Book Reviews

Australian Indonesian Relations since 1945:the garuda and the kangarooBob Catley and Vinsensio DugisAshgate Publishing, Aldershot, 1998.Pp. v + 356. ISBN l 840 14835 3.

This history of Australia–Indonesia relations isco-authored by a political scientist (a formerLabor member of Parliament) and a formergraduate student of his at Adelaide University. Itis primarily a political history, giving a detailedaccount of the not always easy relations betweenthe ‘garuda’ and the ‘kangaroo’, from the birth ofthe Indonesian Republic in 1950 to (almost) thepresent. The political history concludes with achapter on defence co-operation in the 1990s. To thisare added a chapter on “Increasing economicintegration” following trade liberalisation andderegulation in both countries during the 1980sand a final chapter on the Asian crisis whichends with the resignation of President Soeharto inMay l998.

The political history is well done, though onsome of the issues which most seriously disturbedbilateral relations the authors tend to accept toouncritically the anti-Indonesian propagandawhich has at times dominated the Australianmedia. This applies especially to the East Timorissue, “the most delicate in the bilateral relation-ship” (p. 226). The reference to the death of fiveAustralian journalists at Balibo ignores thefindings of a special report commissioned by theAustralian government, and on the ‘Dili massacre’of 1991 they prefer the propaganda version that“the incident claimed probably hundreds of lives”(p. 226) to the official Indonesian finding that 51persons were killed. But in relation to anotherincident, the rejection by Australia of GeneralMantiri as Ambassador to Canberra, they mentionthe treatment of the issue by “the ‘anti-Indonesian’element within the Australian community, ledparticularly by the pro-East Timor groups and theleft wing of the ALP [Australian Labor Party]”(p. 226).

The economic chapter consists mainly ofnumerous tables of statistics of Australian–Indonesian trade, aid and investment during thedecade l986–96, illustrating the significant growth

in bilateral trade but disappointing FDI in eitherdirection. The final chapter on the ‘meltdown’ of1997–98 tells the story of how the Asian financialcrisis transformed Indonesia “from a Tigereconomy to a struggling bankrupt in half a year”(p. 149) but says nothing about the outstandingachievement which gave Indonesia, under theguidance of the Berkeley Mafia of its leadingeconomists, 7 per cent per annum economicgrowth over 30 years. Written before May 1998,the chapter presents a picture rather morepessimistic than more recent data would indicate.But the story of the economic development ofIndonesia and its economic relations with Australiais peripheral to a useful account of the politicalrelations between the two countries in the pasthalf century.

The proof-reading, however, leaves much to bedesired; numerous misprints and some blunders, suchas the references to the distinguished Indonesianeconomist Dr K.W. Thee as "Wee" or "Wie".

H.W. ArndtAustralian National University

East Asian Development: will the East Asiangrowth miracle survive?F. G. Adams and S. Ichimura (eds)Praeger, Westport, CT, 1998.Pp. xiii + 218. ISBN 0 275 96411 6

“Of making many books there is no end”, as theprophet said 2,000 years ago. Books on the Asiancrisis are coming in a steady stream. Thiscollective volume arises from workshops held atthe Centre for the Study of East Asian Developmentin Kitakyushu in 1996, well before the onset of theEast Asian crisis. But a postscript chapter writtenin January 1998 discusses the causes of the crisisand the prospects for the future.

The book is admirably edited by ProfessorsAdams and Ichimura. The latter’s Preface isfollowed by five sections, on the process of EastAsian economic development, on the sources ofeconomic growth, on the role of savings andforeign direct investment (FDI) and on the crisis,each section introduced by brief summaries ofindividual chapters.

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To Adams, the process of East Asian economicgrowth appears as a ‘development ladder’, ratherthan a ‘flying geese’ pattern: “The critical issue inEast Asian development appears to be the linkagebetween economies”. Extra-regional linkages (FDIflows), intra-regional linkages (largely throughOverseas Chinese) and intra-country linkages(‘virtuous circles’ of high saving, human resourcesdevelopment etc) promoted what he regards as thecrucial factor: changing comparative advantage.The second chapter in this part, by Mitsuo Ezaki,emphasises globalisation, which he sees goingbeyond economic into political and philosophicaldimensions—‘truth, goodness and beauty’.

Parts II, III and IV cover familiar ground: thedebate about the East Asian miracle and the roleof technical progress (without reference to thearticle by Edward Chen in the May 1997 issue ofthis journal which largely cleared up theconfusion), the significance of high saving ratesand the contribution of FDI. Harrigan makes theimportant point that a high saving rate alone isnot enough; it needs to be supported by institutionsand policies that are ‘market-friendly’.

The postscript chapter on the crisis is excellent,though, written in January 1998, it inevitablydates. It focuses chiefly on Thailand, but thecontagion is mentioned and implications for othercountries are discussed. Oddly, there is noreference here, or elsewhere in the book, toJapan’s macroeconomic malaise. There is also lessdiscussion of exchange rate policy issues than onewould find in later books on the crisis. One of theconclusions deserves another book: “Politicaluncertainties may stand in the way of effectiveeconomic policies. It is not clear whether populardemocratic government can effectively managedevelopment policy in East Asia.”

H. W. ArndtThe Australian National University

Chinese Business in Malaysia: accumulation,accommodation and ascendanceEdmund Terence GomezCurzon Press, Richmond, UK, 1999.Pp. xxi + 234. ISBN 0 700 71093 0

Academic conferences and seminars on theOverseas Chinese tend to downplay the OverseasChinese as commercial actors and stress theirnon-commercial aspects, for example, their role in

politics, their migration history and so on. Atconferences devoted to the Indonesian Chinesethere will be papers on, say, the relatively accul-turated Chinese of central Java, but rarely if everon the much more vigorously commercial Chineseof Medan, who are anything but assimilated.

This book goes some way to redress the problem,at least in so far as Malaysia is concerned. It is aboutwhat the Chinese are known for: business. Thereis a brief overview of Chinese business in Malaysiaduring the colonial period, a thorough section onthe Malaysian government’s redistributive NEPpolicies and the response of Chinese business tothose policies and also a section on the Chinese inthe era of privatisation and economic liberal-isation in Malaysia. As well, there are in-depthcase studies on prominent Malaysian Chinesebusiness people. In fact, much of Gomez’s book isreally about this upper echelon of businessidentities. The state of Chinese business below theconglomerate level barely rates a mention. Theway Overseas Chinese business networkingoperates is that connections that come through ashared background can lead to networking ifrequired, particularly in hostile and difficultbusiness environments where legal structures arepoor. That is all.

The book is a mine of information. This can beboth praise and criticism. At various pointsGomez seems more a chronicler than an analyser.Nonetheless, the book is readable and does notget bogged down in unnecessary detail.

The book is not confined to MalaysianChinese. It contains valuable information onsenior bumiputra business figures. Many ofGomez’s sources are secondary and in someinstances dated. Reliance on dated sources meansrepeating what was once true as if it were still.

Fascinating anecdotes and vignettes enliventhe book. For instance, Gomez pinpoints thegenesis of the extraordinary level of merger andacquisition activity that occurred in Malaysia inthe 1980s to attendance by Malaysian businessmen-cum-politicians Daim Zainuddin and Tan KoonSwan at a short business management course atHarvard University in the mid-1970s. The bookcontains a lengthy table showing the politicalaffiliations of prominent non-Chinese businessfigures, some of whom are partners of prominentMalaysian Chinese. The book is worth buying forthis table alone.

Michael BackmanSydney

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The Riddle of Malaysian Capitalism: rent-seekers or real capitalists?Peter SearleAsian Studies Association of Australia in associationwith Allen and Unwin, St Leonards/University ofHawai’i Press, Honolulu, 1999.Pp. xvii + 318. ISBN 1 864 48628 7

Beyond the striking but enigmatic cover picture ofthis book one finds a volume which carefully andintelligently explores the complex circumstancesof latter-day Malaysian capitalism. The work isbased on research in Malaysia during 1987 andsubsequent visits assessing changes up to themid-1990s. It revolves around the key questions ofthe evolving nature of state control including itsencouragement of capitalism, and of the character-istics of entrepreneurs emerging as a result. Thebook is grounded to a large extent on case studies,which are used to illustrate dominant themes. Thediscussions have high relevance to present eventsand to what some observers perceive as deficienciesin the patrimonial state and its concomitant cronycapitalism.

After clarifying his philosophical position,Peter Searle presents an overview of the politicaleconomy of Malaysia regarding business from the1950s to the 1990s. He then looks at the role of thestate and the government’s attempts to expandMalay ownership of business and scrutinises theways in which this transition took place. Headdresses the key part played by Malaysia’sdominant political party, the United MalayNational Organization (UMNO). He examinesrelations between capital supplied through thisparty and private Malay capital, exploring thenature of the latter and the prime moversinvolved. Searle next scrutinises the paralleldevelopment of Chinese capital, looking first atthe disastrous attempt by the Malaysian ChineseAssociation to promote business through theinstitutional vehicle of the Multi-Purpose HoldingsBerhad and then at experiences of ‘new wealth’groups founded since 1970 and earlier ‘oldwealth’ firms. He finally draws broad conclusionsfrom his study.

Searle’s analysis emphasises the crucial role inmany enterprises of the right political connectionsand the increasingly patrimonial cast of theMalaysian polity as the Malay business elementgrew in size and linkages with key regulatoryagencies of government. He draws attention tothe changing nature of the civil service, where the

“new Malay entrepreneurs had found elements ofthe bureaucracy conservative and obstructionist”.There was a shift in high positions from “technicallycompetent” persons to those who were “politicallyloyal and committed to the leadership’s worldview” (p. 47). Searle cites various well-knownpolitically loyal Malaysians whom the govern-ment appointed to key positions in officiallycontrolled public companies, suggesting that suchappointments were at least a partial reason forsubsequent financial disasters. Much of thematerial presented echoes events in Thailand,Indonesia and the Philippines, where patri-monialism and associated encouragement ofbusiness were also prominent in rapid economicdevelopment up to 1997.

Searle answers the question of his book title byacknowledging the development of prominentrent-seeking, but perceiving at the same time theemergence of a “core of productive investment”by bumiputra groups with “greater independenceof patronage” (p. 246). He finds a similar nexusbetween the state and business for Chinese capital,but again sees the expansion of independent entre-preneurs. This answer is very much in line withthe observations of scholars like Hewison and Robisonwhom he quotes in his introductory section.

In Searle’s opinion, phenomena such asYoshihara’s ersatz capitalism are only way stationsen route to the more independent and competitivebusiness structures that emerge if economiescontinue to expand. While Searle does notemphasise it, the patrimonial structure of businessgrowth may be viewed as almost inevitable in theMalaysian and wider Southeast Asian culturalcontext and once more likely to disintegrateunder competitive pressures. In fact, manypolitically loyal Malaysians whom Searle quotesin critical tones have turned out to be generallycompetent managers. Searle himself refers to theunexpectedly excellent performance of DaimZainuddin in promoting unpopular measures ofstructural adjustment (p. 8).

The book makes a useful contribution bydocumenting key features of recent Malaysianbusiness development and relating these to issuesof how best entrepreneurship can be encouraged.Malaysia’s measures, in vigorously encouragingbumiputra as well as other business over the lastthree decades, have produced a critical mass ofbumiputra entrepreneurs, but also assisted localChinese enterprises. They have promoted economicgrowth and assisted in speeding recovery fromthe recent financial crisis.

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While illuminating interactions betweenbusiness and the state, the book does not reallyaddress the crucial issue of how the governmentapparatus itself has been affected by the policiesand changes it describes. There is little doubt thatinfiltration of the Malaysian (as well as the Thaiand Indonesian) bureaucracies by persons moresympathetic to business interests than widersocial goals is one unfortunate result of thesepolicies. The infiltration is likely to have seriouslong-term consequences for economic and socialgrowth. Untrammelled support for business maywell lead to later social breakdown and consequenteconomic reversal.

Colin BarlowThe Australian National University

International Migration in Southeast Asia:trends, consequences, issues and policy measuresCarunia Mulya Firdausy (ed.)Southeast Asian Studies Regional Exchange Program;Toyota Foundation and Southeast Asian StudiesProgram, Indonesian Institute of Sciences, Jakarta, 1998.Pp. xi + 254. ISBN 9 799 51250 6

Migration is clearly a significant social phenomenonin the development of Southeast Asian economiesand societies. Although occurring in variousforms throughout history, migration as a corollaryto economic development emerged only in thelast two decades, but expanded quickly in sizeand forms. Estimates of migrants in the countriesof the region reach perhaps four million, at leasthalf of them irregular. The large flow of unskilledand semi- skilled labour has been accompanied bymigration of professionals in the economiesemerging from the crisis.

A volume on migration in the region confrontsvarious issues. Distinct migration systems, onecentred on Malaysia and Singapore, the other onThailand, have emerged. The inter-relation ofagents, employers and intermediaries requiresbetter understanding as it constitutes the under-pinning for both regular and irregular migration. Sodoes the role of the informal economy and socialnetworks.

This volume, which contains contributionsfrom established scholars in the field, providessome insights on these issues, particularly on therelationship between migration and development,on irregular migration and on the conditions of

migrants, particularly the Indonesians in Malaysia.But the book is somewhat disap- pointing in itsoverall structure. It appears to be a compilation ofpapers produced for different purposes and atdifferent times.

The opening chapter by Ronald Skeldonexamines the relationship between migration anddevelopment in the region. He outlines thelong-term development of migration within adiffusion framework progressively linking urbansettlements from the core to the periphery. Such atrend appears inevitable to the point that migrationpolicies cannot modify it and should simplyaccommodate it. This and other insights, such asthe importance of timing in the linking of develop-ment areas to globalisation, merit additionaldiscussion by researchers. However, they arealready in the public domain, the author havingdeveloped them in an earlier volume.

Graeme Hugo contributes a useful chapter onirregular migration in Southeast Asia. To explainthe determinants of irregular migration, he brieflyoverviews the major migration theories, concludingthat the role of networks and migration recruitersappears crucial. However, this does not add to ourunderstanding of the causes of irregular migrationin Southeast Asia and the author is hesitant insuggesting options for policy.

A second chapter by the same author does littlemore than review the literature on femalemigration in the region. Migrant women, particu-larly from the Philippines and Indonesia, haveincreasingly become the focus of research; what isneeded now is a discussion of specific aspects ofpolicy aspect.

There is a chapter on Asian migration toAustralia, hastily compiled from a few publishedsources without additional analysis; the remain-ing chapters focus on Indonesian migrants inMalaysia and on return migration to Indonesia.On the basis of interviews with small samples ofmigrants, the chapters provide some interest-ing information, particularly on the working andliving conditions of Indonesians in some suburbansettlements in Malaysia. Unfortunately, the chaptersdo not go beyond description of frequencies.Disappointingly, the implications for policy of theAsian financial crisis are missing from theanalysis of Indonesian migrants in Malaysia andreturn migration to Indonesia.

The uneven quality of contributions in thisvolume does not do justice to the issue of

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migration in Southeast Asia. Shabby layout andpoor editing also diminish from its impact.

Graziano BattistellaQuezon City

Towards a New International FinancialArchitecture: a practical post-Asia agendaBarry EichengreenInstitute for International Economics, Washington, DC,1999.Pp. xv + 189. ISBN 0 881 32270 9

Barry Eichengreen has produced a very usefulbook which provides a readable, balancedassessment of the recent Asian financial crisis anda set of recommendations that appear to beinfluencing key policy-makers in governmentsand international financial institutions. Startingwith a comprehensive survey of the literature,Eichengreen analyses the nature and causes of thecrisis, the measures taken to resolve it, and, mostimportantly, the measures proposed for reformingthe international financial system so as to mitigatefuture crises. He sets out his own reformproposals, which, as he says, “stake out a middleground between the overly ambitious andpolitically unrealistic schemes of independentcommentators and the excessively timid andambiguous reports of the international bodies andorganizations” (p. 4).

Six assumptions undergird Eichengreen’srecommendations. Liberalised financial marketshave compelling benefits. International financialliberalisation and growing international capitalflows are inevitable and irreversible. Capitalmarkets are characterised by information asym-metries that can give rise to overshooting, sharpcorrections and financial crises. This instabilityprovides a compelling argument for erecting afinancial safety net despite the moral hazard thatmay result. Information and transactions costscan prevent decentralised markets from quicklyand efficiently resolving financial problems.Economic policy is framed in a politicisedenvironment.

Financial crises come in two main forms:old-fashioned balance of payments crisesresulting from excessively expansionary monetaryand fiscal policies that are inconsistent withexchange rate commitments; newfangled high-tech crises driven by the interplay of domestic

financial-sector weaknesses and internationalcapital flows.

Eichengreen focuses on the second type ofcrisis. While supporting calls for improvedmanagement and prudential regulation, herecognises that these cannot be achieved quicklyor easily in most developing countries andtherefore advocates a major role for privatesector organisations in helping to formulate andpromote better prudential standards (p. 11). Heacknowledges that capital requirements often failto deter excessive risk-taking because they areneither observed nor enforced. To restrain undueshort-term foreign borrowing, he recommends aChilean-style tax on all domestic entities. Asregards crisis management, Eichengreen emphasisesthe need to reorient international debt contractsto permit easier restructuring of debt paymentsin times of trouble, create standing committeesof creditors to facilitate quick communicationbetween creditors and debtors and encourage theIMF and others to continue lending to countriesin default if they are making serious efforts toresolve their problems. Such measures aredeemed more acceptable and politically feasiblethan many of the extreme proposals that have beenput forward. In fact, the IMF, with encouragementfrom the G-7, seems already to be accepting manyof them.

Eichengreen’s assessment and recommend-ations still appear to be too optimistic about thecapability of most developing countries to enforceprudential regulations and to take steps torestrain short-term capital inflows if they areaccelerating too rapidly. Prudential regulation canbe quickly and quietly subverted by politicalinterference. Similarly, relying on ‘elected’ govern-ments to tax short-term capital inflows andtighten domestic monetary policy, especially inthe run-up to an election, may well be asking toomuch.

An alternative approach (Cole and Slade 1997,1999) would rely on automatic rather thandiscretionary stabilisers and administrativesurveillance. Solvency reserves, held in the formof both domestic and foreign governmentsecurities and linked to all third-party liabilities,could supplement or replace capital requirementsfor all kinds of financial intermediaries. Thesolvency reserve requirement for short-termliabilities could be higher than that for longer-term liabilities, or even adjustable upward forinstitutions that exceeded specified limits. It could

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be higher for foreign currency liabilities than fordomestic liabilities. Holding such reserves inforeign currency-denominated securities wouldhelp to provide foreign exchange reserves to meetan unexpected outflow and discourage financialinstitutions from borrowing abroad at short termto invest in risky domestic ventures. Finally,solvency reserves held by the central bank onbehalf of the individual financial institutionswould provide a more easily monitored andenforced requirement than the capital-to-risk-asset requirement that Eichengreen correctlydeems inappropriate for most developingcountries.

David C. Cole

References:Cole, David C. and Slade, Betty F. 1997. “Speeding up by

slowing down: a market-building approach tomonetary management and prudential regulation”in Wallace, Laura (ed.), Deepening StructuralReforms in Africa: Lessons from East Asia,International Monetary Fund, Washington, DC.

—— 1999. “The crisis and financial sector reform”, inArndt, H. W. and Hill, Hal (eds), Southeast Asia’sEconomic Crisis: origins, lessons, and the wayforward, Institute of Southeast Asian Studies,Singapore.

The Asian Contagion: the causes andconsequences of a financial crisisKarl D. Jackson (ed.)Westview Press, Boulder, CO, 1999.Pp. iiv + 312. ISBN 0 813 39035 4 (pb)

This worthwhile collection of papers on the Asianfinancial crisis airs three questions.

1. “Who (or what) done it?” Three possibilities areentertained: cronyism (a hypothesis popular withpolitical scientists), panic (the favourite ofeconomists) and bad fundamentals (the preferredanswer of market players).

The evidence presented in Asian Contagionfavours the hypothesis of bad fundamentals. Thetale of excess supply in Thailand is here vividlyretold. “In early 1995, Bangkok was becoming acity of dark towers, where completed buildingsstood empty against the night sky” (p. 9). At thistime the editor of this volume, Karl D. Jackson,calculated in a memorandum submitted to theBank of Thailand that even under the assumption

of constant 8.5 per cent growth “there was no waythe Bangkok market could absorb all the modernoffice [space] and luxury condominiums beingopened”. And so it was.

More generally the marginal product of capitalin Thailand is estimated to have dropped from 0.5in mid-1987 to 0.25 in 1996. Japan had beenexperiencing a decline in capital productivitysince the early 1970s, and by the early 1990slagged behind the USA. The construction offactories destined to produce little or nothing inChina is notorious. Official Chinese statisticsreport that by 1995 car factories operated at 44 percent capacity, VCRs at 40 per cent and airconditioners at 33.5 per cent.

But excess capacity in China raises the secondquestion:

2. “Why me?” or “Why not me?” Why is it thatChina did not have a financial crisis with such badfundamentals? It had the excess capacity: “InBeijing, Shanghai and Shenen there are millions ofsquare feet of unoccupied luxury villas andtownhouses and even larger amounts of first classoffice space” (p. 89). It had a rotting financialstructure: “ ... financial losses caused by fraud,corruption and other lending irregularities inChinese banks seem greater than those associatedwith crony capitalism in Indonesia or by corruptKorean bank lending practices” (p. 84). Butdespite all this, no crisis. The simple explanation,advanced by Nicholas R. Lardy (“China and theAsian financial contagion”), is capital marketregulation: “Chinese savers who are concernedabout the viability of the country’s financialinstitutions do not have the option of legallyconverting their renminbi deposits and thenpurchasing foreign currency”. But, a critic mayreply, Chinese savers do have the option ofpurchasing real domestic assets. Thus if thefundamentals warranted a depreciation (that is,made inevitable a depreciation) there would havebeen a certain inflation as Chinese currency wasdumped for real assets. Has there been such aninflation?

The “Why not me?” question for China can bepaired with the “Why me?” question for thePhilippines. Between 1 July 1997 and 24 January1998 the peso depreciated by 39 per cent, and thatis comparable to the 45 per cent depreciation ofthe ringgit and the 49 per cent depreciation of thewon. Yet the Philippines financial system was in arelatively healthy state, its central bank was

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independent, and there were not the indicationsof over-investment evident in other East Asiancountries: the investment share of GDP in thePhilippines was in the low 20s compared with 34per cent in Indonesia, 35 per cent in Malaysia, and40 per cent in Thailand. Finally, the Philippineshad been excluded from the hype of East Asia; itwas conspicuously absent from the World Bank’sbest selling 1993 volume on the Asian Miracle. Yetnone of these factors spared the Philippines. In“The Philippines as an unwitting participant inthe Asian economic crisis”, Manuel F. Montescontends that the Philippines should have beenspared, and appears to explain its misfortune ascaused by crudely informed capital marketstossing the Philippines into the ‘East Asia’ box.However, it must be allowed that the Philippines’current account deficit was 4.6 per cent of GDP in1996, and the country was in the midst of apolitical crisis when the ill winds struck. Thisintroduces the third question:

3. “Is your government weak enough to achieveeconomic reform?”

This question is raised by Surjit S. Bhalla in apaper on “East Asian lessons for India”. He pointsout that the reforms of Rao and Singh wereundertaken by a minority government, andceased as soon as a comfortable majority wasachieved. This observation conflicts with theconventional precept that reform requires a stronggovernment. This precept derives its plausibilityfrom the implicit presumption that government ispublic-spirited. Plainly, if government is public-spirited then its strength will assist it in achievingreforms over vested interests. But if governmentis not public-spirited, but the tool of vestedinterests, strong government will only meanstrong vested interests. It is the weak government,not the strong one, that will allow reform. Inkeeping with this hypothesis the country withone of the strongest governments in the region,Indonesia, was the country the most resistant toreform. Malaysia is a similar case. Thailand,Korea and the Philippines are also congruent inthat reform in those countries was slow to non-existent under these countries’ strong govern-ments of the 1960s and 70s, and quickest underthe unstable, democratising governments sincethen. Japan seems to violate the hypothesis: bothstrong and weak governments seem equallyincapable of reform. China and Vietnam are alsoanomalous: their strong governments supply an

incongruous conglomerate of accommodationand resistance to reform.

Clearly the political economy of reform iscomplex and ill understood. The greatest strengthof this volume, dominated by political scientists,is its examination of the complex political economyof the reform process. I would single out especiallyWilliam Turley’s telling account of policy paralysisby ideology, “Vietnam: ordeals of transition”.

But do we need another book on the Asiancrisis? To adapt Ecclesiastes, “Of making manybooks on the Asian crisis there is no end”. But itwould be regrettable if this volume was lost sightof in the sea of titles. This book adds value. Theonly blemish worth registering is that it lacks achapter on Malaysia.

William ColemanUniversity of Tasmania

Vietnam—the incomplete transformationPeter WolffFrank Cass Publishers, Ilford, UK, 1999.Pp. 152. ISBN 0 714 64931 7

Vietnam is not an easy country to understand orlearn about. It is one of the few nations in the worldthat has not yet allowed its normal economic data tobe published by the IMF. Normal commercialdata are still treated as secret information, evencompared to China. While it was seen by some asa ‘tiger cub’ in the now distant days of the Asiancapital bubble, it is no longer viewed as a hotinvestment location. Many firms have pulled outand others have reduced their exposure as theyhope for profits somewhere down the road. Whatare their prospects?

The author of this short book would probablysuggest that it will take a while longer beforeeconomic prospects in Vietnam are truly positive,at least until there are further reforms. The titlesuggests the findings. After a decade of reform, aterrific start has become bogged down. The toughand successful macroeconomic stabilisation andswitch to market prices and private farming,along with high levels of capital flows through1996, created a sense that further reform was notneeded. Growth was high (8–9 per cent), inflationlow, and export growth rapid. The limitedconsolidation of the state enterprises in the early1990s (from 12,000 to 6,000 firms) looked moreimpressive than it was, since it was mostly very

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small and local firms that were merged with otherstate firms or shut down. Some were not inoperation and were simply taken off theregistration list. Attitudes by the Party towardsprivate firms above the household level remainsuspicious or even hostile. Licensing restrictionsand limits on the use of land for collateral restrictcredit. The financial system, dominated by thestate-owned banks, is hobbled by bad debts,ill-judged real estate loans, and a still-significanttendency to lend to shaky state enterprises whenasked to by authorities. There is no stock market,and confidence in the currency and bankingsystem is low. Dollars and gold are widely held inprivate hands. Aid or direct foreign investment,rather than domestic savings, has financed muchinvestment, the latter mainly through jointventures (JVs) of foreign firms with stateenterprises. The Vietnamese partner supplies landand gets a nominal 30 per cent share of the JV,even if the land is worth far less. Most of thisinvestment, when not directed at oil or real estate,is for high-cost import-substituting industrialproducts. However, about a third of foreignindustrial investment is in export-orientedproducts such as shoes, garments, food processingand electronics. Accentuating export-led growth,including domestic private sector firms, will benecessary and desirable because of limited landand natural resources; a growing literate andproductive labour force and commitments tointegrate into the ASEAN Free Trade Area.However, more focus on sustainable developmentand the legal system will be needed to keep theprocess acceptable to Vietnamese and attractive topotential investors. The author suggests thatforeigners should adopt best-practice technologieswith respect to pollution. This would have ahighly beneficial effect. The reduction of povertyshould provide some political support for furtherreform, though progress as of mid-1997 had beenslow.

The author is clearly aware of conditions inVietnam and the modest literature on its economy.His data unavoidably stop in 1995 or 1996; theAsian economic crisis had not yet hit when he hadfinished most of his writing. Despite that, hisqualified optimism mixed with scepticism stillholds up well for the current situation. The GDPgrowth rate in 1998 was reported officially as 5.8per cent, though other estimates are lower. Thegrowth of oil product imports—normally equal toreal GDP growth—was only 3 per cent from the

first quarter of 1998 to the first quarter of 1999.Growth in 1999 is now projected to be lower thanin 1998. Foreign direct investment approvals havefallen sharply, especially when allowance is madefor show-case approvals unlikely to be financed.Exports in the first quarter of 1999 are falling invalue, though not volume, while imports fellsharply by either measure. In short, growth hasslowed noticeably and prospects are poorer thanwas widely thought likely only a year or two ago.Why?

Again, the author ’s observations wereprescient. Certainly, the backwash from the Asiancrisis hurt Vietnam, if later than its ASEANneighbours. Lower raw material prices andgreater competition in manufactured exportshave hit hard. Real costs of labour in Thailand andIndonesia fell in dollar terms, though theinstability in Indonesia should have helpedVietnam attract some investment. Yet the policiesof Vietnam have arguably had a greater impacteven than the crisis. High levels of protection areill-judged and unenforceable. Workers’ wages atforeign firms are fixed in dollars, not in localcurrency or even in real terms. Dollar bankaccounts of most companies (even foreign) are tobe largely converted to dong, with the firm able touse its own money only with the approval ofauthorities! It is not surprising that a recentsurvey found Vietnam’s economic managementof the crisis to be the worst of any Asian country.1Meanwhile, domestic private sector industrialdevelopment is still modest. State industriesremain mired in losses or low profits and thebanks remain weak and probably insolvent. Thereare indications that some in the governmentunderstand the problem, but many in the stateenterprises, Party, and some ministries resistfurther reform, especially rapid reform.

However, the most durable gains in theeconomy have been in the rural sector wherereform has gone the furthest. Much aid is nowbeing tied to meaningful reform. A continuationof uneconomic projects under Soviet aid rules willnot be allowed to persist. Some regions, especiallyin the south, have allowed ‘normal’ investors toset up and operate without undue interferenceand they are doing well even while the nation hasslowed or reversed. Wolff might have said moreabout these regional differences than he did. This,and persistent limits on government revenuefrom failing state enterprises, lower oil prices, andsluggish exports will tend to push economic

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managers in a reform-oriented direction. Someglimmers of this are already evident. If othersresist their efforts, the limited employment growthwill aggravate social tensions. Examples of ruralunrest, even in the north (for example, Thai Binhprovince, among others), already serve as awarning. Thus, Wolff’s conclusion that Vietnam“must be guided less by a fixed pattern forged inparty conference decisions and more by thefundamental factors that form the basis of theAsian economic miracle” is correct. The ground-work has been laid, but the building must bebuilt. As Vietnam comes to view itself as a normalnation competing for investment rather than aspecial case that cannot fail, it will become a veryeffective competitor. The question is one oftiming, and of how many opportunities will belost.

David DapiceTufts University

1 The survey of 400 executives in Asia by the HongKong-based Political and Economic Risk Consultantswas quoted in the 29 April, 1999 Far Eastern EconomicReview. A dozen countries were rated and Vietnam gotthe worst grade, lower even than Japan and Indonesia,the next two worst rated. Singapore and China weretop rated.

Indonesia: the challenge of changeRichard W. Baker, M. Hadi Soesastro, J. Kristiadi andDouglas E. Ramage (eds)Institute of Southeast Asian Studies, Singapore, 1999.Pp xx + 305. ISBN 9 813 05569 3.

Post-Soeharto Indonesia: renewal or chaosGeoff Forrester (ed.)Institute of Southeast Asian Studies, Singapore, 1999.Pp xxi + 255. ISBN 9 812 30046 5.

As the Indonesian crisis unfolds, there issomething a little untoward about reviewing twocollections of papers with the benefit of hindsight,one formulated just prior to the crisis and one justafter the fall of Soeharto. In their own way eachcollection provides an intriguing snapshot ofIndonesia at two key junctures that are critical foran understanding of the evolving crisis. Boththese collections rest on the belief that Indonesia’sunderlying economic problems arose from thelack of institutional development during the NewOrder government of Soeharto.

Indonesia: the challenge of change arose from acollaboration prior to the crisis between theEast–West Center and the Centre for Strategic andInternational Studies, Jakarta. This volume ofpapers explores how rapid economic growthaffected institutional change, in Indonesia. This isan interesting and difficult question that is noteffectively addressed by all the contributors. Thestability focus of the Soeharto governmentclearly did inhibit political change, with negativeimplications for many institutions. At the sametime the government garnered much of itslegitimacy from its ability to deliver rapideconomic development.

To achieve sustained and rapid economicgrowth, the government undertook major economicpolicy changes, such as the shift from a resource-reliant economy to a non-oil export basedeconomy in the mid-1980s. Indonesia was one ofthe very few developing economies where eco-nomic policy advice was valued to the point thatthe government would routinely pay to haveaccess to outside experts. Compared with othercountries, the top economic bureaucracy wastechnically superb and the economic policy insti-tutions were well developed and resilient.

In fact the New Order government achievedone of the most rapid growth rates in thedeveloping world as real growth averaged closeto 7 per cent per annum, an increase of almost 5per cent per annum in per capita terms. Evenmore important was the government’s success inreducing poverty to only 11 per cent in 1997.

Given this success in achieving rapid economicdevelopment, it is perhaps not surprising thatpolitically related institutional change laggedbehind. The lack of institutional development alsoreflected deficiencies in the economic develop-ment programs of the major donors, whichgenerally failed to give enough assistance toinstitutional changes required over extendedperiods to successfully implement policy changes.The underlying problem was the lack of politicalsupport for needed regulatory actions in caseswhere the banks were owned by PresidentSoeharto’s family.

The even larger failure of market-based govern-ance to develop in Indonesia appears to have beena negative externality of rapid development andpaternalism where even very weak entrepreneurswith the right connections could succeed. In lightof these combined government and marketfailures, conditions were ripe for abuse.

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This volume clearly demonstrates theinstitutional rigidities that arose from thegovernment’s focus on stability. Most interestingperhaps is the centralisation of power byPresident Soeharto that left parliament andthe courts fully dependent while doomingdecentralisation to failure. In general, however,the reader is left to assess the importance of theseinstitutional failures, as the increasing demandson institutions arising from economic develop-ment are not well covered. One clear exception isthe excellent contribution by Dedy Hidayat, whoexamines the development of the media. Heexplains the inter-dependence between economicgrowth and media development, the tensionbetween business and political demands on themedia, the evolving maturity of the media and thebouts of political repression. Certainly a brightspot has been the full role that the media has beenable to play in Indonesia’s elections, given theirnew unrestricted press freedom. Overall, however,this collection shows that Indonesia’s institutionswere not able to support the modern, market-based economy that had begun to emerge from therapid economic growth during the New Order.

Post-Soeharto Indonesia: renewal or chaos bringstogether papers presented at the IndonesiaUpdate conference held at the AustralianNational University in September 1998, fourmonths after the fall of Soeharto. It not onlyexplains the origins and dynamics of the crisis butlooks perceptively at the underlying institutionalweakness that made Indonesia so vulnerable,providing a detailed chronology of the majorchanges associated with Soeharto’s fall within abroader perspective of the underlying trends.

Richard Borsuk points out that Soeharto’spersonalised system of governance led to thedevelopment of a few large conglomerates butfailed to nurture the development of small andmedium enterprises required for economicvitality and resilience. He is also correct in sayingthat Indonesia must develop a business environ-ment based on the rule of law; that will take yearsof hard work.

The transition from Soeharto to Habibie is welldocumented in a paper by Marcus Mietzner. Thisanchors a good set of papers that includes a veryinteresting synopsis of the Habibie governmentby Dewi Fortuna Anwar, insightful pieces on thearmed forces (ABRI) by Patrick Walters and J.Kristiadi and a political update by John McBeth.

Other papers deal with a wide range of issuesrepressed in Indonesia during the Soeharto years.

Amien Rais, the leader of the political party PartaiAmanat Nasional (PAN), explains the politicalaspirations of the Indonesian Muslims. JamieMackie provides an excellent analysis of the‘Chinese problem’ while other authors cover theJavanese issues, the rural poor and the ethnicconflicts. One notable omission is the lack of adetailed analysis of the unresolved East Timorissue.

The Forrester collection also includes a usefulindex that makes the volume user-friendly forstudents and researchers. This volume shouldfind a place on the desk of all those who studyIndonesia.

Paul DickieVictoria University

Southeast Asia’s Economic Crisis: origins,lessons and the way forwardH. W. Arndt and Hal Hill (eds)ISEAS, Singapore, 1999. Pp. 184. ISBN 9 813 05589 8

The Asian Crisis Turns GlobalManuel F. Montes and Vladimir V. PopovISEAS, Singapore, 1999. Pp. vi + 123. ISBN 9 812 30050 3

The Asian Crisis: is there a way out?Max CordenISEAS, Singapore, 1999. Pp. 82. ISBN 9 812 30043 0

These three small books deal with the financialand economic crisis which erupted unexpectedlyin Southeast Asia in 1997. Taken together theyconstitute a prompt, timely and forward-lookingaccount and analysis of the episode and itsfar-reaching consequences. The Institute ofSoutheast Asian Studies, Singapore, deservescongratulations for its initiative in producingthese valuable publications without delay.

As Hal Hill points out, the crisis was first of allremarkable in being virtually unseen by anybody.It emerged suddenly, spread quickly and becamealso a crisis of political, social and civil order. Ineach affected country the manifestations reflectedparticular local features, and the ASEAN bloc hasso far been of little use or relevance in managingthe crisis.

Heinz Arndt and Hal Hill organised thirteenother authors to deal with events in six countries—

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Indonesia, Malaysia, the Philippines, Singapore,Thailand, Vietnam—and to consider six trans-national themes—exchange rates, financial sectorreform, economic modelling, equity and poverty,political institutions, ASEAN. The twelve essaysare preceded, and nicely summarised, by anoverview essay from Professor Hill. Thecontributors to this volume are knowledgeableand the essays are authoritative, succinct andwell-written. This is the book for anyone whoseeks a single, comprehensive volume about theAsian crisis.

The short book by Manuel Montes and VladimirPopov attempts a more general treatment,beginning with theories and typologies ofcurrency crises, discussing exchange ratemanagement principles, describing both theAsian crisis and that of Russia in 1998, andreflecting on the future of globalised capitalmarkets. The book makes important points aboutavoiding currency over-valuation and ensuringthat excessive and speculative capital inflow isprevented, either by restrictions or by prudentialregulation, according to the specific circum-stances of each country. That said, the book lacksbalance in design and cohesion in structure; theresult is an unblended mixture of theoreticalspeculation, factual snippets and tables andfigures (which together occupy 21 of the 106pages).

Max Corden’s short monograph—which is thetext of a lecture given in Singapore on 6 August1998, with a three-page postscript aboutIndonesia—is lucid, elegant and original. Aloneamong the profusion of writings about the Asiancrisis, Corden’s essay tells a simple Keynesiandemand story. His main point is that Keynesiananalysis, and in particular the prescription ofexpansionary fiscal policy to remedy a recession,is highly relevant to the Asian crisis. Cordenfocuses on the transmission of financial crisis tothe real economy; he discusses the effects of, inturn, the Keynesian mechanisms which causedeclines in consumption and investment demand,the problems associated with fiscal expansion,exchange rate depreciations, and the breakdownof domestic financial systems. Corden devotesone-fifth of his text specifically to the IMF, layingout—and to an extent endorsing—the maincriticisms of its actions in Asia, but at the sametime scrupulously putting the other side of eachissue as seen by the IMF; he stresses that there areinvariably trade-offs involved in policy decisions.He points out, too, that errors of short-term policy

can lead to damaging long-term outcomes including,as noted also by other authors, increasedxenophobia and the flight of Chinese capital andskills.

There is a measure of agreement among thethree books along the following lines. Domesticeconomic policies in Asia before the crisis werebasically sound; financial sector liberalisationwent too far, too fast; private sector borrowingand lending behaviour (domestically and inter-nationally) precipitated the crisis; the response ofthe IMF, at least initially, was inept and insensitiveand may have exacerbated the crisis. There isgeneral agreement, too, that the opening of theinternational capital account requires the supportof appropriate prudential or other regulation, andshould in any case be a staged process. And thereseems to be no dissent from the view that thecountries of Asia should not revert to protectivepolicies but continue to pursue liberal trade,microeconomic reform and transparency in thelong term. Reform rather than revolution is theadvice of these books, and that should be taken toinclude the approach and operations of the IMF aswell as of national governments.

P. J. DrakeSydney

Women in the New AsiaMatsui YayoriSpinifex Press, Victoria, 1999.Pp. x + 194. ISBN 1 875 55986 8

In this book, translated from the Japanese byNoriko Toyokawa and Carolyn Francis, MatsuiYayori sums up the efforts of women’s and localcommunity organisations in various Asiancountries to address the related issues of ruralimpoverishment and economically generatedinfringements of the human rights of women. Thebook is a series of case studies, in which the authorinterviewed community activists in Thailand,Malaysia, the Philippines, Nepal, Taiwan andthose from other countries at the Fourth UNWorld Conference on Women in Beijing.

Yayori details human rights abuses andpresents examples of successful economic initiativesby village women and political campaigns thathave slowed or halted such abuses. A journalistby training, she expresses rage and grief at the fateof Thai village girls sold into prostitution inBangkok and Japan, the exploitation of Filipina

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domestics in Hong Kong and the economic ruin ofpeople evicted for construction of the BatangasPort on Luzon, but waxes optimistic over thesuccess of community initiatives like the NegrosCampaign among former Philippines sugarplantation workers and the lily bulb enterprisefounded by a Chinese women’s creditco-operative in Jiangxi.

Yayori argues that the trend of economicpolicy in Asian states since the 1980s hasadversely affected low-income earners, especiallywomen. She claims that the effects of export-oriented development policy at the national leveland policy parameters imposed through GATTand the World Bank at the international level areso destructive among low-income earners inmany parts of Asia that political action is neededto redress them.

The Structural Adjustment Program imposedon debtor nations by the World Bank is at faultbecause cuts to welfare budgets leave womenwith more unpaid ‘social work’ in the family; cutsto the public sector make clerical workers, manyof whom are women, lose jobs and export-oriented agriculture damages the economy offarming communities and adds to the number ofimpoverished young women migrating to thecities or to Japan to work as domestics or in thesex industry. GATT further affects agriculture bydistributing cheap imports. Internationallyowned factories established in Asian countriesunder favourable terms employ a mainly femaleworkforce, but the poor and dangerousconditions and the low wages do not compensatefor lost or missing opportunities in small farmingor handcraft production. Aid goes to dams, portsand highways, industrial infrastructure thatattracts overseas manufacturers but causesenvironmental damage that impoverishes farmersand fishermen. These are direct consequences of thecurrent international economic structure.

Although Women in the new Asia succeeds indemonstrating that grass-roots business initiativesundertaken by community organisations in Asiacan be socially useful and turn a profit, itscredibility is hampered by lack of documentationand translation errors. Yayori does not attributeher information. Footnotes would have made adifference, particularly for the statistics. Chinesenames are consistently misspelled. Despite thesecriticisms, for anyone interested in the impact of

globalisation on women in Asia, Women in the NewAsia is worth reading.

Josephine FoxUniversity of Sydney

Our Future with Asia: proposal for a SwedishAsia strategyThe Asia Strategy ProjectMinistry for Foreign Affairs, Stockholm, 1999.Pp. vii + 312. ISBN 91 630 7917 8

In comparison with Australia, New Zealand andother countries on the eastern shores of the PacificOcean, Europe has been slow to recognise Asia’sincreasingly important role in global economicand political affairs. However, European viewshave changed significantly in recent years, bothbecause of the rapid development of many Eastand Southeast Asian economies between themid-1980s and mid-1990s and because of thespillover effects of the Asian financial crisis.The Asia–Europe Economic Meeting (ASEM),established in Bangkok in 1996, is one example ofthe European Union’s ambition to strengthenrelations with Asia. Several individual Europeancountries have also prepared their own Asiastrategies. The recently presented proposal for aSwedish Asia strategy is one of the moreambitious national programs. Not only does itinclude all countries in South, Southeast and EastAsia; it also covers a wide variety of issues,ranging from security policy and human rights totrade and cultural contacts.

Formulating an Asia strategy may haveappeared relatively simple some years ago, whenit seemed easy to predict continued rapiddevelopment for many parts of Asia. Today,against the backdrop of the Asian crisis, things aremore complicated, and the differences within Asiaare much larger than many of us realised. One ofthe strengths of the Swedish Asia strategy is thatboth uncertainty and heterogeneity are takenseriously. To provide a solid foundation, the AsiaStrategy Project commissioned some 30 back-ground studies on various topics, engaging mostof the Swedish Asia expertise (and some foreignexperts) in the project. A reference group, withrepresentatives from Swedish business, NGOs,labour unions, universities and public admin-

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istration, met several times to discuss thefindings. Several hearings were also arranged formore detailed discussion of specific topics. Theseinvestments have paid off. The description of Asiain the late 1990s and the assumptions for Asiandevelopment up to the year 2010, as well as therecommendations for Swedish policy, appearplausible.

Among the predictions for Asian developmentare the following: most countries will haverecovered from the Asian crisis by 2010, some ofthem perhaps stronger than before thanks to theeconomic and political reforms undertakenbecause of the crisis. The number of people livingin deep poverty will fall, but the gap between therichest and the poorest will grow, both nationallyand internationally. Widespread poverty willremain in South Asia. The total population of theregion will grow by about one billion, reachingnearly five billion. The number of elderly willincrease, particularly in Japan and other relativelyrich countries. Democratisation is expected toadvance throughout the region, with increasingpopular participation in the political process,particularly through a strengthening of NGOs.Even the remaining socialist economies (with thepossible exception of North Korea) are expected tobecome more open.

A few important question marks are alsoidentified. As regards China, there is muchuncertainty about the direction of economic andpolitical reforms, as well as the stability of thefinancial system. As regards Japan, the questionsconcern the path and pace of economic recovery.Throughout the region, there is heavy pressure onthe environment, and sustainable developmentrequires improved management of naturalresources. The long-term security situation isparticularly difficult to assess, with increasedtension between India and Pakistan adding to theproblems regarding Taiwan and the Koreanpeninsula.

Using these assumptions as a starting point,the project recommends priorities and actions inseveral areas. First and foremost, any SwedishAsia strategy must be based on Sweden’s owninterest and objectives. These include peace,security and higher living standards. In aninternational context, these objectives requirepromotion of economic development, sustainableuse of natural resources, free trade, democracy

and human rights throughout the world,including Asia. Sweden should primarily act invarious multilateral organisations (UN, EU,WTO,ASEM) to promote these objectives. Inaddition, several proposals for unilateral andbilateral action are offered. Regarding commercialcontacts, the proposals centre around theestablishment of an effective organisation topromote trade and investment between Swedenand Asia. Apart from traditional trade promotionactivities, this includes creating a think tank tostrengthen Swedish knowledge about Asianeconomies and markets. In the area of develop-ment co-operation, the strategy calls for morereciprocity, mainly in education and research, butalso through a deepening of commercial relations.Particular emphasis is placed on environmentaltechnology, both as a research topic and an exportsector. Increasing opportunities for studentexchange and decentralised research co-operationbetween Swedish and Asian institutions isidentified as another priority area. A number ofmore detailed suggestions regarding how toachieve these broad objectives are also presented.

Most of the recommendations included in theproposal for a Swedish Asia strategy are wellfounded. It can also be argued that the fundsinvested in the project were wisely spent, in thesense that the project collected much knowledgeabout Asia at a time when global events—especially the Asian crisis—clearly demonstratedthat Sweden is affected by developments in theregion. However, the project begs one importantquestion: what concrete results can an Asiastrategy be expected to yield? In a few areas, suchas trade and investment contacts, it is perhapspossible to set up quantitative objectives. In mostother areas, it is not. The problem is that all of theproposed measures require some amount offunding, and compete for other uses of publicmoney. Although the proposal does not provideany cost estimates, it is likely that the annual totalwould reach several hundred million dollars. Thisimplies a rather pessimistic conclusion regardingthe future of the Swedish Asia strategy. I would besurprised if more than a few of the suggestionsare ever realised.

Ari KokkoAbo Akademi University, Finland

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Preparing for Electronic Commerce in AsiaDouglas BullisQuorum Books, Westport, CT, 1999.Pp. viii + 275. ISBN 1 567 20206 3

In this very modern book—web and e-mail sitesoutnumber books in the bibliography in the ratio3:2—Bullis (a writer, editor and current owner ofAtelier Books) explains what business can expectfrom the Asian marketplace for informationtechnology and electronic commerce in the nextfive to seven years. The financial crisis of 1997 isseen as a temporary setback with renewedpromise of business efficiency from informationservices, communications technology and electronicbusiness. By 2005, there should be a regional infra-structure, enabling the free flow of information.As the stories unfold in the 27 chapters, Bulliswarns: “There are long cultural antecedents thatwork against the free flow of information—face,denial, secrecy, disinformation, autocracy, hierarchy,cronyism” (p. 2).

The chapters are rich in anecdotal detail,especially those relating to developments inSingapore and Malaysia which have the mostclearly articulated information infrastructureprojects: Singapore’s IT200 and SingONE andMalaysia’s Multimedia Super Corridor (MSC).

Large investment outlays by government havebeen undertaken with prospects framed in termsof technological possibilities rather than businessprofit perspectives or social gains. The onlyMalaysian company to figure in A. D. Little’s 1997survey of Asia’s fifty most competitive companieswas its casino, Genting Bhd (p. 175).

There are major issues of relative competitive-ness in these information developments, asbetween Asian countries and between thosecountries and the rest of the world from which thenew technologies are drawn. These involveforeign investment, dependence on foreigntechnology and, given the emphasis on the benefitsof free information flow, electronic colonialism.

Bullis focuses on his list of hazards in the bestsection of the book, Part IV: “E-commerce’s socio-logical complexities”, which goes a considerableway to redressing the widespread neglect oforganisational and sociological aspects ofe-commerce. These chapters examine the newmarkets, dissemination structures and discreteinformation elements (corporate, bureaucratic,urban and village), Chinese psychology and

business style, Malay male psychology andbehaviour and Indian psychology and behaviour.

However, Bullis’ evidence suggests equal oreven greater importance should be attached to theunreal, technologically-oriented evaluation ofprospects. He quotes an investor who points toMSC tax exemptions, lack of export prospects,low telephone density, low Internet use and thedominance of information services by govern-ment and asks: “Who do they think they’rekidding?” (p. 173).

Developed countries might well reflect ontheir own wild dreams of the Internet Age ande-commerce. There too prospects have beenframed in terms of the technological possibilities.While technological constraints are being eased,there are knowledge, organisational and insti-tutional constraints that cannot be brushed asideas minor, costless blocks. There needs to be athorough assessment of cost impacts, withattention to economies of scale and agglomeration.Homogeneous goods account for most trade onthe Internet and many expectations turn on thefuture development of sophisticated softwareagents. E-commerce success could well bring newcalls for regulation, bound up with confidentiality,fairness, property rights and privacy, all with costconsequences.

These questions require research but there isno guarantee that policy decisions will be guidedby the findings of such research. Meanwhile,policy in Asian and other countries continues tobe dominated by the thinking of the IT players:the technologists, international managers, investorsand consultancies.

Don Lamberton The Australian National University

Korean Management: global strategy andcultural transformation Kae H. Chung; H. C. Lee and K. H. JungWalter de Gruyter, Berlin, 1997.Pp. xiv + 268. ISBN 3 110 14669 1

This book reviews the transformation process ofthe Korean economy from an agrarian society to adynamic industrial one and examines thechanging forces in Korea’s business environmentand the response of Korean businesses to theseforces. Korea’s industrial growth was fast andsuccessful until the IMF crisis (as I would call it).

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Scholars warned of the latent forces of failure andrecommended a new paradigm for Korea’s trans-formation from NIE to a developed economy, butin vain.

The book, finished just before the IMF crisis,provides an overview of Korea’s industrialsystem, business and government relations, thecharacteristics and globalisation of Korean firms,corporate culture, technological transformationand labour–management relations. It argues thatKorea has to go beyond relying on an investment-driven strategy toward the development of aninnovation-driven economy. That means thetransformation of the Korean economy from aninvestment-driven developing economy withprotected markets to an innovation-drivenadvanced economy with open markets andproduct differentiation.

The book only sketches issues for the futureKorean economy. For example, it proposes aninternational competitiveness cycle (p. 246), whichincludes corporate restructuring with corecompetencies, industrial restructuring with highvalue-added and social change and reform tocontrol corruption. Reduction of labour and landcosts will help international competitiveness inthe short term, but the real issue is high value-added innovativeness which can overcome highlabour costs in the long term. The authors fail tostress the critical importance of R&D in thisregard.

The book highlights most of the salient factorsinfluencing the Korean economy (efficient capitalmarkets, business–government relations, labour–management relations, chaebols). Recently, thechaebols have been criticised as monstrousconglomerates. Before the IMF crisis they werepraised as Korea’s engines of fast economicdevelopment. They are the result of governmentpolicy and development strategy. Future criticismof chaebols should focus on recommendations forchange of governance structure and future researchshould focus on specific issues such as newmanagement practices with global standards.

Jinjoo LeeKorea Advanced Institute of Science of Technology

Reform of State-Owned Enterprises in China:autonomy, incentive and competition Ron Duncan and Yiping Huang (eds)Asia Pacific Press, Asian Pacific School of Economicsand Management, The Australian National University,1998.Pp. 147. ISBN 0 731 52391 1

By the mid-1950s, the Chinese Communist Party(CCP) had made state-owned and managedenterprises one of the command economy’scentrepieces of economic life, the other being thecommune. The former, located in cities and largetowns, produced and distributed manufacturingproducts and services, whereas the latter coveredall forms of rural production and exchange.

The state enterprise was not just a workplacefor its people. This socialist organisation provideda unique way of life for the working people:low-cost housing, services and education. It alsomonitored people’s behaviour and regulated theirlives. In the late 1960s and early 1970s the CCPexperimented with new state enterprise manage-ment–worker relationships, but its propertyrights, management and style of operations inthe command economy did not seem to changeuntil after 1979. In that year, the CCP decided toreform the command economy by eliminating thecommune and modifying the behaviour of thestate enterprise.

China’s socialist command economy hadoperated with too much inefficiency and waste.The command economy could not compete withthe East Asian economies which had not onlyexpanded more rapidly than China’s but achievedhigher productivity and living standards.

China’s reform process moved slowly until1992, when the CCP accelerated the pace ofreform, declaring that by the year 2000 thegovernment would have surveyed all stateenterprises, reorganised their property rights andmanagement–labour relations, and placed themin a market economy in which their survivaldepended upon their profits.

These reform goals were too ambitious.Moreover, state enterprises suddenly experiencedfalling profits, bankruptcies, rising indebtednessand more unemployed workers, which signalleda growing economic crisis for the state. In 1996,the party leadership agreed to dispense with thesurvey of state enterprise assets, selected 1,000 ofthe most efficient, important manufacturing andservices firms to remain state enterprises and let

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the remainder adjust as best they could in themarket economy.

The CCP now envisages the old plannedeconomy, based on state enterprises, beingreplaced by a market economy comprised of asmall core of large-scale, modern state-ownedenterprises and a variety of other enterpriseshaving mixed property rights while operatingindependently of state control and assistance.

Around 2005, this brave new economic worldwill have the following characteristics, if currenttrends continue: tens of thousands of former stateenterprises will be owned by different share-holders made up of the state, other firms (Chinese orforeign), former managers and workers, etc. Manyothers will have gone bankrupt. These newenterprises will pay taxes to the local and centralauthorities, negotiate wage and welfare agreementswith their workers, obtain their financial capitalfrom earnings, bank loans and other sources andsurvive by making profits and reducing theircosts. The new Chinese market economy will lookvery much like that of Taiwan’s enterprise systemin the 1950s when a small core of state-owned andmanaged enterprises co-existed with a wide rangeof private enterprises of different sizes.

The CCP and the government have avoidedusing the term privatisation, preferring insteadthe term share-holding enterprises. The sameprocess seems to be taking place in the township–village enterprise sector, which has been underthe control of local officials with property rightsstill owned and managed by the township–villageauthorities. Gradually, those local authorities aretransferring ownership and managerial rights tothe local people to operate their enterprises in amarket environment.

Five essays in this book describe this remarkablestory in a concise, lucid manner (the sixth essaydescribes state enterprise reform in Vietnam). Butthere are some important omissions.

First, the reader does not learn why thepost-1979 period had high economic growth ratesat the same time as a large number of stateenterprises with the greatest share of capitalassets and producing the largest share of value-added steadily incurred debt, bankruptcy andunemployed workers.

Second, we do not know how those neworganisations created by the state actuallyreformed the planned economy and carried outtheir state enterprise reform policies.

Third, these essays do not explain or giveconcrete examples of why restructuring failed insome cases and succeeded in others.

Finally, they do not make clear why thedistribution of products and services weremarketised more rapidly than the capital, landand labour markets. This issue has a directbearing on whether the new market economy isdeveloping a high degree of oligopoly marketpower or is becoming competitive. Many Chineseenterprises are typically organised on a networkbasis called jituan. That type of enterpriseorganisation seems to have the power to practiseprice discrimination and sell poor qualityproducts because its market is not competitive.

The former command economy was unable togenerate a process of economic growth whichcould innovatively industrialise China whileeliminating poverty and enhancing state andsociety’s economic power. Whether China’sreformed state enterprises can lift that hugecountry out of its poverty and make it a competitiveindustrial power in the global market will be thereal test of the current state-enterprise reform.These essays are a useful and important startingpoint for examining that question.

Ramon H. MyersHoover Institution

Stanford University

Indonesia’s Industrial TransformationHal HillInstitute of Southeast Asian Studies, Singapore, 1997.Pp. xiv + 405. ISBN 8 813 05586 3

This volume collects the author ’s papers onIndonesia’s industrial development. All thechapters efficiently exploit the best set of dataavailable, ranging from the micro-data collectedby the author’s own field surveys to governmentstatistics.

The book presents an excellent treatment ofthe subject, full of rich statistical information,subjected to appropriate investigation. It deservesthe attention of all concerned with developmentalpolicies, especially the proper balance betweenmarket and government.

Indonesia is sometimes regarded as ashowcase of achievements under strong leadershipfrom the central government. The picture drawn

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by Professor Hill departs widely from suchcommonly held assumptions. According to Hill(p. 113), the country’s autonomous developmentwas initiated only in the 1980s, as a directconsequence of timely economic liberalisation,exchange rate policies (devaluation), supplementedand strengthened by prudent institutional innovation(trade liberalisation). On the other hand, thegovernment’s industrial policies since themid-1960s provided a strong impetus for rapidcapital formation and advances in technology.

Indonesian growth had a characteristic notfound in East Asian models of development. Notonly did it place special emphasis on thedevelopment of metal-fabricating from a relativelyearly phase of its development (p. 144), but itsgarment industry never accounted for a significantshare of exportables (p. 104).

Hill notes (p. 58) that the transformation ofIndonesia’s economic policies was directlyprompted by the world-wide fall of oil prices by1981. Arguably, the Indonesian success story of the1980s, characterised by noticeable improvements inproductive efficiency and rising shares oflabour-intensive commodities in manufacturingexports, was a case of a menace having beenturned into a blessing.

Much useful information is presented on thetextile industry. For example, the weaving sectorfaced a wide, though discontinuous, choice oftechniques, ranging from minimal to high levelsof capital intensity. The firms that enjoyed relativelyhigh capital intensity were characteristically jointventures between foreign firms and theIndonesian government, a phenomenon explainedin part by low rates of interest set by thegovernment to attract foreign capital (ch. 9).Interestingly, labour and capital in the garmentindustry were fairly readily substitutable witheach other; the rate of elasticity of substitutionwas found to be 1.5 (p. 258).

On the other hand, the manufacturingindustry’s overall performance in technicalprogress and output growth is explained not somuch by the relative factor price ratios, as by thetype of industry, the forms of capital ownershipand access to technical information (ch. 7).

All in all, Hill advocates proper reliance on themarket, as indicated by the title of Chapter 12“Industrial policy and performance:‘orthodoxy’ vindicated”. He considers there islittle justification for government support of the

development of small and medium-scale industry(ch. 11). On this point the reviewer differs.Indonesia’s industrial policies and stronggovernment leadership before the 1980s musthave provided the highly needed social overheadcapital without which any further developmentwould have been ineffective. Education andoccupational training are still inadequate through-out the country (ch. 8). This is an area in which thegovernment (and probably only the government)can exert indispensable leadership.

A reader new to the topic may find this volumehard going, as it is filled with technical details andstatistical tables. But Hill’s writing style is succinctand accurate, though reserved. The same careful,uncompromising approach informed his rewardinggeneral reader (The Indonesian Economy since 1966:Southeast Asia’s emerging giant, CUP, 1996).

Konusuke OdakaHosei University

Nations and States in Southeast AsiaNicholas TarlingCambridge University Press, Cambridge, 1998.Pp. x + 136. ISBN 0 521 62564 5.

This slim and thoughtful book will come as asurprise to those who know Nicholas Tarling as aprolific empirical historian of the British presencein Southeast Asia. His numerous books havecopiously mined the British sources for reliablehistories of everything from Burma to Borneo andfrom the late eighteenth century to the latetwentieth. Since editing the Cambridge History ofSoutheast Asia in 1992, he has been taking a morereflective look at the region as a whole. This bookconsists of a series of short essays on the politicaland international status of Southeast Asia’smodern states within the world system.

The prime aim is to understand the nation-state in a region where states have presided rathertenuously over a great deal of social diversity. Itsfirst third narrates the development of the majorstates out of colonial and pre-colonial back-grounds, in five sensible summary chapters. Thecentral section of the book is Part II, “Problemsand policies”, in which the international relationsof the region are discussed in the form of twelvedifferent thematic chapters.

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The strength of these thematic essays lies in theauthor’s detached scepticism about his subject.He has the historical depth to see the shallownessof nation states in the region, and to be able toshow how concepts such as nationalism, democracyand independence came to mean different thingsin different times and places. His habit ofbeginning the short thematic chapters with ageneral discussion of how the concept in questiondeveloped in the West provides a useful contextfor the contested politics of the present. He setseverything in an overall strategic context kept inplace by British naval hegemony in the nineteenthcentury, and by America joining the hegemonicsystem by taking over the Philippines in 1900. Thehard-nosed realism underlying the essaysprovides numerous asides, some of which workbetter than others. In the opening chapter onfrontiers there is an expert and convincingaccount of British strategic concerns in thenineteenth century and how they forged thecurrent map of Southeast Asia. Short chapters ondemocratic institutions and independence enablethe author to raise interesting questions about theinternational system of theoretically equal statesand how it was developed and maintained in acomplex region such as Southeast Asia. In “Armies”,Tarling shows the unusual demilitarisation ofSoutheast Asia in the high colonial period.International order was arranged by great powermanoeuvres in other parts of the world, and thecolonial armies were a kind of armed constabularyfor keeping internal order—a role continued bymost independent states. In “Foreign policy”there is a useful description of the way thecolonial powers subverted older systems oftributary relations.

The format however does not allow for allthese subjects to be developed adequately, andsome chapters resemble a sequence of interestingassertions that cannot be adequately documentedor debated. The book has to assume too much tobe used as an introduction to the subject forstudents. For the already informed, it has much ofinterest, but cannot engage the theoreticalliterature on any one of the issues addressedsufficiently to overthrow any paradigms.

In the last two chapters, forming a brief ThirdPart labelled “Periods and perspectives”, Tarlingaddresses the historiography of Southeast Asia.He briefly reviews a second phase of nationalisthistoriography which he perceives in Brunei, thePhilippines and Thailand thirty years after theinitial decolonising initiatives, and attributes to a

reaction against globalisation. He concludes that“a sense of belonging” will best be served byhistories which are “more subtle and moreinclusive” than a chronicling of the dominantsocio-cultural group, and which conferknowledge of others as well as oneself (p. 124).

The final chapter considers how Australia andNew Zealand might best relate to Asia by beingthemselves. Tarling rejects the rhetoric whichinterpreted the Antipodes as part of the Asianregion: “an over-reaction itself, it produced anotherover-reaction”. He rejects also a “Septentrionalism”(the title of this chapter) which would stereotypeAsia and Australasia in the manner of Orientalismand Occidentalism. He favours asserting adistinct national identity and dealing with Asiancountries on an adult state to state or people topeople basis. Finally he makes a generous tributeto the role of the universities in Australia inadvancing such a view: “it is not part of Asia, butit may be the place where parts of Asia [meaningSoutheast] are being best studied” (p. 131).Though he writes this as an outsider (just),Nicholas Tarling has played no small part inbringing this situation about, through a lifetime ofteaching and writing on Southeast Asia fromBrisbane and Auckland.

Anthony ReidThe Australian National University

Human Capital as an Engine of Growth: theEast Asian experienceJoseph L. H. Tan (ed.)ISEAS, Singapore, 1999.Pp. 249. ISBN 9 812 30018 X

Did human capital formation drive the economicgrowth that transformed East Asia over the pasthalf-century? Although many believe that it did,efforts to give this proposition a firm empiricalfooting encounter serious problems of definitionand measurement.

In 1980 Richard Easterlin wrote that the globalspread of education since World War II hadhelped more countries to share in economicdevelopment. During 1980–93, however, percapita income growth continued only in East Asiaand, to a lesser extent, South Asia. Yet educationcontinued to expand everywhere, includingregions where per capita income stagnated ordeclined. This called into question previouslyaccepted analyses of education and development

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such as measured rates of return to education insub-Saharan Africa and the specification of theeducation variable in endogenous growthmodels.

Did East Asian countries follow distinctivehuman resource development policies that helpedthem grow rapidly after 1980 while economies inother regions stagnated? It is clear that economicgrowth generated resources that helped thehigh-performing East Asian economies expandand improve education. It is also evident thatthese countries, unlike many in other regions,were able to boost the demand for educatedworkers rapidly. What is less clear is that EastAsian countries did something distinctive on thesupply side, in creating human capital, that helpsexplain their rapid economic growth. Overall, thefacts are consistent with the broad hypothesis thatincreases in human capital are a necessary conditionfor economic growth but not sufficient themselvesto bring growth about.

In the book under review, Rolf Langhammerand Erich Grundlach highlight an importantanalytical difficulty: the two-way relationshipbetween human development activities such aseducation and health and economic growth.Better education and health promote economicgrowth, but the converse is also true. Since there isno truly exogenous variable in the relationship, ifhuman capital formation is an engine of growththen economic growth is equally an engine ofhuman capital formation. “It comes as no surprise,”Langhammer comments in his introductory essay,“that the puzzles have not been solved [in thisbook]”, whose contributions are made at a moremodest level.

Derived from a conference held in Singaporein 1996, the book consists of a short introductionand six papers on various aspects of the topic ofhuman resource development in East Asia.Grundlach reviews the role of human capital inendogenous growth models but does not focus onthe East Asian region. Sung-Yeal Koo provides abroad review of educational development in tenEast Asian countries over the past thirty years.Alejandro Herrin analyses health and demo-graphic transitions in the region. Siti NorazahZulkifli canvasses nutritional patterns, trends andprograms in Malaysia. Chew Soon Beng andRosalind Chew review industrial relationssystems and on-the-job training in six countries ofthe region. Myo Thant looks at the financing ofhuman resource development in Japan, Singapore,Korea and Taiwan.

The remainder of this review discusses someof the more interesting findings. After reviewingsome rather familiar information on enrolmenttrends, Koo boldly tackles the difficult problem ofeducational quality and its effect on economicdevelopment. Once nearly all children are inschool, attention shifts to what they are learningand what difference their attainment makes foreconomic development. There is ample evidence,frequently ignored, that enrolment expansion hasan adverse effect on quality, but how to define andmeasure quality is a serious problem. Input andprocess measures like expenditure per pupil/year, pupil/teacher ratios and time on task aresometimes used. Koo finds that, except for Japanand Malaysia, East Asian countries have neitherhad unusually high enrolment ratios by inter-national standards nor spent unusually largesums on educational inputs. What we really wantto measure, however, is not inputs but outputs.International tests that try to measure achievementcomparably across countries indicate that studentsfrom Japan, Korea and Singapore do very wellwhile students from other East Asian countries docomparatively poorly (when their governmentsconsent to include their students in such tests).While a few East Asian countries thus producestudents who are good at taking tests, this does notget us much closer to understanding howeducation contributes to economic development.As everyone agrees, more research is needed.

The contribution of health to economic develop-ment is even harder to analyse than that ofeducation, as Herrin’s interesting essay shows.Problems of conceptualising and measuring bothhealth itself and health-promoting activities arecomplicated by pervasive mutual causation. Whilethe health of East Asians has improved greatly, itis hard to say what contribution this has made toeconomic development.

The Chews’ contribution deals with animportant but frequently ignored form of humanresource development. Unlike schooling,on-the-job training is sure to teach skills that haveeconomic relevance. Employers are in the bestposition to provide occupationally relevanttraining, but their incentive to do so is weakenedby the fear that employees, once trained, willdepart for greener pastures. Tight labour marketsworsen the problem. Public intervention toencourage on-the-job training seems appropriate,but Singapore is one of the few countries to havesuccessfully organised such a scheme.

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Finally, Myo Thant shows that rapid economicgrowth in Japan, Taiwan and Korea swelleddemand for education. Governments in thesecountries quickly universalised primary educationand then expanded secondary schooling, but theybalked at the enormous outlays required to satisfythe demand for higher education. This led torapid growth of private provision and financing.Thant also notes in passing an important but oftenneglected aspect of human resource developmentin East Asia: the role of external contacts such asoverseas education and technology transfer.

Donald R. SnodgrassHarvard Institute for International Development

Agricultural Reform in China: gettinginstitutions rightYiping HuangCambridge University Press, Cambridge, 1998.Pp. xiv + 225. ISBN 0 521 62055 4

This is an important volume for two reasons: first,it provides an accessible overview of two decadesof agricultural reforms in China; second, it arguesthat the way forward for Chinese agriculture isthrough full internationalisation for the entiresector. This policy approach is characteristic of theAustralian School, which focuses on tradeopportunities for a small country rather than onthe impact of imperfect factor markets (land,labour, and capital) on the distribution and rateof growth of income. The appropriateness ofsuch an approach for China is questioned in thediscussion below.

The sub-title for the volume, “getting institutionsright”, is a misnomer. Although it is no doubt truethat institutions are all the rage in developmenteconomics these days, that is still no excuse fordefining everything as an ‘institution’. A moreaccurate sub-title for the volume would have been“getting markets to work”.

Huang deals with three major topics that haveexercised Chinese reformers during the past twodecades: how resources are allocated at the farmlevel; what prices producers receive andconsumers pay for the resulting output and howwell connected individual commodity marketsare across space, both domestically and inter-nationally. Relatively little attention is paid totemporal market integration. Overlaid on thesethree themes is a continuing discussion of howChinese policy-makers learned what innovations

worked and how to implement them. One of themost fascinating elements of China’s reformexperience has been its willingness to experiment,often using entire provinces as laboratories forinitiatives that would have been consideredwildly radical in Beijing if implemented nation-wide. Many of these experiments were designedand conducted by the Development Institute ofthe Research Center for Rural Development of theState Council of China, a hotbed of market-oriented researchers with a keen understandingof ‘Chinese characteristics’. Huang received hisearly training at this institute, helping to explainhis clear and deep understanding of the process ofrural reform and the barriers facing it.

The emergence of the Household ResponsibilitySystem (HRS) in the early 1980s, after sporadicand often politically dangerous experimentationin various locales for more than two decades, isthe unquestioned success of the reform effort.Huang makes it clear that the HRS was not aninstitutional innovation designed and promulgatedas a policy by the central government. Rather, itevolved almost spontaneously from the country-ide once the political agenda put aside class strugglein favour of rapid economic development in late1978. Two critical factors accounted for the speedof its adoption. First, it was something farmersthemselves desperately wanted after the failuresof the collective system. Second, enormous gainsin productivity were forthcoming almost instantly,without requiring significant changes in the restof China’s economy. The entire reform processwas energised by this early and strikingly visible,but singular, success.

Rationalisation of producer and consumerprices has been somewhat less successful, althoughHuang probably underestimates just how difficult‘getting prices right’ can be if some element ofstabilisation is desired.

Perhaps the most problematic part of Huang’sanalysis is his discussion of the third area ofreform, the freeing of markets domestically andinternationally, so that China’s farmers andconsumers can reap the full benefits of division oflabour. Huang seeks the source of the stagnationin agricultural productivity after 1984. Heidentifies two important factors: the freedom after1985 of farmers to work in rural industry and thereactionary response of policy-makers to foodprice instability, when they reimposed price andmarket controls for both producers and consumers.In effect, rural labour became free to seek the bestreturn for its effort, but farm commodities were

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bottled up in each locale or province in the nameof local food self-sufficiency. The result was aslowdown in agricultural growth even whilerural incomes kept rising.

Huang blames the reformers for not under-standing that food price instability resulted fromthe incompleteness of reform. If the reformers hadjust had the courage to go all the way to freemarkets, both domestically and internationally,then food price instability would not be aproblem. Unfortunately, shocks to agriculturalsupply and demand happen even with free trade,but governments who have committed to it haveno policy instruments available to stabilise pricesfor their producers and consumers. Suchgovernments do not last, a lesson the Chinesereformers understand fully.

Hence Huang’s strong, almost impassioned,plea for full internationalisation of Chineseagriculture seems peculiarly insensitive to thepolitical economy of the debate. Indeed, afterChina escaped the Asian financial crisis almostunscathed, China’s reformers must be even moresceptical of the real advantages of a free-tradeapproach to the world for such politicallysensitive sectors as food and finance. Given thelack of progress in negotiating entry into theWTO, China seems further from freeing its food-grain markets than at any time in the past decade.The interesting question is what alternatives itwill pursue domestically and how it will cope withthe political imperative to stabilise food prices.

Peter TimmerHarvard

The Chinese Economy in TransitionLeong LiewEdward Elgar, Cheltenham, 1997.Pp. xi + 188. ISBN 1 858 98250 2

Understanding the logic of China’s economictransformation into a market economy has neverbeen easy. The importance of specific institutionalconstraints in shaping a country’s reformtrajectory cannot be exaggerated.

This book focuses on Chinese agriculture,industry and macroeconomic management. It isan amalgam of narratives and theoretical models,including game theory, public choice approachand new institutional economics. Some of themodels are well known in the developmentliterature; others constructed by the author

himself are motivated by the peculiar features ofthe Chinese economy. The author’s choice of suchan approach is understandable. The Chineseeconomy is probably too complex to be accuratelydelineated by an all-encompassing model.

For those who are teaching a course on theChinese economy, this book is a useful startingpoint. Students who are steeped in mainstreameconomics and have not been extensively exposedto new and rapidly evolving fields in economicswill find many of the ideas stimulating. The bookmay also be of interest to social scientists andChina experts, who want to learn more about newlines of thinking in economics. However, thosesearching for an across-the-board survey of theChinese economy will not find such importanttopics as foreign trade and foreign directinvestment, long-term growth prospects of theChinese economy, regional disparities, povertyand social security reforms.

Kai-yuan TsuiThe Chinese University of Hong Kong

Adjusting to Capitalism: Chinese workersand the stateGreg O’Leary (ed.)M. E. Sharpe, Armonk, NY, 1998.Pp. xviii + 181. ISBN 0 765 60039 0

The change in employment relations broughtabout by China’s transition to a market economyhas raised many issues of political sensitivity andeconomic significance. In this book scholars incontemporary Chinese affairs discuss some of thecritical components of industrial and labourreform and their attendant social outcomes. Inaddition to an introduction by the editor, the bookconsists of six chapters on issues of labour marketdevelopment, changing industrial relations,altered roles for trade unions and conflict betweenlabour and the state and labour and capital.

Since reforms began in 1978, much of theagricultural labour force has moved to cities insearch of better economic opportunities. Solingerdocuments the lingering effects of the state insix trades (ch. 1). The Chinese state still plays anactive role in separating the ‘floating population’of the labour market into various channels. Forthe individual worker, networking in theseenvironments makes a profound difference towell-being.

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Chapter 2 examines the impacts of labourpolicy changes on various sectors of employmentand suggests that a new class of workers isemerging whose relationships with the state,employers and trade unions are significantlydifferent from those of the past.

Minghua Zhao and Theo Nichols show that awork system of Western capitalist employmentpractices is emerging in state-owned textile factories(ch. 3). Elizabeth M. Freund documents changesin manpower mobilisation in one of the mostimportant Chinese enterprises, the Baoshan Ironand Steel Works (Baogang) (ch. 4). Freund suggeststhat other state industrial firms could be revitalisedthrough adopting similar market-oriented reformsin production and labour management.

China has attracted substantial foreign directinvestment since the introduction of reforms andthe open-door policy in 1978. Anita Chan discussesthe appropriate role of trade unions and theadequacy and effectiveness of collective bar-gaining in resolving problems of exploitation (ch.5). Jude Howell explores the impact of foreigncapital on the All-China Federation of TradeUnions (ACFTU) and concludes that ACFTU hasto accelerate its pace of adaptation for it to beeffective in addressing this issue (ch. 6).

This interesting and informative book shouldbe read by anyone interested in understandingchanging employment relations and their impacton state organisational control in China. The pasttwenty years in China have underscored theimportance of markets for growth and prosperity.But the country’s transition from a command to amarket economy is incomplete. Two areas areparticularly important: first, establishing a rule oflaw that supports market institutions and protectsworkers’ interests and rights; and second,instituting a comprehensive social insuranceprogram to detach social welfare from enterprisemanagement and to promote labour mobility.China has made considerable progress in theseareas. Yet the issues raised in this book call forfurther reforms in separating the roles of govern-ment and markets and clarifying rights andresponsibilities. Looking ahead, China will needto encourage market forces to allocate resourcesand people to sustain improvements in incomeand welfare. At the same time, the governmentwill need to help Chinese workers manage theincreased risks and uncertainties generated by themarket and build support mechanisms for themost vulnerable.

You Qiang WangThe Chinese University of Hong Kong

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