False Economy - Alan Beattie [119]
For thirty years—a long time in government—the system worked fairly well. From desperate poverty, Indonesia grew rapidly and became a middle-income country. While reducing poverty, it managed to avoid most of the traps into which many developing countries fell in their first decades after independence. It integrated into the global economy instead of trying the import-substitution policies common in Africa and Latin America; it resisted skewing policies toward the cities at the expense of the countryside; it built up a good reputation in the global financial markets by repaying its international loans.
The former World Bank representative in Indonesia noted that Suharto was warned in the early 1970s by Robert McNamara, then World Bank president, that corruption threatened Indonesia's prosperity. The message was repeated in 1997 by then World Bank president James Wolfensohn. In response, Suharto pointed to Indonesia's big gains in growth and income in the intervening quarter-century. His regime was brutal and corrupt, but it had produced results.
Other countries in East Asia had similar experiences. South Korea, for example, though it has more recently democratized and scores relatively well in current assessments of levels of corruption, achieved Western levels of income while being run by another authoritarian former general, Park Chung Hee. Park also maintained a network of favorites whose palms required regular applications of grease by anyone who wanted to do business in South Korea.
Korean businesses were backed with extensive government intervention, including state-directed lending, subsidies, and selective tariffs on imports. Unlike Suharto's Indonesia, South Korea also maintained strict limits on capital outflows and relied less on foreign direct investment to build factories. But like Suharto, Park subjected his favored companies—gathered together into large conglomerates, called chaebols—to the rigors of competition and inspection. The chaebols were heavily oriented to exports, and thus subjected to the competitive pressures of the global economy. Failing companies were allowed to shrink, not kept indefinitely on life support. Of the ten largest chaebols in 1966, only two were in the top ten by 1974. And, once again like Suharto, Park collected detailed information on how the economy and businesses were doing through mandatory reports from the state-supported enterprises.
Moreover, South Korea seemed to go one better than Indonesia in stopping bribes from actually influencing business decisions. Bribery in South Korea during its rapid industrialization appears to have been largely an indiscriminate spraying-round of regular payments known as tukkap (literally, "money for rice cakes") to powerful bureaucrats and politicians—not particularly with the intent of swaying their minds on the viability of a specific project, but just to keep them happy. In the case of politicians, some money appears to have been passed on to poorer constituents. The defense counsel for South Korean corruption could well argue that it functioned as an income support program to supplement civil servants' notoriously low salaries and compensate for the absence of a large welfare state. Both problems were the result of the prevailing ideology of government in the nation at the time. Organized corruption thus quietly served a purpose that open public administration could not.
If corruption is stable and predictable enough, it essentially simply becomes a tax. And as the performance of Western European social democracies shows, having substantial rates of taxation, as long as they are collected efficiently and predictably, is no block to getting rich.
Sadly,