Unless you happen to be a trade policy junkie like me, odds are you haven't been following the progress of talks on the Trans-Pacific Partnership, the latest regional group formed out of frustration with the glacial pace of global trade liberalization. But it's worth paying attention. The TPP discussion offers a good excuse to take a closer look at the problematic impact of crony capitalism in Southeast Asia -- and, in particular, at the fate of government monopolies in countries whose leaders are loath to relinquish control to the market.
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The TPP negotiations, which should be concluded by the end of this year, are largely the brainchild of Singapore and New Zealand, which launched them, along with Chile and Brunei, back in 2006. Australia, Peru, and the United States have since joined the party. But it's the application of Malaysia and Vietnam -- and U.S. demands on them -- that are causing the biggest stir. For, to its credit, Washington is pressing both countries to agree to "21st century" rules for leveling the international playing field that go far beyond the elimination of tariffs and plain-vanilla government subsidies. The primary target: big state-owned enterprises (SOEs).
For years, SOEs in Malaysia and Vietnam have been criticized for murky business practices that keep competitors at bay and government employees in Mercedes. The idea now is to use the lure of membership in the TPP to persuade the Malaysians and Vietnamese to emulate Singapore -- specifically, the government's giant investment company, Temasek, whose business is both transparent and on the up-and-up.
Don't pop the champagne corks just yet, though. While Hanoi acknowledges that its SOEs have, well, certain problems, the Vietnamese Communist Party is deeply reluctant to cede control of its big enterprises and the patronage that goes with it.
A quick look at how the enterprises in question operate sheds light on why prospects for serious reforms are unlikely. In Malaysia, powerful SOEs cast a long shadow over the economic landscape. Today, these corporations sit astride some 15 percent of the economy, including the key energy, telecommunications, and financial services sectors.
Consider Khazanah Nasional Berhad, the government's investment arm, which dates to 1993 and now owns over 60 corporations. Among its investments are the UEM Group (which dominates highway and commercial construction), financial institutions (including Santubong Ventures), and Integrated Healthcare Holdings (a major hospital operator). Khazanh also holds a 60 percent stake in Malaysia Airports and 36 percent of Telekom Malaysia.
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