Political business in east asia (politics in asia)
Political Business in East Asia
“With a good mix of well-considered theory and appropriately detailed case studies, this book provides a unique, comprehensive and authoritative account of business–state relations in East Asia. This is an important and wonderfully rich book in the best traditions of political economy. It is a must-read for all interested in the political economy of East Asia.” Professor Kevin Hewison, Director, Southeast Asia Research Center, City University of Hong Kong When the financial crisis occurred in East Asia in 1997, it drew attention to the need to institute important structural reforms in business and politics. The crisis raised questions about the quality of government intervention in the economy, the mode of enterprise development, and the form of democracy emerging in East Asia. However, in spite of the political upheavals following the financial crisis, there have been few fundamental structural changes in politics and in business, particularly involving the links between the two. In Political Business in East Asia two important questions are examined: ●
Why was the opportunity for reform in business and in politics not taken advantage of after the crisis? What is it about the nature of politics and of business in East Asia that has restrained the fundamental changes shown to be necessary?
The authors argue that the process of consolidation of democracy has been marred by massive corruption of politics, portending little hope of genuine political and economic reform. In particular, it has been hindered by the manner of funding of political parties, which is heavily influenced by ties developed between politicians and businessmen. Political Business in East Asia provides challenging new insights for students of politics, Asian studies, economics, and government–business relations. Edmund Terence Gomez is Associate Professor in the Faculty of Economics and Administration, University of Malaya. His publications include Malaysia’s Political Economy: Politics, Patronage and Profits (with K.S. Jomo, Cambridge University Press, 1999) and Chinese Business in Southeast Asia: Contesting Cultural Explanations, Researching Entrepreneurship (with Michael H.H. Hsiao, Curzon Press, 2001).
Politics in Asia series Edited by Michael Leifer London School of Economics ASEAN and the Security of South-East Asia Michael Leifer China’s Policy towards Territorial Disputes The Case of the South China Sea Islands Chi-kin Lo India and Southeast Asia Indian Perceptions and Policies Mohammed Ayoob Gorbachev and Southeast Asia Leszek Buszynski Indonesian Politics under Suharto Order, Development and Pressure for Change Michael R.J. Vatikiotis The State and Ethnic Politics in Southeast
Asia David Brown The Politics of Nation Building and Citizenship in Singapore Michael Hill and Lian Kwen Fee Politics in Indonesia Democracy, Islam and the Ideology of Tolerance Douglas E. Ramage Communitarian Ideology and Democracy in Singapore Beng-Huat Chua The Challenge of Democracy in Nepal Louise Brown Japan’s Asia Policy Wolf Mendl The International Politics of the AsiaPacific, 1945–1995 Michael Yahuda Political Change in Southeast Asia Trimming the Banyan Tree Michael R.J. Vatikiotis Hong Kong China’s Challenge Michael Yahuda Korea versus Korea A Case of Contested Legitimacy B.K. Gills Taiwan and Chinese Nationalism National Identity and Status in International Society Christopher Hughes Managing Political Change in Singapore The Elected Presidency Kevin Y.L. Tan and Lam Peng Er
Islam in Malaysian Foreign Policy Shanti Nair Political Change in Thailand Democracy and Participation Kevin Hewison The Politics of NGOs in South-East Asia Participation and Protest in the Philippines Gerard Clarke Malaysian Politics Under Mahathir R.S. Milne and Diane K. Mauzy Indonesia and China The Politics of a Troubled Relationship Rizal Sukma Arming the Two Koreas State, Capital and Military Power Taik-young Hamm Engaging China The Management of an Emerging Power Edited by Alastair Iain Johnston and Robert S. Ross Singapore’s Foreign Policy Coping with Vulnerability Michael Leifer Philippine Politics and Society in the Twentieth Century Colonial Legacies, Post-Colonial Trajectories Eva-Lotta E. Hedman and John T. Sidel Constructing a Security Community in Southeast Asia ASEAN and the Problem of Regional Order Amitav Acharya Monarchy in South-East Asia The Faces of Tradition in Transition Roger Kershaw Korea After the Crash The Politics of Economic Recovery Brian Bridges The Future of North Korea Edited by Tsuneo Akaha The International Relations of Japan and South East Asia Forging a New Regionalism Sueo Sudo Power and Change in Central Asia Edited by Sally N. Cummings Political Business in East Asia Edited by Edmund Terence Gomez
ISBN 0-203-26096-1 (Adobe eReader Format) ISBN 0–415–27148–7 (hbk) ISBN 0–415–27149–5 (pbk)
For Evie, Eric, and Eshward who give meaning to the effort and for Sharm
List of tables List of figures Notes on contributors Preface Acknowledgments Introduction: political business in East Asia
ix x xi xiii xv 1
EDMUND TERENCE GOMEZ
1 Development and corruption: the East Asian paradox
2 Political business alliances: the role of the state and foreign and domestic capital in economic development
JOHANNES DRAGSBAEK SCHMIDT
3 Political business in Malaysia: party factionalism, corporate development, and economic crisis
EDMUND TERENCE GOMEZ
4 KMT, Inc.: liberalization, democratization, and the future of politics in business
KARL J. FIELDS
5 State predation and rapid growth: politicization of business in China
6 The political business of development in South Korea
7 Politics, business, and democratization in Indonesia STEFAN EKLÖF
8 Democratization and economic crisis in Thailand: political business and the changing dynamic of the Thai state
9 State, politics, and business in Singapore
STEPHAN HAGGARD AND LINDA LOW
10 Politics, business, and the inescapable web of structural corruption in Japan
1.1 Comparison of regional growth rates and levels of corruption, 1960–93 2.1 State intervention in East Asia before liberalization 3.1 Malaysia: ownership of share capital (at par value) of limited companies, 1969–95 3.2 Reputed political connections of some prominent business figures 3.3 Loans by government-owned banks to UMNO companies, 1990 3.4 Changing nature of companies linked to UMNO politicians, 1970s and 1990s 4.1 Leadership of KMT, Inc., 1945–2000 4.2 Public-listed KMT enterprises, 1992 4A.1 KMT, Inc.: firms invested in by the Kuomintang, 1928–96 5.1 Distribution of forms of enterprise, China, 1985–96 5.2 Gross value of industrial output by ownership, 1985–96 8.1 Election results by political party, 1975–92 8.2 Professional background of elected assemblymen, 1933–92 8.3 Election spending, 1986–96 8.4 Senate candidates, March 2000 8.5 Non-performing loans (NPLs), November 1999–January 2000 9.1 Major holdings of Temasek Holdings Ltd, 2000 9.2 Sectoral distribution of industrial enterprises in Singapore, 1963 9.3 PAP share of popular vote, general elections, 1959–97 9.4 Sectoral distribution of promising local enterprises, May 1997 10.1 Zoku MPs and factions (Upper and Lower House MPs), 1987
I.1 Model of the practice of political business 1.1 Corruption and growth, 1982–96 3.1 Daim Zainuddin’s common directorship in his triple capacity as trustee for the government, UMNO, and his family companies, 1990 3.2 Tajudin Ramli’s control of the corporate sector, 1997 3.3 Wan Azmi Wan Hamzah’s control of the corporate sector, 1997 4.1 Organizational structure of the Kuomintang, 1994 5.1 State subsidies and SOE losses, 1985–96 5.2 Political business fund flows, China, 1998
92 94 95 125 163 165
James Babb is Lecturer in Japanese Politics at the University of Newcastle upon Tyne. His major publications include Tanaka: The Making of Postwar Japan (2000) and Business and Politics in Japan (2001). Stefan Eklöf is a Ph.D. candidate at the Department of History, Lund University, Sweden. His publications include Indonesian Politics in Crisis: The Long Fall of Suharto (1996–98) (1999) and Colonialism in the 1990s: The Use of History in Dutch–Indonesia Relations (1999). Karl J. Fields is Chair of the Department of Politics and Government, former Director of Asian Studies, and Associate Professor of Politics and Government at the University of Puget Sound in Tacoma, Washington. His published volumes include Enterprise and the State in Korea and Taiwan (1995), and his forthcoming book is entitled KMT, Inc. Edmund Terence Gomez is Associate Professor at the Faculty of Economics and Administration, University of Malaya. He is the author of Politics in Business: UMNO’s Corporate Investments (1990), Political Business: Corporate Involvement of Malaysian Political Parties (1994), and Chinese Business in Malaysia: Accumulation, Ascendance, Accommodation (1999); co-author of Malaysia’s Political Economy: Politics, Patronage and Profits (1997) and Ethnic Futures: The State and Identity Politics in Asia (1999); and co-editor of Chinese Business in Southeast Asia (2001). Stephan Haggard is Professor at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego. He is the author of Pathways from the Periphery (1990), Developing Countries and the Politics of Global Integration (1995), and The Political Economy of the Asian Financial Crisis (2000). He is the co-author, with Robert Kaufman, of The Political Economy of Democratic Transitions (1995), and with David McKendrick and Richard Doner of From Silicon Valley to Singapore: Location and Competitive Advantage in the Hard Disk Drive Industry (2000).
xii Contributors Linda Low is Associate Professor at the Department of Business Policy, National University of Singapore. Her numerous publications include The Political Economy of a City-State: Government-Made Singapore (1998), Singapore: Towards a Developed Status (1999), and The Economics of Information Technology and the Media (2000). Johannes Dragsbaek Schmidt is Associate Professor, Research Center on Development and International Relations, Aalborg University, Denmark. His co-edited publications include Globalization and Social Change (2000), Social Change in Southeast Asia (1997), and The Aftermath of “Real Existing Socialism” in Eastern Europe: Between Western Europe and East Asia (1996). Peter Wad is Associate Professor at the Department of Intercultural Communication and Management, Copenhagen Business School, Denmark. He has served as guest editor to several journals, including the Copenhagen Journal of Asian Studies, and has contributed articles to a number of edited volumes. Andrew Wedeman is Associate Professor of Political Science at the University of Nebraska, Lincoln. His recent publications include From Mao to Market: Rent Seeking, Local Protectionism and Marketization in China (2001). Tom Wingfield was formerly a lecturer with the Department of East Asian Studies, University of Leeds. Before taking up this academic appointment, he was a journalist covering business and politics in Thailand, Indochina, Burma and Indonesia. His publications include “Myanmar: Political Stasis and a Perilous Economy,” published in Southeast Asian Affairs 2000.
Since it is well known that links between politics and business are common in East Asia, when a financial crisis occurred in 1997, it was partly attributed to the impact of systemic development of this nexus on the corporate sector. This financial crisis, which eventually evolved into economic and political crises, exposed many problems that had been camouflaged by the impressive economic growth registered by most East Asian countries since the late 1980s. The impact of the financial crisis raised questions about the quality of entrepreneurship and of the burgeoning democracy in this region. In this volume, through the use of the concept of political business, we propose to trace the inter-relations between politics and business to draw conclusions on their influence on enterprise development, corruption, and the consolidation of democracy in East Asia. To achieve this objective, we attempt here to provide a critical historical account of the evolution of state and capital in the region. While not all countries in East Asia have democratized, we are concerned that in countries that have achieved this transition from authoritarianism, the process of consolidation of democracy has been marred by massive corruption of politics portending little hope of genuine political and economic reforms. We argue that one factor hindering the consolidation of democracy in East Asia has been the manner of funding of political parties, which is heavily influenced by ties developed between politicians and businessmen. Such political business ties are also hindering important structural reforms and the development of a more transparent and accountable form of governance. In order to understand the nature of the ties between politics and business, we argue that there is a need to understand how capital has been developed in East Asia, mainly because of the role of the state in promoting the rise of big business. While the rise of capital has been heavily influenced by the state, with the emergence of democracy, the practice of politics has been greatly affected by money emanating primarily from big business. The impact of big business on domestic politics has contributed to growing corruption and “money politics,” bringing into question the quality of democracy emerging in East Asia. Terence Gomez
The idea for this project on a comparative study of the links between politics and business in East Asia was first conceived in June 1998, when I presented a paper entitled “Political Business in Malaysia” at a workshop organized by the Manchester Business School. This workshop was convened to discuss the problems in the East Asian economies that had been exposed by the financial crisis that broke in 1997. I am indebted to Jeffrey Henderson, convenor of this workshop, for inviting me to present this paper and to the participants who raised searching questions and provided important feedback on my paper. In November 1998, I approached Robert Cribb, then Director of Nordic Institute of Asian Studies (NIAS), to fund a workshop to bring together scholars who had been researching the links between politics and business in East Asian countries. I am extremely indebted to NIAS for providing me with some funds to start this project. Peter Wad of the Copenhagen Business School contacted a number of research institutes in the Nordic countries about the possibility of hosting a workshop on politics and business before receiving a positive response from Jacques Hersh and Johannes Schmidt of the Research Center on Development and International Relations at Aalborg University, Denmark. This Center agreed to absorb all expenses to host the workshop I intended to convene. The workshop was held on June 4–5, 1999, and I am very grateful to staff of this Center for their efficient organization of the workshop. I thank Jacques Hersh for his keynote address, which he used effectively to draw our attention to key issues we needed to consider during our discussions at the workshop. I am also beholden to Johannes Schmidt, who went the extra mile by offering to prepare a chapter for this volume. His chapter helped fill an important void in this project, which became evident during the workshop. Among those present at the workshop and who contributed to the discussions were Robert Cribb, Eric Lonergan, Flemming Christiansen, and James Putzel. The insights they provided were crucial in helping us develop the perspective we eventually adopted in the volume. I am deeply indebted to Tom Wingfield, my colleague at the University of Leeds, where I was working when this project was conceived. Tom helped me identify and contact academics who could be approached to work on this project.
I thank all the contributors to this volume who needed little persuasion to work with me on this project. I was pleasantly surprised at their willingness to support this project, since I had not met some of them, like James Babb and Stefan Eklöf, when they were approached to write a chapter for this volume. Karl Fields, who could not attend the workshop, was very supportive when I asked him to make numerous revisions to his article, to help his analysis tie in with the main themes of the volume. Some of the contributors to this volume came on board after the workshop. Stefan Eklöf agreed to write the chapter on Indonesia after the researcher originally identified for this project was called to participate in a peacekeeping mission in East Timor. I thank Stephan Haggard and Linda Low for agreeing to write the chapter on Singapore. At the workshop in Aalborg, the participants had felt that there was a need to incorporate a chapter on Singapore, to facilitate the comparative dimension of the project. Singapore is the exception to the rule in that the negative aspects of political business, as we conceive the concept here, are non-existent in this country. I wish to mention my deep debt to Andrew Wedeman who agreed to write two chapters for this volume. Andrew was incorporated into this project to prepare an article discussing the concept of corruption, but was subsequently persuaded to write a country chapter, on China. I thank the late Michael Leifer of the London School of Economics who, as Editor of Routledge’s Politics in Asia series, was very keen on publishing this volume when I mentioned the project to him. Michael had promised to write the Foreword for this volume, and it is unfortunate that we will not benefit from the insights of this doyen of Southeast Asian Studies. Finally, but not least, I am very obligated to Sharm, who provided unstinting support when I was preoccupied with organizing and completing this project, even though she was then working on her doctoral dissertation. To her, and our children, Evie, Eric and Eshward, who shared my enthusiasm for this study in our conversations about life, social change, democracy, and justice in Asia, I dedicate this volume. We hope that this volume will contribute in some small way to the debates now taking place among reformers in Asia, on how to develop truly democratic nations. Terence Gomez March 2001
Introduction Political business in East Asia Edmund Terence Gomez
Financial crisis and political change In 1997, a financial crisis occurred in East Asia1 seriously impairing economies that had generated half the world’s economic growth since 1990. Such economic growth had led to the rise of a large middle class that had, in some countries, contributed to the promotion of greater democratization. The impact of the crisis has drawn attention to a need for an inquiry into a number of important issues in the areas of business and politics, including the quality of state intervention in the economy, the mode of enterprise development, and the form of democracy emerging in East Asia, involving in particular the question of funding of political parties. Our concern here is not an in-depth analysis of the factors that contributed to this crisis, that is the impact of currency speculation, unregulated capital flows (specifically portfolio investments), and imprudent financial liberalization and weak supervision of the banking sector, all issues that have now been well documented.2 Our key focus is on the links between politics and business and the implications of this nexus on enterprise development and democratization in East Asia. These links forged between politicians in power and businessmen have unquestionably facilitated the rise of a number of major companies in the region, aided through the use – and in many cases, abuse – of the domestic financial sector. Such links led to the development of some factors that contributed to the crisis, including lax supervision of the financial sector and an unsustainable form of corporate growth through debt. The ties between politics and business have also influenced the form of creation and distribution of state rents, contributing to the rise of a “new rich,”3 as well as allegations of cronyism, corruption, and nepotism. Wanton corruption and cronyism, in various forms, had transpired long before the onset of the crisis, suggesting that the ties between politics and business had not precipitated the financial crisis in 1997.4 These links, however, had influenced government policies that contributed to the crisis and affected responses in ways that exacerbated the crisis.
Edmund Terence Gomez
Following the financial crisis, it was evident that the repercussions arising from the links between politics and business had emerged as a primary factor contributing to political tension and/or change in a number of countries in East Asia. In Southeast Asia, Indonesia’s long-standing president, Suharto, was forced to resign, Malaysian Prime Minister Mahathir Mohamad came under unprecedented open public dissent, while Thailand’s Chavalit Yongchaiyudh government was replaced by a coalition forged by Chuan Leekpai. In Northeast Asia, Japanese Prime Minister Ryutaro Hashimoto had to step down in favor of Keizo Obuchi, while South Korea’s out-going president Kim Yong Sam was so tainted by a scandal that exacerbated the financial crisis that it facilitated the election of the long-standing government critic Kim Dae Jung. In all these countries, the close ties between politicians and businessmen have influenced the form of economic development and, following the financial crisis, have been a factor that has contributed to political upheaval. However, in spite of the political upheavals following the financial crisis, which eventually became an economic crisis, there have been little fundamental structural changes in politics and in business, particularly involving the links between the two. In Japan, the banking crisis remains unresolved in spite of a change of political leadership, Korean chaebols appear reluctant to reform their pattern of corporate growth, while the influence of big business over the Philippine state appears to be growing. In Malaysia, Mahathir controversially sacked Deputy Prime Minister Anwar Ibrahim, consolidating more power in the office of the executive and yet secured an overwhelming electoral victory during the 1999 general elections. In Thailand, in spite of promises by politicians of greater devolution of power to the people through amendments to the constitution, there have been no significant political reforms. During the 2001 general election, mired in allegations of corruption, including vote-buying, the party that secured the largest number of seats in parliament was the newly formed Thai Rak Thai Party, formed by Thaksin Shinawatra, reputedly to be the richest person in Thailand. Why has the possibility of reforms in business and politics that appeared imminent following the crisis not occurred? What is the nature of politics and business in East Asia that has the capacity to restrain fundamental changes that were shown by this crisis to be necessary? This volume is an attempt to answer these questions by tracing the form of development of capital in East Asia as well as the evolution of the links between politics and business.
Defining political business The favoring of particular business interests by politicians in power has been broadly and popularly referred to as “cronyism.” This term, however, carries dissimilar meanings in different contexts and is not an effective tool for conceptualizing the variety of issues that have shaped the links between politics and business in East Asia. The issues that have to be incorporated in an analysis of the links between politics and business in a country can range
Introduction 3 from corruption, nepotism, insider trading, and political patronage to the abuse of the financial sector for vested political interests as well as covert funding of political parties or presidential candidates. Other issues, however, that may also require analysis in this discussion of politics and business is the need for the state to implement policies that involve positive discrimination to rectify social and economic imbalances, create or promote indigenous capital, or encourage industrialization. For this study, the concept, “political business,” has been developed, which will be applied to analyze the various forms of links between politics and business that can have positive or negative impact on local economies and political systems. In order to understand the form and implications of political business ties in East Asian countries, two key issues need to be analyzed in greater depth. There is a need to understand the politics of the state, that is to establish the institutions or actors in whom power is centered, including determining if political power has been secured through the aid of capital. Second, an analysis is required of the development of the corporate sector, particularly the rise of big business, to determine the nature of the relationship between capital and the state. For example, the rapid growth of some major East Asian companies, whether privately owned or a state enterprise, was due to political considerations and aided through much state support. Moreover, following democratization in a number of East Asian countries, the influence of capital over politics has increased appreciably. The changing pattern in the balance of power between capital and the state in democratized countries also appears to have affected the dynamics of policy-making and policy implementation, the form of corporate development, as well as the flow of funds from business into politics. Political funding by business has contributed to a significant rise in the phenomenon of “money politics,” that is the use of money in the political arena to secure control over the state in order to influence the distribution of state-generated economic rents. Since political contests are being extremely influenced by access to money, this brings into question the quality of democracy that is emerging in East Asia. Figure I.1 provides a model of the practice of political business and the outcomes of the nexus between politics and business on the corporate and financial sectors. Politicians holding office in government use their power to distribute to party members or select business associates state-created rents in the form of licences, contracts, subsidies, and privatized projects. Funds to acquire these rents are secured through favorable loans from banks and other financial institutions owned or controlled by the state and well-connected businessmen. Distribution of such rents to party members, in turn, helps party leaders secure or promote their positions in the party and in government. Many recipients of these rents use numerous corporate maneuvers, most commonly shares-for-assets swaps and reverse takeovers, to capture control of public-listed companies, usually characterized by concentration (large firm size) and conglomeration (multi-sectoral diversification). These companies, in turn, are used for other types of corporate maneuvers, including mergers,
Edmund Terence Gomez
Political Leaders / Political Parties
control over Government distribution of state-controlled concessions: government funding, licences, contracts, various types of privatized projects
government-owned or politically-controlled banks and other financial institutions
funds to secure these concessions come from
used by clients for
shares-for-assets swaps, reverse takeovers, mergers, and acquisition of public-listed companies
results in creation of politically-linked “new rich,” insider trading, manipulation of share prices, conflict of interest situations, corruption, politicization of the economy brings about access to substantial funds part of which are chaneled back as political funds to government
Figure I.1 Model of the practice of political business.
acquisitions, and takeovers, to develop their business interests. As share prices escalate, corporate equity is used as security to secure more loans from banks for further acquisitions. Such corporate strategies contribute appreciably to the increase in the stock exchange’s market capitalization. Political patronage, sophisticated but unproductive corporate maneuvers and the rise in market value of quoted equity contribute to the emergence of a politically well-connected new rich. The emergence of this new rich leads to a concentration of corporate wealth, while selective distribution of state concessions results in corruption, business scandals, and conflicts-of-interest involving senior government leaders. Companies controlled by well-connected
Introduction 5 businessmen are involved in insider trading and manipulation of stock prices. Political patronage also creates avenues for politicians to gain access to large sums of money for political activities, particularly to fund campaigns during party and general elections. In some cases, as companies grow large enough to achieve much autonomy from the state, they channel funds to political parties, or factions within ruling parties, in an attempt to influence state policies. In other instances, business elites form political parties or participate directly in presidential elections in an attempt to secure control over the state. On the other hand, certain positive outcomes can arise from political business ties. For example, state patronage through positive discrimination can be used to rectify social problems such as wealth and income disparities between ethnic communities, while the need to promote domestic entrepreneurship and create indigenous businessmen can be dealt with through political business ties. Selective rent distribution can also help to promote industrialization and diversification of the economy. In many cases, however, financial institutions, usually those that are stateowned, have been an avenue for politically well-connected companies to secure funds on favorable terms to generate growth, primarily through acquisitions, contributing to the rise of huge enterprises within a relatively short period. This has led to the problem of huge gearing ratios among many of these firms, though such loans are manageable with continued support from financial institutions and the state. In a number of countries, the stock market, and a variety of corporate maneuvers, including shares-for-assets swaps, takeovers, reverse takeovers, and bonus and rights issues are employed to pursue a conglomerate style of growth. In many instances, huge, but normally short-term, loans from abroad, as well as significant foreign portfolio investments, are crucial for promoting the growth of these companies as well as grossly increasing their market capitalization on local stock exchanges. Such forms of loans and portfolio investments, however, contribute to financial crises when large numbers of investors withdraw their funds from the stock markets. In other words, the business style of many of these large-scale companies, and of the manner of their growth – that is, whether a vertical, horizontal or diversified pattern of growth was employed – appears to be a factor determining their capacity to deal with economic crises. Most politically well-connected firms tend to focus their investments on services and other non-tradeables, such as real property, construction, infrastructure, and importsubstituting manufacturing. Politically well-connected enterprises tend frequently to be involved in unproductive business ventures, usually adopting a conglomerate style of growth, with limited focus on developing expertise in a particular industry or with little attention on research and development. Another facet of political business is that funds raised in the corporate sector are channeled into the political arena, for activities such as funding party and general election campaigns or for buying the support of party members to create and maintain power bases. These links between politics
Edmund Terence Gomez
and business lead to differences among political elites, as well as widespread corruption, nepotism and conflicts of interest; in a number of cases, disclosure of such improprieties precipitates profound political change and form of governance. Political business ties are widespread in almost all countries in East Asia, although the form that such links take differs. In Taiwan and Malaysia, the Kuomintang (KMT) and the United Malays’ National Organization (UMNO), respectively, each have direct or indirect control over a vast array of corporate assets. In Japan, major corporations fund particular factions within the ruling Liberal Democratic Party (LDP). In the Philippines, although capitalists lost their inordinate influence over the outcome of presidential elections through their capacity to fund the rise of politicians during the authoritarian era of Ferdinand Marcos (1966–86), they are again beginning to secure influence over the state through similar means. In Thailand, businessmen have established political parties as a means to capture control of the state. Similarly, in South Korea, one leading capitalist made an unsuccessful bid for the office of President during the 1992 campaign. In Indonesia, the emergence of a number of conglomerates during the Suharto regime (1966–98) was attributed to the close personal ties established by their owners with leading politicians. The dynamics of political business within each East Asian country has also evolved with political or regime change. Even though systemic development of political business ties contributed to the scale of the financial and political crises after 1997, very little is known of the dynamics involved in the links between politicians and businessmen and of the reasons why the latter secured rents from the state. Since the rationale for the award of state rents to businessmen influenced the pattern of development of enterprises owned by these capitalists, this had a bearing on the extent to which these firms were affected by the crisis, both economically and politically.
Contextualizing political business in East Asia Most debates on the links between the state and business, adopting either a statist or a market (rational choice) perspective,5 tend to focus on the state as a monolithic unit, analyzing its capacity to promote economic development. Although an institutional perspective provides an alternative to societycentered and state- and/or system-centered explanations of politics, it has not provided an adequate theory of change. Moreover, while an institutional perspective recognizes that institutions can collapse in times of crisis, it does not explain, or deal with, the political factors contributing to the breakdown.6 More specifically, the debate on the developmental state has centered attention on a bureaucracy dominated by technocrats driving economic growth (see, for example, Johnson 1982, 1987). Another body of literature has drawn much focus to business groups that organize themselves to act individually or collectively to secure rents from the state (Domhoff 1967;
Introduction 7 Heidenheimer and Langdon 1968). This concentration on technocrats and capitalists has diverted attention from the machinations within the political system, usually occupied by politicians who have overwhelming influence over the various arms of the state, including the bureaucracy. There is growing evidence that politicians work through the state to procure rents for themselves – or their families and allies – to develop huge corporate enterprises. East Asian history, however, has also shown that politicians who secured control of the executive were simultaneously driven by a desire to promote economic development, usually as a means to justify their rule. This has contributed to contradictory actions by government leaders, that is the promotion of growth-generating policies while also permitting corruption, political patronage or unproductive rent distribution. The institutional and organizational structure of a government and ruling party has a bearing on the form of rent distribution by politicians to businessmen. An analysis of institutional control of government, that is of how politicians control the state, for example, the bureaucracy or the legislature, to formulate and implement policies affecting business, can provide insights into how capital develops. A study of the organizational structure of a party involves an analysis of where power is centralized; this will help indicate why politicians distribute rents to specific businessmen or why capital channel funds to particular politicians or factions. In most analysis, since no distinction is made between state and political parties or politicians, there is little insight into the nature of a political system, which helps explain the nature of rent distribution. One objective here is to deconstruct the concept of the state, with the central analytical focus on particular political parties, factions,7 or politicians who have hegemony over the state. The inadequate focus on the links between political parties or politicians and the corporate sector in East Asia is surprising given that the states in this region had played a significant role in promoting the development of public and private enterprises and new capitalists. For example, in South Korea, Taiwan, Malaysia, Indonesia, Singapore, Thailand, and the Philippines, politicians in government have heavily influenced rent creation and distribution in the corporate sector through various policy mechanisms. On the other hand, in Japan and China, powerful factions in the ruling parties, the LDP and the Chinese Communist Party (CCP), respectively, have been able to influence how state economic rents should be distributed. How, and why, factions are created and controlled also differ between countries. A faction, a system of cooperation among a number of recognized leaders within a political party for the purpose of influencing the decisions and conduct of the party organization as a whole, is usually short-lived. This, however, has not been the case of the five major factions in the LDP, which appear more institutionalized. In Malaysia, UMNO is fraught with factions that are loosely based which tend to have a shorter life-span, depending on the longevity of their leader; inevitably, these factions have differing access to
Edmund Terence Gomez
rents depending on the influence of their leader.8 In Japan, Taiwan, and Malaysia, factional disputes within the ruling parties have been a major factor in precipitating political crisis or change.9 In Thailand and the Philippines, factionalism has contributed to incessant party-hopping and “turncoatism,” as influential leaders move, usually with their supporters, between parties that provide them with the best hope of securing a place in the executive arm of government. In both authoritarian and more democratized countries, factionalism has also influenced the volume of fund flow into the political arena, especially during party elections as politicians distribute money, corporate equity, and other rents to buy support to accelerate their ascendancy in the party hierarchy. In some cases, the volume of funds disbursed during contests for posts in the ruling party can be considerably more than the amount of money used during campaigns in general elections. One reason for the growing use of money in politics is that with the emergence of democracy in East Asia the state is increasingly being captured by capital, mainly through the latter’s capacity to influence electoral outcomes in party and general elections by channeling substantial funds into the political arena. Such capture of the state by capital has taken various forms. In Japan, when the businessman, Tanaka Kakuei, became Prime Minister, a profound change occurred in the LDP, involving the growing importance of money in party affairs. Even though Tanaka’s government was eventually rocked by a series of corrupt financial dealings, the practice of extensive distribution of funds to buy party support that he actively promoted became institutionalized in the LDP.10 In Thailand, businessmen have actively begun to use political parties as vehicles to seek public office and secure control over the state to gain access to rents that can facilitate the growth of their business. Banharn Silpa-archa of the Chat Thai Party, who had served briefly as Prime Minister in 1995, had first established himself in business in the 1970s. In South Korea, Chung Ju Yung, the chairman of the conglomerate, Hyundai, established the United People’s Party during his unsuccessful bid to secure victory in the 1992 presidential election.11 In the Philippines, major capitalists have been funding politicians as a means to secure access to the presidency or secure seats in the cabinet. Since political elites who have control over the state determine the form of rent distribution, this would suggest that most rents have been unproductively deployed, inevitably inhibiting growth. This, however, has not been the case in most countries in East Asia as the state has been led by politicians who have a developmentalist agenda. As government leaders strive to create an industrial order capable of self-sustaining growth or international competitiveness, “selective intervention” by the state and the desire to “pick winners” to promote their industrial drive have been used to justify preferential treatment in the distribution of rents (Lall 1996). The importance of cultivating domestic entrepreneurs in industry, to ensure that a country is not overly dependent on foreign corporations for technology development, is another reason used to legitimize selective rent distribution. Through control over the