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Asia's weak institutions
Wednesday, 30 March 2011 00:12

Political leaders from countries like Australia, China, India, Japan and Korea have called for the creation of a "community" in Asia or the Asia-Pacific.  The Asian Development Bank (ADB) has also proposed improving Asia's regional "institutions" for the purpose of creating an Asian Economic Community.


In reality, Asia has very many institutions which should provide the basis of such a community.  But as the ADB laments, most of these institutions are weak and underfunded.  And what's more, they have very few "delegated powers", meaning governments are reluctant to hand over any sovereignty to a supranational institution, unlike the case of the European Union.


What's the problem?  Before we try to answer this question, let's do a quick overview of the veritable swag of Asia's institutions.


Contrary to popular impressions, Asia is not "institution-light".  It has a huge variety of institutions.  First, there are "overarching" institutions like ASEAN (Association of South East Asian Nations), the Pacific Islands Forum, South Asian Association for Regional Cooperation, ASEAN Plus Three (the three being China, Japan and Korea), East Asia Summit, Asia-Europe Meeting and Asia-Pacific Economic Cooperation.


Then there are are "functional" institutions which are specialized on a narrow, technical agenda.  These include: United Nations Special Program for the Economies of Central Asia, International Fund for Saving the Aral Sea, Central Asia Regional Economic Cooperation, Network of Asian River Basin Organizations, Executives' Meeting of East Asia Pacific Central Banks, Coral Triangle Initiative, Central Banks of Southeast Asia, New Zealand, and Australia, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, ASEAN+3 Macroeconomic Research Office, Shanghai Cooperation Organization, Indian Ocean Rim Association for Regional Cooperation, and ASEAN Regional Forum.


And lastly, there are "facilitating" institutions.  At the pan-Asian level, there are the United Nations Economic and Social Commission for Asia and the Pacific, and the Asian Development Bank. 


Asia's regional institutions have a culture of their own which is epitomised by the "ASEAN way", ASEAN being perhaps the most successful institution in the region.  This "ASEAN way" involves "cooperation through informal understandings that impose no legally binding obligations, based on principles of non-interference in national affairs and equal budget contributions".  This budgetary constraint is a real "lowest common denominator" formula, essentially set by Laos, the smallest and poorest country in ASEAN.  Thus, one aspect of the ASEAN way is frequently requesting financial and technical support from bilateral and multilateral donors, making ASEAN beholden to the conditionality of these donors.


True, as ASEAN now seeks to create a real ASEAN Community, it is becoming more rules-based and more formally institutionalized.  But these steps remain tentative and incomplete.


In wondering why most of Asia's regional institutions are weak and underfunded, and have limited delegated authority, the starting point should be an exploration of the quality of national governance institutions in the region.  It is difficult to imagine creating strong regional governance if national governance is weak.


One of the very first priorities of any government should be creating a "business friendly" environment, and certainly not making things difficult for business, which is the key driver for investment and job creation.  World Bank indicators show a very mixed picture for Asia.  Singapore and Hong Kong top the world in terms of the ease of doing business, while Korea, Japan and Thailand just make it into the world's top 20 countries.  Way down the list, Vietnam and China are ranked at 78th and 79th on the world list, whereas Indonesia is 121st, Cambodia is 147th and the Philippines 148th.


In other words, the idea of working together to create an economic community is perhaps not realistic when many governments cannot even create a decent economic community within their borders.  This is confirmed by the levels of corruption in Asia.  Transparency International's Corruption Perceptions Index ranks Singapore, Hong Kong and Japan in the world top 20 "clean" countries.  Other Asian countries slip way the list -- Korea 39th, Malaysia 56th, China and Thailand 78th, and India 87th.  Indonesia (110th), Vietnam (116th) and the Philippines (134th) are virtually world record holders for corruption.


A sharper look at these issues is provided by looking at Asia's countries through the lens of the "failed states" concept.  According to the Fund for Peace, a state is failing when it suffers a loss of physical control of its territory or a loss of the monopoly on the legimate use of force.  Other attributes include the erosion of legitimate authority to make collective decisions, an inability to provide reasonable public services and the inability to interact with other states as a full member of the international community. 


No Asian country makes it into the top of the four categories ("sustainable"), and only Japan, Singapore and Korea are classified in the second category ("moderate").  Most Asian countries find themselves in the "warning" group, the third category, just above the "alert" category.   


One dimension of being a failed state is the large number of separatist movements in countries like China, India and Indonesia.  In recent times, Thailand and China have also had to mobilize the militaries to ensure domestic stability in face of social uprisings.  And beyond their borders, Asian countries have a vast amount of territorial disputes with their neighbors.  Even Japan, the region's most developed country, has border disputes with all of its neighboring countries.  


In short, it is difficult to envisage pooling sovereignty with other regional countries when a country is struggling to exercise authority over its own territory, and when it has major ongoing territorial disputes with its neighbors -- and also when the presence of an external power, the United States, is necessary to maintain peace between a region's countries. 


A broader look at Asia's governance can be gleaned by looking at the depth and breadth of democratic development.  According to the Economist Intelligence Unit, Asia only has two full democracies, being Japan and Korea.  Countries like India, Thailand, Indonesia, Malaysia and the Philippines have "flawed democracies", while China and Vietnam have authoritarian regimes.


The ADB's call to strengthen Asia's regional institutions to create an Asian economic community is laudable.  And certainly, regional governance can inspire and motivate improvements in national governance.


But it is difficult to see major improvements in regional institutions and governance, when national governance is so weak in the largest most important economies.  Asia is fundamentally different from Europe where most of the big economies also have the highest quality governance.


Greater regional cooperation and integration holds the prospect of improved growth prospects for Asia.  This is however being constrained by the reality that Asia's economic development has raced ahead of its political development, which itself will be a brake on continued economic development.  In addition, too many political disputes between countries have been left in suspense, as economic development has proceeded.


Asia's policy priority now should be improving the quality of national governance, and solvng the many border and other disputes between neighboring countries. 





Institutions for Regional Integration, Asian Development Bank


Doing Business 2011, World Bank


Corruption Perceptions Index, Transparency International


Failed States Index 2010, Fund For Peace


List of active separist movements in Asia


Economist Intelligence Unit Democracy index


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