese School Committees Association Malaysia, [Dong Zhong] and United 

Chinese School Teachers Association Malaysia, [Jiao Zhong]). Their main 

concern was for the future of vernacular schools and the development of 

education in their own mother tongue. These Chinese associations fear that 

the use of Bahasa Malaysia (the Malay language) as the main medium of 

instruction will gradually be imposed. Such fears brings back reminiscences of 

the past when national-type schools were proposed.

Proposals to use English in school subjects can still incite fear among 

some groups in the community. The superiority of Bahasa Malaysia as the 

National Language and the use of other languages in Chinese and Tamil 

schools has been acknowledged and well established. Mahathir would argue 

that this would appear to be the time when the use of English in certain areas 

could be implemented without raising fears of any loss of cultural identity. He 

has noted: ‘I learnt English in school when I was very young but I did not 

become an Englishman. You will not become an Englishman just because you 

learn English’.16

Mahathir also warned people (whom he calls extremists) not to politicize 

the issue by raising racial issues. The government’s wary approach to the 

subject of education and language policy highlights the sensitivity of the issue. 

The change in nomenclature of the national language from Bahasa Malaysia to 

Bahasa Melayu and then back to Bahasa Malaysia reflects this uncertainty. Even 

simple administrative matters have been converted into issues of racial survival 

by ambitious politicians, who can easily forget that the function of language is 

13 The Borneo Post, 7 August 2002. p.8. 14 Ibid, p.9 15 Ibid, p.9. 16 Ibid, 11 August 2002. p.12. 
MICHAEL LEIGH & BELINDA LIP

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to serve as a tool for communication, for the basic understanding between two 

persons.

A broad question now is whether the mother tongue is required in order to 

preserve culture. The argument is that culture is intrinsically linked to language. 

The desire to protect culture ironically brings the Chinese and the Malays on 

to a common platform, objecting to extended use of the English language in 

schools.

TRANSITIONS IN THE ROLE OF ISLAM 

Islam has always been a mainstay in the politics and culture of Malaysia. It 

plays a role in the identity of Malays in Malaysia. Under the national 

constitution, Islam is the national religion and ‘Malay’ means a person who 

professes the Muslim religion, habitually speaks the Malay language, and 

conforms to Malay custom.17 UMNO has always sought to emphasize 

development issues and the economic benefits of its leadership of the Malay 

community, whereas the opposition Parti Islam (PAS) has taken the high 

moral ground stressing Islam as the key to unity and progress of the Malay 

community.

UMNO was formed as a communal party, its object being to protect and 

promote an ethnically defined community. The principal challenge to UMNO 

has come from Parti Islam, which asserts the primacy not of race but of 

religion. Parti Islam has succeeded in its efforts to steadily shift the political 

discourse toward religion, where it can take the high moral ground, rather than 

being on the defensive when UMNO stresses the more tangible benefits of 

economic improvement. These two parties have provided their respective 

interpretations on Islam, sparking a debate over who has the more ‘correct’ 

interpretation of Islam. 

UMNO’s position on Islam has always been one of detachment and 

defensiveness. It has done what is necessary to uphold the constitutional 

provision that Islam is the national religion. UMNO has responded to the PAS 

challenge by building Islamic institutions throughout the country, and 

implementing a policy called the Islamization of the government apparatus. 

However, UMNO has never been fully recognized by Malays as the champion 

of the religion, but rather as the champion of Malay rights, uplifting the 

17 Pt. XII Article 160. Federal Constitution of Malaysia. (Incorporating all amendments up to 1 

June 1970).
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economic and societal status of Malays.18 The dismissal of Anwar Ibrahim, a 

symbol of Islamic resurgence within UMNO, further eroded the party’s 

reputation as the upholder of Islam. Islamic appeals replaced the rhetoric of 

uniting the Malay community, especially after Anwar’s expulsion from UMNO 

on the charge of sodomy and the tragedy of 11 September 2001. The Malay 

community was united in sympathy and outrage over the two incidents, both 

of which appeared to misappropriate Islamic laws. Sympathy for Anwar arose 

from disbelief at the allegations, which were in stark contrast to the pious 

image with which he was associated. 

According to Vidhu Vermathe, the Islamic resurgence of the late 1990s 

was different from earlier incarnations.19 It was brought about by the 

authoritarian politics practiced by Mahathir, changes in Malay identity, and 

popular views. It is viewed as an appropriation of political space within the 

arena of institutionalized repressive tolerance. 

Dr. Mahathir managed to garner the widespread agreement of the Malay 

community when he commented that the US should go to the root of the 

problem in combating terrorism: ‘I explained to him (President Bush) the 

anger and frustration of the Muslim world and he seemed to appreciate and 

understand what I was saying’.20

This gives the Malay community a sense that they have always been 

tolerant and patient despite the oppression displayed in the Anwar situation, 

Mahathir’s criticism of Malays and their own achievements relative to other 

ethnic groups. Dr. Mahathir’s politics provided psychological unity, not only to 

Muslims in Malaysia but all over the world. Mahathir had also loudly 

proclaimed that Malaysia is not just an Islamic nation but an Islamic 

fundamentalist state.21 Islam therefore becomes a greater factor of identity to 

the Malays and the Muslims. 

18 Ahmad Hussein Syed, ‘Muslim Politics and the Discourse on Democracy’, Francis Loh Kok 

Wah & Khoo Boo Teik, eds., Democracy in Malaysia Discourses and Practices (Surrey: Curzon Press, 

2002), p.89. Contemporary argument states that ‘in the short term, Mahathir’s Islamization 

policy had been effective in its ‘task...to domesticate [the] assorted Islamic loyalties to its own 

purpose without losing its own moral or religious control’ but the parallel tightening of the 

political arena had helped steer Islamists into new areas of dissent—that of social justice, clean 

government, democratic space, honest elections, rights and freedoms. To them these were as 

central to the teachings of Islam as the Islamic programs and institutions that UMNO 

initiated’.

19 Vidhu Verma. State and Civil Society in Transition, (Colorado: Lynne Rienner, 2002), p.209. 20 The Star, 21 October 2001. 21 The Borneo Post, 18 June 2002. 
MICHAEL LEIGH & BELINDA LIP

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TRANSITIONS IN THE ECONOMY 

The dominant trend in the post-independence period in Malaysia’s 

economy has been a transition from dependence on primary exports to a 

diversified economy with a vigorous industrial sector; and a rise in per capita 

income brought about largely by industrialization.22 This brought about 

changes to the balance between rural and urban population, changes in societal 

structure and a gradual change of mindset in the people. 

This shift has not been prominent, however, in East Malaysia, which still 

depends heavily on the export of primary produce, the most valuable of which 

has been timber. There is an imbalance in economic development amongst the 

states of Malaysia. While Peninsular Malaysia’s economy shifts further away 

from dependence on primary products, Sarawak appears to be moving in the 

opposite direction. Sarawak has experienced a net transfer of revenue to the 

Peninsula since it signed over Petroleum rights to Petronas (the national oil 

company) in 1974.23 The federal government’s revenue from Petronas has 

been very high and the profits have supported the government’s ability to 

undertake financial rescue operations critical to UMNO’s support base.24

The economy during the colonial period, especially in the case of Malaya 

(Peninsular Malaysia), was exceptionally open in every sense—to international 

trade, foreign capital inflows, and immigration of labor from countries with 

population surpluses (India, China, Indonesia, the Philippines, etc).25 The 

community structure from the colonial ‘divide and rule’ approach remained 

intact. Unequal distribution of economic wealth propagated and resulted in 

state interventions to the open market. Government economic policy moved 

from a largely laissez-faire stance in the 1960s to more state-directed and 

supported modes in the 1970s and 1980s while economic growth accelerated.26

State intervention, with the introduction of the NEP, saw a large influx of 

22 Amarjit Kaur. ‘Economy and Society: The Formation of a National Economy’, Amarjit 

Kaur & Ian Metcalfe eds., The Shaping of Malaysia (Basingstoke: MacMillan Press, 1999), 

pp.119-163.

23 Michael Leigh, ‘The New Realities for Sarawak’, Colin Barlow, ed, Modern Malaysia in the 

Global Economy: Political and Social Change Into the 21st Century (Cheltenham: Edward Elgar 

Publishing, 2001), p.120. 

24 Ibid. p.130. 25 Ibid. pp.196-208. 

26 J.H. Drabble, ‘The ‘Lucky Country: Malaysia’s Twentieth Century Economic 

Transformation’ in Kaur & Metcalfe, op.cit.
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population to the urban town areas. Economic policies capable of absorbing 

the increased amount of wage labor were needed and implemented. 

The formation of the Malaysian Federation was a convergence of 

economies at various development stages: Singapore, Malaya, Sabah and 

Sarawak. In anticipation of the formation of Malaysia, a World Bank mission 

submitted a report on the economic aspects of the federation, endorsing the 

thrust of post-colonial Malayan industrialization policy and the setting up of a 

Tariff Advisory Board.27 The economy remained relatively open at this stage 

and Malaysia continued with industrialization, strategizing on import 

substitution in the 1960s coupled with rural development in the 1970s, then 

moving on to export-oriented manufacturing in the 1980s and 1990s. 

Malaysia’s economy was affected by fluctuations in the world economy at 

various periods in time. Foreign investment slowed down at the end of the 

1960s. One of the factors affecting the slowdown was the devaluation of the 

pound sterling in 1967 and the racial riots in 1969. Malaysia also had to face a 

shift in the attention of British investors towards Europe.28 In the mid 1980s, 

worldwide recession occurred. The slump intensified the slowdown in capital 

investment which had occurred with the implementation of the Industrial 

Coordination Act (ICA) 1975. Malaysia had initially reacted to the slowdown 

with increased state investment, especially utilizing revenues from petroleum. 

However, the impact of the mid-1980s world recession forced a relaxation of 

the ICA, and heavy promotion of foreign investment, with the leading 

investors coming from Japan. This followed the ‘Look East’ policy and heavy 

industrialization program that was carried out through Heavy Industries 

Corporation of Malaysia (HICOM) in the early 1980s, when Dr. Mahathir 

became prime minister of Malaysia. In 1997 Malaysia experienced another 

economic downturn caused by a devaluation of currencies in the Asian region, 

starting with Thailand’s baht.

Economic growth was impressive during the first fourteen years of the 

NEP, averaging 7.8 percent during the 1970s and 6.9 percent between 1982 

and 1984.29 The NEP was temporarily shelved for a period between 1985-86 

with a relaxation of rules governing FDI, seeking to increase input from this 

source.30 A new source of capital was needed since the deepening world 

27 Ibid.

28 J.H. Drabble, An Economic History of Malaysia, c.1800-1990:The Transition to Modern Economic 

Growth (London and US: MacMillan Press & St. Martin’s Press, 2000), p.243. 29 Crouch, op.cit., p.222. 30 Kaur, op.cit., p.160. 
MICHAEL LEIGH & BELINDA LIP

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recession of the 1980s prevented the government from continuing to inject 

funds into the economy. The economy contracted one per cent in 1985.31

The timing and volume of FDI in Malaysia were crucial determinants of 

the pattern and rate of growth of Malaysia’s economy, particularly due to 

political strategies of favoritism adopted by the ruling government, which 

inhibited investment from the principal domestic savers, the Chinese.32 FDI 

became the alternative, possibly the only alternative, to capital for 

development. A heavy reliance on FDI though, put the Malaysian economy at 

the mercy of foreign investors, and it contracted significantly when they 

withheld their investments. Table 1 shows the FDI totals. We should note that 

the extent of FDI may be related closely to a country’s openness to trade.33

Table 1: Net FDI in Peninsular Malaysia (1961-1990) 

TOTAL INVESTMENT APPROVALS (US$ MILLIONS)34

Year Amount 

1961-80 4,453

1981-90 11,850

(1988-90) 5,523

1961-90 (Total) 16,303

Source: Drabble op.cit., p.240. 

Dr. Mahathir’s response to western-style globalization was critical. 

Mahathir warned of free capital flows leading to an ‘anarchic’ globalized 

market.35 He also continually expressed concern over possible political control 

that can be gained by large multinational corporations over a country, even 

though he continued to court FDI.

31 Drabble, 2000, op.cit., p.200. 32 Ibid, p.240. 33 Avik Chakrabarti, Determinants of FDI: A Comment of Globalization-Induced Changes and the Role of 

FDI Policies, 

http://wbln0018.worldbank.org/eurvp/web.nsf/Pages/Paper+by+Chakrabarti/$File/CHAK

RABARTI.PDF. Chakrabarti suggests that countries intent on increasing FDI should increase 

participation in the process of globalization as well as regional economic integration. World 

economies are now converging on the platform of globalization, an economic transition that is 

being pushed upon all countries regardless of ranks in development. This transition had been 

largely brought about by the more developed Western economies. 

34 Ibid. 

35 ‘Malaysia’s Mahathir Warns of “Anarchic” Globalisation’, 

http://asia.news.yahoo.com/020603/reuters/nklr152056.html
TRANSITIONS IN MALAYSIA

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Despite Mahathir’s wariness over having to depend on FDI, Malaysia may 

need to continue relying on FDI for sheer economic survival. A recent report 

argued that Malaysia may need to become more competitive vis-à-vis its 

neighbors through more traditional methods of attracting FDI,36 this contrasts 

with Mahathir’s policy of embarking on an IT-based economy. Under that 

policy, one of the projects, the Multimedia Super Corridor, was set up to 

attract foreign investment and technological exchange. The need for continued 

reliance on foreign investment is enhanced by the slow progress of the ITbased economy.37

These economic transitions helped shape the skills of the society, bringing 

them from the farms to the factories and now towards computerized facilities. 

Skill development is forced upon them regardless of their readiness. These 

transitions have also occurred in a relatively short span of time, commanding 

considerable flexibility on labor skills.

TRANSITIONS IN UMNO 

The United Malays National Organization or UMNO has always asserted 

its centrality to the Malay community’s hopes, aspirations and development. 

UMNO was formed initially to oppose the implementation of the Malayan 

Union. Its aristocratic leaders articulated Malay racial interests at a time when 

the Malay sultans and aristocracy felt extremely threatened. They needed 

protection and drew upon popular support based on common ethnicity.

A split in the party occurred when Date On Afar, the founder, wanted to 

transform UMNO into a multiracial organization. His proposal was not well 

received and he later resigned to form the IMP (Independence of Malaya 

Party), which was open to all ethnic groups. The new UMNO leader, Tunku 

Abdul Rahman, formed the Alliance with the MCA and MIC (Malaysian 

Indian Congress), a multiracial front to contest the 1955 general elections. 

Tunku had the difficult task of striving to accommodate both Malay and nonMalay interests. The balance was difficult to attain without raising the 

suspicion and fear of other members. Tunku later faced challenges from the 

‘young Turks’ of his party, prominent among them being Dr. Mahathir, who 

wanted the leaders to fight for more Malay interests in business and society. 

They called for the expansion of state capital to create a Malay capitalist class 

36 S. Jayasankaran, ‘Fear of the Future’, Far Eastern Economic Review, 19 September 2002, p.60. 37 The government aims for a transition from a p-economy (product economy) to a keconomy (knowledge-economy). The country thus moves from tangible to non-tangible 

commodities. 
MICHAEL LEIGH & BELINDA LIP

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through the government-sponsored Bumiputera Economic Congresses of 

1965 and 1968 which resolved that the government ‘must act as the helper, 

protector, enforcer and promoter of bumiputera economic interests in 

entrepreneurship, industry, mining, transport, marketing, capital investment 

and training.’38

The seeds of greed and dissension had been sown when rising young 

‘entrepreneurs’ had seen what the government can do and will do for them. 

This seed was nurtured and rooted when Tunku’s successor, Tun Razak, 

brought bigger shares of business in the economy to the Malay community, 

particularly to members of UMNO. Razak had been more aggressive in his 

policies than Tunku. The NEP had been a major influence. ‘UMNO went into 

business with the implementation of the NEP’.39 The economic prosperity and 

the continued growth of Malay influence in the business arena prompted 

deeper UMNO involvement in business, concentrating more corporate wealth 

into the hands of an elite minority. The ‘Individual bumiputera’ share of total 

bumiputera equity dropped from sixty percent in 1970 to thirty-four percent in 

1980 despite an increasing annual growth rate of individual bumiputera equity by 

23.5 percent per annum.40 By the time that Mahathir took over leadership of 

the party, many attitudes such as the subsidy mentality were already deeply 

entrenched in the party. Gomez attributed the rise of the money politics 

phenomenon to a rent-seeking middle class in UMNO.41

The change in purpose, leadership and member composition in the party 

created rifts. The party’s grassroots leadership composition underwent a 

gradual change, from a more ideological rural base to a more commercial 

urban base. This was reflected in the change in the composition of the UMNO 

General Assembly participants. Teachers made up forty-one percent of the 

UMNO delegates in 1981. This dropped to nineteen percent in 1987 while the 

number of businessman in the delegates constituted twenty-five percent in 

1987.

Faction formation was also more rampant than ever. Milne and Mauzy 

have argued that, ‘factions in UMNO became more acrimonious than those 

under any previous president, so acrimonious that the party split in 1987, was 

38 Edmund Terrence Gomez, Political Business: Corporate Involvement of Malaysian Political Parties 

(James Cook University of North Queensland: Australia, 1994), p.52. 

39 Edmund Terrence Gomez, UMNO’s Corporate Investments (Selangor, Malaysia: Forum 

Enterprise, 1990), p.166. 

40 Gomez, 1994, op.cit., p.56. 41 Ibid.
TRANSITIONS IN MALAYSIA

314

declared an illegal organization and had to be reconstituted’.42 Milne and 

Mauzy also described UMNO’s transition as ‘a swift transition from traditional 

deference in UMNO to an era of rampant money politics without any 

perceptible intervening period of democracy in the party’.43 In the late 1970s, 

as prime minister, Tun Hussein Onn agonized over the explosion of corrupt 

practices as party members seized opportunities provided by the affirmative 

action policy (the NEP) and turned them to their own individual benefit, 

whilst claiming to be acting on behalf of the Malay community. 

Contesting his first general election as prime minister with the slogan 

‘bersih, cekap dan amanah’ (clean, efficient and trustworthy) Dr. Mahathir 

articulated the desire for a clean and non-corrupt functioning of the 

government. The success rate does not appear to be convincing though. With 

the introduction of UMNO into business, a different goal or source of 

attraction keeps the party members together today. Although the purported 

role UMNO plays in the Malay society still remains the same, that is to protect 

the rights of the Malay community, the emphasis on ‘which class of the 

community’ has substantially changed. To some, UMNO also projects an 

image of aggressiveness today, in part because of its unchallenged role as the 

leading party of the ruling Barisan Nasional, the National Front. 

TRANSITIONS IN GOVERNMENT

The authoritarian character of the Malaysian government has been 

enhanced incrementally over time.44 The Malaysian political system continues 

to display a democratic character despite increasing authoritarian behavior 

since the ruling government continues to adhere to the letter of the 

Constitution. The Constitutions has, however, been amended numerous 

times.45 All that is required to amend the constitution is a two-thirds majority 

in both houses of the federal parliament, and the Alliance/National Front 

Government has always held more than two-thirds of the seats in every sitting 

of Parliament. The government has cleverly amended the Constitution, on the 

one hand preserving the structure of democratic governance while at the same 

time making changes to suit their desire for greater authority. The authoritarian 

character of the political system was strengthened when Mahathir, after 

42 R.S. Milne, & D.K. Mauzy, Malaysian Politics under Mahathir (New York: Routledge, 1999), 

p.185.

43 Ibid. 44 Crouch, 1996, op.cit., p.96. 45 Ibid.
MICHAEL LEIGH & BELINDA LIP

315

experimenting with political liberalism for a brief period (1981-1987), decided 

that the Malaysian society would develop better with more stringent political 

controls. (The mirror image prevailed in the economic realm, Dr. Mahathir 

having initiated state-led heavy industrialization and restrictions during the first 

half of the 1980s, only to change tack and follow a policy of economic 

liberalization during the second half of that decade).46 In 1987 Dr. Mahathir 

faced-off a challenge to his leadership of UMNO and launched Operation 

Lalang, employing the Internal Security Act (ISA) against organizations and 

individuals who were simply critical of government policies, but by no stretch 

of the imagination could be deemed subversive, pro-communist or utilizing 

unconstitutional means to oppose the government in power. 

Authoritarianism has been slowly weaved into the fabric of government, 

thanks in part to the Sedition Act. This act made it an offense to question 

constitutional provisions relating to the position of the Malay rulers, the 

special privileges accorded to the Malay community, the rights of non-Malay 

citizens, and the adoption of the Malay language as the sole official language of 

the country.47 Other facets of authoritarianism are the loss of independence of 

the judiciary, the reduction in the rulers’ powers and in the continuing use of 

the colonial era Internal Security Act (ISA).48

The judiciary’s loss of independence is not recorded in school history texts. 

The judiciary’s independence was drastically reduced following a series of 

court cases whose outcomes had not been satisfactory to the government. The 

first concerned the takeover of Bank Bumiputera Malaysia by Petronas. The 

government had amended the Petroleum Act in May 1985 retroactive 1 

October 1974 to make the takeover legally possible.49 The High Court ruled in 

favor of the Government but ordered costs to be paid to a lawyer who had 

sued the government on the legality of the takeover. The second involved the 

suspension of the Asian Wall Street Journal from publication and the expulsion 

of two of its journalists. The Supreme Court had ruled in favor of the 

newspaper. Public attacks on the judiciary followed, and the verbal tussle 

46 One can draw parallels with the Communist Party of China, which has asserted very tight 

political hegemony, whilst at the same time liberalizing the economic domain. The Chinese 

leadership were highly critical of the way in which the Communist Party of the Soviet Union 

liberalized its political control, with the resultant destruction of Communist leadership and 

balkanization of its territory. 

47 Khoo Boo Teik, ‘Nationalism, Capitalism and “Asian Values’’’ Loh & Khoo op.cit., p.59. 48 The rulers are the Sultans who rule their states and the Agong or king who is drawn from the 

ranks of the Sultans. 

49 Tun Salleh Abas & K. Das, May Day for Justice (Kuala Lumpur: Magnus Books, 1989), p.8. 
TRANSITIONS IN MALAYSIA

316

between the prime minister and members of the judiciary was much 

publicized. The head of the judiciary, the Lord President, and two other 

Supreme Court judges were then removed on the grounds of conduct 

unbecoming of a judge. Dr. Mahathir, in an interview with Time magazine, 

implied that judges should not interpret the law independently but ‘according 

to our wish’.50

Another demonstration of the power of the executive over all other 

institutions in the country is the reduction of the power of the Malay rulers. 

Amendments to the constitution were made to remove the veto powers of the 

Malay rulers over legislative bills. A further amendment was made to the 

constitution to remove the immunity of the sultans for criminal offences, so 

that they would not be above the law.51 This amendment was made after the 

Sultan of Johor’s alleged assault on a hockey coach. The amendment to 

remove the veto powers of the sultan was not signed by the Agong, who felt 

that his position would be threatened if he signed. The situation was finally 

resolved when a compromise was reached whereby the king would be given 

sixty days to delay any piece of legislation, compared to the proposed fifteen 

days, provided he gave reasons for the delay. Once the legislation was returned 

to Parliament, Parliament had the power to approve it a second time and it 

would become law.52 Mahathir announced that ‘the feudal system was over’ 

after the Constitution (Amendment) Bill 1983 was finally signed by the deputy 

Agong.

53

The strongest symbol of authoritarianism is the Internal Security Act 

(ISA). The use of the ISA has considerably limited the scope for civil rights 

and opposition debate. The ISA was designed to combat communist 

insurgencies. Under the ISA anyone considered to be likely to act ‘in any 

manner prejudicial to the security of Malaysia’ is liable to be detained.54 Over 

the years, the function of the ISA has broadened to include anyone likely to act 

‘in any manner prejudicial to the ruling government or the ruling party’. 

According to Crouch, the number of detainees under the ISA totaled around 

three thousand between 1960 and 1981.55 The number of detainees fluctuated 

50 Khoo Boo Teik, op.cit., p.13. 51 Kaur, op.cit., p.114. 52 Ibid, p.113. 53 Milne & Mauzy, op.cit., p.34. 54 H. Crouch, ‘Authoritarian Trends, the UMNO Split and the Limits to State Power’, Joel S. 

Kahn & Francis Loh Kok Wah, eds., Fragmented Vision: Culture and Politics in Contemporary 

Malaysia (Sydney: Allen & Unwin 1992), p.23. 55 Ibid., p.23. 
MICHAEL LEIGH & BELINDA LIP

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over the years, from nine hundred in the 1970s, to 586 in 1981 when Mahathir 

took power and fell to forty by the end of 1986. The number of detainees 

increased again with the sudden arrest of 106 mostly opposition party 

members from DAP and PAS, including the parliamentary opposition leader 

Lim Kit Siang, in October 1987. That wave of detentions had a very chilling 

impact on political discourse in Malaysia, as many of those incarcerated 

without trial were active in a range of non-government organizations, and 

could not be deemed to be communist by any stretch of the imagination.56 The 

government justified its actions by claiming that there had been a sharp rise in 

racial tensions during that period. All 106 were gradually released. Contrary to 

the negative image that was previously associated with its implementation, 

since the September 11 2001 terrorist attacks in the United States and related 

counter-terrorist activities in Southeast Asia, the ISA has gained 

acknowledgement in the international arena as an effective tool to curb 

terrorism.57

While Prime Minister, Mahathir initiated most of the measures described 

above in order to consolidate executive control and eliminate autonomous 

nodes of power. Unlike several past leaders, he has a different view on what 

democracy should mean in Malaysia. Dr. Mahathir holds that Malaysia is a 

democratic country on the criteria of direct representation of the public, 

majority rule through a government of elected representatives, periodic 

elections allowing for possible replacement or change in government, 

separation between executive, judicial and legislative branches, and 

responsiveness of elected representatives and the government to public 

opinion.58 He constantly rejects the western definition of democracy, stating 

that Malaysia’s democratic government is not a ‘slavish copy of the kind of 

liberal democracy that has developed in the West in recent years...[which] 

worships individual and personal freedom as a fetish’.59 Most of the younger 

generation appears to share the view that democracy basically means the 

freedom to vote for the government of your choice. They have known no 

other leader. His ideological authority stems from his image as a strong leader 

who challenges Western hegemony, and stands up for Malaysian concepts and 

definitions of global realities. 

56 This was Operation Lalang mentioned above. Lalang is the unwanted grass that takes over 

denuded land, and is not fit to be eaten even by animals. 

57 The Star, 30 September 2001. 58 Khoo Boo Teik, op.cit., p.60. 59 Quoted in Ibid., pp. 59-60.
TRANSITIONS IN MALAYSIA

318

TRANSITIONS IN POLITICAL LEADERSHIP 

The ideologies, vision and strength of leaders in Malaysia have an 

influential effect on the outcome of development. Society at large responds 

and adapts to each new leader and the new policies implemented, provided the 

leaders are responsive to their interests as well. Tunku Abdul Rahman’s 

resignation had been caused by his perceived failure to respond effectively to 

the Malay community’s interests. Tunku led on the premise that Malaysia 

would remain a secular state, therefore remaining sensitive to the needs of 

other races in Malaysia. Tunku tried to set an example of how ethnic issues or 

rights should be exercised with considerable tolerance. Tunku is widely known 

as the ‘Father of Malaysia’ or Bapa Malaysia.

60 Tunku could be described as a 

victim of the open economy practiced during the colonial times. The trading 

economy, promoted by the British, had left the Malays very backward 

economically, leading to Malay dissatisfaction. Tunku’s continual and 

persistent tolerance and lack of clarity on Malay rights within the community 

added salt to the wound. He was succeeded after the racial riots that occurred 

in 1969, which he said were due to unequal distribution of wealth among the 

different ethnic groups.

Tun Razak’s leadership was marked more by his leaning towards economic 

development and restructuring, particularly for the Malay community. He 

responded to the Malay community’s interests as well as the interests of those 

that had elected him. Tun Razak changed the ‘rules of the game’ and shed ‘the 

democratic excesses of the old system.’61 He stamped out any ambiguity 

towards the Malay position when he introduced the NEP and entrenched the 

Malay language as the teaching medium in schools and universities. Until then, 

the three major ethnic communities (Malay, Chinese and Indians) had enjoyed 

relative freedom to run their own ethnic-based schools, under the secular 

governance of Tunku. This was a new environment. Tun Razak used the 

ethnic Malay electoral majority to balance the ‘gold’ on the Chinese side. 

Tun Razak shared a similar trait with Mahathir in that they were both hard 

workers and lacked confidence in delegation. Tun Razak’s achievements were 

as impressive as Mahathir’s. He produced a report for the creation of a 

national system of education with a common syllabus (1956); as minister of 

60 Tunku became UMNO leader by chance when Dato Onn left and his friend Razak who had 

been asked to put forth his name, suggested Tunku’s name instead because he thought himself 

too young. 

61 Cheah Boon Kheng, op.cit., p.109. 
MICHAEL LEIGH & BELINDA LIP

319

National and Rural Development, he adapted some of the techniques used to 

fight the communist insurgency, he set up a series of ‘operation rooms’ to 

record which agricultural projects were proceeding as planned and which were 

lagging; he reshaped the Federal Land Development Authority (FLDA, later 

FELDA). He was used by Tunku as a trouble-shooter during the 

confrontation with Indonesia and in discussions on the separation of 

Singapore. Milne and Mauzy recognized him as a genius at innovation, 

pointing to some of his most outstanding achievements: the launch of the 

NEP; introduction of the concept of ‘neutrality in the region’, and his success 

at persuading China to endorse it; and his idea for a multi-ethnic Alliance party 

when he formed the Barisan Nasional in 1974.62 Consequently, Tun Razak is 

known as the Father of Development or ‘Bapa Pembangunan’ for his 

contributions to economic prosperity in the country. 

His innovation appears to be almost equivalent to Mahathir’s and perhaps 

he could have achieved more as PM had he not been stricken with leukemia. 

Both Mahathir and Razak were ambitious. They were determined to achieve 

their ambitions, and were further urged on by their fear of insufficient time. 

Mahathir’s sense of urgency, however, pushed him to seek other means that he 

deemed necessary to achieve his ambitions. 

Razak’s successor, Tun Hussein Onn, had a brief period in office. His 

achievements and strength of character, in contrast to the other prime 

ministers were rather limited. Cheah Boon Kheng described him as indecisive, 

allowing crises to solve themselves.63 He appeared at times to be overwhelmed 

by the societal transitions that were underway. As a deeply moral man, he 

expressed anguish at the growing corruption of many beneficiaries of 

government initiatives, but was unable to deal decisively with the complexities. 

According to Milne and Mauzy, he lacked a strong political base and his return 

to the political scene was too sudden for him to forge close political ties.64

Milne and Mauzy raised the question: how long do, or should, leaders stay 

in power?65 The Razak and Hussein governments had been cut short by illness. 

Mahathir’s premiership was the longest of any Malaysian leader by the time he 

handed over power in October 2003. Dr. Mahathir’s relationship with his 

62 Milne and Mauzy, op.cit., p.5. 63 Cheah Boon Kheng, op.cit., p.111. 64 Milne and Mauzy, op.cit. Tun Hussein Onn had followed his father, the founder of UMNO, 

when he left the party to form the Independence of Malaya Party (1951) following the 

rejection of his proposal to turn UMNO into a multiracial party. He rejoined UMNO at the 

invitation from Tun Razak, his brother-in-law only after his return from studies in England. 

65 Ibid. 
TRANSITIONS IN MALAYSIA

320

deputies and potential successors has been fraught with difficulty, as was 

evident in the incarceration of Anwar Ibahim, whose case overstepped the 

tolerance point for many Malaysians. Tunku’s transfer of power to Tun Razak 

was gradual and uncontroversial, as was the transfer from Tun Hussein Onn 

to Dr. Mahathir. Mahathir has also been the most outspoken PM. He assumed 

leadership with a relatively liberal approach. Language, cultural and 

educational policies were considerably liberalized. The leader of an opposition 

party, the DAP, went so far as to blame ‘liberalization’ for his party’s defeat in 

the 1995 elections: ‘Our defeat in the previous general election was not 

because the DAP did not call for reforms...The Barisan Nasional’s major 

victory was because the PM is now more liberal...’.66

Mahathir’s background differed from his three predecessors. He was not 

educated in England nor was he educated in law. He also had no royal lineage 

from which to garner traditional Malay loyalty and respect. His detractors even 

alluded to his part-Indian ancestry. His view of Western liberal democracy is 

reflected in an excerpt from the Malaysian Prime Minister’s Department and 

quoted by Khoo. 

Malaysian democracy is not a liberal democracy and not bound to 

accept every new interpretation of democracy in the west where 

democratic fanatics have pushed devotion to a pedantic notion of 

democracy to include the protection of neo-fascists or the 

empowering of a vocal minority of political activists over the silent 

majority of ordinary citizens.67

Mahathir was very much an ideologue. He was the first prime minister to 

articulate a vision to lead the public towards common goals. Vision 2020 

serves as a framework for policy making as well. Internationally, he has made 

himself known with his loud and constant criticisms of the West, especially 

with his outspokenness towards the United States. Unlike all of his prime 

ministerial predecessors, Mahathir has more affinity with businessmen than 

with civil servants, and his policies have reflected those instincts. He 

campaigned on the ‘buy British last’ policy, advocated ‘Look East’ to learn 

from Japan, Korea and Taiwan, introduced the Malaysian car and a subsidized 

steel industry, embarked on massive privatization programs of state assets, and 

66 Francis Loh Kok Wah, ‘Developmentalism and the Limits of Democratic Discourse’, Loh 

and Khoo op.cit., p.34. 67 Khoo 2002, op.cit., and Mahathir bin Mohammad, The Malaysian System of Government (Kuala 

Lumpur: Prime Minister’s Department, 1995). 
MICHAEL LEIGH & BELINDA LIP

321

successfully pegged the Malaysian currency to the US dollar68, demonetarizing 

the national currency outside its boundaries in a successful effort to undermine 

currency speculation.

CONCLUSION

This chapter has discussed a range of transitions that have taken place in 

Malaysia since independence. One of the most significant transitions has been 

the closure of venues for the articulation of political dissidence, particularly the 

closure of organizations that have been strongly and effectively opposing the 

rulers, whoever they may be. 

There is a major argument, spelt out by Stenson, that the Communist 

insurrection was launched in mid-1948 because the British had closed down 

trade unions and political parties of the left in the name of national security. 69

Those who wanted to work through open organizations were arrested, and the 

organizations declared illegal. So the fighters assumed leadership, and held 

sway.

One after another, Malaysian political organizations that threatened those 

in power have been proscribed as a threat to the nation. On careful analysis of 

various cases, it was the regime that was under threat. Leaders erroneously 

equated survival of the government in power with survival of the nation. 

The closure of political organizations, especially those that were multiracial, meant that unhappiness was channeled increasingly through religious or 

educational organizations, whose members were exclusively of one race or 

religion. What that meant was that instead of cross-ethnic, cross-religious and 

cross-cultural compromises being worked out at the local level, articulation of 

politics was increasingly mediated through avenues that stressed exclusivity. 

The politics of regime survival have thus handed huge political advantages 

to those whose appeal is to religious and racial exclusivity and, dare I say it, 

extremism. In the short term this gives greater power to the regime to balance 

the demands of these exclusive groups. The symbol of the ruling National 

Front is the scales, for the top leaders have assumed the role of weighing up 

competing demands and effecting compromises from above. 

68 In financial terms this was equivalent to having substituted the US dollar as the currency of 

Malaysia, but much more palatable to nationalist sensitivities. 

69 M.R. Stenson, Industrial Conflict in Malaya (London: Oxford University Press, 1970). 
TRANSITIONS IN MALAYSIA

322

With the closure of democratic avenues, whether in the name of national 

development or national security, a trend is being consolidated whereby those 

who triumph politically are leaders who portray religion or ethnicity as 

immutable dividing lines between people. Democracy is a very sensitive plant. 

The transitions in Malaysia have been totally legal and constitutional, have 

asserted an absolute pre-eminence of the executive branch of government, 

have personalized power over institutions, and have left mainly exclusivist 

avenues for those who challenge the ruling power. 
MONGOLIA: MANAGING THE TRANSITION FROM 

NOMADIC TO SETTLED CULTURE

MASHBAT O. SARLAGTAY

The twentieth century was a century of transition for Mongolia. In the 

early 1900s Mongolia reestablished its independence from Manchu domination 

and after periods of both independence and subordination to Russia and 

China it became a communist state in 1924. Now it is changing its political and 

economic system from communism to democracy and, consequently, society is 

transforming itself from its previous base of nomadic animal husbandry to one 

based on settled industries in an urbanized environment. The transition began 

in the last century and is still continuing. This chapter analyzes Mongolia’s 

cultural transition using the case of land privatization to demonstrate the actual 

and potential pitfalls that must be faced by societies and the governments that

represent them as they move from one form of society to another. This 

chapter also describes the political efforts and the fight to legalize land 

privatization and ownership. Though all Mongolian political parties agree that

land privatization is necessary, some parties, basing their position on political

values, criticize the government for being unprepared for land privatization.

Also discussed are the main arguments related to the social aspects of today’s 

society and its influence on the issues.

There are two sets of competing values. The first is that of the traditional 

nomadic mentality that resists the concept of land privatization. This is one 

psychological aspect of the nomadic worldview of the Mongols. The second is

that of the political elite (of both government and opposition parties) that 

supports land privatization as necessary concomitant to transform Mongolia 

into a modern society.

323
MONGOLIA: FROM NOMADIC TO SETTLED

324

HISTORICAL CONTEXT: NOMADIC LIBERTY VERSUS LAND 

OWNERSHIP

The Hunnu Empire, the nomadic people’s first empire in what is now 

Mongolia, was founded in 209 BC.1 The current heritage of Mongolian 

statehood has profound roots in the Hunnu Empire. 

The very first border agreement between Mongolians and Chinese was 

made by the Shanyui (king or emperor) of the Hunnu Empire and the emperor 

of the Han dynasty in 198 BC. The Spring and Autumn sessions of the State 

Great Hural (Mongolia’s parliament) have their origin in the Hunnu Dynasty.

One of the principles of nomadic statehood, perhaps the most important 

one, was stated by Modun Shanyui, the first Shanyui of the Hunnu dynasty. He 

said: ‘the land is the ground of the state’. Later, this quote was interpreted as a 

restriction of land ownership and the precept was strictly followed by 

successors of the nomadic statehood heritage. The state enjoyed a monopoly 

on control of the land and land was the foundation of nomadic liberty. 

Nomadic liberty is fundamental. Mongolians as a nomadic nation do not 

like boundaries or limits. The mentality and lifestyle determined by animal 

husbandry cannot simply recognize any limits in any dimensions, including 

time and space. Liberty for Mongolians means ‘no limits’. Many Mongolian 

folk tales and myths conflate time and space as they ignore the, to them, 

artificial boundaries imposed by these constructs. 

Unlimited nomadic activity means that there can be no private ownership 

of land. Land in a nomadic society is like the air or the ocean, it is impossible 

to divide and possess. It is not even public property, but simply a limitless 

expanse where we live and move. Nomads want to travel everywhere and 

across everything, without any limit. Can you imagine their thoughts if a 

stranger appeared before them, saying ‘This piece of land is mine’ and 

prohibiting them to go across it? To own a little piece of landmass of the 

universe, saying ‘It is mine’, sounds to them like ‘this cubic meter of air is 

mine, so, you cannot breath it!’. It is impossible to imagine. 

One reason for the Mongol Empire’s greatness was the absence of any 

understanding of ‘border’, of land limits. The nomads were just traveling and 

looking for good pastureland. When they saw a settled town or cultivated area, 

they did not understand the different culture and lifestyle. In the same way, the 

1 However, there is discussion among scholars (especially those of inner Mongolia), who are 

well versed in ancient Chinese historic documents and characters, attempting to prove that the 

history of nomadic statehood precedes the Hunnu Empire by more than three hundred years. 
MASHBAT SARLAGTAY

325

settled cultures too, usually described nomads as barbarians. Thus, the leader 

of the town would say, ‘go away from our land’, and the Mongols would get 

angry and destroy them. It was the clash of civilizations of the day. 

Modun Shanyui’s original testament is alive today (indeed, even the great 

Chinghis [Genghis] Khan was not so brave as to break this testament) and all 

Mongolian dynasties have followed these words. There is no societal tradition 

of private land ownership, but today, with the move to an urbanized and 

settled society the issue has to be rethought. 

POLITICS AND LEGAL RULE 

There have been attempts to privatize land in the past. The Uigur and 

Kidan dynasties implemented a policy to privatize land under the influence of 

(Chinese) settled cultures. Unfortunately, these attempts were ended by the 

collapse of their mighty dynasties. A third attempt was made during the Bogd 

Khan Kingdom of Mongolia (1911-1924), but the result was the same, and was 

ended by the people’s revolution in 1921. All three attempts were taken under 

the influence of powerful and imperialist neighbors and the results were quite 

destructive. The current process is the fourth attempt at promoting land 

privatization.

During the Communist regime all land was state property. The 1960 

Constitution stated that: 

All land, treasures under it, forests, rivers, their resources, state 

enterprises, mines, Power Stations, railroads, highways, air and naval 

navigation, communications, banks, agricultural industries, social 

welfare facilities, basic apartment and buildings stocks, raw materials 

and products of state industries, commercial organizations, cultural 

and scientific facilities and all property of state organizations shall 

belong to state ownership and are the property of the people. 2

The statement is, of course, an example of Communist ideology, 

centralizing the economy and restricting private property. Concurrently, it 

strengthened and harmonized with the Mongolian traditions of state 

monopoly on land. Consequently, there were no land-related social problems 

in Mongolia during the Communist regime. 

The democratic revolution led to the concept of land privatization as a 

basic tenet of economic reform. In 1992, during discussions over a new 

2 Article 10. The Constitution of The People's Republic of Mongolia, adopted in 1960. It was 

the third and last Constitution of the Communist regime, terminated by the New Democratic 

Constitution in 1992. 
MONGOLIA: FROM NOMADIC TO SETTLED

326

constitution, one of the thorniest issues was over an article in the new 

constitution on land. The draft of the constitution presented a completely new 

idea (for Mongolia) of land ownership and granted citizens of Mongolia the 

right to own private land. Discussion of this specific article lasted ten days and 

the result was that restrictions on the ownership of pastureland would remain, 

but private ownership would be permitted for land near the big cities. The 

1992 Constitution stated: 

Only a citizen of Mongolia may be permitted to own land, except 

pastureland and areas under public and special use. This provision 

does not apply to the ownership of the subsoil thereof. A citizen 

shall not transfer his or her private land to foreign or stateless person 

in any manner of selling, bartering, donating or pledging, nor give 

others possession or usage without the permission of the respective 

government authority. 

The Government may hold landowner responsible in regard to land, 

or change land on basis of national necessity. The Government also 

may terminate land ownership in the case of that land being used 

against the public health, environmental protection and national 

security interest. 

The Government may allow temporary usage of land by a foreign or 

stateless person with payment in accordance with law.3

This was a compromise between the two sides of the debate but at least 

caution about the concept of private ownership may be seen. The debate 

continues today. 

In order to implement the Constitution, the Law on Land of Mongolia was 

adopted in 1994. It had a specific provision allowing citizens to own private 

land but this was not implemented. The government of the day, which 

consisted of ex-communists of the Mongolian People’s Revolutionary Party 

(MPRP),4 decided to delay land privatization.

Democratic forces, as they usually call themselves, have always pursued 

land privatization. In 1996-2000 there were several attempts by the 

government, which by then consisted of leaders of the Democratic Coalition, 

3 Paragraphs 3, 4 and 5, Article 6, The Constitution of Mongolia, adopted in 1992 by the 

People's Great Hural of the People's Republic of Mongolia. It was Mongolia’s first democratic 

constitution and the result of the peaceful and bloodless democratic revolution of 1990. 

4 The former communist party of Mongolia. It was founded in 1921. The party ruled Mongolia 

for over 70 years and is still one of the major parties of Mongolia.
MASHBAT SARLAGTAY

327

to adopt a Law on Land Privatization.5 But the attempts faced strong 

resistance from the one-time communist opposition leaders of the MPRP. The 

opposition’s main argument against land privatization was that society was not 

yet ready. The opposition prevailed. 

Despite the political arguments and counter-arguments and a series of 

political crises in which each side blamed the other for delays in the 

privatization process, the government finally decided to issue certificates of 

land possession and use to implement the 1994 Law on Land and to promote 

economic and social reform. Citizens now have the right to possess land for 

sixty years in accordance with the law, but in practice the license term was 

limited to only one year during the MPRP government before 1996. The 

certificates changed this situation, granting citizens the right to possess land 

for minimum terms of fifteen years. The certificate may be purchased by one 

individual and may be transferred through inheritance.6

The issuance of the certificates has had a tremendous impact on society. 

Land was already being bought and sold but such purchases were illegal. As 

soon as the certificates were issued, land purchases was legalized, and the 

market became much more active. Technically, this was not a real estate sale 

but the sale of a certificate of land possession and use. However, it was in fact 

the purchase of land. Moreover, the certificates re-emphasized a change of 

perceptions about land and its relationship to society and social activity. 

Land is now in demand and prices have risen. Taller and taller buildings 

are being constructed. Cities, mainly Ulaanbaatar, have begun to spread.

Legally, land is still technically state property, but in practice is not. As 

such, the concept of land possession is ill-defined and developing in a chaotic 

way. Land claimants typically erect fences marking what they believe to be 

their possession. The size of an individual land tract is often limited only by its 

location and access to infrastructure. There has been almost no registration. 

The government has been unable to exercise its powers as the ultimate owner, 

technically, of land, and civil servants have been deeply corrupted. 

The government established as a result of parliamentary elections in 2000, 

in a change of its position before 1996, is keen to promote land privatization. 

5 The coalition was the ruling political force in Mongolia from 1996 to 2000. It consisted of the 

Democratic Party of Mongolia, Social-Democratic Party of Mongolia and National Progress 

Party of Mongolia. The coalition was broken up in 2000 and later reunited as a new party, the 

National Democratic Party of Mongolia (NDPM). It is one of the major parties of current 

Mongolian political life. 

6 Section 2, Article 30, Law of Mongolia on Land. 
MONGOLIA: FROM NOMADIC TO SETTLED

328

The government’s most reformist step has been the adoption of a new law on 

land privatization. On 17 June 2002, the ‘Law on Allocation of Land to 

Citizens of Mongolia for Ownership’ was adopted nearly unanimously by the 

State Great Hural. However, there was some dissension, even within the 

government, about whether Mongolia was ready for private ownership of 

land.7

A small opposition party, the Civil Courage Republican Party (CCRP),8

supported land privatization but was also concerned that land privatization 

without any preliminary program for preparing for it might have tragic 

consequences, going against all traditions and morality. The CCRP called for a 

concrete program implementation plan that would first prepare the country for 

this momentous step. Professor Dashnyam L. Goroechin, one of the CCRP 

leaders and a presidential candidate in 2001, emphasized that privatizing land 

was not to be taken lightly, invoking the testament of Modun Shanyui and 

Mongolia’s nomadic heritage.9

The CCRP leaders warned the government that land privatization without 

any concrete strategy of implementation could have tragic consequences 

similar to or worse than a scandal surrounding the privatization of small and 

medium-sized enterprises. They also cited results of a research project by 

specialists from the University of California, under contract to the government 

of Mongolia, which concluded that ‘privatization in Mongolia was completely 

unsuccessful. Shareholders existed only in theoretical terms, but not in real 

life’.10

The ‘Law on Allocation of Land to Citizens of Mongolia for Ownership’ is 

the first decisive break from the two thousand year-old testament of Modun 

Shanyui. and the most serious challenge to the nomadic heritage, mentality, 

and lifestyle. It is shaking all of society and public opinion remains divided; 

city-dwellers welcome the law, but nomads in the countryside look at it with 

deep misgivings. 

7 ‘2.400.000 irgen gazar omchilno'. (2.4 million citizens may become land owners)’. Report from 

Party group session of Parliament. Odriin Sonin (Daily News) 11 June 2002, No. 143 (1016). 8 The party was founded in 2000 by one of the political factions of the Democratic Coalition. 

Since its establishment the party is recognized as the third force in current Mongolian political 

life, next to the two major parties, the MPRP and the NDPM. 

9 G. Otgon, ‘Gazriig omchluulehiig yagaan tasalbariin budliantai zuirlev ‘ (Land Privatization is 

Compared to Privatization by Security Stock Scandal) Zuunii medee (The Century Sensation). 

June 18, 2002. No 151 (1037). 

10 Ibid.
MASHBAT SARLAGTAY

329

TRADITIONALISTS VERSUS PRIVATIZATION SUPPORTERS 

The land privatization law is the clearest example of the changing mentality 

in Mongolian society and is part of the current Mongolian cultural conundrum. 

Mongolian society is composed of two different cultures: nomadic and urban.11

More than two thirds of the population is settled in an urban area, but animal 

husbandry is still a significant component of the economy.12

The nomadic heritage is now facing a transition to settled culture and 

urban life. This is the most difficult problem for Mongolian culture and society 

today. On the one hand, there is an attempt to preserve national identification 

and cultural heritage, but on the other there is the unavoidable phenomenon 

of urbanization. Many of the customs appropriate for the nomadic lifestyle do 

not fit well in an urban lifestyle. 

However, as the government is pursuing land privatization, social opinion 

is divided. One group supports land privatization for economic reasons, saying 

that land ownership is a part of global culture and is unavoidable. The other 

side recognizes the winds of change are blowing but believes land ownership 

must be limited. They resist complete land privatization or the transfer of the 

land from state ownership to private property. Extremists within this 

traditionalist group, whom I would refer to as ultra-traditionalists, call on the 

people to protect ‘hel, hil, mal’ or ‘land, language and animals.'’

Ts. Nyam-Osor, leader of an ultra-traditionalist party, has penned a naïve 

and romantic image of a ‘pure Mongol state’ of the future. He imagined a 

Mongolia in which there were no cities or towns; everything should be 

movable and nomadic. Mongolians should live in traditional khots.13 The 

president should have one khot, consisting of his administration and 

counselors, in a place surrounded by the beauty of nature. The prime minister 

should also have a khot. Each minister and parliament member should also 

have his or her own khot.14

11 Alicia J. Campi. ‘Moving Mongolian nomadism into the 21st century: Cultural and ecological 

preservation coupled with economic vitality and national security’, Research thesis 

(Washington, 1997), p.7. 

12 ‘Human development report Mongolia 1997’, (Ulaanbaatar, 1997), p.3. 

13 A nomad unit that consisted of several families. Historically, a khot consisted of ten families 

and has been the basic administrative and military unit in Mongolia since the Hunnu Empire. 

After the collapse of the communist regime and disintegration of ‘negdel’, the centralized 

socialist animal husbandry unit, herders organized in the form of khots again. But the khot is 

no longer an administrative unit, simply an animal husbandry unit. 

14 Ts. Nyam-Osor ‘Minii medeh Chingis’ (Chinggis [Genghis] Khan As I know) (Ulaanbaatar, 

1995), pp.19-22. 
MONGOLIA: FROM NOMADIC TO SETTLED

330

Ultra-traditionalists consider poverty, famine and luxuries to be a 

phenomenon of settled culture. In the history of Mongolia there has not been 

one single famine. Famine was a kind of natural selection, and one who was 

starving just died somewhere on the great. Hunger and famine were not 

viewed as a social problems, but as an individual struggle against nature. There 

were no street children, only orphans who were taken care of by the tribe. 

We may see, therefore, that the question ‘to be or not to be’ for Mongolia 

as a nation, is hidden in the nature of disputes over whether to privatize the 

land.’15 Land privatization, in this formulation, is a matter of national security 

and concerns the existence of Mongolia itself. Resistance to land privatization 

is supported by herders and traditionalist philosophers and poets. 

Supporters of land privatization usually explain the matter from an 

economic point of view.. D. Oyunchimeg, former vice-director of the State 

Department of Geodesy and Cadastral Mapping, says that ‘if we do not 

privatize the land we will be like a poor man sitting on a treasure’.16 She 

explains that eighty percent of national wealth is in the land. In the global 

financial and banking system, eighty to ninety percent of all loans are granted 

for land purchases. Her calculations are that about twenty thousand hectares 

(fifty thousand acres) of land in cities and towns will be privatized and that one 

hectare costs approximately US$400,000. This makes the land worth some 

US$8 billion. That would represent a huge investment in the national 

economy.17 The significance of the money becomes clear if one compares it to 

the US$874.6 million foreign debt Mongolia incurred in the last decade.18

There is about another US$10 billion in foreign debt owed to Russia from the 

period of the communist regime.

Supporters of land privatization do not worry much about the impact it 

will have on national security and cultural identity. If land belongs to private 

owners, related cultures will simultaneously emerge. The same tendency is 

15 Khavkh N. Sanjmytavtoin. ‘Mongolchuudiin gazar ezemshih ulamjlalt togtolcoo hiigeed nuudliin soyol 

irgenshil (mal aj ahui)’ (Mongolian Traditional System of Land Possession and Nomadic 

Civilization (Animal Husbandry) ’Undesnii Ayulgui Baidliin Uzel Barimtlaliin Shinjleh Uhaanii 

Undes; Erdem shinjilgeenii hurliin emhetgel’ (Scientific Rationales for National Security Concept: 

papers presented to scholars' conference) (Ulaanbaatar: National University of Mongolia, The 

Institute for Strategic Studies, 2001), p.79. 

16 D. Oyunchimeg, ‘Gazriig es huvichilbal Altan deer suusan Guilgachin heveer uldene’ (Poor Man 

Sitting on a Treasure; Land Privatization), Zuunii Medee (The Century Sensation). 28 June 2002. 

No. 160 (1046) 

17 Ibid. 18 S. Oyun. ‘Mongoliiin Shinechleliin Huvi Zaya’ (The Current Political, Social and Economic 

Situation in Mongolia and the Fate of Transition) (Ulaanbaatar, 2002), p.17. 
MASHBAT SARLAGTAY

331

possible to observe even today. After privatization, the tendency will be even 

more serious and active, because it will have a practical economic value19.

Supporters of land privatization even have some radical opinions about rephrasing the constitutional provision. The Constitution permits only citizens 

of Mongolia to own land. Some say this is unfair and must be changed to all 

persons, including foreign and stateless persons. ‘Let some John, Ivan and 

Zhan have private land in Mongolia, and the national interests of America, 

Russia and China will concentrate here’, they say.20 Therefore, land ownership 

by foreign citizens will have no negative impact on national security, only a 

positive one. 

It is difficult to say which one of these two views is correct. One is too 

romantic, sometimes even naïve. But other is too utilitarian and almost ignores 

its affect on culture and society. If the next century will be the era of a ‘clash of 

civilizations’ as foreseen by Huntington, this civilizational aspect must not be 

ignored.

GENERATIONAL AND CULTURAL CHANGE 

Traditionalists are not very active in Mongolian politics, but are more so in 

cultural spheres. Generally, all major political parties agree on land 

privatization. Even the conservative party, the CCRP, supports it provided that 

preparatory and implementation programs are first put in place. 

This broad support for land privatization may be explained by the 

following social and economic developments. 

Mongolia is one of the most youthful countries in the world. Seventy-five 

percent of the population is under thirty-five years old, a trend that gained 

pace in the rapid urbanization of the 1970s and 1980s. It is driving people 

away from the nomadic life. Many people are third- to fifth-generation city 

dwellers. Youths today are attracted to a western lifestyle, not the nomadic 

traditions of generations ago. They are filled with a radical desire to reform 

every sphere of life. The urban lifestyle, which took root under the cultural 

influence of Eastern Europe during the communist regime, has provided 

fertile ground for the development of liberal ideas. This urban liberalism is 

eager to abolish any tradition that stands in the way of the construction of a 

new civilization. 

19 Oyunchimeg, op.cit. 20 Ibid.
MONGOLIA: FROM NOMADIC TO SETTLED

332

Immigrants from rural areas to cities feed this mindset because they come 

to cities seeking an opportunity to improve their lives. The development of 

urban culture means more opportunity for them. More than two thirds of the 

population is now settled in urban areas.21 This shows that Mongolians are no 

longer nomads, but have became settled or semi-settled people. 

Only some twenty-five percent of the population lives in the countryside, 

following a traditional way of life. This means that the majority of the 

population is already in a settled cultural environment. More than twenty-five 

percent of the population lives in Ulaanbaatar. Another ten percent lives in 

four other major cities: Darkhan, Erdenet, Choibalsan and Choir. Others live 

in small villages or province towns. 

In the twentieth century the government of Mongolia always supported 

urbanization. American scholar Alicia J. Campi presented the following data: 

Mongolia began the twentieth century with a very rural population. 

In 1925, 86.6 percent of the people were self-employed herders and 

craftsmen. In 1956, 78 percent of the people lived in the countryside. 

By 1989 collectivization and urbanization policies turned 72 percent 

of the people into factory workers and public administrators. The 

rural population was down to 27.8 percent... In 1990 35.5 percent 

were in industry, 28.2 percent in trade, and only 18.7 percent were 

in [nomadic] herding’.22

However, nomadic animal husbandry is still an important part of the 

national economy of Mongolia. In the last decade, economic growth was 

observed only in animal husbandry, in which all animals were privatized and 

herding was based on private initiative. Some observers wondered if Mongolia 

was stepping backward into a feudal society based on primitive business 

relations.23

In fact, the rapid growth of livestock exceeded the natural productivity of 

the pasture lands. There are twenty-six million head of livestock,24 but 

Mongolia’s pasture land cannot sustain those numbers. The result of this 

21 ‘Human development report: Mongolia 1997’ (Ulaanbaatar, 1997), p.3. 

22 Campi, op.cit. 23 Ole Bruun, Per Ronnas and Li Narangoa, Mongolia: Transition from the Second to the Third 

World? (Nordic Institute of Asian Studies: Stockholm, 1998). The book analyzed Mongolian 

social and economic developments in the last decade and expressed concern about Mongolian 

steps backward. 

24 G. Purevbaatar. ‘Manai Ediin Zasag, Ekologiin Ayulgui Baidal Suirliin Irmeg deer Baina 

(Economic and Ecological Security of the Country is Seriously Threatened), Odriin Sonin (Daily

News) 17May 2002, No. 123, 124 (996, 997). 
MASHBAT SARLAGTAY

333

imbalance, combined with recent harsh winters in Mongolia, devastated 

herders in 2000-2002. 

Natural conditions in recent years have hastened the decline of nomadism. 

The Zud, the harsh winter and heavy snow, was nature’s way of balancing 

animal numbers and pasture capacity. In 2001-2002 some 4.2 million head of 

livestock were lost. The herders faced a third harsh winter the following year 

and specialists expected that about three million animals would die.25 The Zud 

is a natural disaster that has a crucial impact on the nomadic economy. As a 

result of the Zud, nomadic animal husbandry is gradually being pushed out of 

the economy. 

The communications, computer services, and banking sectors are 

aggressively taking the place of animal husbandry in the Mongolian economy. 

This has contributed to the weakening of nomadic traditions in society. 

The declining economic significance of nomadic animal husbandry lends 

impetus to land privatization. In a typical scenario, families from rural areas 

come to cities and build fences around tracts of land for their private use. This 

usually triggers a dispute with the city administration. The administration says 

the land belongs to the city, but the rural families say they have nowhere to go. 

Finally, the city permits the family to stay where they are or moves them to 

another site, provides all the necessary documents granting a land lease to the 

squatters. Now, people migrating to the cities support the law on land 

privatization, expecting to obtain land of their own.

Rapid urbanization and the decline of animal husbandry has changed the 

nomadic mentality in a radical way. Campi observes correctly that ‘Mongolian 

intellectuals for generations have been taught to regard the herders’ life as nonprogressive, old-fashioned, even though the repository of Mongolian heritage. 

The urban life is viewed as modern and somehow better despite the 

accompanying pitfalls’.26

In view of generational change and the urbanization process, the nomadic 

tradition of the Mongols will likely be even more quickly abolished and 

replaced by the modern or post-modern lifestyle of today’s information 

society.

25 Ibid. 26 Campi, op.cit.
MONGOLIA: FROM NOMADIC TO SETTLED

334

CONCLUSIONS: CULTURAL TRANSITION TODAY 

In a narrow spectrum, land privatization is only a matter of changing 

traditions and the regulation of land capacity. In a wider spectrum, it is one of 

the expressions of the ongoing painful transition of a nomadic mentality to 

settled modern culture. The current situation of the Mongolian cultural 

problem in the case of land privatization can be described as follows: 

x There is an ongoing process of change in the nomadic mentality. This is the 

most important part of the cultural transition that began in the beginning of 

the last century. Nomadic liberty that simply does not recognize any limits 

has to be changed and is changing now. It will face even more radical 

changes, or be abolished in the next century.

x The Constitution provides for land privatization and all political parties agree 

with it. They generally ignore the opposite opinion of the traditionalist 

minority. But there are many questions for them to address, such as when 

land privatization should be launched, how and by what strategy the policy 

should be implemented, and how the right of land ownership must be 

limited.

x The government and all political parties wish to change the traditional 

mentality as well. Implementing land privatization will affect nomadic values, 

which all Mongolian traditions are based on. Because of this, the policy must 

be well-planned and carefully implemented. 

x The opinions of traditionalists are not taken too seriously. The arguments 

that they use are somewhat naive and romantic. But the truth is, land 

privatization has a great impact on Mongolian culture and this impact must 

not be ignored. On the other hand, the arguments of supporters of land 

privatization are too utilitarian. They ignore the social and cultural aspects of 

this momentous change. 
TONGAN DEVELOPMENT 

AND PACIFIC ISLAND SECURITY ISSUES

I. C. CAMPBELL

External perceptions of the Kingdom of Tonga tend to be dominated by 

the awareness that, as a monarchy in which the king exercises significant 

authority, it is an anomaly in a world where democracy and republicanism are 

ascendant. All other Pacific states, like other ‘new nations’ of the so-called

‘third world’, are republics with constitutions drafted in the framework of the 

liberalism and optimism of the 1960s. Tonga’s constitution is a liberal 

document of the 1870s, making it one of the oldest functioning constitutions 

in the world. This longevity attracts scorn rather than admiration from external

observers, who see its survival not as evidence of stability and adaptability, but 

of anachronism, ossification and authoritarianism. It is, however, by no means 

self-evident that this constitution is inappropriate, and a strong argument can 

be made that the quality of life enjoyed by Tongans under this constitution is 

superior, by conventional indicators, to that of most other Pacific Islanders 

and other ‘third world’ populations. 

The presence of a chapter on Tonga in this volume acknowledges the 

perception of Tonga as politically and socially archaic, and that as such it is 

likely sooner or later to experience the pangs, not to say upheavals, of a lurch 

into the modern world in circumstances that could make it a source of regional 

instability. If ‘security’ is an issue for the Pacific Islands, it concerns this 

question of internal disorder having a capacity to infect the internal affairs of 

neighboring countries, an interpretation which has some limited empirical

support.

On the whole, none of the Pacific Island states constitutes a security threat 

in the normal sense of the term. That is, they are not militarily expansionist,

and none of them has the military or economic capacity to threaten states 

outside their immediate region. With some considerable augmentation of

armaments and logistics it would be physically possible for any of them to 

intimidate or even subdue any of the smaller states nearby given the 

considerable disparities of population and land area, ranging from Papua New 

Guinea with a land area of 462,243 kilometers and a population of nearly five

million, to Niue with a population of sixteen-hundred, and Nauru with a land 

335
TONGAN DEVELOPMENT

336

area of twenty-one square kilometers.1 Further, detaching an isolated but 

imperfectly integrated possession from one state and annexing it to a neighbor 

would also be physically possible if the region were composed of mutually 

hostile units defining their interests as finite and competitive. It is not outside 

the realm of imagination that such exchanges might take place in order to 

expand the size of territorial seas should these assets appreciate significantly in 

value.

However, the ethos of international relations in the Pacific shows no such 

likelihood. This benign state of affairs reflects the fact that the well-being of 

Pacific Island states is defined more in terms of their relationships (individual 

and collective) with the major international aid donors than by their 

relationships with their intra-regional neighbors. While they might in a sense 

be competitors for aid, they are not competitors for regional resources, and 

their aspirations therefore do not bring them into conflict with each other. 

Moreover, extra-regional powers continue to exercise a paternalistic 

guardianship of the affairs of Pacific Island states, and at the present time it is 

inconceivable that they would acquiesce in any acts of international 

destabilization.

The case for Tonga being a source of regional instability rests on persistent 

media representation depicting Tonga as an antiquated, feudal, absolutist state, 

its people oppressed and yearning for the saving breath of democracy. 2

 Tonga, 

according to this view, is ripe for transition, and on the assumption that 

transitions are periods of increased risk of disorder, Tonga may be imagined a 

potential security threat. 

The ‘transition hypothesis’ presupposes change of a particular kind, not 

the evolutionary, barely perceptible progressive change in which almost all 

societies participate to a greater or lesser degree. The word ‘transition’ is better 

reserved for a series of structural shifts from traditional to ‘modern’ rather 

than applied to a process of evolution within a historical trajectory of 

established structures. In this chapter I suggest that continued movement 

within the present trajectory is the more likely path for the immediate future of 

Tonga than a ‘transition’. 

Tonga does not fit the scenario built on the transition hypothesis. The 

threats to stability arise not from a supposed state of arrested modernization 

represented by the continued existence of a monarchy possessing both 

1 Ron Crocombe, The South Pacific (Suva, 2001), pp.685-86. 2 See Kerry James, ‘The Recent Elections in Tonga: democratic supporters win, but does 

democracy follow?’ Journal of Pacific History, vol.37 no.3 (2002) p.321 n.21. 
I.C. CAMPBELL

337

legislative and executive powers. On the contrary, potential instability arises 

from inequalities of wealth, the prevalence of injustice, and the weakness of 

political accountability. None of these is a structural inevitability: they do not 

follow inexorably from the constitutional forms. Regardless of the nature of 

Tonga’s problems, the kingdom is itself too small and poor to constitute a 

direct security threat to its region. However, the failures of governance in 

certain roles means that like all isolated, small and underdeveloped states, the 

threat to regional security if any would lie in its potential as a staging area or 

transit place for extraneous destabilizing influences, such as drug trafficking, 

money laundering and terrorist activity. International law enforcement has 

already produced evidence of Tonga being used as a transit point.3

THE HISTORICAL BACKGROUND TO MODERNIZATION IN 

TONGA

The modern-traditional dualism that underlies the ‘transition’ hypothesis is 

unsatisfactory as a tool of analysis in Tonga because Tonga has been 

‘modernizing’ progressively for nearly 200 years. The traditional, Polynesian 

political system characterized by arbitrary authority exercised by a chiefly caste 

and validated by religion began to break down before European influence 

became significant.4

 The former political structure was destroyed by civil war 

and assassination extending over nearly forty years between about 1780 and 

1820. Before they could be re-established, Christian missions arrived and from 

the late 1820s conversion to Christianity was both rapid and permanent. A 

new basis for political authority was established in the notion of the rule of law 

and the idea of the Christian state, parallel with the re-establishment of a 

unitary, nation-wide political system. A series of law codes adopted in 1839, 

1850 and 1862 enhanced personal freedoms, extended the protection of law to 

all persons, and dismantled the political if not social privileges of the 

aristocracy. This process was taken to its apogee in 1875 with the adoption of 

a formal constitution incorporating a Bill of Rights, establishing parliamentary 

government and providing an equitable basis for land tenure. By this time the 

monarchy was established on the British Victorian model and was subject to 

law. Local government was in the hands of elected officials (mayors or town 

officers) and magistrates appointed by the state.5

3 Crocombe op.cit., pp.365, 569. See also Matangi Tonga vol.6 no.3 (May-June 1991), p.16, and 

vol.7, no.2. (March-April 1992), p.5. 

4 I. C. Campbell, Island Kingdom: Tonga Ancient and Modern (Christchurch, 2nd ed, 2001), ch.5. 5 Sione Latukefu, Church and State in Tonga (Canberra, 1974). 
TONGAN DEVELOPMENT

338

On the basis of a modern, written constitution, which was liberal by the 

international standards of the time, Tonga sought and obtained international 

recognition as a state, confirmed in treaties with Germany (1876), Britain 

(1879) and the United States (1886).6 In an age of increasing international 

tension manifested in the ‘New Imperialism’ of the late nineteenth century, 

Tonga hoped to remain independent but became a British protectorate. 7

During the protectorate period (1900–1970) Tonga continued to be governed 

by its own monarch, parliament and civil service, though British subjects 

occupied key positions requiring particular expertise. The restoration of full 

independence was taken in a series of steps over the two decades before 1970.8

Important economic developments accompanied and underwrote these 

political and social changes. The most important was the prohibition of land 

sales to non-Tongans in the 1830s, the absolute non-alienation of land as the 

property of the state in the constitution, and finally in 1882 the institution of a 

system of individualized perpetual leasehold which ensured that all 

householders could claim and register a defined area of land sufficient not only 

for subsistence purposes but also for cash cropping.9

 Tongans became 

increasingly involved in trade from the 1840s with the development of the 

trade in coconut oil, and when this was superseded by copra in the 1860s, all 

Tongans had their own individual means of entering a cash economy.10

Compulsory, secular education was adopted in 1882. 

Thus all the normal criteria for a modern society were established in 

principle by the early 1880s in a series of major structural adjustments 

extending over about half a century. This may be referred to as a period of 

‘transition’ in the sense that major structural departures were accomplished. 

Nevertheless, they were both protracted and incomplete insofar as 

implementation faltered from time to time, and cultural and mental habits 

were changed less readily than laws. In the subsequent century consciousness 

has gradually harmonized with the new structures. 

The insulation of Tonga from serious political challenges (either internal or 

foreign) by the British protectorate arrested the further evolution of the 

6 Noel Rutherford, Shirley Baker and the King of Tonga (Melbourne, 1971), chapters 7 and 9. 7 Paul Kennedy, ‘Britain and the Tongan Harbours’ Historical Studies vol.15 no.58 (1972), 

pp.251-67.

8 Penny Lavaka, ‘The Limits of Advice: Britain and the Kingdom of Tonga 1900-1970’ 

(Unpublished PhD thesis: Australian National University, 1981). 

9 A. Maude and F. Sevele, ‘Tonga: Equality overtaking Privilege.’ In Ron Crocombe (ed.), Land

Tenure in the Pacific (Suva, 3rd ed. 1987). 10 Campbell, op.cit., ch.9. 
I.C. CAMPBELL

339

constitution and of political conventions within the constitutional framework.

11 Similarly, the isolation of Tonga from major centers of population and 

major trade routes impeded the development of new economic challenges or 

opportunities. Consequently, Tonga came to full independence in 1970 with 

institutions not much modified from the late nineteenth-century form. 

Government had already embarked on a set of policies that would result in 

major social and economic changes. Heavy investment in education, 

agricultural diversification, electrification, international communications and 

public health projects during the 1950s and 60s positioned Tonga to face largescale public investment in the 1970s. These programs were guided by a series 

of economic five-year plans and fuelled by lavish foreign aid, mainly from 

Australia and New Zealand, and on a declining scale by Britain. Rapid 

population increase with annual growth rates in excess of three percent 

strained land tenure because the 1882 system was not adapted to a growing 

population or to new commercial realities in that it did not permit a market in 

land. The economic strains were in some ways enhanced and in other ways 

relieved by the increasing numbers being educated at tertiary level abroad from 

the 1950s, and during the 1970s by the large numbers able to emigrate, mainly 

to New Zealand, and to a lesser extent Australia and the United States.12

During the 1970s tension began to build. People’s economic and social 

aspirations were being expanded by government policy, education, and 

overseas experience faster than they could be satisfied. Personal freedoms 

expanded as opportunities for expression became available, but at the same 

time, as the government was taking a more directive role in economic change, 

its centralist tendencies inclined toward more authoritarian rather than more 

liberal.13 Simultaneously, aid money increased the money supply and enhanced 

the opportunities for corruption. Social status and aristocratic privilege easily 

led to exploitation of the needs of the people while the government rather 

single-mindedly pursued policies that were shaped partly by rational 

development thinking, and partly by the forceful personality of the king and 

his more fanciful aspirations.14

11 The process is discussed but with a somewhat different reading in Elizabeth Wood Ellem, 

Queen Salote of Tonga. The Story of an Era 1900-1965 (Auckland, 1999). 12 Campbell, op.cit., chapters 14-15. 13 The tendency towards authoritarianism may be seen in theattempts to ban the liberal, proreform newspaper, Taimi o Tonga, published in Auckland by an expatriate Tongan. See Note 20 

below.

14 Campbell, op.cit., chapters 15-16. 
TONGAN DEVELOPMENT

340

POLITICS AND MODERNITY 

While policies of growth and diversification made government both more 

complex and larger, there was not a commensurate increase in popular 

participation in decision-making. Large numbers of unemployed youth 

untouched by increasing economic opportunities, and educated professional 

people disenchanted with limited means of political articulation or of input 

into development planning, constituted complementary nodes of unrest. The 

underlying tension manifested itself first in access to land, which also focused 

attention on aristocratic privilege and corrupt practices, and drew attention to 

the government’s unresponsiveness to popular opinion. Expressions of dissent 

were especially aired in church and educational circles, and the government 

chose first to ignore and then to discourage dissent.15 As a result the 

constitution has become controversial in Tonga and misconstrued abroad. 

The constitution preserves powers for the monarch consistent with 

nineteenth-century thinking. His approval is necessary for all legislation, and 

he presides over the supreme governing body, the Privy Council, which 

consists of himself and the cabinet. He chooses and appoints the prime 

minister and all ministers who by convention rather than constitutional 

requirement are drawn from outside parliament. On appointment they become 

members of parliament and their appointments are sine die. Other members of 

parliament include nine nobles elected by the nobles of whom there are only 

twenty-nine, owing to some titles having merged. The people are also 

represented by nine members, elected by universal adult franchise triennially.16

There is only the one house of parliament. The ‘government’ thus is the king’s, 

not parliament’s. Although there is an impeachment provision in the 

constitution, the government does not hold office at the pleasure of 

parliament. Elections do not choose or change governments, and the role of 

the people’s representatives is to reflect public opinion not to decide policy. 

There is no requirement for government to take any notice especially as in 

recent history the government has generally been supported by the nobles’ 

representatives. It was not always so, and it need not be in future. The people’s 

representatives in recent years have inclined towards strong criticism of the 

15 I. C. Campbell ‘The Emergence of Parliamentary Democracy in Tonga.’ Pacific Studies vol.15 

no.1 (1992), pp.77-97. 

16 The population as enumerated by the most recent census in 1996 was 97,784, with an 

estimated annual rate of increase of 0.5%. The electoral roll numbered 59,239 at the 2002 

election, of whom 28,953 (forty-nine percent) voted. James, loc.cit., p.317. 
I.C. CAMPBELL

341

government, but they have no organization, are not united and do not vote 

consistently with each other.17

The democratic features of the constitution are subordinated by political 

convention and the dominant personality of the king. Despite the wellpublicized opinion that the constitution needs reform, the present structure is 

capable of producing a different political culture, but as long as the king 

chooses to assert his constitutional prerogatives to the limit permitted by law, 

the system is bound to exhibit anti-democratic features. The same practice 

inhibits reform: any constitutional amendment, like any other legislation, 

requires royal consent. Critics of government point to abuses of power, the 

absence of accountability, corruption in high places and infringements of 

personal freedoms.18 On the other hand, the constitution succeeds in 

protecting fundamental rights and freedoms thanks to the independence of the 

judiciary. The courts have been successfully used to obtain redress of 

grievances, and government has found it expedient to meet some of the 

criticisms. There are no political prisoners in Tonga, have been no political 

assassinations,19 and the strongest critics of government are still able to speak 

freely in Tonga and abroad. Attempts to silence them have generally yielded to 

the rule of law and have therefore failed.20

17 Various publications record the recent political history of Tonga, see especially I. C. 

Campbell ‘Tongan Politics: the Arrival of Instability’, New Zealand International Review, vol.16 

n1, 1991: 8-11; ‘The Emergence of Parliamentary Politics in Tonga’, Pacific Studies, vol.1 no.1, 

1992: 77-97; ‘Tonga since the 1990 election: Things Change But Stay the Same.’ Journal of 

Pacific History. vol.27 no.3, 1992: 61-65; ‘The Doctrine of Accountability and the Unchanging 

Locus of Power in Tonga. Journal of Pacific History vol.29 no.1, 1994: 81-94; ‘Fakalelea Filo and 

Pepetama in Tongan Politics.’ Journal of Pacific History vol.31 no.3, 1996: 44-52; ‘The 

Democracy Movement and the 1999 Tongan Election.’ Journal of Pacific History, vol.34 no.3, 

1999: 265-272; ‘Tonga,’ in Dieter Nohlen, Florian Grotz, and Christof Hartmann eds., Elections 

in Asia and the Pacific, Vol.2: South East Asia, East Asia, and the South Pacific (Oxford: Oxford 

University Press, 2001), pp.809-22. Also annual reports on Tongan affairs by Kerry James in 

The Contemporary Pacific. 18 Kalafi Moala, Island Kingdom Strikes Back. The Story of an Independent Island Newspaper—Taimi o 

Tonga, (Auckland 2002), passim. 19 The last attempted assassination was in 1887. Rutherford, op.cit., chapter 10. 20 This statement has been overtaken to some extent by events in 2003. Beginning in February, 

there were repeated attempts by the government to ban the newspaper Taimi ‘o Tonga. Each 

attempt was ruled invalid or unconstitutional by the Supreme Court. At length, to circumvent 

recourse to the court, the government introduced a constitutional amendment, and two items 

of legislation, ‘An Act to make Provision for the Regulating of Newspapers in the Kingdom 

(Act No. 18 of 2003)’ and ‘An Act Relating to Licensing of Media Operators (Act No. 4 of 

2003)’.These empowered the government to prevent the publication or distribution of certain 

publications. A Tonga Government press release of 6 June 2003 described the constitutional 
TONGAN DEVELOPMENT

342

By the late 1980s a core of critics was elected to parliament. They found 

that the structure of parliament made it impossible to influence government or 

to demand accountability. Consequently, the non-democratic features of the 

century-old constitution and the scope for arbitrary powers by the executive 

came to public attention. During the 1990s the government’s critics attempted 

on several occasions to form both political and popular organizations to press 

for constitutional reform. These efforts had small success, but their relative 

failure is due not to government oppression or opposition, but to disunity 

among the government’s critics and the weakness of popular feelings in favor 

of change.21 Contrary to widespread media impressions, political parties are 

not illegal in Tonga. On the whole the government did not concede the 

criticisms being voiced freely in the Tongan media, and such minor 

concessions as it had made do not satisfy the critics who now have a well 

organized, well-led lobby in the Human Rights and Democracy Movement of 

Tonga which, however, is not a political party. 

The inadequacy of accountability has so far not had serious consequences 

comparable with the failures of governance in other, democratic, Pacific states. 

Scandals have been exposed over various government projects to increase 

foreign earnings, the most infamous of which was the sale-of-passports 

scheme.22 It is unclear whether this was originally devised for personal gain or 

as a national project, but the former is widely suspected. Dubious development 

or investment proposals have for many years been inadequately scrutinized, 

and the king seems susceptible to the blandishments of plausible foreigners 

promising massive development. That these have not seriously compromised 

either Tonga’s sovereignty or its economy seems to have been due to good 

fortune more than good governance, but their exposure nevertheless indicates 

a degree of health in the body politic. 

None of these incidents has given rise to instability, to any serious threat to 

the regime in general terms, or to the position of the king. The reform 

movement has sponsored discussion of constitutional and political issues 

several times since 1989, but the government is unresponsive and the 

movement itself is non-violent. There is no likelihood of change in the 

foreseeable future, though speculation surrounds the policies of the next king, 

amendments as clarifying rather than restricting freedom of expression and exempting 

decisions of parliament and Privy Council from the prerogatives of the Supreme Court. The 

amendments were gazetted on 27 November 2003. 

21 Campbell, Island Kingdom, chapters 16 & 17, and see n 16 above. 22 Campbell, Island Kingdom, pp.237, 242, 245; Moala, op.cit., pp.77-83. 
I.C. CAMPBELL

343

whose accession has been thought for many years to be not long distant; the 

king in 2003 was 85 years of age. 

It is suggested therefore, that Tonga’s travails in the recent past, present 

and near future are less a matter of traditional structure confronting the 

modern world with its alien ways of doing things, alien ideas and disturbing 

economic practices, than of the particularities of dominant personalities. 

Tongans do not distinguish between their own lives and modernity: access to 

education and modern healthcare, the distribution of modern technology and 

access to foreign places and ideas is almost universal, and well in advance of 

the other fully independent states of the Pacific Ocean. Per capita gross 

domestic product in 1999 was estimated at US$1,487; life expectancy at birth 

was 68.8 and 72.9 years (male and female respectively, 1999 estimate), infant 

mortality 20.6 per thousand, and the 1990 estimate of population per physician 

was 2,195. Adult literacy is almost one hundred percent and well over ninety 

percent of primary school-age children of both sexes attend school regularly. 

These are all extremely favorable levels by Pacific and third-world standards.23

Tonga’s Human Poverty Index rating is 5.9 (the lowest for PDMCs) and its 

Human Development Index rating is 0.647, third highest among PDMCs.24

Tonga’s modernization has extended over nearly two centuries, and usually in 

a process which has been free of bloodshed or disturbances. Neither in its 

external orientation nor in its domestic arrangements does Tonga contribute 

anything to regional instability.

ACCOUNTING FOR TONGA’S STRENGTHS 

Thus, the prevalent idea in some circles that Tonga is a society untouched 

by modernity is false, as is the corollary that its transition from tradition to 

modernity has any security implications for the region. Tonga is stable, by the 

standards of the region well governed and neither through its strengths nor its 

weaknesses does it pose a security threat. This is not to say that it might not be 

used by extra-regional interests for their own purposes. Tonga is susceptible to 

manipulation by confidence men, and has been a haven for international 

23 Data from Asia-Pacific in Figures 2001, Statistics Division, United Nations Economic and 

Social Commission for Asia and the Pacific. The National Reserve Bank of Tonga Quarterly 

Bulletin gives more favorable estimates for 2001, particularly for infant mortality, estimated 

then at <15/1000. 

24 Asian Development Bank, Country Assistance Plan. Tonga 2001-2003 (December 2000). For 

comparison, the HDI rating for Papua New Guinea is 52.2. ‘PDMC’ is Pacific Developing 

Member Country of the ADB. 
TONGAN DEVELOPMENT

344

criminals through the sale of passports and even of citizenship. The country 

has already been used for drug trafficking.25

In all these hazards, Tonga is far from unique. All the weaknesses 

possessed by Tonga are also possessed by most other states of the Pacific 

Ocean. Tonga’s stability and relative prosperity have instructive hints for 

understanding instability elsewhere. The greatest problems facing the Pacific 

Islands region are represented not by this stable quasi-democracy, but by the 

failed or failing democracies with modern, liberal constitutions in which 

politicians can be bought, elections rigged and government seriously 

unbalanced by corruption from both internal and external sources. This is a 

trend that calls into question the belief that democracy is a universally viable 

political form, and the belief that democracy is the means to ensure peace 

between communities and prosperity within them. Governance is weak 

throughout the Pacific, and especially so where the temptations of office are 

not adequately balanced by either convention or law enforcement. Tonga is the 

state least susceptible to these hazards in the region. 

As a counter-example or exceptional case, Tonga is perhaps useful in 

diagnosing the ills of the less successful Pacific states. First, Tonga is 

distinguished for its political stability and relative prosperity. Its Human 

Poverty Index ranking and Human Development Index ranking indicate that 

Tonga may be considered a success. Stability and prosperity are almost 

certainly related. Fundamental to both is the absence of deep ethnic or social 

divisions. Since pre-European times, speakers of Tongan have constituted a 

single, coherent political and social system. Unlike almost every other political 

entity in the Pacific, the state formation of the colonial period neither divided 

Tongans between different polities, nor joined them to another ethnic group. 

Consequently there is no internal ethnic rivalry to complicate politics, and 

there is a strong sense that the system of authority is rooted in Tongan culture. 

The ruling elite constitute a social category that belongs to the community as a 

whole rather than being alienated from it. Almost all other Pacific states are 

multi-ethnic, even though the different ethnicities as in French Polynesia or 

Cook Islands might be very closely related. In other states, such as Kiribati 

which has a high level of cultural coherence, there was never in pre-European 

times, political unity coterminous with the perceived cultural category, and it 

has been accordingly much more difficult to create a single, all encompassing 

focus of national identity or loyalty. In the largely plural societies of the Pacific, 

constitutional democracy tends to accentuate divisions rather than ameliorate 

25 See n.3 above. Also Moala, op.cit., p.91. 
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them, so it is ironic that the least democratic state—Tonga—is probably the 

one in which democracy would work most successfully. 

Second, constitutionalism has been absorbed into Tongan culture to a 

greater degree than is the case anywhere else. With a constitution that has been 

operating since 1875, the form of government and other principles that it 

established have become incorporated into Tongan perceptions of the Tongan 

way of life, and people look to it and to the rule of law to provide stability and 

redress of grievances. Everywhere else, constitutional history is shallow, being 

the product of the decolonization that occurred in most places between 1961 

and 1980. Not only does that not give time for a particular constitution and 

the idea of constitutionalism to become naturalized, but the modern 

constitutions belong to a period when constitutions have seemed pliable or 

ephemeral, serving specific political purposes or factions. Tonga’s constitution 

was from the first regarded with awe rivaling the reverence for Holy Writ. 

Similarly, Tonga has a long civil service tradition. Tonga’s bureaucracy has 

been staffed mainly by Tongans since the beginning of modern government, 

again a span of about 5 generations. Its procedures are stable and orthodox, 

and were not destabilized by an unsettling period of rapid localization which 

elsewhere enabled conventions to be set aside or neglected. Parallel with this is 

a long tradition of elite education. The elite schools of the late nineteenth 

century produced a high caliber of scholarship, which set a standard for later 

generations. While the standard was not maintained consistently over time, the 

association of formal education with accomplishment and with social and 

personal advancement predates modern commercial or political paths. Tonga 

thus has a longer tradition of valuing and using western education than other 

Pacific states. 

In short, Tonga is a state that was not created by colonialism. A long-term 

view might encourage the conclusion that the travails of the modern Pacific 

states are in the nature of ‘teething’ problems. Tonga had its teething problems 

comparable to those of modern states between about 1890 and 1920. It is a 

striking parallel that during the first decade or two of independent government 

for the other states there was a similar cycle of initial stability followed by a 

period of disorder. Tonga came out of its period of disorder by means of 

strong, centralized rule that eclipsed the democratic features of the 

constitution.26

26 Campbell, Island Kingdom, chapters 10-11. Also Lavaka, op.cit.
TONGAN DEVELOPMENT

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External factors have, however, been an important component of Tonga’s 

prosperity and stability. High rates of population increase since World War II 

gave rise by the 1960s to alarming population projections, followed in the mid1970s by a perceived land shortage. Opportunities for work in New Zealand, 

followed by increased migration opportunities first there, and later to Australia 

and the United States, alleviated these pressures to the extent that the 

‘population bomb’ failed to materialize.27 The population ‘safety valve’ was 

almost certainly a social and political one also, and certainly alleviated the kind 

of social problems that overcrowding and underemployment might have 

created. Without emigration on the scale of the last quarter of the twentieth 

century, Tonga’s population would probably have been about fifty percent 

larger by 2000 than it was. 

Accompanying the large levels of emigration was the remittance of 

millions of dollars to migrants’ families. These payments soon became a 

significant factor in Tonga’s economy. For most of the period since the late 

1970s, remittances exceeded the value of all exports by a factor of three.28 The 

resulting import boom gave the Tongans a standard of living far beyond their 

productivity, and underpins Tongan prosperity. In later years, more of this 

remittance income was used as venture capital or for capital investment. 

Several other Pacific Island states have similarly benefited from liberal 

migration and currency policies by the Anglophone rim countries (Australia, 

New Zealand, the United States), while those that have continuing 

constitutional or compact relationships with industrialized countries have 

benefited from large official capital inflows as well. These include Cook 

Islands, Niue and Tokelau (New Zealand), French Polynesia, Wallis & Futuna, 

and New Caledonia (France), and Marshall Islands, Federated States of 

Micronesia, Palau, Northern Mariana Islands, Guam and American Samoa. 

(United States). This is in addition to development assistance programs from 

many countries and multi-lateral organizations. Not all countries however have 

been as fortunate as Tonga in being able to send migrants to hospitable and 

liberal host societies, and those that have not are the ones with the greatest 

social and economic problems. 

27 The 1966 census estimated the population at 76,121, a rate of increase of four percent per 

annum over the 1956 count. This rate of increase projected a population in 1976 of 102,000. 

In fact, the 1976 census counted 90,085. Birth rates remained high, and the lower growth rate 

was entirely due to emigration. Campbell, Island Kingdom, p.208. 28 During the 1990s the value of exports was generally less than twenty million pa’anga 

(Tongan dollars), while private transfers were officially estimated (and probably significantly 

under-estimated) at fifty to sixty million pa’anga. 
I.C. CAMPBELL

347

COMPARISON WITH TONGA’S NEIGHBORS: POLYNESIA 

Samoa, Tonga’s northern neighbor, is also the state with which Tonga has 

the closest traditional cultural affinities. It too has a heritage of ethnic and 

cultural homogeneity but the significant difference is that Samoa is a state only 

by virtue of its colonial history. The elite chiefly tradition created such intense 

rivalry as to prevent the creation of a single political unit that commanded 

universal adherence in pre-colonial times. Consequently, Samoa experienced 

60 years of colonial rule and on attaining independence in 1962 acquired a 

constitution that ostensibly combined western constitutional principles with 

Samoan expectations about the location and exercise of power. The result was 

the juxtaposition rather than the integration of two different political 

traditions. This formula has successfully supplied political stability, but it has 

also created opportunities for high levels of political corruption.29 At the same 

time, Samoa has many of the advantages of Tonga, particularly in the strength 

of its educational tradition, but the presence of a colonial government, and 

Samoan non-cooperation with it in the 1920s and 1930s, deprived Samoa of 

the strong civil-service tradition that might have endowed government with 

greater honesty. Samoa also shares with Tonga the high levels of emigration 

to New Zealand and beyond, and the corresponding high levels of remittances 

which likewise are the main source of foreign revenue, the prop of the 

economy, and the foundation of the appearance of prosperity. 

Cook Islands contrasts more strongly with Tonga insofar as it is a wholly 

contrived political unit. It was neither traditionally united nor culturally 

homogeneous. Its constituent parts did not all speak the same language, and its 

widely scattered islands were seldom or never in contact with each other 

before European contact. Even more than Samoa, Cook Islands owes its 

existence as a state to the experience of colonialism, and as elsewhere, that 

took a form which did not promote integration of the various parts until the 

closing years of foreign rule. More so than in Samoa, however, the importance 

of the traditional chieftainships was eroded during the colonial period so that 

electoral politics developed unrestrained by considerations of traditional 

29 Malama Meleisea and Penelope Schoeffel, ‘Western Samoa. “Like a Slippery Fish,”’ in Ron 

Crocombe and Ahmed Ali eds., Politics in Polynesia (Suva, 1983), pp.80-112, deals with the early 

stages of this process. For developments in the 1990s and later see the annual reports on 

Samoan affairs in The Contemporary Pacific.
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348

personal rank. Political parties have flourished, but as in Samoa, more on the 

basis of personal loyalties than any serious ideological distinctions. 30

Like both its neighbors, Cook Islands owed its prosperity for many years 

to emigration and remittances, and unlike Tonga and Samoa, to high levels of 

budgetary subsidies from New Zealand, with whom it retains constitutional 

ties. Cook Islanders are New Zealand citizens, and can move freely between 

the two countries, and therefore also benefit from visa-free movement 

between Australia and New Zealand.31 It is only in recent years that the 

development of cultured pearls has given Cook Islands an export more 

valuable than its remittances, but there is a long history of ethically and legally 

dubious practices including money laundering, off-shore banking and ship 

registration.32

When Fiji came to independence in 1970 it had a more mature 

infrastructure, a wider resource base and more diverse economy than any other 

Pacific state, a tradition of elite education and a flourishing free press. It was 

also the site of the newly established regional university, the University of the 

South Pacific. Under the leadership of its first prime minister, Ratu Sir 

Kamisese Mara, Fiji emerged as the most influential of the new states, and 

there were good reasons to be optimistic about its future. On the other hand, 

Fiji had serious potential problems: first, it too was a state that owed its 

existence and configuration to colonialism, and the unity and shared identity of 

Fijians was shallow, masking both social and geographical differences. More 

serious was the fact that Fiji had become ethnically bipolar as a result of the 

importation of large numbers of Indians as agricultural laborers between 1881 

and 1916. By the time of independence miscegenation was practically nonexistent, there was a long history of contentiousness between the two 

populations, and the Indian population was slightly in the majority. Apart from 

the French territory of New Caledonia, Fiji was the only state featuring such 

extreme ethnic polarization. Economically, Fiji was less well positioned than 

Tonga, Samoa or Cook Islands to tap into international emigration, and 

accordingly did not benefit from remittance flows to the same extent. 

However, its economic diversification and international marketing 

arrangements for its sugar gave it a prosperity that did not need migrants’ 

30 Kathleen Hancock, Sir Albert Henry. His Life and Times. Auckland, 1979. Also annual 

accounts of Cook Islands affairs by Marjorie and Ron Crocombe in The Contemporary Pacific. 31 Crocombe estimates that eight-three percent of Cook Islanders live abroad. Crocombe, The

South Pacific, p.452. 32 Annual reports on Cook Islands affairs by Crocombe and Crocombe in The Contemporary 

Pacific. Also Crocombe, The South Pacific, passim.
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remittances. The security issue as it concerns Fiji arises from ethnic 

bipolarization which has resulted in electoral politics being discarded in the 

coups of 1987 and 2000. Nevertheless, Fiji is remarkable for its adherence on 

the whole to constitutionalism, and to the vigor of its democratic processes. 

The ethnic polarization which instills venom into politics is also an important 

contributor to Fiji’s comparative economic strength. 

Thus in many ways Fiji stands apart from its Polynesian neighbors, but it 

shares an important feature in the strength of its aristocratic tradition, which 

guided democracy during the first seventeen years of independence, and still 

provides the framework for the apparently democratic behavior of the 

indigenous Fijian population,33 including high rates of voting in general 

elections.34 Aristocracy has not been eclipsed by social change and democratic 

institutions to the extent that this has happened in Cook Islands or appears to 

have happened in Samoa, and contributes to the social and political stability of 

the nation. As a working hypothesis it may be suggested that stability is 

proportional to ethnic homogeneity, a history of political unity, and the 

weakness of the democratic tradition in the context of a strong aristocratic 

one.

COMPARISON WITH TONGA’S NEIGHBORS: MELANESIA 

The contrasts between Tonga and the states of Melanesia are so striking as 

to eclipse the similarities. All states are multi-ethnic, encompassing a common 

Austronesian heritage with varying degrees of Papuan culture (in Papua New 

Guinea and Solomon Islands), but these categories mark extreme linguistic 

diversity, strong local identities and differences in social organization and land 

tenure. Not only was there no tendency towards political unification in preEuropean times, even the colonial powers could not overcome the enormous 

difficulties in trying to create the rudiments of stable, prosperous states in the 

short time available to them. This process was far from complete at the time 

of independence (1975 for Papua New Guinea, 1978 for Solomon Islands and 

1980 for Vanuatu). To some extent, the difficulties faced by these states reflect 

the incompleteness of the work of colonialism, but they also reflect the failure 

of successor regimes to continue the work of state building. 

33 See Morgan Tuimaleali’ifano, ‘Veiqati Vaka Viti and the Fiji Islands Elections in 1999.’ 

Journal of Pacific History vol.35 no.3 (2000) pp.253-67. 34 Even in the disillusionment following the 2000 coup, voter turnout was high at 78.6 percent, 

though in the context of earlier Fijian elections, it was considered ‘relatively low’. Brij Lal, ‘In 

George Speight’s Shadow: Fiji General Elections of 2001.’ Journal of Pacific History vol.37 no1 

(2002) p.87. 
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350

In Vanuatu, infrastructure is uneven, and basic services including 

education, health and financial services have made little progress despite two 

decades of independence and international aid. In the meantime, there have 

been acute disputes of authority between prime minister and president 

including the jailing and dismissal of a president; governments have not lasted 

their full parliamentary term as shifting coalitions form and dissolve in the 

quest to satisfy personal ambitions; and there have been confrontations 

between the government and the paramilitary forces. Nor is the task of 

government made easy by geography, which has provided a chain of islands 

varying greatly in size and usually mountainous, extending from north to south 

over nearly 1,000 kilometers often separated by wide ocean distances. 

Solomon Islands adopted a form of provincial government to try to 

accommodate strong feelings of regional difference which did not solve the 

fundamental lack of common identity. Although threatened by secession 

movements in the Western District in the early years of independence, the 

greatest threat to the state came from a different quarter. In 1999 government 

broke down altogether with the formation of violent opposing forces centered 

on the two principal islands. The government was overthrown in 2000, and 

although a successor was appointed, it did not possess the strength to control 

the contending forces which themselves did not agree to surrender their newly 

asserted power. The Solomon Islands case remains the most extreme example 

of the failure of governance, but its circumstances are sufficiently particular to 

not affect processes elsewhere. Similarly, the anarchy there has not provided a 

seedbed for ideologically revolutionary forces to establish a bridgehead among 

vulnerable states. On the other hand, the civil war or rebellion in Solomon 

Islands is believed to have been encouraged and materially assisted by the 

Bougainville civil war. 

Papua New Guinea has been troubled by rumors and threats of military 

coups from time to time; to frequent changes of government between 

elections, and to a protracted rebellion or civil war on the large and resource 

rich island of Bougainville since 1989. Provincial governments were created at 

the time of independence as a way of satisfying local identity and development 

aspirations but have neither provided good government, nor been adequately 

controlled by central government. In some parts of the country, notably the 

Highlands, the failure of authority and accompanying rise of violence became 

increasingly common in the 1990s. Notwithstanding substantial mineral 

development and continuing budgetary support from Australia ever since 

independence in 1975, Papua New Guinea has experienced low rates of 

growth and increasing incidence of urban poverty and violence. 
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351

All three Melanesian states are such extreme examples of problems present 

in the Polynesian states as to constitute a distinct category. Extreme ethnic 

fragmentation is the obvious differentiating factor. To allude again to some of 

the advantages possessed by the Polynesian states, the Melanesians have 

virtually no emigration possibilities to alleviate social or political pressures, no 

remittance revenue to compensate for the failure of export industries, and the 

lack of a universally recognized elite class. Many Melanesian societies have 

inherited chieftainships, but these are not so common as to represent an 

aristocratic class, and chiefs are not recognized as such by society at large. 

Thus in Melanesia all three independent states have difficulties with 

maintaining central authority and law and order, and to some extent all faced 

serious internal security problems. All have liberal, democratic constitutions. 

While it is striking that these extreme examples of failed or failing governance 

contrast strongly with Polynesia in general and particularly with Tonga, it is 

equally striking that the degree of veneration for aristocracy correlates 

consistently in Polynesia as well. Within Polynesia the respect for aristocratic 

leaders distinguishes Tonga, Fiji and Samoa from Cook Islands, and the three 

of them from Melanesia. This single factor is not adequate to account for the 

differing levels of public morality in the different countries. Tonga, for all its 

stability and success in terms of the Human Poverty and Human Development 

Indices, exhibits failings of governance similar to those observed elsewhere, 

though to a lesser degree.

SOME COMPARATIVE REFLECTIONS 

Democracy certainly opens the door to corruption and injustice, but 

oligarchy is no safeguard against it, for Tonga offers ample evidence of official 

arrogance, weakness of accountability, susceptibility to corruption, and 

violations of common principles of justice. 35 The Tongan example shows that 

corruption is attractive wherever there are disparities of wealth, and not just in 

democratic states where public office acquires a market value. Moreover, 

corruption in Tonga appears to be greatest among the elite, that is, among the 

economically privileged. If the wealthiest are those most prone to corruption, 

35 Corruption is widely observed and commented on, and frequently referred to in the 

literature as a well-known and endemic condition. Rigorous studies of corruption however are 

lacking. I know of no studies which have attempted to quantify it in any of the Pacific Islands, 

or which have constructed a typology of corruption, or even an attempted sociology of 

corruption. The most comprehensive discussion is in Crocombe, The South Pacific, especially 

chapter 19. 
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352

it follows that their reference group for measuring relative wealth and status is 

not their own impoverished compatriots, but an international peer group with 

whom they increasingly associate both at home and abroad. Thus it is not 

poverty as such that is the cause of corruption, but the opportunities of elites 

to depreciate their personal relative impoverishment. 

Second, the means of corruption are mostly external. Extortion and abuse 

of power are generally home-grown, but corruption increases as the state 

becomes more engaged with the international economy.36 Foreign interests 

(capital rather than governmental so far, but official sources of corruption 

cannot be excluded) buy privileges, pervert legislation and can change 

governments through their power to suborn politicians or to influence election 

campaigns. Corrupt capital is thus an international problem and may therefore 

be regarded as an international security issue in a double sense: the sources are 

from outside the Pacific, and the corruption itself is mobile, being able to shift 

from state to state according to need or opportunity. The remedy therefore 

needs also to be international. 

Corruption, moreover, is at the core of injustice, human rights violations 

and misgovernment. The smallness of Pacific Islands states makes it 

correspondingly easier for relatively modest amounts of money to have 

extensive effects on the quality of governance. Even a modest corporation 

from a developed country will have greater revenues and disposable cash than 

most of the island states. Tonga, for example, in 1998-99 budgeted for a 

revenue (recurrent sources) of $68.3 million (equivalent to US$43 million at 

the prevailing exchange rate). 

The Tongan example also shows that the most effective restraint on 

corruption and its corollaries is an independent judiciary and a critical, free 

press. It is to the credit of the Tongan government that the independence of 

the Supreme Court is maintained by its continuing to appoint the chief justice 

and puisne judges from overseas. As to the critical press, the most effective 

organ has had to move offshore to escape restrictions imposed by the 

government, but it continues to circulate freely in the country.37

The common trends in the Pacific are manifested in different degrees, but 

the pattern is such that the following generalizations are offered, leading to the 

conclusion that security problems in the Pacific are almost entirely an 

36 Crocombe, The South Pacific, esp. p.647 on the easy penetration of Pacific Island societies by 

criminal interests from outside the region. 

37 Until 2003. See n.20 above. Also Moala, op.cit., passim.
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expression of political instability, political corruption, and poverty: in a phrase, 

weak governance.

x First, whereas in most Pacific democracies national leaders can come to 

power without their well-known failings, faults and inadequacies being an 

impediment, such people do not have the moral authority or probably the 

inclination to discipline lesser politicians or officials. The combination of 

democracy with a weak sense of morality is disastrous.

x Second, where opportunity makes people susceptible to bribery—whether of 

individual voters, of officials or of politicians—corruption becomes 

professionalized and endemic at all levels. 

x Third, where resource limitations or capital shortages deny ambitious people 

honest outlets for their energies and creativity, they will take advantage of 

opportunities to circumvent the obstacles to wealth and power. Where 

foreign investors are likewise seeking similar circumvention of law or policy, 

a sinister harmony of interests comes about. 

x Fourth, where these conditions become established there is virtually no scope 

for a society to reform itself. Unscrupulous power always overwhelms the 

scrupulous. In Papua New Guinea and Solomon Islands, where the recent 

rise of warlordism threatens to overwhelm the state, one cannot expect the 

resulting authoritarianism to institute new standards of public morality. Aid 

programs by Australia and New Zealand which are aimed at reform of 

governance are the most humane and realistic approach to a remedy, but 

unlikely to lead to any permanent, fundamental shift in public morals.

SOME IMPLICATIONS 

The massive failings of democracy in parts of the Pacific and the relative 

success of the quasi-democracy of Tonga call into question both the notion of 

transferability of institutions, and the idea that it is a safeguard against 

corruption or poverty. Much depends on the particular context, which is 

shaped not only by social patterns but also by the actions of individuals. 

Moreover, the problems of governance and their security implications are 

unlikely to be solved by internal reforms. Reformers cannot achieve power 

without prior reforms, and those in power have no incentive to institute them. 

It is a mistake to regard these difficulties as a symptom of transition or of a 

failure to modernize. Transitions create opportunities which might be used 

one way or another: Tongan transitions have on the whole been managed 

successfully because they have taken place over a long period of time and, 

during the period of accelerated change in recent decades, have been 

ameliorated by emigration and remittance income at the same time as restraint 

on popular political participation has restricted opportunities for corruption 
TONGAN DEVELOPMENT

354

such as flourished in Samoa and Cook Islands. Modernization and 

globalization however, have generally increased the scope and severity of the 

problems, in contrast with the preceding colonial period, which interrupted a 

previous phenomenon of globalization and delivered better government, 

especially in its later stages. Better governance, and therefore greater security, is 

most likely to be achieved in the Pacific by international cooperation.

In conclusion, security and insecurity in the Pacific Islands cannot be 

explained away by recourse to the modernity/tradition dyad. As an explanation 

this leads to the assumption that the remedy is simply more modernization.