The kind of intervention mattered as much as the amount. Intervention that supported markets worked; rigid state control or capture by cronies did not.
Thailand intervened lightly. Its central bank kept inflation low, and its Board of Investment offered incentives, but private firms led growth.
Singapore and Malaysia intervened heavily, but in ways that supported markets. They built infrastructure, trained workers and courted investors.
In the Philippines under Marcos, intervention served cronies. Friends of the president were given control of sugar, coconut and other industries. Foreign debt rose to about 26 billion dollars by 1985, and the economy shrank sharply in 1984-1985.
Indonesia mixed both. Technocrats ran sound policies on inflation and the budget, but Suharto's family and business allies won monopolies and contracts.
Vietnam showed how a change of strategy changed results. Rigid central planning failed, but the Doi Moi reforms from 1986 allowed markets and foreign investment, and growth took off.
- Light touch
- Thailand.
- Crony capitalism
- The Philippines under Marcos.
- Doi Moi
- Vietnam, 1986.
Worked example: Judging intervention
What kind of intervention worked best?
- Supporting markets: Singapore, Malaysia, Thailand.
- Captured by cronies: the Philippines under Marcos.
- Rigid control: Burma, and Vietnam before 1986.
- Judgement: the kind of intervention mattered more than its amount.
Watch out for this
The Philippines grew slowly because its government did too little.
Under Marcos the government intervened a great deal, but mainly to benefit cronies. The problem was the purpose of intervention, not its amount.
Check your understanding
What did Vietnam's Doi Moi reforms of 1986 show?
- Changing strategy towards markets could quickly improve results.
- Central planning worked best.
- Foreign investment was harmful.