Adam McCarty, Chief Economist, Mekong Economics: Interview

Interview: Adam McCarty

What role do you expect transnational economic corridors to play in the Mekong Region?

ADAM McCARTY: The corridors connecting Myanmar to China, Thailand and Singapore will be fundamental to the country’s rapid economic development. Increased connectivity is already sparking the rise of regional production centres, and it will bring further economic integration, with ASEAN countries producing intermediary products that China will consume or export as final goods. Yet there are many other fundamental requirements for economic success, such as investing in education, finding solutions to ethnic and religious tensions, strengthening the rule of law, and opening the economy to foreign competition. There is some concern as to whether the corridor connecting India, China and Bangladesh will have a major economic impact in Myanmar, given that the routes would be in the far north of the country. Improved transnational economic links may also heighten tensions in border regions controlled by non-government state actors.

How will the establishment of special economic zones (SEZs) assist Myanmar with income equality and social stability initiatives?

McCARTY: Myanmar is at an early stage of industrialisation. The first stage of development is “moving from village to factory”, and getting SEZs operating that can employ hundreds of thousands of workers is a top priority. The government should not expect anything more from SEZs. The policies employed within SEZs should be carefully designed to attract as many companies – and therefore jobs – as possible. Myanmar needs highly attractive sites for factories to attract back all the workers who have informally migrated to Thailand. These sites also need to have high-quality physical infrastructure like transport connections and a consistent electricity supply, something that industrial zones across the country currently lack. Providing stable, well-paid employment opportunities through SEZs would be an excellent first step towards improving living standards, but SEZs alone cannot provide improved economic conditions across the whole country.

What policies will help Myanmar achieve rapid growth with equity? What policies should they adopt from other East Asian countries?

McCARTY: All Asian success stories of “growth with equity” begin with land redistribution. Farmers must own the land they work on and be able to use that to get loans. Most farmers have reasonably secure land ownership in Myanmar, but their titles need to be better formalised and protected. However, there are also many landless rural workers for whom factory jobs must be created. As the landless move increasingly into urban factories, fewer workers remain in rural areas, which pushes up their salaries and promotes mechanisation. So while cities grow, rural areas are not left too far behind and their labour productivity increases. This is what happened in Vietnam.

Another key challenge is resisting the temptation to be protectionist. Myanmar is undeveloped compared to other East Asian countries, but that is a reason to open up to trade and investment even more than in richer countries – that is how you catch up. Being open means rapid change, which is not always good for local businesses, but it is essential. Growth is the result of a continual process of the closing of many businesses and the opening of many new ones. Other priorities include a meaningful federalist solution to ethnic tensions; establishing an independent anti-corruption commission; fully joining up to the natural resources transparency initiative; and systematically strengthening the tax system. These would increase stability, market Myanmar as a safe country for investment and increase government revenues. These issues are being addressed, but you cannot expect such big changes to occur overnight.