Economic Debate

က်ြန္မရဲ႕ ျမန္မာျပည္မွာ ေစ်းကြက္စီးပြားေရးမေအာင္ျမင္ရတာလဲ ေဆာင္းပါးနဲ႔ ပတ္သက္ျပီး၊ ဘားမားကင္ ဆိုသူက ကိုမိုးသီးဇြန္ ဘေလာ့မွာ က်ြန္မေရးသားထားတဲ့အခ်က္မ်ား မွားယြင္းေနပါတယ္ဆိုျပီး ဆိုလာပါတယ္။ ဒါနဲ႕ ပတ္သက္ျပီး၊ က်ြန္မဘက္က ျပန္ argue လုပ္ထားတဲ့ အခ်က္မ်ားကို ေအာက္မွာ ေဖာ္ျပထားပါတယ္။

These are my arguments for Burmakin’s statements.

(1)As the government has no capacity to do the competitive market, the market economy is not successful. (Khin Ma Ma Myo)

Burmakin: The State should have the minimal intervention in the market economy(Conservative market theory).The efficiency of a market is more operational when the State keeps away from it rather than the State tries to do something for it.

Khin Ma Ma Myo: For this point, I did not mention the government has no capacity to do the competitive market. The point I mentioned was about the market-facilitating legal and economic practices in Burma. You are right. Conservative market theory claimed that the State should have the minimal intervention in the market economy. However, it did not claim that the State should not practice appropriate property rights, commercial laws and courts, safety nets and instruments for stabilizing monetary and fiscal policies. For efficient market economies, these practices are important to facilitate the market and SPDC has no capacity to establish these legal and economic practices. Clearly, I did not expect the State to have intervention in the market economy, but I expected to have suitable facilitations.

(2)Bribery makes the market economy difficult to operate. (Khin Ma Ma Myo)

Burmakin: Bribery can promote the economics by greasing (smoothing) the bureaucratic transactions. Even in East Asia who are performing well for the market economy have substantial corruption. Good theories for further learning can be the "rent collection behavior" and some pertinent game theories.

Khin Ma Ma Myo: I did not mention that the countries must not have substantial corruption. I agreed the point that even East Asian countries have a substantial level of corruption. However, the control of corruption is one of the governance matters for developing a market economy. According to the recent World Bank Research, the control of corruption grade for Burma is -1.68 and for East Asian countries (as u mentioned) Taiwan, South Korea, Japan are 0.53, 0.31 and 1.31. Of course, they have corruption but not worse like Burma. For the countries with successful market economies, no grades are with minus grade.

Moreover, the fact you mentioned about the relationship between bribery and bureaucratic transactions have two conflicting results and you pointed only one dimension. According to the empirical results, the failure of bureaucrat 1 to internalize the bribe externality under decentralization, in effect colluding with the investor to hold back price against the interests of bureaucrat 2, is beneficial to the domestic economy. At the same time, the failure of each bureaucrat to internalize the price externality under decentralization has a positive effect on price, and this is damaging to the domestic economy. So the net result of these two conflicting effects is that either centralization or decentralization may yield the higher domestic welfare. So it cannot be totally assumed that bribery can promote the economies.

Regarding to the rent behavior, if you want to argue that government employee may have this behavior that lead to competition and innovation, please look at the following excerpt related to Nepalese society by development economist.

“Corruption is a rule in government offices and every government employee is rent seeker in Nepal. Lack of transparency in workings of the government, absence of decentralization of the power, poor laws combined with corrupt legal system and so on have been helping the increasing returns of rent seeking technologies attracting more and more people to this sector in the country. This resulted in more competition in entering into the sector on the one hand and in innovation of new technologies of rent seeking on the other. This is very harmful to the growth of economy leading to failed nation. A rough guess of government revenue loss due to the operation of all types of corruption and malpractice accounted for more than 50 percent of GDP ever year in the country. Besides, the loss in growth due to disincentive generated by the rent seeker government to the innovating activities in the country is alarming.”

Even for the China economy, the severe and widespread nature of corruption in China is becoming a major source of social discontent and poses a threat to the legitimacy of the country's leaders, according to experts at the Organization for Economic Co-operation and Development (OECD).

So it is obvious that bribery can have a negative impact for economic growth and efficient operations of the market economy.

(3)Monopolistic control of the market by the military and military relatives make the market economy a complete moribund (Khin Ma Ma Myo)

Burmakin: There are two economic models still debating in the world since long time ago. The first one is the East Asian model like Singapore and China who try to legitimize the autocratic control of the market.(Learn Lee thesis please)In this East Asian model, the State will decide first who will control the market and they think when the first tier firms are performing well, the second,third tiers will follow.

Another model is the capability model that India and Western systems practice. They don't believe the autocratic control is related to the efficiency of the market and they focus on promoting the capability of the people to be competitive in the market. Still monopolies stately exist in shares of their markets. e.g pharmaceuticals. Still there are many disparities.

Khin Ma Ma Myo: They are a lot of economic models still debating in the world related to welfare, environment, trade and so on, not only these two models.

Regarding to East Asian Development model, a large part of debates center on the role of the state on economic development of East Asia. Despite of high growth rates, there were institutional and organizational failures even leading to the economic crises in 1997. Post crises- structural transformations of these countries were more market-oriented than autocratic controls. Even for China, the gradual change towards new market forms of exchange, the creation of economic self-interest and the abolishment of planned economy have occurred based on the acceptance of private property rights and emergence of market exchange outside state control.

For capability model, the focus is on competitive market. In fact, the essence of market economy is competitiveness, not autocratic control. Although you claimed that the efficiency of market is related to autocratic control, market efficiency does not merely mean high economic growth rates.

Furthermore, the monopolistic control of market by military and military relatives in Burma cannot be assumed that they are engaging in the East Asian model as you mentioned. East Asian model is a development model that promotes economic growth of a country, not only for first tier’s interests. According to theory, if first tiers firms are performing well, second tiers will follow as you mentioned. Can you identify the second tier firms in Burma?

(4)Inflation makes the market economy worse (Khin Ma Ma Myo)

Burmakin: Inflation is an index for improvement in the rate of employment. It also makes the investors an incentive to add more investments. The debtors also need to pay back less because of inflation and more inclination to get a loan for new investments.( A good book for learning about inflation is "Stability and Growth" of Joseph Stiglitz)

Khin Ma Ma Myo: Actually, the rate of inflation measures the annual percentage increase in prices. Inflation tends to cause uncertainty among the business community. If it is difficult for firms to predict their costs and revenues, they will be discouraged from investing and it will reduce economic growth rate. Inflation also worsens the balance of payments. If one country suffers high inflation, its exports will become less competitive in the world markets. Imports will become cheaper than home-produced goods and balance of payments will be deteriorated.

Moreover, if inflation develops into hyperinflation, firms raise prices in attempt to cover rocketing costs, workers demand huge pay increases to cover high costs of living and prices and wages chase each other in an inflationary-spiral. As a result, the whole market economy will be undermined.

Concluding remark:

Burmakin: The main problem of the delay in economic development(you can't say economic failure here)is because there is minimal foreign investment that is the most important booster for progressing the country. For minimizing the disparity, the government has to do the fair distributive resource allocation from the tax revenues. Also he needs to invest in health and education for producing vigorous human resources. The main economic problems of Burma arise because of "wrong policy choices" of the government rather than the preconditions referred.

Khin Ma Ma Myo: Burma has been regarded as a failed state due to its economic failures and poor development indicators. In Burma, markets are permeated by imperfections of operations and structure, commodity and factor markets are organized badly, there are distortions of prices, there is a failure of the market to price facts of production that leads to grass disparities. All these symptoms represent the definition of market failures.

I agree the role of Foreign Direct Investment as an important booster for the progress the country. However, it depends on the condition of the host country government’s policy objectives. If the government is only interested in arms racing rather than economic development, the benefits of FDI will definitely increase the military balances but not the economy.

For minimizing disparities, fair redistributive strategies must be adopted. The size distribution at the upper levels must be reduced through progressive income and wealth taxes and the size distribution at the lower levels must be increased through direct transfer payments and public provision of goods and services. Does the SPDC have a suitable tax system for this?

For human capital investment, health and education sectors must be emphasized as you mentioned.

However, the major economic problems arise in Burma not only from the wrong policy choices but also from lack of institutional and structural requirements, poor economic and legal practices and unbalanced allocations of the national income. In fact, “wrong people for the wrong place” is the major problem. The duty of the army is to protect the country. Not for the role of the government.

Khin Ma Ma Myo (12/2/2008)