Vietnam is not only growing. It is debating what kind of growth should come next.

This is what makes the present moment important. After nearly four decades of Đổi Mới, Vietnam is no longer the poor, war-scarred, isolated country that began market-oriented reform in the late 1980s. It has become one of Asia’s most successful late developers: a major export platform, a manufacturing hub, a strategic partner for competing powers, and one of the countries most closely watched by firms seeking alternatives to China.

But success has changed the question.

The issue is no longer simply whether Vietnam can attract foreign investment, expand exports, build industrial parks, absorb rural labour into factories and integrate into global value chains. It has already done these things with remarkable effectiveness. The harder question is whether Vietnam can now construct a new development model: one based not only on global integration, but on domestic productive capability, technological learning, institutional reform, private-sector dynamism and social upgrading.

This is not an external question imposed on Vietnam from outside. It is increasingly the language of Vietnam’s own national debate. Resolution 19-NQ/TW, issued on 28 July 2026, explicitly concerns the renewal of Vietnam’s development model. Resolution 57-NQ/TW, issued on 22 December 2024, places science, technology, innovation and national digital transformation at the centre of the next stage. Resolution 68-NQ/TW, issued on 4 May 2025, elevates the private economy as a central force in national development. Resolution 66-NQ/TW, issued on 30 April 2025, links the new era to the renewal of law-making and law enforcement. Taken together, these documents show that Vietnam is not merely adding new policies to an old model. It is trying to rethink the architecture of development itself.

The key distinction is between integration and capability.

Integration means entering the world economy. Vietnam’s first development model was extraordinarily successful at this. It opened markets, attracted foreign capital, expanded exports, mobilised labour, built industrial zones and inserted the country into global production networks. It transformed Vietnam’s position in the regional and global economy.

Capability means something deeper. It refers to what domestic firms, workers, engineers, universities, financial institutions, public agencies and research organisations can actually do inside those networks. A country may export sophisticated products without controlling the technology that makes them sophisticated. It may host global corporations without developing domestic firms able to compete with them. It may assemble phones, garments, furniture or electronics without accumulating enough design capacity, supplier depth, research capability or technological autonomy.

Vietnam’s current debate matters because it begins from achievement, not failure. The first development model worked well enough to create the conditions for a second question. It asked how a poor, postwar country could enter the world economy. The new debate asks how a globally integrated country can increase its command over production, technology, institutions and social development.

The success of the first model created the question of the next one.

I. The model that worked

Vietnam’s first development model was not a failure. It was one of the most successful forms of late integration in the contemporary world economy.

This point matters because debates about “new development models” often begin by declaring that the old model has failed. In Vietnam’s case, that would be misleading. The model that emerged after Đổi Mới did many of the things that late-developing countries are supposed to do but often fail to achieve. It stabilised the economy after crisis. It moved millions of people out of poverty. It created a more dynamic agricultural sector. It opened the country to trade and investment. It built industrial parks. It attracted foreign manufacturers. It absorbed rural labour into factories. It turned Vietnam into an export platform. It made the country important to global firms and geopolitically relevant to major powers.

At the beginning of Đổi Mới, Vietnam was still marked by war, isolation, shortage, rationing, low productivity and the limits of central planning. Reform gradually reconnected the country to regional and global circuits of production, trade, finance and technology. Agriculture changed first. Rural households gained greater autonomy. Rice production increased. Food security improved. Vietnam moved from scarcity to becoming one of the world’s major agricultural exporters.

The deeper structural transformation came through manufacturing and trade. Vietnam inserted itself into labour-intensive export production, then into more complex manufacturing networks. Garments, footwear, furniture, seafood, electronics and later phones and components became central to the country’s growth. Industrial parks and export-processing zones provided the territorial infrastructure of this model. They concentrated land, logistics, labour and regulation in spaces attractive to investors. Around them grew new urban corridors, migrant labour systems, supplier networks, ports, roads and provincial development strategies.

The model worked because it combined several elements that rarely come together so effectively.

Vietnam had a disciplined and abundant labour force. Rural transformation released workers for industrial employment, while households continued to absorb much of the cost of social reproduction. Young migrant workers moved from villages to industrial zones, sending remittances home and sustaining both rural families and urban factories. Labour was not simply an input. It was one of the foundations of the model.

Vietnam also had a party-state capable of maintaining political stability and policy continuity. The state did not disappear with market reform. It remained central to land, infrastructure, industrial zones, public investment, education, foreign relations and the management of reform. This was not the old centrally planned state, but neither was it a weak neoliberal state. Vietnam’s development through integration was organised through a distinctive combination of market opening and party-state coordination.

Finally, Vietnam entered the world economy at a moment when global production networks were expanding across Asia. Japanese, Korean, Taiwanese, Singaporean, European, American and later Chinese-linked firms were reorganising production across borders. Vietnam offered cost advantages, political stability, access to trade agreements and proximity to China without being China. It became increasingly attractive as a location for manufacturing diversification.

The results are visible in both poverty reduction and export transformation. The World Bank describes Vietnam as having achieved rapid, sustained growth and poverty reduction over the past three decades, with GDP per capita rising from under 700 dollars in 1986 to nearly 4,500 dollars in 2023. The OECD’s 2025 Economic Survey notes that Vietnam’s share of world trade rose from 0.1 percent in 1996 to 1.5 percent in 2023, making the country the world’s nineteenth-largest exporter. These figures do not tell the whole story, but they capture the scale of Vietnam’s transformation: the country did not merely grow; it changed its position in the world economy.

Yet the success of integration also created a new horizon. Once a country has entered global production, the question changes. The issue is no longer only whether it can attract investors or export more goods. The issue becomes what it can learn, control and accumulate through that integration.

Vietnam’s first development model asked how a poor, postwar country could enter the world economy. The new debate asks how a globally integrated country can increase its command within it.

II. From integration to capability

The success of Vietnam’s first development model creates a second question.

A country that fails to industrialise faces one set of problems: lack of investment, lack of infrastructure, weak exports, unemployment, low productivity and dependence on primary commodities or labour migration. A country that succeeds in entering global production faces another set of problems: how to deepen domestic capability, how to increase productivity, how to build stronger firms, how to absorb technology, how to upgrade labour, and how to capture more value inside global chains.

Vietnam has reached the second kind of problem.

Integration can be achieved by entering value chains. Capability requires changing what a country can do inside them.

Vietnam is now deeply integrated. Its factories produce phones, garments, footwear, furniture, machinery, electronics, seafood and components for global markets. Its industrial parks are tied to multinational corporations, logistics networks, ports, trade agreements and regional supply chains. Its export structure has become far more sophisticated than it was at the beginning of Đổi Mới. The country is no longer peripheral to global production. It is one of the places where global production is organised.

But integration is not the same as command.

A country may export sophisticated goods without controlling the technologies, brands, designs, standards, platforms or strategic decisions that make those goods valuable. It may host advanced factories without developing domestic firms capable of competing in the most profitable segments of the chain. It may assemble high-tech products while importing many of the most advanced components. It may produce extraordinary export numbers while domestic value added remains limited.

This does not mean that foreign investment has failed Vietnam. It means that foreign investment creates opportunities that must be organised.

FDI can build factories. It can create jobs. It can generate exports. It can produce learning opportunities. It can connect a country to international markets, suppliers, standards and technologies. But FDI does not automatically create national capability. The presence of global firms does not by itself produce domestic technological depth. Export growth does not automatically produce national control over value chains. Industrial parks do not automatically create innovation systems.

The OECD’s 2025 Economic Survey makes this point directly. It argues that FDI and trade have strongly benefited the Vietnamese economy, but that stronger supplier development, better matching between domestic firms and foreign affiliates, improved training and stronger domestic innovation capacity are needed if Vietnam is to gain larger productivity spillovers from global integration.

This is the difference between having factories and building productive power.

Factories matter. They provide jobs, exports, training, routines, discipline, logistics and exposure to global standards. But national capability is built when firms learn to design, adapt, improve, manage, finance, innovate and compete. It is built when workers acquire skills that can travel across firms and sectors. It is built when suppliers move from simple parts to complex components. It is built when domestic firms develop managerial depth, engineering capacity and technological ambition. It is built when the state can identify bottlenecks, discipline rent-seeking, coordinate investment and correct policy errors.

Capability is therefore not a synonym for technology. It is a social and institutional capacity to do things.

This is why Vietnam’s debate cannot be reduced to the question of becoming “high-tech.” High technology matters, but a country does not become technologically advanced simply by hosting high-tech production. It becomes advanced when the knowledge, routines, organisations and institutions behind production become increasingly domestic, cumulative and transferable.

The same point applies to sectors often described as “low-tech.” Garments, furniture and seafood can remain sites of low-wage subcontracting. But they can also become platforms for design, logistics, standards, traceability, machinery, branding and domestic firm learning. The issue is not sectoral prestige. It is capability accumulation.

Vietnam does not need to abandon exports, FDI or global value chains. It needs to change the relationship between global integration and domestic learning. The first model brought Vietnam into the world economy. The second asks how the world economy can be used to build Vietnam’s own productive power.

The question is no longer only how much Vietnam exports, but what Vietnam learns, controls and accumulates through exporting.

III. The new policy architecture

Vietnam’s new development debate is significant because it names the development model itself as the object of reform.

States often reform sectors. They reform finance, education, infrastructure, taxation, public administration, industrial policy, science and technology, or trade. But it is more unusual for a ruling party to say explicitly that the model of development itself must be renewed.

Resolution 19 does exactly this. It is formally concerned with the renewal of Vietnam’s development model and links this renewal to the ambition of becoming a developed, high-income country by 2045. Its language is revealing: it calls for a shift away from a pattern based largely on capital, natural resources, low-cost labour and processing toward one based more strongly on productivity, science, technology, innovation, digital transformation, green transition and high-quality human resources.

This is the language of capability.

Of course, policy language is not policy reality. Vietnam, like many states, produces ambitious documents. Some are implemented; others are diluted, delayed or absorbed into bureaucratic routine. A resolution does not create a new model by itself. But Resolution 19 is analytically important because it makes explicit what had previously often been discussed as a structural problem: Vietnam’s earlier growth model cannot simply be extended indefinitely.

Resolution 19 is the umbrella. Three other resolutions help define the pillars beneath it.

Resolution 57 identifies science, technology, innovation and national digital transformation as breakthrough priorities for the new era. The point is not simply that Vietnam wants more technology. Almost every government says that. The more important question is whether technology can become embedded in production, institutions, firms and workers. Innovation is not a sector. It is a relationship between firms, universities, workers, finance, public institutions and industrial strategy.

Resolution 68 elevates the private economy. It does not merely tolerate private firms as a supplement to state-owned enterprises or foreign-invested corporations. It asks the private economy to become a major driver of national development and innovation. This is an important shift. But it also raises the central political economy question: what kind of private sector? Private capital can build productive capabilities, but it can also flow into land, speculation, protected markets and politically connected rents.

Resolution 66 addresses law-making and law enforcement. It may look less directly economic than the technology and private-sector resolutions, but this would be a mistake. The resolution presents institutional reform as a crucial condition for national development in the new era. Institutions do not simply regulate development. They help produce, block or accelerate it.

Taken together, these resolutions do not amount to a simple liberalisation agenda. They do not say: reduce the state and let the market solve the problem. Nor do they say: strengthen administrative command and suppress the market. Their logic is more complex. They seek a new relationship among the Party, the state, the market, private firms, science, technology, law, society and citizens.

That is why the old opposition between “state” and “market” is too crude for Vietnam.

Vietnam’s first model was never purely state-led or purely market-led. It was a hybrid: market reform under party-state authority; foreign investment under national development goals; household agriculture and private enterprise within a socialist-oriented framework; global integration managed by a state that retained political control. The new debate is not about abandoning hybridity. It is about redesigning it.

But architecture is not construction.

A new development model cannot be produced by declaration. It requires coordination across ministries, provinces, firms, universities, public research organisations, banks, labour markets and local administrations. It requires incentives that encourage private firms to invest in productivity rather than speculation. It requires public agencies that can identify bottlenecks and respond to feedback. It requires workers with skills, security and the capacity to move into more complex tasks. It requires local governments capable of attracting investment without simply competing through land, tax concessions and cheap labour.

In other words, the resolutions name the problem. They do not solve it.

This is not a criticism. It is the nature of development. The most difficult part of a new model is not writing it down. It is building the institutions and social forces that can make it real.

IV. Private enterprise and innovation

The private sector is being asked to become a carrier of national capability.

This is a major shift. For much of Vietnam’s reform history, the private sector occupied an ambiguous place. It was necessary, tolerated, encouraged, regulated, distrusted, celebrated and constrained at the same time. Đổi Mới made private activity increasingly central to growth, but the official imagination of development remained marked by the leading role of the state sector and the political need to preserve socialist orientation.

Resolution 68 changes the language. It places private-sector development at the centre of the new debate. But the real question is not simply whether the private sector should grow. It is whether private capital can become developmental.

Private enterprise can generate jobs, investment, innovation, services, competition and domestic accumulation. It can build national firms, brands, supplier networks, technologies and managerial capabilities. It can move faster than state agencies, respond to markets, take risks and experiment with new products. In a country trying to move from integration to capability, private firms are essential. The state cannot build national capability alone. Foreign investors cannot be expected to build it for Vietnam. Domestic private enterprise must become one of the carriers of learning.

But private capital is not automatically developmental.

A larger private sector does not necessarily produce a better development model. Private capital may invest in manufacturing, technology, logistics, services and innovation. But it may also flow into land, real estate, speculation, finance, short-term arbitrage, protected markets or politically connected rents. It may build productive capacity, or it may become powerful without becoming productive.

The challenge is not simply to enlarge the private sector, but to make private capital developmental.

This is where private enterprise and innovation must be analysed together. Innovation cannot be produced only by ministries, universities or public research institutes. Firms are where many problems of production are encountered and solved. They know where machines fail, where inputs are unreliable, where logistics break down, where standards are difficult to meet, where workers need training, and where customers demand improvement. If private firms remain weak, short-termist or disconnected from research and finance, innovation will remain narrow.

Vietnam does not lack entrepreneurs. It has dynamic small and medium enterprises, family firms, service companies, export suppliers, technology firms and large conglomerates. But many domestic firms remain small, undercapitalised, technologically limited and weakly connected to global value chains. They often face difficulties accessing finance, land, skilled labour, technology, standards and reliable public administration. If private enterprise is to become developmental, it must be able to move from survival, trading and low-margin production toward learning, investment and productivity growth.

Supplier development is crucial here. Vietnam’s dependence on foreign-invested exports means that domestic private firms must find ways to enter, deepen and eventually shape supply chains. This requires quality upgrading, certification, management systems, technical skills, finance and sustained relationships with lead firms. Programmes connecting Vietnamese suppliers to corporations such as Samsung are important, but they must become part of a wider ecosystem. A handful of successful suppliers cannot by themselves transform the national economy.

Large private groups — such as Vingroup, FPT and THACO — occupy a particularly important place in this debate. They are large enough to mobilise capital, build brands, invest in technology and experiment in strategic sectors. They can become national vehicles for capability-building. FPT’s role in software and digital services, THACO’s industrial and automotive ambitions, and Vingroup’s move from real estate into manufacturing, electric vehicles and technology all show that Vietnamese private capital is no longer confined to small-scale commerce.

But national champions create dilemmas.

Large private conglomerates can build capabilities that smaller firms cannot. They can invest at scale, coordinate across sectors, absorb losses, create brands and negotiate with global partners. They can help Vietnam move beyond the image of a subcontracting economy. But they can also concentrate power, depend on privileged access to land and finance, create systemic risk, or expand through protected positions rather than productive efficiency.

A national champion is developmental only if it creates capabilities that extend beyond itself.

This is one of the most delicate issues in Vietnam’s new model. The country needs stronger domestic firms, but it must avoid a form of private-sector development that produces oligarchy without upgrading. It needs large firms, but it also needs supplier depth, small and medium enterprise upgrading, competition, technical ecosystems and mechanisms that discipline unproductive capital.

Here again, the state-versus-market opposition is misleading. If Vietnam wants a developmental private sector, the state cannot simply step back. It must create conditions under which productive private investment is rewarded and speculative or rent-seeking accumulation is disciplined. It must ensure fairer access to land, credit, public procurement, infrastructure, information and legal protection. It must reduce arbitrary administrative obstacles, but it must also prevent private power from capturing public policy.

The private sector is therefore not merely a source of growth. It is being asked to become a carrier of national capability.

That is an ambitious role. It cannot be assumed. It has to be built.

V. Institutions and the learning state

A developmental state cannot be only a disciplinary state. It must also be a learning state.

This is one of the central questions in Vietnam’s search for a new development model. The country has a party-state capable of mobilisation, continuity and discipline. These are real advantages. They help explain why Vietnam has been able to sustain long-term reform, attract investment, build infrastructure, expand industrial parks, manage integration and maintain strategic direction across changing global conditions.

But the next development model requires more than discipline.

The first model depended heavily on integration: opening the economy, attracting foreign investment, expanding exports, mobilising labour and constructing the infrastructure of industrialisation. These tasks required state capacity, but many could be pursued through relatively clear instruments: industrial zones, trade agreements, investment incentives, infrastructure, labour supply, land conversion and macroeconomic stability.

The second model is more demanding. It is about capability. It requires domestic firms to learn, suppliers to upgrade, universities to connect with production, workers to acquire new skills, public agencies to coordinate technology and finance, provinces to build ecosystems rather than simply attract investors, and ministries to correct mistakes quickly. This kind of development cannot be produced only by orders from above.

It requires learning.

A learning state is not a weak state. It is not a state that withdraws and leaves the market to decide. On the contrary, it must be strong enough to set direction, discipline rent-seeking, coordinate actors and protect public purpose. But it must also be flexible enough to receive feedback, tolerate initiative, experiment locally, recognise failure, adjust policy and distinguish productive risk from corruption.

That distinction is crucial.

Vietnam’s anti-corruption campaign has been politically important. It has punished abuse, removed senior figures and responded to a real problem in the political economy of growth: the risk that public authority becomes captured by private gain. No serious development model can tolerate corruption as a normal cost of doing business. Rent-seeking, land speculation, inflated procurement, privileged access and the misuse of public office weaken national capability. They redirect resources away from productivity and toward connection.

But anti-corruption also creates a developmental dilemma.

If discipline strengthens legality, transparency and public trust, it can increase state capacity. If it produces administrative fear, hesitation and risk-aversion, it can weaken implementation. The problem is not that corruption should be tolerated. It should not. The problem is that a developmental state must create rules under which officials can act responsibly without fearing that every difficult decision may later become a personal legal risk.

A state can become cleaner and yet less capable of initiative.

This is why Resolution 66 matters. Legal and institutional reform should not be treated as a separate governance issue. It is part of the productive system. Law shapes what firms can attempt, what risks they can take, what technologies they can adopt, what partnerships they can form, what disputes they can resolve, what contracts they can rely on, and what public agencies can coordinate.

Institutions do not simply regulate development. They help produce, block or accelerate it.

For Vietnam, this is especially important because the new model requires forms of economic activity that are more complex than the first model. Attracting labour-intensive manufacturing into industrial parks required land, infrastructure, tax incentives, labour mobilisation and basic administrative coordination. Building domestic technological capability requires more complex institutions: predictable regulation, reliable contracts, public procurement, intellectual property rules, data governance, financial regulation, university-industry collaboration, competition policy and mechanisms for resolving conflicts between public goals and private interests.

Resolution 66 therefore sits at the intersection of two needs: enabling initiative and disciplining power.

This matters for private enterprise, but also for provinces. Vietnam’s development has always depended heavily on provincial initiative. Provinces did not merely implement central policy mechanically. They competed for investment, experimented with industrial zones, built local administrative capacities, cultivated investor relations and sometimes moved ahead of national frameworks. The success of places such as Bình Dương, Đồng Nai, Bắc Ninh, Hải Phòng and Ho Chi Minh City was not produced only by central command. It also reflected local initiative within a broader national direction.

The new model requires that kind of initiative, but at a higher level of complexity. Provinces can no longer compete only by offering land, cheap labour, tax incentives and infrastructure. They must build ecosystems: suppliers, logistics, vocational training, housing, urban services, environmental management, research connections, digital infrastructure and administrative problem-solving. They must move from investment attraction to capability formation.

That requires officials who can coordinate, not only approve; who can learn from firms, not only regulate them; who can correct mistakes, not only avoid them.

Vietnam has often benefited from state strength. But the next model requires state intelligence: the capacity to process information, coordinate complexity and revise action. It requires disciplined experimentation. The state must set direction, but also allow controlled variation. It must punish corruption, but protect honest risk-taking. It must guide private capital, but avoid suffocating initiative. It must decentralise enough for local learning, but centralise enough to prevent fragmentation and rent-seeking.

VI. Labour and social upgrading

Vietnam cannot upgrade production without upgrading the lives of the workers who make production possible.

This point is often acknowledged rhetorically, but it is rarely placed at the centre of development strategy. Debates about Vietnam’s new model tend to focus on technology, innovation, private enterprise, digital transformation, infrastructure, administrative reform and global value chains. These are all essential. But they produce an incomplete picture if labour appears only as a cost, a skill shortage, or a human-resource variable.

Labour is not simply an input into production. It is one of the foundations of national capability.

Vietnam’s first development model relied heavily on labour mobilisation. Rural workers moved into factories, industrial parks, construction sites, services and urban economies. Young migrant workers became central to the export machine. Women workers played a particularly important role in garments, footwear, electronics and other labour-intensive sectors. Their wages supported families, sustained rural households, financed education, paid debts and helped reproduce the social foundations of industrialisation.

This was one of the hidden strengths of Vietnam’s development model. The country could offer foreign and domestic investors a young, disciplined and relatively educated labour force, while households and communities absorbed much of the cost of social reproduction. Migrant workers moved to industrial zones, but their long-term security often remained tied to villages, families and informal arrangements. The factory received the worker, but the household continued to reproduce her.

This arrangement helped Vietnam industrialise. But it also created limits.

A development model based on low-cost, flexible and migrant labour can absorb workers into production, but it does not automatically create a high-capability economy. The more Vietnam seeks to move toward technology, innovation and higher productivity, the more labour must be understood differently. Workers cannot remain primarily a source of cost advantage. They must become carriers of skill, experience, adaptation and learning.

This is why social upgrading is not separate from industrial upgrading.

A firm can import better machinery, but workers must know how to use, maintain and improve it. A supplier can enter a global value chain, but it needs technicians, supervisors, engineers, quality-control staff and production workers capable of meeting standards. A digital transformation strategy can introduce platforms and data systems, but employees must be able to work with them. A green transition can require new industrial processes, but workers must acquire new competencies. Innovation is not produced only by scientists or elite engineers. It also depends on the everyday intelligence of production.

Capabilities accumulate through people.

A more advanced economy therefore requires a more stable and capable workforce. It requires better vocational training, stronger technical education, firm-level learning, career progression, housing, childcare, healthcare, social insurance, transport and urban services. It requires workers who can remain in industrial employment long enough to accumulate experience and move into more complex tasks. It requires households that are not constantly forced to subsidise low wages through sacrifice, migration and informal care.

In other words, social reproduction becomes part of productivity.

This is often misunderstood. Welfare is treated as a cost that comes after growth. But in a capability-based development model, welfare is also a productive condition. Housing affects labour stability. Childcare affects women’s employment. Healthcare affects productivity and security. Education affects skill formation. Social insurance affects workers’ willingness to remain in formal employment. Urban services affect the capacity of migrant workers to become long-term members of industrial society rather than temporary bodies attached to factories.

This also changes the meaning of wages. In the first model, low wages were part of Vietnam’s competitive advantage. They helped attract foreign investment and expand employment. But low wages are a weak foundation for a higher-productivity economy. If firms compete mainly through cheap labour, they have limited incentives to upgrade. If workers cannot sustain decent lives, they may leave industrial work, return to villages, rely on overtime, or treat factory employment as temporary. If households must absorb too much of the cost of survival, the apparent competitiveness of industry hides a social subsidy.

A higher-capability economy needs a different labour bargain.

This does not mean that wages can simply be raised by decree without regard to productivity. The relation is more complex. Wages, skills and productivity must rise together. But this requires institutions: collective bargaining, labour inspection, vocational systems, firm training, social insurance, housing policy, childcare provision and mechanisms that allow workers’ voices to enter industrial upgrading. Labour policy cannot be treated as a residual social issue. It must be part of the development model.

The deeper issue is whether workers can become participants in upgrading.

A capability economy requires feedback from the shop floor. Workers know where production breaks down. They know when machines fail, when supervisors cut corners, when quality systems are formal, when overtime becomes excessive, when training is inadequate, when housing conditions affect work, and when labour turnover undermines productivity. If workers have no effective voice, this knowledge remains unused. A learning state also needs learning firms, and learning firms need workers who can speak.

This is where gender matters. Women workers have been central to Vietnam’s industrialisation, especially in garments, footwear, electronics and other export sectors. But women’s industrial labour is often combined with unpaid care responsibilities, family obligations, reproductive expectations and vulnerability to discrimination. If Vietnam’s new model requires higher skills and longer employment trajectories, then childcare, maternity protection, safe transport, housing, healthcare and gender equality are not peripheral. They are part of national capability.

Vietnam’s first model showed that labour mobilisation could help a poor country enter global production. The next model asks whether labour can become a source of national capability.

VII. Geopolitics: opportunity is not autonomy

Vietnam’s search for a new development model is taking place inside a changing global order.

This matters because Vietnam’s first model was built during a period when globalisation still appeared expansive. Trade liberalisation, global value chains, foreign investment, regional production networks and export-led manufacturing offered a relatively open path for late industrialisers. Vietnam entered that world with unusual effectiveness. It used openness, labour mobilisation, political stability and strategic positioning to become a major manufacturing platform.

But the world into which Vietnam is now trying to upgrade is different.

The global economy is no longer organised only around efficiency, cost reduction and trade expansion. It is increasingly shaped by security, technology control, industrial policy, sanctions, export restrictions, supply-chain resilience, critical minerals, data, energy transition and geopolitical alignment. The United States and China are not simply large markets or sources of capital. They are rival centres of technological, financial and strategic power. Their competition is reorganising the conditions under which countries such as Vietnam develop.

This creates opportunity.

Vietnam has become one of the most important beneficiaries of supply-chain diversification. Firms seeking to reduce excessive dependence on China look to Vietnam. Governments interested in resilient production networks see Vietnam as a strategic partner. Investors in electronics, semiconductors, renewable energy, logistics and digital services increasingly view Vietnam not only as a low-cost production site, but as a politically important location in the new Asian industrial geography.

The semiconductor strategy is the clearest example. Semiconductors are not just another industry. They sit at the intersection of technology, geopolitics, industrial policy, skills, finance, security and global value chains. For Vietnam, participation in semiconductor supply chains can create new opportunities for training, engineering, supplier development and higher-value production.

But the fact that geopolitics creates room for Vietnam does not mean that it automatically creates autonomy.

A country can become strategically important to others without gaining strategic command for itself. It can receive investment because firms and governments want alternatives to China, while remaining dependent on technologies, standards, platforms, intellectual property, finance and markets controlled elsewhere. It can be included in resilient supply chains without controlling the terms of resilience. It can become a trusted production site without becoming a technological power. It can benefit from rivalry among great powers while still operating inside rules written by others.

The new geopolitical economy creates room for Vietnam, but it does not automatically give Vietnam command over that room.

This is where the earlier distinction between integration and capability becomes crucial. Geopolitical diversification can deepen integration. It can bring investors, factories, training programmes, diplomatic attention, infrastructure financing and strategic partnerships. But capability requires more. It requires that Vietnam use this geopolitical moment to strengthen domestic firms, develop technological learning, upgrade workers, deepen supplier networks, improve institutions and increase its ability to shape rather than merely host production.

Otherwise, Vietnam may become an indispensable location in other countries’ strategies without becoming more autonomous in its own development strategy.

This risk is not abstract. Semiconductor supply chains are highly hierarchical. The most valuable segments are controlled by firms, states and technological ecosystems with deep accumulated capabilities. Design, advanced equipment, materials, intellectual property, standards and specialised knowledge are concentrated. Assembly, testing and packaging can create jobs and learning opportunities, but they do not automatically produce full technological autonomy. Moving deeper into the semiconductor ecosystem requires decades of investment, skilled engineers, specialised suppliers, research institutions, patient finance and international partnerships that Vietnam can use strategically.

Vietnam’s relationship with China illustrates this complexity. China is not only a geopolitical challenge. It is also Vietnam’s neighbour, a major trade partner, an essential source of inputs, machinery and intermediate goods, and a central actor in regional production. Vietnam’s integration into global manufacturing often depends on supply chains that remain deeply connected to China. At the same time, Vietnam must manage maritime disputes, trade dependence and strategic asymmetry.

This is why Vietnam’s strategy cannot be reduced to “choosing sides.”

Vietnam benefits from ties with the United States, China, Japan, South Korea, the European Union, ASEAN and others. Its diplomacy has long sought flexibility, diversification and strategic balance. But development requires more than diplomatic balance. It requires the ability to convert external relationships into domestic capacity.

Vietnam’s task is to avoid becoming only a node in other people’s maps.

That requires developmental selectivity. Not all external partnerships create the same capabilities. Some bring factories but few linkages. Some bring infrastructure but increase dependency. Some bring technology but keep control abroad. Some bring finance but create vulnerability. Some bring training but not institutional depth. A capability-oriented state must therefore ask a simple but demanding question: what does this partnership help Vietnam learn, build, control or accumulate?

Geopolitics creates the possibility of a new development model. It does not build the model. Opportunity is external. Capability must be built.

Conclusion: from integration to capability

Vietnam’s new era is not a settled destination. It is a political-economic question.

The first Vietnamese development model asked how a poor, postwar country could enter the world economy. That question has largely been answered. Vietnam entered. It reformed agriculture, attracted foreign investment, built industrial parks, expanded exports, mobilised labour, signed trade agreements and became one of the most important manufacturing platforms in contemporary Asia.

This was a major historical achievement. But the success of the first model created the question of the next one.

Vietnam is now asking how a globally integrated country can increase its command over production, technology, institutions and social development. This is a different kind of development question. It is not only about growth rates, export turnover or investment commitments. It is about what the country learns, controls and accumulates through growth. It is about whether global integration can be converted into national productive capability.

The current Vietnamese debate matters because it recognises this transition. Resolution 19 names the development model itself as the object of reform. Resolution 57 identifies science, technology, innovation and digital transformation as central to the next stage. Resolution 68 elevates the private economy as a developmental actor. Resolution 66 links the new era to institutional reform. Together, they show an effort to redesign the architecture of development.

But architecture is not construction.

A new model cannot be created by resolutions alone. It must be built through firms that learn, workers who acquire skills, universities that connect to production, provinces that develop ecosystems, public agencies that coordinate, banks that finance productive investment, laws that enable initiative, and institutions that distinguish honest experimentation from corruption.

Capability is not proclaimed. It is accumulated.

Vietnam does not need to abandon the first model. It needs to transform the achievements of that model into something deeper. FDI, exports, industrial parks and global value chains remain important. But they must become instruments of learning, not only sources of growth. Foreign capital must be connected to domestic suppliers. Technology must be embedded in institutions. Private enterprise must become productive. Labour must be socially upgraded. Law must enable initiative and discipline rent-seeking. The state must learn.

The outcome is open.

That openness is precisely what makes Vietnam so important to watch. The country is not simply repeating the old export-led path. Nor is it copying South Korea, Taiwan, China or any other earlier developmental state. It is searching for its own architecture under twenty-first-century conditions: deep FDI integration, geopolitical competition, digital transformation, climate transition, private-sector expansion, socialist-oriented political authority and rising social expectations.

Vietnam’s first model was about entering the world economy.

The next model is about gaining greater command within it.

That is the question at the heart of Vietnam’s new era.

Sources cited

Resolution 19-NQ/TW on renewing Vietnam’s development model: https://caa.gov.vn/van-ban/19-nq-tw-32951.htm

Full text of Resolution 19-NQ/TW: https://xaydungchinhsach.chinhphu.vn/toan-van-nghi-quyet-so-19-nq-tw-ve-doi-moi-mo-hinh-phat-trien-viet-nam-119260729153206017.htm

Resolution 57-NQ/TW on science, technology, innovation and digital transformation: https://baochinhphu.vn/nghi-quyet-cua-bo-chinh-tri-ve-dot-pha-phat-trien-khoa-hoc-cong-nghe-doi-moi-sang-tao-va-chuyen-doi-so-quoc-gia-102241224175800712.htm

Resolution 68-NQ/TW on private-sector development: https://xaydungchinhsach.chinhphu.vn/toan-van-nghi-quyet-so-68-nq-tw-ve-phat-trien-kinh-te-tu-nhan-119250505101309949.htm

Resolution 66-NQ/TW on law-making and law enforcement: https://xaydungchinhsach.chinhphu.vn/nghi-quyet-so-66-nq-tw-ve-doi-moi-cong-tac-xay-dung-va-thi-hanh-phap-luat-dap-ung-yeu-cau-phat-trien-dat-nuoc-trong-ky-nguyen-moi-119250502073027466.htm

World Bank country overview: Viet Nam: https://www.worldbank.org/ext/en/country/vietnam

OECD Economic Surveys: Viet Nam 2025: https://www.oecd.org/en/publications/oecd-economic-surveys-viet-nam-2025_fb37254b-en.html

OECD chapter: Harnessing trade and investment flows to boost productivity: https://www.oecd.org/en/publications/oecd-economic-surveys-viet-nam-2025_fb37254b-en/full-report/harnessing-trade-and-investment-flows-to-boost-productivity_98d56c90.html

I. The corporation older than the Republic

In the heart of Makati, it is difficult to tell where the city ends and Ayala begins. Ayala Avenue cuts through the country’s premier business district. Bank of the Philippine Islands serves companies and households across the metropolis. Globe connects tens of millions of Filipinos. Ayala Land has shaped some of the country’s most valuable commercial and residential spaces, while other companies associated with the group have moved into energy, healthcare, infrastructure and industrial technologies.

Ayala is not simply a large corporation located within the Philippine economy. Over almost two centuries, it has helped construct some of the institutions and infrastructures through which that economy operates. Its origins precede the Philippine nation-state. Ayala traces its history to Casa Roxas, established in Manila in 1834 by Domingo Roxas and Antonio de Ayala. The enterprise initially operated within the commercial and agricultural economy of the Spanish colony, but over successive generations the businesses associated with the family expanded into distilling, banking, insurance, transportation, property and other activities.

The organization that eventually became Ayala Corporation survived the Philippine Revolution, the transition from Spanish to American colonial rule, independence, the Marcos dictatorship, the democratic restoration of 1986, the Asian financial crisis and successive waves of liberalization and globalization. Few corporations anywhere in Asia provide such an extraordinary vantage point from which to examine the making of a national capitalism.

The conventional corporate history would understandably interpret this longevity as evidence of entrepreneurial vision, and there is considerable evidence for that interpretation. Ayala repeatedly recognized new fields of accumulation, developed sophisticated organizations and adapted to technological and institutional change. The transformation of the old Hacienda de San Pedro de Macati into the country’s premier business district alone demonstrates a remarkable capacity to think across decades rather than quarterly balance sheets. Yet viewed from the perspective of political economy, this corporate success raises a more difficult question.

The Philippines also entered the postwar period with many attributes that appeared favourable to rapid development: relatively high educational attainment by Asian standards, established financial institutions, access to American markets and technology, an entrepreneurial domestic business class and a manufacturing sector that initially compared favourably with much of Southeast Asia. Nevertheless, it did not follow South Korea or Taiwan into sustained industrial deepening. Manufacturing remained comparatively shallow, productivity growth disappointed for long periods, and structural transformation proceeded much more slowly than in the most successful East Asian economies.

This creates the puzzle at the centre of this essay: how could one of Asia’s oldest and most sophisticated business groups transform itself repeatedly for almost two centuries while the productive structure of the economy in which it operated transformed so much less?

Ayala makes this question especially interesting because it is a difficult case for simple theories of Philippine underdevelopment. Weak industrialization can easily be attributed to corrupt cronies, predatory political elites or incompetent entrepreneurs. Ayala fits none of these categories comfortably. It developed sophisticated managerial capabilities, invested over long periods, entered new technologies, cultivated international partnerships and survived precisely because its fortunes were never entirely dependent upon a single political regime. Its activities also contributed substantially to Philippine development.

The distinction between modernization and productive transformation is therefore essential. Ayala helped construct the institutions of a modern economy. It mobilized finance, transformed urban land, created business districts and residential communities, built telecommunications networks, entered electronics manufacturing and invested in utilities, infrastructure and renewable energy. These activities matter enormously for development. The argument of this essay is not that property or services are somehow unproductive, nor that manufacturing alone creates economic value. The question is different: what kinds of capabilities did successive rounds of accumulation create, and how widely did those capabilities diffuse through the Philippine economy?

Ayala became exceptionally capable at transforming assets, coordinating markets and operating infrastructures. What neither the company nor the wider Philippine political economy generated on a comparable scale was the cumulative process through which private corporate expansion became dependent upon increasingly sophisticated domestic production, technological learning and the creation of dense networks of indigenous suppliers and innovators. The deeper problem was therefore not the absence of capable capital. It was the weakness of institutions capable of making the continued accumulation of corporate power conditional upon the deepening of national productive capabilities. Ayala did not fail Philippine development. It succeeded extraordinarily well within the development model the Philippines produced.

II. Capital before the Nation

Ayala’s history begins before there was a Philippine nation-state, and that chronology matters. The company did not emerge from an industrialization strategy, as Samsung later would in South Korea, nor from a postcolonial attempt to establish national control over a strategic natural resource, as Petronas would in Malaysia. Its foundations were laid within the commercial and landed economy of the Spanish colonial Philippines. When Casa Roxas emerged in Manila in 1834, the colonial economy was itself changing.

The gradual dismantling of the restrictions associated with the old galleon-trade system and the opening of Manila to international commerce were drawing the archipelago more deeply into the nineteenth-century world economy. Sugar, abaca, tobacco and other commodities connected Philippine producers to expanding international markets. Foreign merchant houses became important actors in Manila and provincial ports, commercial agriculture expanded, and control over productive land acquired increasing economic significance. This was capitalist development, but it was development of a particular kind.

The Philippines was being incorporated into the international economy principally as a producer of agricultural commodities and a market for imported manufactured goods. Integration created opportunities for merchants, exporters, landowners and financial intermediaries, but much weaker incentives for the development of indigenous industrial capabilities.

Capital could accumulate successfully through trade, agriculture, property and intermediation without acquiring the technologies required to transform what the economy itself could produce. Casa Roxas was well positioned within this emerging order. Its activities included agriculture, distilling and commerce, while the family accumulated substantial landed assets, including the Hacienda de San Pedro de Macati.

Over time, businesses associated with the family expanded into activities that would become increasingly important to the modernization of colonial Manila. From a political-economy perspective, however, something more consequential was taking shape. Substantial private capital was accumulating before the existence of a sovereign developmental state capable of influencing the direction in which that capital would subsequently move.

This historical sequence differed markedly from the trajectory later followed by some of the most successful East Asian late industrializers. In postwar South Korea, large private conglomerates certainly acquired enormous economic and eventually political power, but their decisive expansion occurred within a national industrialization project. The state influenced credit allocation, protected markets, promoted exports and repeatedly pushed firms towards technologically more demanding activities. The relationship was conflictual and often corrupt, but the accumulation of corporate power became deeply entangled with the accumulation of industrial capability.

The Philippine state inherited a very different landscape. Long before independence, powerful interests had become embedded in land, commerce and political institutions. American colonial rule subsequently expanded representative institutions while relying heavily upon provincial and landed elites. By the time an independent state acquired formal responsibility for national economic development, wealth and political influence were already closely intertwined.

This is one reason the concept of oligarchy remains unavoidable in discussions of Philippine development. Yet it becomes analytically weak when used simply to mean that rich families exercised excessive political influence. The more important question is how the economic foundations of elite power were created. Philippine oligarchic capitalism did not emerge simply because wealthy individuals captured a previously autonomous national state. Its roots lay in a colonial economy in which control over land, commercial opportunity and political authority had developed together.

For an emerging capitalist family in nineteenth-century Manila, economic success did not depend primarily upon creating new productive technologies. The most attractive opportunities lay in acquiring and exploiting land, participating in international commerce, processing agricultural commodities and occupying advantageous positions within the expanding colonial economy. This did not mean technological stagnation. One of the striking characteristics of the businesses associated with Ayala was their willingness to adopt new technologies and enter modern activities. Banking, insurance, distilling and urban transportation all required innovation and organizational learning.

The important distinction is between adopting modern technology and acquiring the capabilities to produce it. A modern transport system can transform a city without creating a domestic transport-equipment industry. A bank can mobilize capital without directing that capital towards industrial upgrading. An efficient agricultural-processing operation can increase productivity without generating a domestic machinery industry. Imported technologies can profoundly modernize economic life while the knowledge required to design and manufacture those technologies remains elsewhere.

The colonial Philippines increasingly experienced precisely this form of modernization. Ports expanded, agricultural exports grew, financial institutions developed, Manila acquired new services and transport and communications technologies transformed economic interaction. Yet much of the machinery and technical knowledge underpinning these changes originated outside the archipelago.

Modernization occurred substantially through integration into a technologically more advanced international economy rather than through the systematic construction of indigenous productive autonomy. Ayala prospered because it developed capabilities well suited to this environment. Managing large assets over generations is itself an organizational achievement, as is mobilizing finance, identifying new opportunities, working with foreign partners and surviving political upheaval. What gradually emerged was an exceptional capacity for institutional intermediation: positioning capital between land and urbanization, finance and investment, international technology and domestic demand.

The transition from Spanish to American sovereignty demonstrated the durability of these capabilities. The political order within which Casa Roxas and Ayala had developed disappeared, yet concentrated private capital proved considerably more durable than the regime surrounding it. American rule introduced new institutions and connected the Philippine economy even more closely to the United States. Preferential access to the American market encouraged agricultural exports, while US manufactures entered the Philippine market under favourable conditions.

Modernization accelerated, but the incentives for autonomous industrial deepening remained ambiguous. The changing colonial order continually generated new opportunities for a diversified group able to redeploy capital. Agricultural wealth could be transformed into finance; finance could support commerce; urban expansion could increase the value of land; new infrastructures could create new businesses.

Rather than becoming increasingly specialized around a particular technology, Ayala developed the capacity to move across economic sectors. This adaptive capability would become one of the defining characteristics of the corporation. It was also characteristic of a wider form of Philippine conglomerate capitalism. In an economy marked by institutional weakness, shallow capital markets and political uncertainty, diversification could perform important functions.

Internal capital markets provided finance, established reputations reduced information problems, relationships facilitated partnerships, and investment across several sectors reduced exposure to any single market. Conglomeration was therefore not merely an expression of oligarchic greed. It was also a rational institutional response to the structure of the economy. But organizational forms shape incentives. A specialized industrial company is under constant pressure to deepen the capabilities required to remain competitive within its sector. A diversified conglomerate can instead move resources towards whichever activities offer the most attractive combination of profitability, security and strategic advantage.

This flexibility can produce remarkable corporate resilience without necessarily producing technological specialization. Ayala entered the twentieth century having acquired something immensely valuable: capital that had learned how to survive and adapt. What that capital would become increasingly depended upon finance and, eventually, the extraordinary transformation of its inherited landholdings around Makati. Ayala did not emerge from the nation. It long predated the Philippines as a national economy.

III. From Hacienda to Financial Capital

If land provided one foundation of Ayala’s wealth, finance allowed that wealth to acquire a different form of power. Banking placed the group closer to the process through which savings become investment, businesses obtain credit, households purchase property and economic expansion is financed. The historical relationship between Ayala and the Bank of the Philippine Islands needs to be stated carefully. Banco Español Filipino de Isabel II was established in 1851 and subsequently evolved into BPI; it was not simply founded by Ayala in the modern corporate sense.

The relationship between the group and the bank developed over time, eventually making BPI one of the principal pillars of the contemporary Ayala portfolio. What matters for our argument is the gradual convergence between one of the country’s most durable concentrations of private capital and one of its most important financial institutions. Finance increased the mobility of capital. Land is geographically fixed, while financial resources can be allocated across sectors, used to support new ventures and mobilized in response to changing opportunities. Yet financial deepening and productive transformation are not synonymous.

Banks can finance machinery, factories, technological experimentation and exports, but they can also finance construction, consumption, property acquisition and the purchase of existing assets. All of these activities can contribute to growth; their consequences for productive capability differ substantially. This distinction became especially important after independence.

The Philippines did pursue industrialization. Import-substitution policies stimulated domestic manufacturing, and during the 1950s the country possessed one of Southeast Asia’s more developed industrial sectors. Domestic and foreign firms expanded production in food processing, textiles, consumer goods, chemicals and other activities behind tariff protection.

The subsequent weakness of Philippine industrialization should therefore not be interpreted as evidence that industrial capability never existed. The difficulty was making capability accumulation cumulative. Protection created profitable domestic markets but was not consistently transformed into a mechanism for compelling firms to acquire the technologies and productivity required for international competition. Licences, access to foreign exchange, credit and protection could become politically allocated rents without sufficiently demanding reciprocal performance.

This is an important distinction because rents themselves are not necessarily hostile to development. Every successful late industrializer has created advantages for selected activities through protection, subsidized finance, procurement, technology policy or other forms of intervention. The question is whether recipients must do something developmentally useful to continue receiving them. South Korea’s system was hardly free from corruption or favouritism, but access to resources became increasingly connected to exports, investment and technological upgrading.

The Philippines created rents but proved considerably less successful at disciplining their recipients. For diversified capital, this environment reinforced the attraction of portfolio logic. A conglomerate possessing land, financial resources, political knowledge and access to international partners could compare opportunities across sectors rather than commit its future to the uncertain process of mastering one technologically demanding industry. Corporate capability could consequently deepen at the level of capital allocation and organizational coordination without producing a corresponding deepening of sector-specific technological capability.

This distinction helps clarify Ayala’s historical evolution. The group became exceptionally competent at managing complexity and redeploying capital. Its most important capabilities increasingly resided in the organization of the conglomerate itself: evaluating investments, forming partnerships, professionalizing management and moving between activities as the structure of the economy changed. The corporation was learning how to allocate capital effectively. That is not the same thing as the economy learning how to produce increasingly complex goods.

The mutually reinforcing relationship between finance and land would prove especially powerful. Rapid urbanization increases the value of strategically located property. Infrastructure raises accessibility and therefore land prices. Commercial development creates demand for finance, while rising property values provide collateral for additional borrowing and investment. Banking and urban property can therefore constitute an accumulation nexus in which each strengthens the other.

Ayala possessed both sides of that relationship. The decisive asset was the old Hacienda de San Pedro de Macati. What had once been agricultural land on the outskirts of Manila was about to become something entirely different. In the decades after the Second World War, Ayala would convert agrarian property into urban capital and, in the process, demonstrate perhaps its most important organizational capability. It would learn how to produce the city itself. Ayala’s strength came from institutions that produced stability rather than institutions that produced innovation.

The rest of this essay, together with the full Publisher’s Edition, is available to paid subscribers.

Read more

Scam Compounds, Forced Criminality, and the Political Economy of Ungoverned Connectivity

Southeast Asia’s grey-zone economies are not marginal exceptions to regional development. They are produced where connectivity expands faster than rights, regulation, and enforcement.

This issue examines one of the darkest expressions of contemporary Southeast Asian political economy: the rise of cyber-scam compounds, forced criminality, borderland enclaves, digital fraud networks, and laundering infrastructures.

The argument is simple: scam compounds are not only a criminal problem. They reveal what happens when digital capitalism, labour migration, weak enforcement, fragmented sovereignty, platform infrastructures, and illicit finance converge.

For decades, Southeast Asia’s development has been associated with connection: export corridors, industrial zones, cross-border labour mobility, digital platforms, tourism, logistics, financial flows, special economic zones, and regional integration. Much of this connectivity has supported growth. But connectivity without governance also creates grey zones.

These grey zones are not empty spaces. They are actively produced. They depend on brokers, recruiters, corrupt officials, armed groups, casino operators, platform infrastructures, payment systems, telecom networks, logistics channels, and financial intermediaries.

The scam compound is therefore more than a physical site. It is a political-economic formation. It connects border capitalism to digital fraud, trafficking to platform work, coercive labour to global financial flows, local impunity to transnational victims, and weak regional enforcement to globalized criminal enterprise.

This issue asks how this system became possible, why it has proven so difficult to dismantle, and what it reveals about the limits of Southeast Asian regional governance.

In this issue

· Scam compounds and the borderland economy

· Forced criminality as a labour regime

· Money, platforms, and the infrastructure of fraud

· ASEAN’s enforcement gap

The central claim: Ungoverned connectivity does not simply produce opportunity. It can also produce predation.

Continue Reading

The full briefing examines how scam compounds became part of Southeast Asia’s grey-zone capitalism — and why the problem cannot be solved by raids alone.

It argues that cyber-scam compounds reveal a wider regional governance crisis: labour mobility without protection, digital expansion without accountability, financial innovation without transparency, border development without effective sovereignty, and regional cooperation without operational machinery.

For paid subscribers the Briefing is available also in the full Publisher’s Edition.

Read more

One survivor interviewed by Amnesty International spent eleven months in Cambodia and was transferred, against her will, through seven different scamming compounds. In these compounds, workers were forced to conduct online scams. Amnesty’s 2025 investigation identified at least fifty-three such compounds in Cambodia where abuses had taken place or continued to occur, including human trafficking, forced labour, torture, child labour, deprivation of liberty and slavery. (Amnesty International USA)

This story is horrifying. But it is not marginal.

It is not simply a story about crime, Cambodia, Chinese gangs, corrupt officials or unlucky victims. It is a window into something larger: the political economy of labour mobility in contemporary Southeast Asia.

There is a paradox at the heart of the region. Almost every Southeast Asian country both exports and imports labour.

Thailand depends on workers from Myanmar, Cambodia and Laos, while Thai workers continue to seek jobs abroad. Malaysia relies on foreign workers in plantations, construction, manufacturing and domestic service, while Malaysians move to Singapore, Australia and the Gulf for higher wages. Vietnam sends workers to Japan, South Korea and Taiwan, while also trying to attract foreign managers, technicians and experts. Cambodia, Laos and Myanmar are usually described as labour-sending countries, yet border zones, casino towns and scam compounds in these same countries have also become destinations for trafficked workers.

The old distinction between “labour-sending” and “labour-receiving” countries no longer works. Southeast Asia is not a collection of separate national labour markets. It is a regional labour regime: mobile, unequal, segmented, and often brutally hierarchical.

Workers move because development is uneven. But rights do not move with them. Capital, goods, tourists, data and criminal networks often cross borders more easily than protected workers. Labour mobility is regional. Labour protection remains national, fragmented and weak.

This is where trafficking belongs. Not outside the economy. Not simply in the world of crime. Not as an archaic leftover from a pre-modern past. Trafficking is the most violent and visible edge of a broader system of regional labour vulnerability.

The central question, then, is not whether trafficking is old or new. It is both.

What is old is the unfreedom: debt, patriarchy, bonded labour, borderland coercion, ethnic hierarchy, sexual exploitation, servitude and the buying and selling of human beings.

What is new is the infrastructure through which this unfreedom is now organised and monetised: recruitment agencies, digital platforms, transnational brokers, casino zones, special economic corridors, subcontracting chains, online scams, cryptocurrency, artificial intelligence and forced cyber-labour.

Trafficking in Southeast Asia is not a feudal residue inside a modern capitalist region. It is one of the ways in which modern capitalism produces, moves and disciplines disposable labour.

I. Capitalism has never been built only on free labour

Capitalism likes to describe itself as a system of free labour. Workers are supposed to sell their labour voluntarily. Employers buy it. The market sets the wage. The state protects the contract. This is the liberal story.

But capitalism has never been built only on free labour. Its history is inseparable from slavery, indenture, colonial labour recruitment, debt bondage, penal labour, domestic servitude, migrant labour regimes and racialised labour control. “Free labour” has often been capitalism’s ideological centre, but unfree labour has remained one of its practical foundations.

Southeast Asia makes this visible with particular clarity. Colonial capitalism was built on plantations, mines, ports, forced cultivation, corvée systems, coolie recruitment, ethnic segmentation and coercive taxation. Labour moved across the region, but rarely as fully free labour. Workers were recruited, transported, indebted, racialised, disciplined and often abandoned.

Postcolonial development did not simply abolish this history. It transformed it.

Today the coercion is less often called indenture or slavery. It appears instead as recruitment debt, employer dependency, undocumented status, confiscated passports, wage theft, threat of deportation, family pressure, police extortion, sexual violence, forced marriage or digital confinement. The language has changed. The mechanisms have been modernised. But the political economy of labour control remains recognisable.

This is why trafficking should not be treated as a marginal problem of criminality. The International Labour Organization estimates that forced labour in the private economy generates around US$236 billion in illegal profits each year, with Asia and the Pacific accounting for around US$62 billion. These profits have risen sharply since 2014, which is difficult to reconcile with the idea that forced labour is simply a declining survival from the past. It looks much more like a growing business model within contemporary capitalism. (International Labour Organization)

The scandal is not that trafficking exists outside the normal economy. The deeper scandal is that it grows from vulnerabilities that the normal economy already produces.

II. Southeast Asia’s labour paradox

The paradox of Southeast Asia is that states need migrant labour and fear migrant labour at the same time.

Thailand is one of the clearest examples. The 2024 Thailand Migration Report describes the country as a major hub for intra-regional migration and a main destination country in Southeast Asia, hosting at least 5.3 million non-Thai nationals. The same report also presents Thailand not only as a destination, but also as a transit country and an origin country for Thai workers abroad. (World Health Organization)

Malaysia imports workers for plantations, factories, construction sites, households, restaurants and services. Singapore depends structurally on migrant labour while maintaining sharp citizenship hierarchies. The Philippines exports nurses, seafarers, domestic workers and care workers across the world. Vietnam sends contract labour to richer Asian economies while trying to move up the technological ladder at home. Cambodia, Laos and Myanmar send workers into Thailand and Malaysia, but parts of their own borderlands are now sites of casinos, scam compounds and forced labour.

This means that a country can be a sender, receiver, transit zone and trafficking site at the same time.

The same country may export skilled workers, import low-wage workers, send women into care work, receive construction workers, produce trafficked persons and host criminal labour regimes. Migration is not a simple flow from poor countries to rich countries. It is a layered system of labour allocation.

This is the first major political economy point: Southeast Asian labour mobility is not an accidental response to poverty. It is part of the region’s development model.

Export manufacturing needs cheap labour. Tourism needs service labour. Urbanisation needs construction labour. Middle-class households need domestic and care labour. Ageing societies need nurses and caregivers. Fishing fleets need crews. Plantations need seasonal workers. Scam compounds need digitally literate workers who can be coerced into online fraud.

The worker moves because wages are unequal, opportunities are uneven and families need income. But the worker often moves through institutions that are costly, opaque and unequal. The ILO’s TRIANGLE programme notes that high recruitment costs, complex recruitment procedures and decent-work deficits expose many ASEAN migrant workers to human and labour rights challenges. (webapps.ilo.org)

This is the space in which trafficking grows: not outside migration, but inside its contradictions.

III. From migration to coercion

Most migration is not trafficking. Most migrants are not trafficked. This matters. Millions of Southeast Asians migrate with agency, intelligence and courage. They support families, educate children, build houses, acquire skills, escape violence and make new lives.

But critical political economy asks a different question: under what conditions does mobility become dependency?

The answer lies in the migration chain.

A worker may begin with a voluntary decision to migrate. Then come recruitment fees, transport costs, informal payments, document charges, loans, family debt, uncertain contracts, language barriers, employer control, police vulnerability and fear of deportation. At each stage, someone else may extract value from the worker’s desire to move. At each stage, the worker’s bargaining power may decline.

This is why trafficking should not be imagined only as kidnapping. Kidnapping exists, but it is not the main analytical key. In many cases, trafficking begins as a job offer, a marriage proposal, a recruitment promise, a casino job, a domestic work contract, a fishing contract, a factory placement, an online advertisement, or an invitation from an acquaintance. The coercion appears later.

The line from migration to trafficking is therefore not a wall. It is a continuum:

migration → recruitment debt → employer dependency → irregular status → isolation → coercion → forced labour.

This continuum is especially visible in sectors where workers are hidden from public view: fishing vessels, domestic work, plantations, construction sites, brothels, informal workshops, border casinos and online scam compounds.

The analytical point is crucial. Trafficking is not the opposite of labour migration. It is the violent end of a migration regime organised around cheapness, disposability and weak rights.

The same structures that make migrant labour attractive to employers also make migrant workers vulnerable to traffickers: debt, illegality, isolation, deportability, linguistic marginality, gendered dependence, absence of unions and weak access to justice.

This is particularly clear in fishing and seafood processing. A recent ILO regional survey of migrant workers in Asia’s fishing and seafood processing sectors identified high recruitment costs, inadequate wage protection, long working hours, occupational injuries, barriers to freedom of association, gaps in social protection and concerns with forced labour. (International Labour Organization)

The sector is modern, export-oriented and connected to global seafood markets. Yet the labour relations at its bottom can resemble bondage.

This is not a contradiction. It is the system.

IV. What is old: debt, patriarchy and borderland power

There are old elements in Southeast Asian trafficking, and they should not be ignored.

The first is debt bondage. Debt is one of the oldest technologies of labour control. It does not require chains if a worker’s future income, family security or personal safety has already been pledged to a broker. Debt transforms migration from a project of hope into a mechanism of discipline.

A worker borrows money to migrate. The recruitment fee is inflated. The job is not what was promised. The passport is taken. The wage is withheld. The debt grows. The worker cannot leave because leaving would mean not only losing the job, but returning home with shame, unpaid debt and perhaps threats against the family.

This is old. But it is not archaic. Debt bondage survives because modern migration systems often make workers pay for the right to be exploited.

The second old element is patriarchy. Trafficking into prostitution, forced marriage, domestic servitude and sexual exploitation depends on the gendered devaluation of women’s bodies and women’s labour. The buying and selling of brides, the recruitment of women into entertainment work, the abuse of domestic workers and the commodification of sexual access are not inventions of the digital age.

But they have been modernised. Forced marriage from Cambodia, Myanmar or Vietnam into China, for instance, is connected not only to patriarchal traditions but also to demographic imbalance, rural transformation, cross-border brokerage and transnational migration. A UNDP study on forced marriage between Cambodia and China describes forced marriage as a form of human trafficking that has received increasing attention in the Greater Mekong Sub-region. (UNDP)

The third old element is borderland coercion. Many trafficking routes pass through zones where the state is not absent, but selective. Border crossings, casino towns, militia-controlled territories, special economic zones, fishing harbours and frontier construction sites are not spaces without power. They are spaces with multiple powers: police, soldiers, brokers, local officials, business owners, landlords, gang networks and private security forces.

The fourth old element is ethnic and citizenship hierarchy. Burmese workers in Thailand, Indonesians in Malaysia, Filipina domestic workers in Singapore, Cambodian construction workers, Lao agricultural workers, Rohingya in Malaysia and ethnic minorities across upland borderlands all encounter labour markets through unequal citizenship. Their vulnerability is not only economic. It is legal and political.

These old structures matter. Without patriarchy, debt, borderland violence and citizenship hierarchy, trafficking would not operate so effectively.

But if we stop here, we misunderstand the present.

V. What is new: platforms, scams and forced cyber-labour

The new element is not coercion itself. The new element is the way coercion has been reorganised through contemporary capitalism.

The old broker has not disappeared. He has acquired a smartphone.

Recruitment now takes place through Facebook posts, Telegram groups, WhatsApp messages, TikTok videos, online job advertisements, dating apps, fake company websites and encrypted chats. The same digital tools that allow workers to search for opportunities also allow traffickers to identify, deceive, move and monitor them.

This is one of the most important changes. Trafficking has become platformised. Recruitment is faster, cheaper, more anonymous and more transnational. Deception can be scaled. A fake job offer can travel across borders instantly. A victim can be contacted in Vietnam, interviewed online by someone claiming to be in Thailand, transported through Laos, confined in Cambodia and forced to scam victims in Europe or North America.

The most modern expression of this system is the scam compound.

The scam compound is not a brothel, plantation or fishing vessel. It is a digital factory of forced criminality. Workers are lured through fake job offers, transported across borders, locked inside compounds, beaten or threatened, and forced to conduct online fraud. They may be instructed to run romance scams, cryptocurrency scams, fake investment schemes, phishing operations or gambling schemes.

The trafficked worker is forced to produce other victims.

This is a new form of unfree labour because the labour process itself is digital. The worker is not producing garments, seafood or palm oil. The worker is producing deception. The commodity is trust. The workplace is a guarded compound. The market is global. The discipline is violence.

Recent UNODC findings reported by Reuters estimated scam losses across East Asia, Southeast Asia, Australia and New Zealand at between US$88.3 billion and US$114.1 billion in 2025. UNODC described Southeast Asia-based networks as increasingly sophisticated, using shared services across multiple illegal markets. (Reuters)

AP’s reporting on the same UNODC findings notes that Southeast Asia-based criminal groups are using increasingly integrated networks and technology, and that scam compounds in the region can also become venues for sex trafficking and child sexual abuse content. (AP News)

This is not a relic of the past. This is twenty-first-century exploitation.

The scam compound combines the old and the new in one brutal institution: debt, violence, confinement and slavery on one side; platforms, crypto, AI, data, emotional manipulation and global financial fraud on the other.

It is the sweatshop of digital criminal capitalism.

VI. The grey zone between legal and criminal capitalism

To understand trafficking in Southeast Asia, we need to avoid a simple opposition between legal capitalism and criminal trafficking. The two are not identical, but neither are they fully separate.

It is more useful to think of four overlapping layers.

The first layer is directly criminal trafficking: kidnapping, confinement, sale of workers, forced prostitution, forced labour, forced criminality, torture, child exploitation and slavery.

The second layer is shadow business: prostitution markets, bride brokerage, illegal recruitment, casino economies, informal border transport, document brokers, unlicensed employment agencies and fake job placement firms. These may not always begin as trafficking. They operate in grey zones where legality is negotiable and coercion can be introduced gradually.

The third layer is legal but exploitative capitalism: recruitment agencies charging excessive fees, subcontracting, employer-tied visas, domestic work isolation, wage theft, denial of union rights, plantation labour, construction labour, seafood processing and factory work. Not all of this is trafficking. It is important not to collapse all exploitation into trafficking. But these legal forms often create the vulnerability on which trafficking feeds.

The fourth layer is modern criminal capitalism: scam compounds, AI-assisted fraud, deepfakes, encrypted recruitment, cryptocurrency laundering, online sexual extortion, data harvesting and forced cyber-labour.

These layers overlap. A casino may be licensed but host illegal operations. A construction company may be formal but depend on illegal brokers. A recruitment agency may be registered but charge illegal fees. A fishing vessel may supply global markets while using forced labour indicators. A scam compound may depend on legal real estate, electricity, telecommunications, transport, banking, border control and local protection.

The boundary between legality and criminality is therefore not a clean line. It is a zone of profit.

This is where critical political economy is more useful than a purely criminal justice approach. Trafficking is not only a matter of bad people breaking good laws. It is also a matter of accumulation in grey zones: where states tolerate informality, where employers demand cheap labour, where brokers control mobility, where corruption protects violence, and where workers have few enforceable rights.

The question is not only: why do criminals traffic people?

The deeper question is: what kind of economy makes trafficked labour profitable, tolerated and repeatedly reproducible?

VII. ASEAN’s contradiction

ASEAN has long promoted connectivity, integration, competitiveness and mobility. Its language is modern and optimistic: skills mobility, recognition of qualifications, human resource development, fair recruitment, inclusive growth.

There has been some progress. The Vientiane Declaration on Skills Mobility, Recognition and Development for Migrant Workers was scheduled for adoption at the ASEAN Summits in Vientiane in October 2024. The ILO describes the declaration as part of a broader effort to support skills mobility, recognition and development for migrant workers in the region. (International Labour Organization)

But ASEAN’s contradiction remains profound.

Markets are regionalising, but rights remain national. Supply chains are regional, but social protection is not. Criminal networks are transnational, but enforcement remains fragmented. Employers can move capital, goods and data across borders. Workers can move too, but often without stable rights, legal security or collective power.

This is not simply a policy gap. It reflects the class structure of regional integration.

Southeast Asia’s growth model depends on mobility without full social membership. Migrant workers must be movable, but not too protected; necessary, but not too visible; disciplined, but not too empowered.

This is why the region is integrated not only through trade, investment, tourism and infrastructure. It is also integrated through vulnerability.

VIII. The politics of rescue

There is another problem: the politics of rescue.

The rescue narrative imagines trafficking as an interruption of normal life. Victims are trapped. Police intervene. Victims are freed. Criminals are arrested. Order is restored.

Sometimes this is necessary. Sometimes it saves lives. But it is not enough.

If a rescued worker is then detained as an irregular migrant, charged overstay fees, denied wages, deported without compensation, or returned to the same debt and poverty that produced vulnerability in the first place, rescue becomes incomplete. It removes the worker from one site of exploitation while leaving intact the wider system that produced the exploitation.

This is particularly visible in forced cyber-labour. Workers trapped in scam compounds may be treated as criminals because their phones, bank accounts, scripts or online identities were used in fraud. But forced criminality is precisely one of the new forms of trafficking. The victim may appear as perpetrator because the labour process itself requires the victim to commit crimes under coercion.

The same ambiguity appears in prostitution and forced marriage. A woman may be treated as an illegal migrant, a sex worker, a wife, a runaway, a criminal or a victim depending on which institution encounters her first: police, immigration, social services, family, embassy, employer or broker.

Her status is not simply discovered. It is produced by power.

This is why trafficking cannot be understood only through law enforcement. It must be understood through labour, migration, gender, citizenship and class.

IX. What is old, what is new

What, then, is old and what is new?

Old are the forms of domination: debt, patriarchy, violence, bonded labour, sexual exploitation, servitude, borderland impunity, ethnic hierarchy and state complicity.

New are the forms of organisation: platform recruitment, casino zones, cyber-fraud, cryptocurrency laundering, AI-assisted deception, fragmented supply chains, employer-tied migration systems and the global monetisation of forced digital labour.

Old is the idea that some human beings can be bought, sold, disciplined and discarded. New is the speed, scale and technological sophistication with which this can now be done.

Old is the broker. New is the broker with a smartphone, a Telegram channel, a fake corporate website, a crypto wallet and links to a guarded compound.

Old is forced labour. New is forced cyber-labour.

Old is the commodification of women. New is its reorganisation through demographic imbalance, online recruitment, cross-border marriage markets, sex tourism, care chains and digital sexual exploitation.

Old is the vulnerable migrant. New is a regional economy that produces vulnerability as a condition of competitiveness.

This old/new distinction matters because it prevents two opposite mistakes.

The first mistake is to treat trafficking as archaic: a residue of backwardness, poverty, patriarchy or weak law enforcement that will disappear with more development.

The second mistake is to treat trafficking as entirely new: a product only of cybercrime, platforms, crypto and digital fraud.

Both views are wrong.

Trafficking persists because old forms of domination have been absorbed into new circuits of accumulation. It is old unfreedom inside new capitalism.

Conclusion: Southeast Asia’s new unfree labour

Trafficking in Southeast Asia should not be understood as the opposite of modern development. It is one of its shadows.

The same forces that produce modern Southeast Asia — urbanisation, export manufacturing, tourism, logistics, platform capitalism, financial integration, demographic transition, care deficits and regional inequality — also produce the conditions for new forms of unfree labour.

This does not mean that all migration is trafficking. It does not mean that all informal work is slavery. It does not mean that workers have no agency. Millions of Southeast Asians migrate with courage, intelligence and determination. They build families, communities and economies across borders.

But their agency operates inside structures they did not choose.

A critical political economy of trafficking must therefore refuse two comforting myths.

The first is the conservative myth that trafficking is only a matter of evil criminals operating outside society.

The second is the liberal myth that better regulation alone can solve the problem while leaving the labour regime intact.

Criminal networks matter. Corruption matters. Law enforcement matters. But the deeper issue is the political economy of mobility: who has the right to move, under what conditions, through whose intermediaries, with what protections, and for whose profit.

Southeast Asia’s new unfree labour is not a relic from a pre-capitalist past. It is a mirror held up to the present.

It shows a region where labour is mobile but rights are not; where workers cross borders but citizenship does not follow; where legal and illegal economies overlap; where care, sex, construction, fishing, domestic work, factories and cyber-fraud are connected by the same logic of disposable labour.

The scandal is not only that trafficking exists. The deeper scandal is that it grows from vulnerabilities that the normal economy already produces.

That is why trafficking is not outside Southeast Asian capitalism.

It is one of the places where Southeast Asian capitalism tells the truth about itself.

The structure is now much closer to your usual essay style: clear numbered sections, one major argument per section, and a conclusion that returns to the core thesis.

Asian Political Economy Korean Model Publishers Edition

7.49MB ∙ PDF file

Download

Download

South Korea is no longer simply a country. It has become a development argument.

Its transformation is invoked whenever poorer countries ask how they might escape dependence on agriculture, commodities or low-cost manufacturing. In the early 1960s, South Korea was emerging from colonial occupation, national division and a devastating war. Within little more than a generation, it had become a major producer of steel, ships, automobiles, electronics and semiconductors. Companies that began by borrowing foreign technologies eventually became global corporations.

The lesson appears straightforward: invest in education, promote manufacturing, export to world markets and move progressively into more sophisticated industries. South Korea seems to prove that latecomers can overcome an unfavourable starting point through capable government, entrepreneurial determination and national discipline.

For Southeast Asia, the comparison has been particularly persistent. Malaysia, Thailand, Indonesia and the Philippines began their postcolonial development at roughly the same historical moment. They also built industrial estates, expanded education, attracted manufacturers and became important exporters. Vietnam subsequently emerged as one of the world’s most dynamic manufacturing locations.

Yet they did not arrive at the Korean destination.

Malaysia created a major electronics industry but relatively few domestic firms controlling the most profitable technologies and final markets. Thailand became an important automobile-production centre without producing a Thai equivalent of Hyundai. Indonesia developed considerable industrial capacity but struggled to turn its large domestic market and resource wealth into internationally competitive manufacturing corporations. The Philippines entered electronics production and later business-process services without achieving a comparable structural transformation.

Vietnam now exports smartphones, computers and other technologically advanced products on an extraordinary scale. But the sophistication of what leaves Vietnamese ports remains greater than the technological and corporate power controlled by Vietnamese firms.

This is the central puzzle. Southeast Asia followed the export path. It joined global value chains, educated millions of workers, built infrastructure and welcomed enormous volumes of foreign investment. ASEAN attracted $226 billion in foreign direct investment in 2024, including a sharp increase in manufacturing investment, reinforcing its position as a major global supply-chain hub. (UN Trade and Development (UNCTAD))

Why, then, did export industrialisation create nationally controlled industrial power in South Korea but much less of it across Southeast Asia?

A familiar answer points to state capacity. Korean officials coordinated investment, directed credit and imposed performance targets. Southeast Asian industrial policies were more frequently fragmented by patronage, corruption and shifting political coalitions.

There is considerable truth in this explanation. But it becomes misleading when the Korean experience is reduced to a set of institutions that other countries could have copied had their governments been more competent.

South Korea did not simply implement export-oriented policies better. It industrialised under an exceptional combination of domestic and international conditions: radical land reform, Cold War geopolitical support, state control over finance, restrictions on foreign ownership, protection of the domestic market, the construction of national conglomerates and the systematic repression of labour.

Southeast Asia entered global manufacturing later and through a different institutional architecture. Its governments increasingly attracted segments of production organised by multinational corporations rather than constructing firms capable of controlling entire industrial systems.

Both paths generated factories, exports and economic growth. But they distributed technology, ownership and strategic power very differently.

The Korean experience therefore remains important—but not as a blueprint. Its real value lies in exposing what Southeast Asia’s model has often lacked: institutions capable of converting participation in global production into domestically rooted technological and corporate power.

What the Korean miracle actually required

The South Korean transformation began before the industrial policies normally associated with President Park Chung Hee.

One of its essential foundations was land reform. Under Japanese colonial rule, land ownership had become highly concentrated, leaving much of the rural population dependent on tenancy. Reforms initiated after liberation and completed during the early years of the Republic transferred land to cultivators and sharply limited large holdings.

Land reform did not create a prosperous countryside overnight. It did, however, weaken the old landed elite, distribute assets more broadly and create a more egalitarian social foundation than existed in many other developing countries. It also reduced the capacity of traditional landowners to obstruct a state-led reallocation of resources towards industry. (K-Developedia)

This was not a minor preliminary to the “real” story of industrialisation. It reshaped the political balance on which the developmental state would later be constructed.

In the Philippines, by contrast, concentrated land ownership survived decolonisation and remained closely connected to political power. Elsewhere in Southeast Asia, rural class structures varied greatly, but comprehensive land redistribution was generally absent. Economic modernisation proceeded without a comparable dismantling of pre-existing elite power.

South Korea also occupied an extraordinary geopolitical position.

After the Korean War, the country became a strategic frontier of the Cold War. The United States supplied military protection, financial assistance, food and access to external resources. Development was not simply an economic objective; it was part of the competition between the two Korean states and their respective international allies.

American assistance helped reconstruct infrastructure and stabilise the economy. The Vietnam War subsequently generated contracts, foreign-exchange earnings and additional opportunities for Korean companies. A war that devastated Southeast Asia contributed indirectly to South Korea’s accumulation of capital and industrial experience.

The normalisation of relations with Japan in 1965 provided another channel of grants, loans, machinery and technical knowledge. The agreement was deeply controversial because it appeared to settle the colonial past on terms many Koreans considered unjust. Economically, however, Japanese capital goods and technologies became important to Korean industrialisation.

South Korea’s ascent was therefore never an autonomous national achievement in the narrow sense. It relied extensively on foreign aid, borrowing, imported machinery, technology licences and access to external markets.

What distinguished it was the political organisation of that dependence.

Foreign resources were channelled through a state determined to build nationally controlled firms. South Korea often preferred foreign borrowing and technology licensing to direct foreign ownership because these instruments allowed domestic companies to retain managerial and strategic control. (K-Developedia)

Finance became the central mechanism.

After taking power in 1961, Park’s government brought the banking system under tighter state influence. Credit was allocated not only according to immediate commercial profitability but also according to national industrial priorities. Access to subsidised loans, foreign currency, import licences and public contracts determined which firms could expand and which activities received investment.

Industrial policy was therefore more than a collection of plans or tax incentives. It operated through the distribution of scarce resources.

The state did not wait for South Korea to acquire a spontaneous comparative advantage in steel, shipbuilding, petrochemicals, machinery or automobiles. It attempted to create one. Firms entered industries in which they initially lacked technology, experience and international competitiveness because public institutions absorbed part of the risk.

POSCO, the national steel producer, embodied this ambition. South Korea possessed neither abundant domestic iron ore nor an established steel industry. Conventional advice might have recommended continuing to import steel and specialising in labour-intensive exports. Instead, the state treated steel as infrastructure for future industries.

Similar reasoning shaped the heavy and chemical industry drive of the 1970s. Investments in steel, chemicals, machinery and shipbuilding were intended to reinforce one another and transform the country’s entire productive structure. Recent research continues to find that coordinated support for technology adoption generated both firm-level gains and wider industrial spillovers. (IMF)

The chaebol became the principal private instruments of this strategy.

Samsung, Hyundai, LG, Daewoo and other business groups did not emerge simply because South Korea created a favourable business climate. Their expansion depended on directed credit, protection, foreign-exchange allocation, state contracts and privileged access to investment opportunities.

The state wanted large corporations because industrialisation required organisations capable of mobilising capital, absorbing foreign technology and coordinating complex projects. Concentration was not merely an unintended consequence of development. It was partly a deliberate institutional choice.

But support was not supposed to be unconditional.

Companies were expected to enter targeted industries, invest, expand capacity and meet export goals. Exporting earned foreign currency, but it also provided a measurable test of performance. A protected firm could not indefinitely survive by selling inferior products to captive domestic consumers. It had to confront international competition.

This created a combination of protection and discipline.

Korean firms received opportunities to learn inside a sheltered domestic market while being pushed towards foreign markets. Public policy created rents, but those rents were connected—however imperfectly—to investment, technological accumulation and export performance.

The system was never as coherent as its admirers sometimes suggest. Political favouritism, corruption, excessive borrowing and corporate manipulation were integral to it. Companies cultivated political connections and attempted to shift losses onto the state. Some were rescued despite failure, while others were punished for political reasons.

The state did not always control business. As the conglomerates grew, they acquired increasing power over the institutions that had created them.

Nevertheless, the Korean system contained a crucial developmental principle: companies receiving public support were expected to produce identifiable industrial outcomes.

Many Southeast Asian governments also provided protection, credit, monopolies and contracts to politically connected firms. But benefits were often tied more closely to political loyalty than to technological or export performance. The issue was not whether rents existed. Every major industrial transformation creates them. The issue was what firms were required to do in exchange.

South Korea used rents to accelerate learning and investment. Elsewhere, rents more often became detached from a sustained strategy of capability building.

The Korean developmental state also forcibly reorganised labour.

Independent unions were restricted, strikes repressed and activists imprisoned. Long working hours and wage restraint helped Korean firms compete internationally and retain profits for reinvestment. Young women in textiles, garments and electronics carried a particularly heavy share of the early export drive.

The miracle was therefore built not only through planning and entrepreneurship but through coercion. Workers were expected to postpone demands for higher wages, political rights and improved conditions until national development had been achieved.

The model combined structural transformation with authoritarian discipline. Any attempt to recover its economic achievements must also acknowledge the political system that made them possible.

How the Korean story was rewritten

By the time South Korea’s success became impossible to ignore, the political economy that had produced it was already being reinterpreted.

The country presented an uncomfortable problem for the market-oriented development ideas that became dominant during the 1980s and 1990s. South Korea had certainly exported and participated in international markets. But it had also controlled banks, protected industries, restricted imports and foreign investment, directed credit and encouraged firms to enter sectors in which they possessed no established comparative advantage.

To acknowledge the full model would have required accepting that successful development might depend on politically reshaping the economic structure generated by markets.

Instead, the Korean story was translated into a more comfortable formula: macroeconomic stability, education, high savings, export orientation, openness and a generally supportive business environment.

Each element contained part of the truth. Together, however, they removed much of the politics.

Exports came to be treated as the cause of industrial transformation rather than an instrument used to finance and discipline it. Education was presented as an independent engine of growth rather than one component of an industrial system that generated demand for increasingly sophisticated skills. Openness was celebrated while its selective and strategic character was minimised.

The World Bank’s 1993 East Asian Miracle study recognised that governments had intervened, but it distinguished between broadly market-compatible policies and more controversial selective interventions. Education, infrastructure, export promotion and macroeconomic stability were easier to endorse than directed credit, protection and sectoral targeting. (World Bank)

Critics such as Alice Amsden and Robert Wade challenged this reading. Their central insight was that East Asian governments had not merely corrected isolated market failures. They had deliberately altered incentives and created capabilities that markets would not have produced independently.

The important question was not whether governments created rents or “distorted” prices. It was whether support was connected to learning and measurable performance.

Yet the thinner version of the Korean experience became more influential in policy practice.

Developing countries were encouraged to export but not necessarily to construct domestic firms capable of controlling what they exported. They were encouraged to attract foreign investment but not always to impose demanding conditions for local learning. They were encouraged to improve infrastructure and the business environment, while control over finance, ownership and technology received less attention.

This change coincided with the spread of global value chains.

Countries no longer appeared to need complete national industries. They could specialise in particular activities—assembly, components, processing or services—and improve their position gradually. Foreign corporations would supply technology, management and access to global markets. Local companies and workers would learn through participation.

This offered a faster and less risky route into manufacturing.

But it also changed the objective of development. Instead of asking how a country could create firms able to organise industries and compete internationally, policy increasingly asked how it could occupy a more valuable position within production networks controlled by others.

Integration replaced transformation as the principal measure of success.

Southeast Asia entered a different world economy

Southeast Asian industrialisation had begun before the era of global value chains. Singapore promoted export manufacturing from the 1960s, Malaysia established electronics production in Penang during the 1970s, and several countries combined protection, state enterprises and foreign investment.

But the decisive regional shift occurred from the mid-1980s.

The appreciation of the Japanese yen after the 1985 Plaza Accord accelerated the relocation of production from Japan to lower-cost Asian locations. Japanese manufacturers expanded in Malaysia, Thailand and later across the region. Networks of suppliers followed them. Korean, Taiwanese, American and European firms subsequently reorganised their own operations.

Production became increasingly fragmented across borders.

Large corporations retained control over design, technology, brands and strategic coordination while locating assembly and selected component production elsewhere. Southeast Asian governments built industrial estates, ports and transport systems to attract these activities.

The resulting transformation was profound. Millions of people moved into industrial employment. Manufactured exports expanded. Infrastructure improved, new supplier networks emerged and workers acquired technical experience. Global value chains now account for a large share of the region’s manufacturing employment. (Asian Development Bank)

This was real industrialisation. But it differed from the Korean experience in one decisive respect.

South Korea had supported domestic corporations seeking to coordinate increasingly complete industrial systems. Southeast Asian governments more often competed to attract particular segments of systems already coordinated by foreign corporations.

The advantages were considerable. Countries could enter manufacturing without first mastering an entire industry. They could assemble electronics or automobiles using imported designs and components and sell through established global networks.

Entry became faster. Control remained elsewhere.

Malaysia illustrates both the achievement and the limitation. Targeted investment promotion attracted leading electronics firms and helped create a substantial industrial cluster. Infrastructure, workforce development and supplier programmes produced genuine upgrading. (The World Bank Docs)

But the firms commanding the principal technologies, intellectual property and final markets remained predominantly foreign. Malaysia became highly successful in electronic production without generating an equivalent number of corporations capable of defining product architectures and controlling global brands.

Thailand followed a comparable path in automobiles. Long-term cooperation between the state and Japanese manufacturers produced a dense network of assemblers and component suppliers. Thai workers and companies acquired significant expertise, and the country became a major production and export platform.

This was far more than simple assembly. Yet the dominant manufacturers continued to control platforms, brands, design and the most strategic technologies. Thailand created a major automobile industry without creating its own Hyundai.

The contrast is revealing. South Korea accepted decades of risk and initially inefficient production in order to build domestic automobile companies. Thailand obtained high-quality manufacturing more rapidly by integrating into the international networks of already successful producers.

The Thai path produced faster entry and lower initial risk. The Korean path eventually produced firms able to make strategic decisions, develop models and organise production abroad.

Indonesia combined foreign investment with more ambitious national projects. It created state enterprises and attempted to develop steel, fertilisers, aircraft and other strategic industries. Politically connected conglomerates also benefited from protection, credit and licences.

But support was frequently fragmented by patronage and policy inconsistency. The 1997–98 Asian financial crisis weakened domestic business groups and accelerated liberalisation. Indonesia retained substantial manufacturing capacity without developing a broad group of globally competitive industrial firms comparable to the Korean chaebol.

Its recent nickel strategy marks a return to more forceful industrial policy. By restricting raw-ore exports, Indonesia encouraged investment in refining and battery-related activities. But much of the capital, technology and corporate control has come from Chinese companies.

The state is again attempting to shape the productive structure, but it must do so through relationships with foreign firms that possess much of the technology and finance.

Vietnam is the most important contemporary test.

Its manufacturing rise has been remarkable. Political stability, investment in infrastructure, trade agreements and a capable workforce have made it a major platform for electronics, garments, footwear and machinery. Samsung’s operations transformed the country’s export structure and encouraged changes in logistics, infrastructure and supplier development.

Vietnamese firms have gradually entered Samsung’s supply chains, and the corporation has expanded training and research activities in the country. These are meaningful spillovers, not merely statistical illusions. (The World Bank Docs)

Yet the strategic hierarchy remains clear. Product design, key technologies, global branding and many high-value inputs remain controlled outside Vietnam. Domestic firms are still concentrated disproportionately in lower tiers and less technologically demanding functions.

A recent World Bank assessment argues that Vietnam must strengthen domestic suppliers and expand the service, engineering and research content embodied in its exports if it is to retain more value from global production. (World Bank)

The Vietnamese state has greater industrial ambition than many of its neighbours. State-owned enterprises remain influential, public institutions shape credit and domestic corporations such as Viettel, FPT and Vingroup have entered technologically demanding activities.

VinFast’s attempt to create an international electric-vehicle company even resembles the high-risk ambitions of earlier developmental states.

But Vietnam faces conditions Korea did not.

It is already deeply integrated into multinational production. Its domestic firms confront established corporations with immense technological and financial resources. International trade and investment agreements constrain some traditional tools, while investors can compare locations and reorganise production across borders.

South Korea protected domestic firms before exposing them fully to international competition. Vietnam must often build domestic capabilities while already immersed in competition organised by foreign lead firms.

This is not simply a difference in government competence. It is a difference in historical timing.

Global value chains make it possible to export advanced goods without controlling the advanced capabilities embodied within them. A smartphone assembled in Vietnam appears more sophisticated than a steel plate produced by South Korea during the 1970s. But Korea’s investment in steel strengthened domestic shipbuilding, machinery and automobile industries. The smartphone factory may generate fewer linkages if its technologies and strategic inputs remain external.

Product sophistication is not the same as national capability.

The model also reverses the relationship between governments and firms.

The Korean state dealt primarily with domestic corporations whose assets and political futures were rooted in the national economy. It could pressure them through control over credit, foreign exchange and licences.

A multinational corporation possesses more exit options. It can move a production line, source components elsewhere or allocate new investment to a competing location. Governments therefore offer tax incentives, land, infrastructure and regulatory concessions to secure its presence.

In Korea, firms received support because the state required them to invest. In contemporary Southeast Asia, states often provide support because firms are deciding where to invest.

Governments are not powerless. Market size, natural resources, specialised skills and infrastructure create bargaining leverage. Indonesia has used access to minerals. Vietnam has benefited from corporate efforts to diversify production. Malaysia and Singapore possess capabilities that cannot be replicated instantly.

But bargaining power matters only when it is converted into domestic learning.

A factory is not a development strategy. The decisive question is what remains after it arrives: suppliers, engineers, research capacities, technological knowledge and domestic firms capable of entering new markets independently.

The social price of Korean success

The Korean experience should not be romanticised simply because it produced greater national technological power.

Industrialisation rested heavily on labour repression. Independent unions were restricted, strikes suppressed and workers subjected to long hours and rigid discipline. Young women employed in textiles, garments and electronics generated exports and foreign currency while receiving low wages and limited recognition.

The state presented sacrifice as a temporary necessity. South Korea was poor, militarily threatened and attempting to catch up with richer economies. Demands for higher wages, improved working conditions and democratic rights could therefore be portrayed as obstacles to national survival.

But growth could always justify one more postponement.

Workers repeatedly organised despite repression. The democratic opening of 1987 was followed by a wave of industrial action involving roughly 1.3 million workers. New unions won higher wages, improved conditions and greater bargaining power. Labour mobilisation was not a reward granted after development; it was one of the forces that changed the development model. (ILO Research Repository)

Rising wages did not destroy Korean industry. They contributed to the expansion of domestic consumption and increased pressure on firms to upgrade technologically or relocate labour-intensive production.

Yet democratisation did not dismantle the corporate hierarchy created under authoritarianism.

The chaebol continued to dominate exports and strategic industries. Large corporations provided some of the country’s most secure and highly paid jobs, while workers in smaller firms, subcontracting and irregular employment faced lower wages and weaker protection.

The same business groups that had accelerated industrialisation contributed to a dual economy. The OECD continues to identify wide differences in productivity, pay and security between large companies and smaller firms, while concentrated corporate power creates obstacles to innovation and inclusion. (OECD)

This hierarchy extends into education and family life.

Competition for secure employment encourages an intense struggle for admission to prestigious universities. Families invest enormous resources in private education because credentials influence access not merely to higher wages, but to stability, housing and social status.

The education system that supplied skills for industrialisation has become a mechanism for sorting people into an unequal labour market.

Gender inequality deepens the contradiction. Women’s educational attainment rose rapidly, but workplace discrimination, career interruptions and unequal caring responsibilities continue to impose high costs on marriage and parenthood. The OECD’s 2026 survey links Korea’s low fertility to labour-market dualism, gender inequality, housing costs and the concentration of opportunity in the Seoul metropolitan region. (OECD)

South Korea created a society capable of producing some of the world’s most advanced technologies. It has been less successful in distributing security, time and opportunity.

The social crisis is not separate from the development model. It is partly an accumulated consequence of a system that subordinated welfare and care to production, concentrated opportunity in a narrow group of corporations and expected households—especially women—to absorb much of the cost.

This is a warning for Southeast Asia.

Creating national champions can support technological learning. It can also create corporate empires capable of influencing the state, weakening smaller firms and limiting the distribution of opportunity.

Cheap labour can attract factories. It can also trap countries in activities whose principal competitive advantage is that workers possess little bargaining power.

The lesson is not that Southeast Asia must reproduce Korea’s sacrifices before achieving Korea’s prosperity. It is that industrial ambition must be joined from the beginning to labour rights, social protection and institutions capable of governing corporate power.

What Southeast Asia can still learn

South Korea’s path cannot be copied, but its experience remains essential because it poses questions that contemporary development policy often avoids.

Who controls finance? Which firms accumulate knowledge? What is required from companies receiving public support? Who owns technologies and brands? How is industrial success translated into higher wages, stronger public services and greater social security?

Southeast Asia cannot reconstruct the South Korea of the 1970s. It cannot reverse the fragmentation of production or reproduce the geopolitical conditions of the Cold War. Nor should it recreate the authoritarian institutions through which Korean accumulation was achieved.

But it can recover the strategic purpose at the centre of the Korean transformation.

South Korea did not treat industrialisation as the mere multiplication of factories and exports. It treated it as a process through which national institutions and firms acquired the capacity to produce increasingly complex goods, absorb technology and make strategic decisions.

The objective was not simply participation in production. It was power over production.

Govern foreign investment rather than merely attracting it

Foreign investment will remain indispensable to Southeast Asia. Multinational firms possess technologies, financial resources and access to markets that local companies cannot rapidly reproduce.

The question is not whether the region should welcome foreign capital. It is what foreign investment should be required to contribute.

For decades, governments have competed through tax exemptions, subsidised land, infrastructure and flexible regulation. These policies helped create important manufacturing centres. But the volume of investment is not an adequate measure of development.

Governments should evaluate projects according to the domestic capabilities they create: engineering functions, workforce development, research partnerships, supplier upgrading and the transfer of more complex activities.

Not every function can be localised, and excessively rigid demands may deter projects or produce artificial compliance. But investment policy should distinguish between a temporary production platform and an industrial ecosystem.

Southeast Asian states would also benefit from greater regional coordination. Competition for the same investors allows corporations to extract concessions from neighbouring governments. ASEAN need not create a single industrial policy, but common standards on taxation, incentives, labour and environmental performance could limit competition that transfers public resources to firms without increasing total regional investment.

Support domestic firms—but demand results

National ownership does not guarantee development. A locally owned company may be inefficient, politically protected and technologically stagnant. A foreign firm may create better jobs and more learning.

Nevertheless, domestic corporations still matter because firms are institutions in which knowledge accumulates. They coordinate engineers, managers, suppliers, patents, brands and market relationships. When those capabilities reside inside nationally rooted organisations, they can be redeployed into new sectors.

Policy should therefore use foreign investment to strengthen domestic firms rather than treating the two as alternatives.

Supplier-development programmes are important but insufficient. A local company can become an efficient supplier while remaining dependent on specifications and contracts controlled by a foreign lead firm. Domestic companies also need design, engineering, financing and market-development capabilities.

Public support may be required because entry into complex industries is expensive and uncertain. But assistance must purchase public outcomes.

Companies receiving subsidised finance, procurement preferences or protection should face investment, export, training and technological targets. Support should be reviewed and withdrawn when firms fail repeatedly to meet them.

The objective is not to manufacture national champions through political favour. It is to build organisations capable of learning.

Restore a developmental role for finance

Structural transformation requires patient capital.

Commercial banks often prefer property, consumer credit and established activities to risky industrial projects. A semiconductor supplier, battery producer or precision-engineering firm may need years of investment before becoming profitable.

Development banks, public investment funds and credit guarantees therefore remain necessary. The aim is not to reproduce complete state control over banking, but to ensure that strategically important projects are not excluded simply because private finance demands rapid returns.

Public financing must be accompanied by technical expertise and credible monitoring. Governments need enough sectoral knowledge to distinguish a genuine capability-building project from a speculative venture dressed in the language of innovation.

Industrial policy inevitably involves failure. A state unwilling to accept any failure will never transform its economy. A state that rescues every failed company will waste resources and reward political connections.

The institutional challenge is to learn the difference.

Target capabilities, not fashionable industries

Governments across the region now announce strategies for semiconductors, artificial intelligence, electric vehicles, batteries and renewable energy.

Selecting a fashionable sector is not the same as building an industrial strategy.

A country can assemble electric vehicles while importing batteries, software and power electronics. It can host semiconductor packaging while retaining little capacity in design or production equipment. It can install renewable-energy systems manufactured almost entirely elsewhere.

The relevant question is which capabilities domestic workers and firms will acquire.

No Southeast Asian economy needs to control every part of every industry. Modern technologies are too complex for complete national self-sufficiency. But dependence can be selective rather than total.

Governments should identify functions that create linkages across industries: precision engineering, industrial software, materials, power electronics, testing, design, logistics and research services.

The Korean strategy was effective because capabilities developed in one sector supported others. Steel strengthened shipbuilding and automobiles; electronics contributed to telecommunications and semiconductors.

The proper unit of industrial policy is therefore not the individual flagship factory. It is the system of skills, suppliers, finance, infrastructure and research surrounding it.

Treat labour upgrading as industrial policy

Advanced products do not automatically create advanced work.

A highly automated electronics plant may rely on workers performing standardised tasks with limited opportunities for progression. Engineers may maintain imported equipment without learning to design it. Productivity may increase while wages and security remain stagnant.

Training must therefore be connected to career progression and technological learning within firms. Workers should be able to move from assembly into technical, engineering and managerial roles. Qualifications should remain valuable when workers change employers.

Collective bargaining and social protection are not simply social costs added after development. They can encourage productivity by making it harder for firms to compete indefinitely through low wages and insecure employment.

Workers are also more capable of adapting to technological change when unemployment, illness or retraining do not threaten household survival. Social protection makes restructuring less destructive and therefore more politically sustainable.

Southeast Asia should not wait until it reaches high-income status to address these issues. South Korea demonstrates how inequalities created during industrialisation can become deeply embedded in employment, education, housing and family life.

Beyond imitation

South Korea’s rise remains one of the great transformations of the twentieth century.

It demonstrated that poor countries did not have to accept the productive structure assigned to them by existing comparative advantage. States could create markets, firms could learn and foreign technology could be used to build domestic industrial power.

But the Korean model also concentrated corporate power, repressed labour and imposed social costs whose consequences remain visible today.

Southeast Asia entered industrialisation later, when production had become more fragmented and multinational corporations more powerful. Foreign-investment-led manufacturing generated employment, exports, infrastructure and major reductions in poverty. These achievements should not be dismissed merely because they differed from Korea’s.

Yet the region still confronts a persistent gap between the sophistication of what it produces and the power it exercises over production.

Closing that gap does not require rejecting foreign investment or withdrawing from global value chains. It requires governing them more strategically.

The aim should not be to recreate Park Chung Hee’s South Korea or to manufacture Southeast Asian versions of the chaebol. It should be to recover the central insight of the Korean experience while rejecting its authoritarian and socially destructive elements.

Development occurs when participation in global markets creates domestic capabilities that would not otherwise exist.

It occurs when public support requires firms to learn rather than merely allowing them to profit.

It occurs when countries acquire the ability to shape investment, technology and production rather than simply competing to host them.

And it remains incomplete when industrial power is not translated into security, democratic voice and a wider distribution of opportunity.

Southeast Asia does not need to become another South Korea.

But it does need to move beyond a model in which success is measured primarily by the factories that arrive, the exports that leave and the positions occupied within production networks organised elsewhere.

The decisive measure is whether the region is acquiring the capacity to shape its own economic future.

That was the real achievement of South Korea’s developmental state.

It is also the part of the Korean model that Southeast Asia was rarely encouraged to follow.

References and Further Reading

Selected books and scholarly works

Amsden, Alice H. 1989. Asia’s Next Giant: South Korea and Late Industrialization. New York: Oxford University Press.

Chang, Dae-oup. 2009. Capitalist Development in Korea: Labour, Capital and the Myth of the Developmental State. London: Routledge.

Chang, Ha-Joon. 1994. The Political Economy of Industrial Policy. London and Basingstoke: Macmillan.

Chang, Ha-Joon. 2002. Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press.

Chang, Kyung-Sup. 1999. “Compressed Modernity and Its Discontents: South Korean Society in Transition.” Economy and Society 28, no. 1: 30–55.

Chang, Kyung-Sup. 2010. South Korea under Compressed Modernity: Familial Political Economy in Transition. London: Routledge.

Choi, Jaedo, and Younghun Shim. 2024a. “From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries.” IMF Working Paper 2024/154. Washington, DC: International Monetary Fund.

Choi, Jaedo, and Younghun Shim. 2024b. “Industrialization and the Big Push: Theory and Evidence from South Korea.” IMF Working Paper 2024/259. Washington, DC: International Monetary Fund.

Evans, Peter. 1995. Embedded Autonomy: States and Industrial Transformation. Princeton, NJ: Princeton University Press.

Haggard, Stephan. 1990. Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries. Ithaca, NY: Cornell University Press.

Jeon, Yoong-Deok, and Young-Yong Kim. 2000. “Land Reform, Income Redistribution, and Agricultural Production in Korea.” Economic Development and Cultural Change 48, no. 2: 253–268.

Johnson, Chalmers. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975. Stanford, CA: Stanford University Press.

Jones, Randall S. 2018. “Reforming the Large Business Groups to Promote Productivity and Inclusion in Korea.” OECD Economics Department Working Papers, no. 1509. Paris: OECD Publishing.

Song, Ho Keun. 1999. “Labour Unions in the Republic of Korea: Challenge and Choice.” Geneva: International Institute for Labour Studies.

Wade, Robert. 1990. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press.

World Bank. 1993. The East Asian Miracle: Economic Growth and Public Policy. New York: Oxford University Press.

Institutional reports

Asian Development Bank. 2023. ASEAN and Global Value Chains: Locking in Resilience and Sustainability. Manila: Asian Development Bank.

ASEAN Secretariat and United Nations Conference on Trade and Development. 2025. ASEAN Investment Report 2025: Foreign Direct Investment and Supply Chain Development. Jakarta and Geneva: ASEAN Secretariat and UNCTAD.

OECD. 2026. OECD Economic Surveys: Korea 2026. Paris: OECD Publishing.

Qiang, Christine Zhenwei, Yan Liu, and Victor Steenbergen. 2021. An Investment Perspective on Global Value Chains. Washington, DC: World Bank.

World Bank. 2024. Viet Nam 2045: Trading Up in a Changing World. Washington, DC: World Bank.

Related essays by the author

Masina, Pietro. 2026a. “Thailand and the Myth of the Middle-Income Trap.” Asian Political Economy, 13 February.

Masina, Pietro. 2026b. “The Return of Industrial Policy in Asia—and Why It Looks So Different from the Past.” Asian Political Economy, 17 February.

Masina, Pietro. 2026c. “Why Malaysia Did Not Become South Korea.” Asian Political Economy, 19 February.

Masina, Pietro. 2026d. “Indonesia’s Nickel Strategy: The Illusion of Post-Commodity Development.” Asian Political Economy, 7 March.

Masina, Pietro. 2026e. “Why the Philippines Never Became Vietnam: Remittances, Migration, and Growth without Industrializing.” Asian Political Economy, 14 April.

Masina, Pietro. 2026f. “Samsung: The Company That Built South Korea.” Corporate Power in Asia, 7 May.

Masina, Pietro. 2026g. “Can VinGroup Create a Vietnamese Industrial Champion? Vietnam’s Quest for Technological Sovereignty in the Age of Global Capitalism.” Corporate Power in Asia, 9 May.

Masina, Pietro. 2026h. “CP Group and the Limits of Thai Capitalism: Corporate Power, Labour and Dependency in Southeast Asia.” Corporate Power in Asia, 19 May.

Masina, Pietro. 2026i. “Can Vietnam Become More Than Europe’s Manufacturing Partner?.” Europe–Southeast Asia Briefing, Issue 1, 7 June.

Masina, Pietro. 2026j. “Astra International: The Company That Motorized Indonesia—Industrial Transformation and the Limits of Technological Sovereignty.” Corporate Power in Asia, 12 June.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.

Sapeb Issue 3

8.04MB ∙ PDF file

Download

Download

ASEAN and the Political Economy of Rule-Shaping Capacity

Southeast Asia is not outside the new global order. It is increasingly central to it. The question is whether it can shape the rules under which that centrality is organised.

This issue examines a new phase in Southeast Asia’s political economy. The region is no longer only adapting to global change or absorbing global risk. It is increasingly operating inside rule systems written elsewhere: trade compliance systems, digital standards, data regimes, energy transition frameworks, cybersecurity protocols, payment infrastructures, and strategic partnership architectures.

The central argument is simple: Southeast Asia’s problem is not only dependence. It is rule-taking. ASEAN has become highly skilled at managing diversity, preserving diplomatic space, and avoiding open alignment. But the harder question now is whether it can become an institution capable of building regulatory capacity, producing regional public goods, and negotiating the rules of connection.

Contents

Southeast Asia This Month
Executive Summary and Key Findings
The Political Economy Lens
Editorial: From Adaptation to Rule-Shaping
1. Conditional Access and the New Infrastructure of Proof
2. ASEAN’s Digital State Capacity Test
3. Platforms, Data, and the Hidden Architecture of Dependence
4. ASEAN’s Missing Middle: From Declarations to Regulatory Power
Conclusion: Rule-Taking Is Not Regional Autonomy
Sources and Further Reading

This issue asks one question: can ASEAN move from managing regional diversity to shaping the rules under which Southeast Asia is integrated into the world economy?

Southeast Asia This Month

Digital
ASEAN has concluded negotiations on the Digital Economy Framework Agreement, described by ASEAN as its first region-wide digital economy agreement. The issue now moves from digital expansion to digital governance. (ASEAN DEFA Negotiations)

Trade
Market access is increasingly tied to documentation, traceability, rules of origin, labour enforcement, and proof. USTR’s 2026 Section 301 forced-labour actions and CBP’s UFLPA enforcement dashboard show how compliance capacity has become part of trade power. (United States Trade Representative)

Data
Data flows, cloud systems, payment infrastructures, digital identity, and cybersecurity are becoming new arenas of dependency and bargaining.

Platforms
Platform economies create convenience, market access, and growth, but they also concentrate power over workers, small firms, consumers, logistics, visibility, and information.

Energy
The IEA’s Southeast Asia Energy Outlook 2026 underlines that energy security, investment, and transition pressures remain central to the region’s development prospects; energy investment passed USD 100 billion in 2025 but remained only around 3 percent of global energy investment. (IEA)

ASEAN
The central problem is no longer whether ASEAN can issue frameworks. It is whether it can build the institutional machinery needed to turn frameworks into rule-shaping capacity.

Core Signal

Southeast Asia is not simply facing new external pressures. It is being incorporated into rule systems whose design, enforcement, and benefits are still largely controlled elsewhere.

Executive Summary

Southeast Asia has become more central to the world economy because the world economy has become more fragmented.

This centrality is visible everywhere. Firms look to the region for supply-chain diversification. Major powers look to it for diplomatic flexibility and strategic access. Investors look to it for manufacturing, infrastructure, data centres, energy projects, and digital markets. Green industries look to it for minerals and transition pathways. Digital platforms look to it for users, data, payments, and logistics.

But centrality is not the same as power.

The region is increasingly integrated into systems whose rules are written elsewhere. Market access depends on compliance regimes defined by advanced economies. Digital integration depends on standards shaped by major platforms, cloud providers, cybersecurity frameworks, and regulatory models developed outside much of the region. Energy transition depends on finance, technology, and carbon-accounting systems that Southeast Asian states only partly control. Data flows, payment systems, logistics networks, and artificial intelligence infrastructures create new forms of dependence that are less visible than older forms of trade dependence.

This issue argues that Southeast Asia is entering the age of conditional access.

In earlier phases of globalisation, development strategy often centred on connection: attracting investment, joining global value chains, building ports, improving logistics, signing trade agreements, and becoming a reliable production platform. These remain important. But they are no longer enough.

Access now increasingly requires proof. States must prove where goods originate, how they are produced, whether labour standards are respected, whether supply chains are traceable, whether data can be protected, whether digital systems are secure, whether energy transition plans are credible, and whether regulatory systems can be trusted.

This changes the meaning of state capacity. The old infrastructure of development was physical: roads, ports, factories, grids, airports, industrial zones, and logistics corridors.

The new infrastructure is also institutional: customs systems, certification agencies, data regulators, cybersecurity authorities, labour inspectorates, competition authorities, standards bodies, digital-identity systems, public procurement rules, and regional mutual-recognition mechanisms.

The problem is that ASEAN has historically been stronger at diplomatic management than at regulatory production. It can convene. It can issue declarations. It can preserve dialogue. It can reduce conflict. These achievements matter. But the new global economy demands more: implementation, enforcement, interoperability, shared standards, institutional credibility, and collective bargaining capacity.

This is the rule-taker problem.

Southeast Asia may become increasingly indispensable while remaining structurally dependent on rules, platforms, standards, finance, technologies, and enforcement systems controlled elsewhere. The risk is not exclusion. The risk is subordinated centrality.

The opportunity is different. If ASEAN can use digital integration, trade compliance, energy planning, cybersecurity, data governance, payment connectivity, and standards cooperation to build regional public goods, it can begin to convert centrality into bargaining power. ASEAN does not need to become a supranational state. But it does need to become more than a diplomatic forum if it wants to avoid becoming a region of connected rule-takers.

The decisive question is therefore this: Can ASEAN build the capacity to shape the rules of connection, rather than merely adapt to them?

Key Findings

Rule-taking is becoming the hidden structure of openness.
Southeast Asia remains open and connected, but the conditions of access are increasingly defined through external rules, standards, platforms, and enforcement systems.

Proof is becoming infrastructure.
Customs systems, certification bodies, data registries, labour inspection, cybersecurity agencies, and standards institutions now matter as much as ports, factories, and industrial zones.

Digital integration is not neutral.
A larger ASEAN digital market can create opportunities, but it can also deepen dependence on external platforms, cloud systems, payment rails, software standards, and AI infrastructures.

ASEAN’s core weakness is implementation capacity.
The region has visions, roadmaps, declarations, and frameworks. What it often lacks is the institutional machinery to translate them into regulatory power.

Regional autonomy requires regulatory public goods.
ASEAN cannot eliminate national differences. But it can build shared standards, mutual recognition systems, digital trust frameworks, cybersecurity cooperation, payment interoperability, and collective negotiating capacity.

Continue reading with a paid subscription

The full briefing develops the argument behind these findings. It examines how conditional market access, digital standards, platform power, data governance, and ASEAN’s institutional weaknesses are reshaping the region’s political economy.

Paid subscribers receive the complete analysis, including the political-economy framework, the four main sections, the conclusion, and the fully designed PDF edition of this briefing.

Sapeb Issue 3

4.52MB ∙ PDF file

Download

Download

The Political Economy Lens

Global fragmentation
↓
External de-risking
↓
Conditional access
↓
Trade compliance | Digital standards | Data governance | Energy transition | Cybersecurity
↓
Rule systems written elsewhere
↓
Administrative burden + bargaining opportunity
↓
ASEAN institutional capacity test
↓
Diplomatic forum or regulatory actor?
↓
Regional rule-shaping capacity

The Rule-Taker Problem occurs when Southeast Asia becomes more central to global capitalism but remains dependent on rules, standards, technologies, platforms, and enforcement systems designed elsewhere.

The region is asked to provide factories, workers, ports, minerals, markets, data, energy systems, digital consumers, diplomatic forums, and strategic geography. But these assets generate power only when states and regional institutions can govern the conditions under which they are used.

The crucial issue is therefore not openness versus closure. Southeast Asia cannot and should not withdraw from the world economy.

The issue is whether openness can be organised collectively. Connection becomes developmental only when it is supported by institutions capable of converting access into capability, capability into bargaining power, and bargaining power into autonomy.

Editorial: From Adaptation to Rule-Shaping

For much of the post-Cold War period, Southeast Asia’s strength lay in adaptation.

The region did not try to impose a single model on the world economy. It learned to move within it. Governments attracted foreign investment, built export platforms, expanded infrastructure, entered trade agreements, joined global value chains, and preserved diplomatic flexibility in a world still structured by U.S. power, Chinese growth, Japanese capital, European markets, and regional production networks.

This was not passive. Adaptation required political skill. It required institutional pragmatism, diplomatic caution, and the ability to exploit openings created by wider transformations in global capitalism. Vietnam became a manufacturing platform. Indonesia used its resources and market size to gain leverage. Malaysia and Thailand deepened manufacturing specialisation. Singapore consolidated its role as a logistical, financial, and digital hub. Cambodia and Laos entered regional production and infrastructure systems. The Philippines combined labour migration, services, and digital networks with renewed interest in strategic geography.

ASEAN also adapted. Its central achievement was not supranational integration. It was regional management. ASEAN created a diplomatic environment in which states with very different regimes, interests, sizes, and levels of development could coexist, cooperate, and avoid direct conflict. It was never designed to be a European Union. Its value lay in flexibility, consensus, ambiguity, and the slow production of habits of consultation.

That model worked better than many critics acknowledge. But the world to which ASEAN adapted is changing.

Globalisation is no longer organised primarily around the promise of open access. It is increasingly organised around conditional access. Markets remain open, but under rules. Supply chains remain global, but they must be documented. Digital systems expand, but they require governance. Energy transition creates opportunities, but also imposes standards, investment demands, and carbon-accounting pressures. Security partnerships multiply, but each carries expectations about interoperability, alignment, and trust.

The region is not being excluded from this new order. On the contrary, Southeast Asia is being pulled deeper into it.

This is the paradox. Southeast Asia has become more central because the world economy has become more fragmented. Firms need alternatives. Major powers need partners. Investors need growth markets. Digital platforms need users and data. Energy actors need infrastructure and demand. Green industries need minerals and transition pathways. Security actors need access and reassurance.

The region matters more. But this does not automatically mean that it has more power.

Centrality can be subordinated. A region can become indispensable to global production, digital markets, energy systems, and strategic diplomacy while the rules governing these domains remain written elsewhere. It can be needed without being able to set terms. It can be connected without being autonomous. It can be courted without being empowered.

This is the rule-taker problem. A rule-taker does not simply obey. It may negotiate, adapt, interpret, and sometimes resist. It may grow rapidly. It may benefit from investment. It may receive diplomatic attention. It may become central to supply chains, data flows, or energy systems.

But it operates within frameworks it did not design. The question for Southeast Asia is therefore no longer only how to adapt to global change. The harder question is whether the region can shape the rules under which adaptation takes place.

This is where ASEAN becomes central. ASEAN’s traditional strengths are real: convening power, diplomatic neutrality, consensus-building, and the ability to keep channels open among competing powers. These capacities remain valuable. In a fractured world, the ability to keep dialogue alive is not trivial.

But rule-taking cannot be overcome by diplomacy alone. The new global economy is increasingly governed through technical systems: standards, certifications, data regimes, customs protocols, cybersecurity rules, payment infrastructures, digital identity systems, competition policy, public procurement rules, labour enforcement mechanisms, carbon accounting, and regulatory interoperability.

These may sound technical. They are political. They determine who enters markets, who captures value, who controls data, who bears compliance costs, who sets prices, who manages risk, and who has authority when systems fail. They shape the distribution of power inside the world economy as much as tariffs, treaties, and military alliances once did.

ASEAN’s challenge is that it has often been stronger at producing frameworks than at producing capacity.

The region has no shortage of declarations, roadmaps, master plans, pillars, blueprints, and visions. These are not useless. They create language, direction, and coordination. But they do not automatically produce institutional power.

• A framework does not inspect a factory.

• A roadmap does not certify a supply chain.

• A declaration does not govern data.

• A vision does not regulate a platform.

• A summit statement does not protect workers, discipline monopolies, secure payment systems, or build cybersecurity capacity.

This is the missing middle of ASEAN regionalism: the space between diplomatic agreement and institutional implementation.

The conclusion of negotiations on the ASEAN Digital Economy Framework Agreement is therefore important not only because it points to digital growth, but because it exposes the deeper problem. ASEAN describes DEFA as its first region-wide digital economy agreement and as a step toward a digitally integrated, secure, interoperable, competitive, and inclusive regional economy. That ambition is significant. But its real importance lies in what it will require: institutions capable of governing data, platforms, payments, digital trade, cybersecurity, identity, and cross-border trust. (ASEAN Main Portal)

Digital integration is not only a market project. It is a state-capacity project.

A larger ASEAN digital market could generate new opportunities for firms, consumers, workers, and governments. But it could also create a wider space for external platforms, cloud providers, payment systems, logistics companies, AI infrastructures, and data architectures to consolidate power. Integration without regulatory capacity may produce scale without autonomy.

This is not an argument against DEFA. It is an argument for taking it seriously.

A digital agreement becomes developmental only if it helps build the institutional capacity to govern digital capitalism. That means data protection, cybersecurity, competition policy, consumer protection, interoperability, digital public infrastructure, platform accountability, and the ability of smaller ASEAN economies to participate without becoming dependent on systems they cannot regulate.

The same logic applies beyond the digital economy. Trade compliance is no longer peripheral. USTR’s 2026 Section 301 forced-labour investigations and proposed actions show how import access can be linked to labour enforcement and domestic regulatory credibility elsewhere. CBP’s UFLPA dashboard points in the same direction: proof, traceability, and documentation have become instruments of market access. (United States Trade Representative)

This changes what competitiveness means. It is no longer enough to offer cheap labour, industrial zones, tax incentives, and ports. Countries must be able to verify origin, document production, monitor subcontracting, enforce standards, and prove compliance. The capacity to generate credible proof is becoming part of the infrastructure of development.

Energy shows a similar pattern. The IEA’s Southeast Asia Energy Outlook 2026 notes that total energy investment in the region reached more than USD 100 billion in 2025, but still represented only about 3 percent of global energy investment. This is not only an investment gap. It is a governance problem: energy transition requires planning capacity, regulatory credibility, grid coordination, finance, and institutions able to manage distributional conflict. (IEA)

In each case, the issue is not whether Southeast Asia is connected. It is. The issue is whether connection is governed.

This distinction matters because ASEAN’s inherited model was built around the careful management of sovereignty. Consensus and non-interference helped hold the region together. They reassured governments that regional cooperation would not become supranational intrusion. They made ASEAN possible.

But the new rule systems do not respect the old separation between domestic and regional affairs.

Data moves across borders. Platforms operate across jurisdictions. Cyberattacks ignore sovereignty. Supply chains cross multiple territories. Energy grids require coordination. Carbon rules affect exports. Labour enforcement in one country can affect market access for firms in another. Digital payments, logistics systems, and cloud infrastructures create dependencies that are neither purely national nor fully regional.

This creates a dilemma. ASEAN cannot become a strong supranational authority without violating its own political foundations. But if it remains only a diplomatic forum, it may lack the institutional capacity required by the new world economy.

The region therefore needs something between supranationalism and loose consultation. It needs regulatory public goods.

Regulatory public goods are institutions, standards, procedures, and shared capacities that individual states can use but cannot easily build alone. They include mutual recognition systems, interoperable digital standards, regional data-protection principles, cybersecurity cooperation, shared certification frameworks, customs coordination, competition-policy dialogue, public procurement norms, energy planning mechanisms, and platforms for negotiating external rules collectively. These are not glamorous. They do not produce the drama of summits or the visibility of infrastructure projects. But they are becoming the foundations of autonomy.

Autonomy in this context does not mean isolation. It does not mean closing markets, rejecting foreign investment, or refusing external standards. Southeast Asia cannot and should not pursue autarky. Autonomy means having the institutional capacity to make choices under constraint.

It means being able to negotiate rules rather than merely receive them. It means turning external standards into domestic capability rather than treating them as imposed burdens. It means preventing digital integration from becoming platform dependence. It means ensuring that energy transition does not become externally financed vulnerability. It means building enough regional credibility that Southeast Asia is not only an object of de-risking strategies designed elsewhere.

This is a different vision of ASEAN centrality. ASEAN centrality has often meant diplomatic centrality: ASEAN as convener, host, mediator, platform, and symbolic centre of regional architecture. That remains useful. But it is no longer sufficient. The next phase requires regulatory centrality: ASEAN as a producer of rules, trust, standards, coordination, and shared institutional capacity. This does not require ASEAN to become a state. It requires ASEAN to become more operational.

The problem is not that ASEAN lacks ambition. The problem is that its ambitions often exceed its machinery. There is a gap between what ASEAN says and what ASEAN can implement. In a slower world, this gap could be managed. In the new environment, it becomes more costly.

External actors will not wait for ASEAN capacity to emerge. Major powers, corporations, digital platforms, financial institutions, standards bodies, and security partners will continue to write rules. They will offer investment, technology, market access, infrastructure, cloud services, energy finance, and digital systems. Each offer will come with embedded assumptions about governance, data, standards, procurement, compliance, and strategic alignment.

If ASEAN lacks collective capacity, member states will respond separately. Some will adapt successfully. Others will become more dependent. The result may be a region that is more connected but also more unequal, more fragmented, and more vulnerable to external rule systems. This is why the rule-taker problem is regional, not only national.

Indonesia’s mineral strategy shows how a country can become indispensable without necessarily gaining technological command. Vietnam’s industrial upgrading dilemma shows how production can become more sophisticated while control remains external. Those are national expressions of a broader pattern. But ASEAN’s task is different: to build the institutional conditions under which member states can negotiate these pressures with greater collective strength, rather than facing them separately.

The stakes are high because the coming decade will not be defined only by growth rates. It will be defined by who controls systems.

Who controls standards? Who controls data? Who controls platforms? Who controls certification? Who controls energy finance? Who controls cybersecurity architecture? Who controls technological pathways? Who controls the evidence required for market access? These questions are not secondary to development. They are development.

Southeast Asia has already proved that it can adapt. It has shown that it can attract capital, manage strategic ambiguity, enter global value chains, and preserve regional dialogue despite enormous diversity. But adaptation is no longer enough. The next challenge is rule-shaping.

ASEAN does not need to write all the rules of the world economy. It cannot. But it can build enough institutional capacity to avoid being merely acted upon by rules written elsewhere.

That is the difference between diplomatic centrality and developmental autonomy. And it is the central question of this issue.

1. Conditional Access and the New Infrastructure of Proof

The old language of development treated market access as a question of openness.

A country reduced barriers, attracted investment, improved logistics, signed trade agreements, and inserted itself into global production networks. If it could offer competitive labour, political stability, industrial land, ports, roads, electricity, and tax incentives, it could become part of the global economy. For much of Southeast Asia, this logic worked. It helped turn the region into one of the world’s most important zones of export production, resource supply, logistics, tourism, labour mobility, and strategic intermediation.

That world has not disappeared. But market access is changing its meaning. The issue is no longer only whether a country is open, competitive, and connected. It is whether it can prove the conditions under which connection takes place.

Proof is becoming infrastructure. This may sound technical. It is not. It is one of the central political-economic shifts of the present moment. Access to markets, finance, technologies, platforms, energy systems, and strategic partnerships increasingly depends on the ability to document, verify, trace, certify, monitor, and enforce.

• The factory matters. But so does the file attached to the factory.

• The port matters. But so does the customs system.

• The export matters. But so does the rule of origin.

• The worker matters. But so does the labour inspection regime.

• The digital transaction matters. But so does the data trail.

• The energy project matters. But so does the carbon-accounting framework.

This is the new infrastructure of proof. In earlier phases of globalisation, Southeast Asian states competed heavily through costs, logistics, and investment conditions. Today, they increasingly compete through administrative credibility. The ability to certify production, verify supply chains, regulate data flows, enforce labour standards, monitor environmental commitments, and protect digital systems is becoming part of competitiveness.

This does not mean that wages, tax incentives, land, ports, and roads no longer matter. They still matter. But they are no longer sufficient. A country can host production and still lose market access if it cannot prove origin. It can attract investment and still face scrutiny if subcontracting is opaque. It can join digital markets and still become dependent if data governance is weak. It can participate in green supply chains and still face exclusion if energy systems are carbon-intensive or certification systems are not trusted.

The U.S. Trade Representative’s 2026 Section 301 forced-labour investigations are a clear sign of this shift. The USTR initiated investigations into whether various economies had failed to impose and effectively enforce prohibitions on importing goods produced with forced labour, and later proposed actions linked to those findings. The important point for Southeast Asia is not simply the immediate tariff or legal issue. It is the broader signal: access to a major market can be tied to the domestic enforcement capacity of trading partners. (United States Trade Representative)

CBP’s updated UFLPA enforcement dashboard points in the same direction. The dashboard tracks shipments stopped, released, denied, or pending decision under forced-labour enforcement. This is trade governance as documentation and scrutiny: goods do not simply cross borders; they are assessed through evidence, risk classification, and administrative verification. (GovDelivery)

For Southeast Asia, this matters because the region’s development strategies have often relied on precisely the forms of flexibility that proof-based systems now make more difficult.

Informal subcontracting, fragmented supplier networks, weak labour inspection, selective enforcement, opaque ownership structures, and negotiated regulatory ambiguity have often been part of the practical machinery of late industrialisation. These features helped firms adjust quickly, reduce costs, and manage uncertainty. They also helped states attract investment without fully restructuring domestic institutions.

But the new environment is less forgiving.

• When market access depends on traceability, informality becomes a vulnerability.

• When labour standards are tied to trade enforcement, weak inspection becomes a risk.

• When rules of origin become politically sensitive, complex regional sourcing becomes harder to manage.

• When carbon accounting affects trade, energy systems become part of export competitiveness.

• When digital trust becomes a condition of integration, data governance becomes economic infrastructure.

This is not simply a Western imposition. It reflects a wider transformation in global capitalism. As globalisation becomes more fragmented, states and firms seek to manage risk by demanding more visibility. They want to know where goods come from, who produced them, what inputs were used, whether sanctions apply, whether labour rules were respected, whether emissions can be measured, whether data can be secured, and whether supply chains can be audited.

Visibility becomes power. The actors who define the categories, build the databases, set the standards, run the audits, certify compliance, and control enforcement mechanisms gain authority over the terms of participation.

This is where the rule-taker problem appears. Southeast Asian economies may comply with the new rules. Some will do so successfully. But compliance alone does not produce autonomy. If the rules are designed elsewhere, if standards are interpreted elsewhere, if certification markets are dominated by external actors, if data systems are owned by foreign platforms, and if enforcement is triggered by major importing economies, Southeast Asia remains inside a hierarchy of rule-making.

It may become highly competent at adaptation without becoming a rule-shaper. The developmental question is therefore not whether proof systems are good or bad. Many are necessary. Forced-labour enforcement, environmental standards, customs transparency, digital security, and anti-fraud mechanisms are not inherently illegitimate. They can protect workers, consumers, firms, and public authority. They can support upgrading. They can discipline predatory forms of capital.

The question is political: who defines the proof, who pays for producing it, who controls the evidence, and who captures the benefits?

If proof is imposed externally and managed privately, it can deepen inequality. Large firms can hire auditors, lawyers, consultants, certification agencies, and compliance teams. Smaller firms struggle. Informal suppliers may be excluded rather than upgraded. Workers may be monitored more closely without gaining stronger rights. States may enforce standards for export markets more vigorously than they protect citizens in the domestic economy.

In this scenario, compliance becomes a filter. It selects the firms and countries already capable of meeting demanding rules, while marginalising weaker actors. But proof can also become developmental. This requires treating compliance not as a burden to be minimised, but as a capacity to be built. Customs systems, labour inspectorates, environmental agencies, digital registries, standards bodies, certification authorities, and data regulators become part of the productive apparatus. They are not external to development. They are development institutions.

This is the main shift. The infrastructure of proof is not only about paperwork. It is about state capacity.

A state that can verify origin, trace supply chains, enforce labour protections, regulate platforms, certify environmental performance, protect data, and negotiate standards has more bargaining power than a state that merely offers low costs. It can turn external requirements into domestic upgrading. It can help smaller firms meet standards. It can use traceability to deepen local sourcing. It can use labour enforcement to build more stable industrial relations. It can use environmental rules to support technological change. It can use digital documentation to reduce corruption and increase transparency.

The same logic applies at regional level. ASEAN’s problem is not simply that member states have unequal capacity. That has always been true. The problem is that the new global economy turns unequal administrative capacity into unequal market power. States that can document, certify, and enforce will adapt more easily. States that cannot will become dependent on external intermediaries, foreign platforms, private auditors, and rules they do not control.

Without regional coordination, conditional access may deepen internal hierarchy within Southeast Asia. Singapore, Malaysia, Thailand, and Vietnam may be able to adjust more quickly in some sectors. Cambodia, Laos, Myanmar, and parts of the region with weaker administrative machinery may struggle. Indonesia and the Philippines may have scale, but scale does not automatically solve regulatory fragmentation. The result could be a region that is more integrated in rhetoric but more uneven in practice.

This is why ASEAN matters. No single ASEAN mechanism can solve the problem. But ASEAN can help build regional public goods around proof. It can support shared standards, mutual recognition, customs cooperation, digital trade documentation, data-protection principles, cybersecurity coordination, common certification frameworks, and technical assistance for weaker member states.

These are not dramatic projects. They will not attract the attention that summits, railways, ports, or defence agreements attract. But they are increasingly central to the region’s position in the world economy.

ASEAN’s challenge is to move from coordination as dialogue to coordination as capacity. Dialogue produces trust among governments. Capacity produces trust in systems.

The second form of trust is becoming more important. External partners increasingly want Southeast Asia to be reliable: reliable as a production base, reliable as an energy partner, reliable as a digital market, reliable as a site of data flows, reliable as a strategic partner, reliable as a source of critical inputs, reliable as a node in diversified supply chains. But reliability cannot be built only through declarations. It requires institutions that work.

• A declaration does not certify origin.

• A roadmap does not secure data.

• A framework does not inspect working conditions.

• A summit does not harmonise customs systems.

This is the missing middle of regional integration. ASEAN has often been effective at producing political language. It has been less effective at building the institutions needed to make that language operational. In the age of conditional access, this gap becomes more costly. The region cannot rely only on being attractive. It must become credible.

Credibility is not neutral. It is built through power, resources, and institutional choices. A certification regime can empower domestic producers or subordinate them to foreign auditors. A data system can strengthen public authority or entrench platform dependency. A labour standard can protect workers or become a checkbox exercise. A customs reform can reduce fraud or simply shift burdens onto smaller firms. Proof systems are therefore arenas of political struggle.

The central issue is not whether Southeast Asia should accept the new infrastructure of proof. It has little choice. The deeper issue is whether ASEAN and its member states can shape it.

• Can ASEAN help member states produce proof on their own terms?

• Can it reduce dependence on external certification and regulatory templates?

• Can it prevent digital integration from becoming platform dependence?

• Can it build mutual recognition systems that strengthen regional bargaining power?

• Can it make compliance a route to upgrading rather than a mechanism of exclusion?

These questions will become more important in the coming decade.

The future of Southeast Asian development will not be decided only by where factories are located or how many trade agreements are signed. It will also be decided by who controls the systems through which production, labour, data, carbon, finance, and security are verified.

Proof is becoming infrastructure. And infrastructure is never only technical. It is power made durable.

2. ASEAN’s Digital State Capacity Test

ASEAN’s digital economy agenda is usually presented as a growth story. It should also be read as a state-capacity test.

The conclusion of negotiations on the ASEAN Digital Economy Framework Agreement is an important moment for the region. ASEAN describes DEFA as its first region-wide digital economy agreement and as a major step toward a digitally integrated, secure, interoperable, competitive, and inclusive regional economy. ASEAN also argues that the agreement could help unlock a digital economy that studies suggest may reach USD 2 trillion by 2030 if successfully implemented. (ASEAN Main Portal)

This is ambitious language. It is also politically revealing.

For years, Southeast Asia’s digital transformation has been described through the language of opportunity: young populations, expanding internet access, mobile payments, e-commerce, platform work, fintech, data centres, artificial intelligence, digital public services, and start-up ecosystems. In this story, digitalisation appears as the next stage of regional dynamism. The region that became central to manufacturing, logistics, tourism, migration, and strategic intermediation could now become central to the digital economy.

There is truth in this. Digital technologies are already reshaping economic life across Southeast Asia. They affect payments, retail, logistics, transport, education, finance, public administration, agriculture, health, tourism, urban services, labour markets, and cross-border commerce. For small firms, digital platforms can open new markets. For consumers, they can reduce transaction costs. For governments, they can improve tax collection, service delivery, border management, identification systems, and social protection. For ASEAN, digital integration promises to reduce regulatory fragmentation and make cross-border transactions easier.

But this is only half the story. Digital integration is not simply market expansion. It is rule-making. The digital economy is not an open space into which innovation naturally flows. It is organised through platforms, standards, protocols, cloud systems, payment infrastructures, cybersecurity regimes, data rules, competition policy, digital identity, algorithms, logistics networks, and regulatory institutions. Someone always governs the architecture. The question is who.

This is why DEFA matters. ASEAN’s own material frames DEFA as a way to accelerate the region’s transformation into a leading digital economy, deepen digital cooperation, and support regional digital integration and inclusive growth. ASEAN and OECD materials also recognise that digital integration must operate across different levels of readiness among member states. (OECD)

That difference in readiness is not a detail. It is the political economy of ASEAN digital integration. Singapore is not Laos. Malaysia is not Myanmar. Vietnam’s state-led digital ambitions are different from Indonesia’s platform-heavy digital economy. Thailand’s regulatory and industrial base differs from Cambodia’s. The Philippines has a large services and outsourcing ecosystem, but also deep infrastructural and social inequalities. The region is often treated as a single fast-growing digital market. In institutional terms, it is deeply uneven.

This unevenness matters because the gains from digital integration are not automatic. The OECD’s 2026 digital trade review estimates that, depending on the level of ambition, DEFA could increase intra-ASEAN trade by between 13 and 20 percent, with total trade gains of around 3 to 4 percent. The same analysis points to the importance of implementation and to the challenge of broadening digital trade integration across very different economies. (OECD)

That is the key point. The countries that may gain most may also struggle most to implement the rules. This is ASEAN’s digital state capacity test.

A digital agreement can reduce barriers, harmonise rules, facilitate e-commerce, support paperless trade, and encourage cross-border data flows. But these benefits depend on institutions: regulators, courts, cybersecurity agencies, data-protection authorities, competition authorities, customs systems, consumer-protection bodies, technical standards agencies, public procurement rules, and skilled public officials.

Without these institutions, integration can deepen dependency.

A country can have millions of digital users without controlling the platforms that mediate their activity. It can have booming e-commerce without strong domestic firms. It can expand digital payments while depending on external payment rails, proprietary systems, or foreign cloud infrastructure. It can generate data without governing how that data is stored, monetised, transferred, or protected. It can digitalise public services while increasing vulnerability to vendor lock-in, cyberattacks, surveillance, and technological dependence.

This is the digital version of the rule-taker problem.

Southeast Asia may become more connected, more data-rich, more platformised, and more digitally integrated while the most valuable and strategic layers of the digital economy remain controlled elsewhere.

The visible layer of the digital economy is familiar: apps, online shops, ride-hailing services, food delivery, digital wallets, social media, streaming, online education, and platform work.

Beneath that visible layer lies a deeper architecture: cloud infrastructure, data centres, undersea cables, cybersecurity systems, payment rails, operating systems, app stores, digital identity protocols, advertising systems, software standards, AI models, algorithmic governance, and capital markets.

Power often lies in the lower layers. A small business may sell online, but the platform controls visibility. A driver may find work through an app, but the algorithm controls pricing and allocation. A consumer may benefit from convenience, but data is captured and monetised elsewhere. A state may digitalise public services, but the underlying infrastructure may depend on foreign vendors, proprietary systems, external cloud providers, or opaque procurement arrangements.

Digitalisation can therefore strengthen the state. It can also hollow it out. This is why digital state capacity cannot be reduced to connectivity.

Connectivity is necessary. But it is not sufficient. A country may have widespread mobile access and still lack the capacity to regulate platforms, protect citizens’ data, secure public systems, discipline monopolies, tax digital activity, or ensure that digitalisation contributes to domestic capability formation.

The developmental question is not whether Southeast Asia can digitise. It is already digitising. The question is whether digitalisation can be governed.

DEFA should therefore not be judged only by the size of the market it may create. Its deeper significance lies in whether it helps build the institutions needed to govern digital capitalism at regional scale.

There are at least three possible outcomes.

The first is shallow integration. ASEAN reduces some transaction costs, facilitates e-commerce, and improves digital trade, but the deeper structure of dependence remains unchanged. Digital growth expands, but value capture remains concentrated in large platforms, stronger regional hubs, and external technology ecosystems.

The second is asymmetric integration. Stronger ASEAN members use harmonised rules to deepen their advantage, while weaker members become more dependent on imported systems, external firms, foreign standards, and regulatory templates they lack the capacity to shape. Integration grows, but internal hierarchy deepens.

The third is developmental integration. ASEAN uses DEFA not only to expand digital markets, but to build shared standards, strengthen weaker regulatory systems, support domestic firms, protect workers and consumers, promote interoperable public digital infrastructure, and increase collective bargaining power with external partners.

Only the third outcome would turn digital integration into regional rule-shaping capacity.

This will be difficult because ASEAN’s institutional culture is not naturally oriented toward enforcement. Its comparative advantage has been consensus, consultation, gradualism, and flexibility. These qualities helped the organisation survive and expand. They remain important. But digital governance requires more than consultation.

• Data breaches do not wait for consensus.

• Cyberattacks do not respect non-interference.

• Platforms operate across borders faster than regulators can meet.

• Payment systems, cloud contracts, AI applications, digital identity systems, and platform labour markets create facts on the ground before regional institutions can respond.

This is the challenge of speed.

ASEAN’s mode of regionalism is slow, diplomatic, and state-centred. Digital capitalism is fast, private, transnational, and infrastructural. The mismatch is obvious. The question is whether DEFA can help narrow it.

To do so, ASEAN will need to treat digital integration as a regional public good.

This means building shared capacities, not only shared aspirations. It means technical assistance for weaker member states. It means regulatory cooperation that goes beyond dialogue. It means data-protection principles that can be implemented. It means cybersecurity cooperation that can respond to real threats. It means competition-policy coordination capable of dealing with platforms. It means consumer and worker protections that do not stop at national borders. It means interoperable systems that do not simply lock member states into external infrastructures.

Digital public infrastructure will be especially important.

Identity systems, payment systems, data-exchange frameworks, public-service platforms, and procurement rules will shape how states interact with citizens and firms. If these systems are built through fragmented national contracts with private vendors, ASEAN may end up with a patchwork of incompatible dependencies. If they are shaped through shared principles and interoperable public frameworks, they may become foundations of regional capacity.

This does not mean ASEAN should build a single digital state.

It cannot. Nor should it.

The point is more modest but still significant: ASEAN can help member states avoid becoming isolated buyers of digital systems designed elsewhere. It can coordinate standards, create common principles, pool expertise, support regulatory learning, and negotiate with external platforms and partners from a stronger position.

That is the difference between digital integration and digital autonomy.

Digital autonomy does not mean isolation from global technology. It means the capacity to decide how technology is adopted, governed, and embedded in social and economic life. It means public authority over data. It means the ability to regulate platforms. It means cybersecurity resilience. It means competition policy. It means protection for workers and consumers. It means avoiding dependence on a small number of external infrastructures that states cannot audit, modify, or discipline.

ASEAN’s digital agenda will also test the relationship between national sovereignty and regional capacity.

Member states are unlikely to surrender control over sensitive areas such as data, identity, cybersecurity, law enforcement, taxation, or platform regulation. Yet many of these issues cannot be managed effectively by individual states alone. Cross-border data flows, digital payments, fraud, cybercrime, platform monopolies, AI governance, and digital trade all require cooperation.

This is the same dilemma that runs through the whole rule-taker problem.

ASEAN cannot become supranational. But loose cooperation is not enough.

The region needs practical forms of shared authority: mutual recognition, common baselines, interoperable systems, joint capacity building, trusted certification, and coordinated external negotiation.

This is where DEFA could matter most.

Its success should not be measured only by trade growth or digital market size. It should be measured by whether it helps ASEAN build institutions that make the region less dependent on rules and infrastructures designed elsewhere.

The danger is clear. If DEFA becomes mainly a market-opening instrument, it may create a larger arena for already powerful actors. External platforms may gain wider reach. Stronger ASEAN economies may consolidate their advantage. Weaker states may face implementation burdens. Data may flow more easily without being governed more democratically. Digital labour may expand without protections. E-commerce may grow while small firms become more dependent on platforms for visibility, payments, and logistics.

That would be digital integration without regional power.

The opportunity is also clear. If DEFA becomes a vehicle for regulatory capacity, it could help ASEAN move from being a digital market to becoming a digital rule-shaping actor. It could strengthen trust, reduce fragmentation, build common standards, and give member states more leverage in dealing with major powers and global technology firms.

This is why DEFA is not just another economic agreement. It is a test of ASEAN’s future relevance.

In the age of industrial globalisation, ASEAN’s value lay in creating a stable regional environment for investment, trade, and diplomacy.

In the age of digital capitalism, ASEAN’s value will depend increasingly on whether it can build trust, regulate systems, protect data, coordinate standards, and negotiate digital dependencies.

The question is not whether Southeast Asia will become more digital. The question is whether ASEAN can make digitalisation a foundation of regional capacity rather than another channel of rule-taking.

3. Platforms, Data, and the Hidden Architecture of Dependence

Digital dependence is often misunderstood because it does not look like older forms of dependence.

It does not necessarily appear as foreign ownership of mines, plantations, ports, or factories. It does not always involve visible concessions, debt contracts, or military bases. It often appears instead as convenience: a payment app, a delivery platform, a cloud service, a data centre, an e-commerce marketplace, a digital identity system, an AI tool, a logistics interface, a cybersecurity contract, or an undersea cable.

This is why it is easy to mistake digital expansion for digital autonomy.

Southeast Asia’s digital economy is growing rapidly. More people buy, sell, pay, communicate, work, study, travel, and access public services through digital systems. Governments see digitalisation as a way to improve efficiency, broaden financial inclusion, attract investment, modernise administration, and connect small firms to markets. ASEAN sees digital integration as a way to reduce fragmentation and create a more seamless regional economy.

All of this matters. But the visible expansion of digital activity tells us only part of the story. The deeper question is who controls the architecture through which digital activity takes place.

A platform economy is not simply a market. It is a governed space. The platform decides who is visible, who pays, who is ranked, who is excluded, what data are collected, how prices are set, how workers are monitored, how disputes are resolved, and how value is extracted. It can look like an open marketplace while operating as a privately governed infrastructure.

This is the first hidden layer of dependence.

Small firms may gain access to customers, but they may also become dependent on platform visibility, fees, advertising systems, payment rules, and algorithmic ranking. Workers may gain access to income, but they may also become dependent on opaque systems that allocate tasks, set incentives, and discipline behaviour without collective bargaining. Consumers may gain convenience, but their data, habits, preferences, movements, and transactions become assets for firms that operate at scales no national regulator can easily match.

The platform is therefore not only an intermediary. It is a rule-maker.

This matters for Southeast Asia because platformisation often enters through the language of inclusion. E-commerce promises to help small producers. Digital payments promise to reduce cash dependence. Ride-hailing and delivery platforms promise flexible work. Fintech promises access to credit. Digital public services promise efficiency. AI promises productivity.

Each promise contains some truth.

But each also creates new forms of dependency if the rules are written by the platform rather than by public institutions.

This is the political economy of digital convenience.

Convenience reduces friction for users. But it can increase structural dependence for societies. Once merchants, workers, consumers, and governments depend on a platform, exit becomes costly. Data accumulate inside proprietary systems. Payment histories shape access to credit. Ratings discipline behaviour. Algorithms determine visibility. Fees can rise. Terms can change. Regulators struggle to see inside the system. Dependence becomes infrastructural.

The second hidden layer is data.

Data are often described as a resource. This metaphor is useful, but incomplete. Data are not like oil or nickel. They do not simply exist in nature waiting to be extracted. They are produced through social activity, captured through digital systems, organised through platforms, processed through software, and monetised through business models.

Who controls the system controls the data.

That is why data governance is not a technical niche. It is central to development strategy. Data shape credit scoring, insurance, logistics, consumer profiling, policing, migration management, health administration, education platforms, labour allocation, and urban planning. They also shape artificial intelligence, because AI systems depend on access to data, computing power, models, and infrastructure.

A country may generate enormous volumes of data without controlling the value created from them. This is another form of rule-taking.

Southeast Asian consumers, workers, firms, and public agencies may produce data that are stored, analysed, monetised, or governed through systems located elsewhere or controlled by external firms. Even when data centres are physically located in the region, the key question remains: who owns the infrastructure, who controls the software stack, who sets the security protocols, who has access, and who captures the rents?

This is why the current boom in data centres and cloud infrastructure should be read politically, not only economically.

New cables, cloud regions, and data centres can strengthen connectivity. They can reduce latency, attract investment, support AI deployment, and improve digital services. But they can also deepen reliance on a small number of global technology firms and infrastructure providers. Reuters reported in July 2026 that a Microsoft-led consortium with Singapore’s Lightstorm and other partners planned to build the I-2SEA undersea cable linking India, Malaysia, and Singapore, with the project aimed at expanding cloud and AI infrastructure. (Reuters)

This is not a problem in itself. Southeast Asia needs digital infrastructure. Undersea cables, cloud regions, data centres, and secure networks are indispensable. The issue is not whether the region should connect. The issue is whether the conditions of connection are governed.

The third hidden layer is payments.

Payment systems appear mundane, but they are central to economic power. Whoever controls payment rails controls transaction data, settlement systems, fees, interoperability, access, and often the gateway through which small firms enter digital markets. ASEAN’s Regional Payment Connectivity agenda and the development of an ASEAN-wide QR framework show that cross-border payments are becoming a central part of regional integration. (amro-asia.org)

This is one of the most promising areas of ASEAN cooperation.

If regional payment connectivity reduces dependence on external currencies, lowers transaction costs, supports local firms, and strengthens regional financial integration, it can become a genuine public good. It can make ASEAN more than a market. It can make it a space of shared infrastructure.

But the risk is also clear. Payment integration can be captured by dominant private platforms, external fintech ecosystems, or financial intermediaries whose incentives are not aligned with developmental goals. A digital payment system can broaden inclusion while also deepening surveillance, dependency, and fee extraction. It can help small firms receive payments while leaving them dependent on platform ecosystems that control visibility, credit, logistics, and customer access.

The developmental question is therefore not simply whether payments become digital. It is who governs the rails.

The fourth hidden layer is cloud infrastructure.

Cloud systems are not merely storage. They are the operational environment for firms, governments, universities, hospitals, banks, logistics systems, defence agencies, and AI applications. Once a public agency or company builds its operations around a cloud provider, switching can become difficult. Technical standards, software dependencies, security protocols, procurement contracts, and trained personnel all create lock-in. Cloud dependence can therefore become state dependence.

A government may digitalise tax, customs, welfare, border control, education, or health systems in the name of efficiency. But if these systems rely on proprietary architectures that the state cannot audit, modify, or fully control, public authority becomes partially embedded in private infrastructure.

This is not an argument against cloud adoption. It is an argument against naïve adoption.

Digital sovereignty does not mean that every ASEAN state must build its own cloud from scratch. That would be unrealistic. But it does mean that states must understand the political consequences of procurement, data localisation, interoperability, cybersecurity, vendor lock-in, and audit rights.

The fifth hidden layer is artificial intelligence.

AI makes the rule-taker problem sharper because it concentrates power across several domains at once: data, computing capacity, models, chips, cloud infrastructure, talent, intellectual property, and standards. Most Southeast Asian states will not control all of these layers. The question is whether they can shape enough of the ecosystem to avoid becoming only users of systems designed elsewhere.

AI adoption may improve productivity. It may support education, logistics, health, finance, manufacturing, translation, public administration, and research. But it can also import biases, external standards, opaque decision-making, and new forms of dependence on proprietary models.

The danger is not simply technological backwardness. The danger is institutional passivity.

A state that adopts AI without regulatory capacity may automate dependence. It may increase efficiency while reducing transparency. It may modernise administration while relying on systems it cannot explain. It may encourage firms to adopt tools that increase productivity but leave core knowledge, model development, and data control elsewhere.

AI makes digital capacity inseparable from public capacity.

This is why the platform-data-cloud-AI nexus should be understood as a new infrastructure of power.

In the industrial era, development depended on factories, machines, ports, energy, transport, and labour systems. In the digital era, those remain crucial, but they are increasingly mediated by software, platforms, sensors, logistics data, payment systems, cybersecurity, and AI. The economy does not become immaterial. It becomes more infrastructurally complex.

Digital capitalism does not float above the material world.

It requires electricity, water, land, cables, chips, cooling systems, warehouses, roads, ports, and workers. Data centres raise energy and environmental questions. Logistics platforms depend on transport workers. E-commerce depends on warehouses and delivery systems. AI depends on semiconductor supply chains and electricity-hungry computing infrastructure. Digital markets are deeply physical.

This matters for Southeast Asia because digitalisation is often presented as a leap beyond older development constraints. But the digital economy does not abolish constraints. It reorganises them.

• A data centre boom can create investment, but it also creates pressure on energy grids and water systems.

• A logistics platform can increase efficiency, but it can also intensify labour precarity.

• A fintech system can expand credit, but it can also create new forms of household indebtedness.

• A digital identity system can improve public services, but it can also expand surveillance.

• An AI strategy can signal modernity, but it may deepen dependence on external models, chips, cloud systems, and standards.

The issue is therefore not digitalisation versus non-digitalisation. The issue is governed digitalisation.

ASEAN’s challenge is to prevent digital integration from becoming a new form of fragmented dependency. If each member state negotiates separately with global platforms, cloud providers, fintech firms, AI vendors, and cybersecurity companies, asymmetry will be enormous. Stronger states may secure better terms. Weaker states may accept dependency as the price of modernisation.

This is where ASEAN could matter.

It cannot replace national regulation. But it can help create shared bargaining power. It can define common principles for data governance. It can support interoperability without surrendering control to proprietary systems. It can coordinate cybersecurity standards. It can develop regional norms for platform accountability. It can share regulatory expertise. It can support weaker members so that digital integration does not widen internal hierarchy.

The question is whether ASEAN can move from digital enthusiasm to digital discipline.

Digital enthusiasm celebrates growth, users, platforms, start-ups, unicorns, fintech, AI, and innovation.

Digital discipline asks harder questions: who owns the infrastructure, who controls the data, who writes the algorithms, who sets the standards, who secures the systems, who pays the fees, who bears the risks, and who can exit?

These questions are not anti-innovation. They are the conditions for developmental innovation.

Without them, digital integration may produce a familiar outcome: growth without control. Southeast Asia may become a vast digital market, a source of data, a site for cloud expansion, a testing ground for AI applications, and a logistics arena for platforms — but not necessarily a rule-shaping actor.

The risk is subtle because digital dependence often looks like success.

More users. More payments. More platforms. More data centres. More cloud investment. More AI adoption. More cross-border transactions.

All of these can be real achievements. But they are not enough.

The deeper question is whether ASEAN can help build institutions that make digital systems accountable to public goals. This means treating platforms, data, payments, cloud infrastructure, cybersecurity, and AI not as separate sectors, but as interconnected infrastructures of power.

If ASEAN can do this, digital integration may become one of the foundations of regional autonomy.

If it cannot, the region may discover that the digital economy has made it more connected, more efficient, and more visible — but not more powerful.

4. ASEAN’s Missing Middle: From Declarations to Regulatory Power

ASEAN does not lack language. It has visions, blueprints, roadmaps, pillars, frameworks, action plans, declarations, master plans, and ministerial statements. These documents matter. They create common vocabularies. They signal political direction. They allow member states to coordinate without surrendering sovereignty. They keep regional cooperation moving even when interests diverge.

This has been one of ASEAN’s great strengths. But it is also where the problem begins. The new global economy does not only require diplomatic language. It requires operational capacity.

• A roadmap does not regulate a platform.

• A declaration does not secure a data system.

• A framework does not certify a supply chain.

• A vision does not enforce labour standards.

• A summit statement does not build customs interoperability.

This is ASEAN’s missing middle: the gap between regional aspiration and institutional implementation.

For decades, this gap could be managed. ASEAN’s core purpose was not to create a strong supranational authority. It was to preserve regional stability, reduce mistrust, manage diversity, and provide a diplomatic framework in which very different states could cooperate. In this sense, ASEAN worked. Its informality, gradualism, consensus, and respect for sovereignty allowed countries with different regimes, economies, historical experiences, and strategic alignments to remain inside the same regional process.

The problem is that the next phase of global capitalism is less forgiving of institutional thinness.

Trade, digital systems, data, cybersecurity, energy transition, carbon accounting, labour standards, logistics, payments, and artificial intelligence all require regulatory capacity. They require agencies, procedures, technical expertise, trusted data, certification, enforcement, standards, interoperability, and dispute resolution. They require not only governments that can meet, but institutions that can act.

This does not mean ASEAN should become a Southeast Asian European Union. That would be politically impossible and historically inappropriate. But ASEAN does need to become more operational.

The challenge is not supranationalism. It is capacity.

ASEAN’s old model was built around diplomatic centrality. ASEAN convened. ASEAN hosted. ASEAN created regional spaces in which major powers had to engage Southeast Asian states through ASEAN-led mechanisms. This gave the region visibility and some protection against domination by any single external actor.

That model remains useful. In a world of intensifying rivalry, diplomatic centrality still matters. But it is no longer enough.

The emerging question is whether ASEAN can build regulatory centrality: the ability to produce, coordinate, and defend rules that shape how the region connects to the world economy.

Regulatory centrality does not require ASEAN to override member states. It requires ASEAN to help them build shared capacity where acting alone leaves them vulnerable.

This is especially important because the new rule systems are asymmetric. Large economies, powerful states, multinational corporations, digital platforms, financial institutions, and standards bodies have far greater capacity to define rules than most Southeast Asian governments do individually. They can set technical requirements, impose compliance systems, control infrastructure, define contract terms, shape data standards, and create market conditions that smaller states must accept if they want access. This is the real meaning of rule-taking.

It is not simply that Southeast Asian states are forced to obey. The process is subtler. They are often invited to participate — in markets, platforms, supply chains, digital systems, energy transitions, green finance, and strategic partnerships — but the terms of participation are structured before they arrive.

The offer comes already coded. This is why ASEAN’s missing middle matters.

If member states respond separately, stronger countries will secure better terms and weaker ones will become more dependent. Singapore can negotiate digital and regulatory issues from a position of high administrative capacity. Vietnam, Malaysia, Thailand, Indonesia, and the Philippines have different but significant forms of leverage. Cambodia, Laos, Myanmar, and Timor-Leste face more severe constraints. The danger is that ASEAN integration becomes a mechanism through which internal hierarchy deepens.

A region can integrate and fragment at the same time.

This happens when rules become more demanding but capacity remains uneven. Stronger actors adapt. Weaker actors depend. The region becomes more connected but less equal.

This is why ASEAN needs regulatory public goods.

A regulatory public good is not a grand political union. It is a shared institutional resource that helps member states operate more effectively inside complex rule systems. It can be modest. It can be technical. But it can also be transformative.

Examples include shared customs standards, mutual recognition of trusted certification systems, regional data-protection principles, cybersecurity cooperation, interoperable payment systems, common digital identity protocols, regional labour-inspection support, shared carbon-accounting tools, energy-planning mechanisms, competition-policy dialogue, and technical assistance for weaker members.

These are not glamorous projects. They do not carry the symbolic weight of high-speed railways, summits, naval exercises, industrial parks, or investment pledges.

But they may matter more. Because the future of power is increasingly embedded in systems.

• Who controls the standard?

• Who verifies the certificate?

• Who audits the supply chain?

• Who owns the data infrastructure?

• Who governs the payment rail?

• Who defines cybersecurity requirements?

• Who determines whether a product is green?

• Who decides whether a platform is competitive or monopolistic?

• Who has the authority to resolve disputes?

These questions are not secondary to development. They are development.

ASEAN’s difficulty is that its institutional culture often avoids precisely the areas where power is now being reorganised. Consensus works best when cooperation can proceed through flexible commitments. It works less well when rules require enforcement. Non-interference reassures governments. It works less well when data flows, cybercrime, platform power, pollution, labour exploitation, and supply-chain scrutiny cross borders. Informality preserves political comfort. It works less well when external partners demand legal certainty, traceability, and institutional credibility.

The region therefore faces a structural dilemma. ASEAN cannot abandon its principles without risking internal fracture. But it cannot rely on them unchanged without losing relevance. The solution is not to replace ASEAN’s diplomatic model overnight. The solution is to thicken the institutional space between declaration and enforcement.

This is the missing middle.

It would mean building specialised mechanisms that do not threaten sovereignty but do increase collective capacity. ASEAN does not need a central authority to regulate every platform, certify every product, or inspect every factory. But it can create shared baselines, common definitions, technical support systems, mutual recognition arrangements, training networks, information-sharing mechanisms, and regional procedures that help member states act with greater credibility.

In other words, ASEAN can remain intergovernmental while becoming more capable. This would also change the meaning of ASEAN centrality.

ASEAN centrality is often discussed in strategic terms: whether ASEAN remains at the centre of Indo-Pacific diplomacy, whether major powers respect ASEAN-led forums, whether the region can avoid being divided by U.S.-China rivalry. These questions are important. But they are incomplete.

The future of ASEAN centrality may depend less on summit architecture and more on regulatory capacity.

• Can ASEAN help govern data?

• Can it coordinate digital standards?

• Can it support trusted cross-border payments?

• Can it build cybersecurity cooperation?

• Can it help member states meet compliance requirements without becoming dependent on external auditors?

• Can it prevent platform power from overwhelming domestic firms and workers?

• Can it help weaker members participate in digital and green transitions without deepening dependency?

• Can it negotiate with external partners from a position of collective institutional credibility?

These questions define the next phase of regional autonomy.

They also show why ASEAN’s rule-shaping capacity cannot be built only at the regional secretariat level. Member states remain central. ASEAN’s weakness is partly regional, but it is also national. Regulatory public goods require capable national agencies. Customs systems, data regulators, labour inspectorates, standards bodies, courts, cybersecurity agencies, and competition authorities must work domestically before they can cooperate regionally.

This means that regional autonomy depends on national state capacity — but national state capacity increasingly depends on regional cooperation.

That is the paradox.

No ASEAN member state can fully solve the new rule-taking problem alone. But ASEAN cannot solve it without stronger member states. The task is therefore cumulative: build national capacity, connect it regionally, and use regional coordination to increase bargaining power externally.

This is easier to say than to do.

There are deep obstacles. ASEAN members have different political systems, administrative capacities, development levels, legal traditions, strategic alignments, and economic structures. Some governments may resist regulatory cooperation if they see it as intrusion. Some firms benefit from opacity. Some elites prefer discretionary systems. Some external actors may prefer negotiating bilaterally because it gives them greater leverage. Some member states may fear that common standards will expose their weaknesses rather than strengthen them.

These obstacles are real. But the alternative is not stability. The alternative is fragmented adaptation.

Fragmented adaptation means that each country adjusts separately to external rules. Some succeed. Others fall behind. External firms, platforms, and governments gain the ability to shape conditions country by country. Regional integration proceeds, but the region’s bargaining power remains limited.

ASEAN has seen versions of this before.

In production networks, countries competed for investment but often struggled to build collective industrial leverage. In infrastructure, external finance frequently arrived through bilateral deals rather than regional planning. In digital systems, platforms expanded faster than regulators. In energy, national planning often moved faster than regional coordination. In labour governance, standards were shaped by export-market pressure more than by regional social policy.

The pattern is familiar: integration without collective power. The rule-taker problem is the next expression of this pattern.

The difference is that the stakes are now wider. Rules do not only shape trade. They shape data, finance, digital identity, AI, energy transition, labour compliance, environmental credibility, cybersecurity, and strategic access. If ASEAN remains thin in these areas, its diplomatic centrality may coexist with regulatory dependence.

That would be a dangerous combination.

ASEAN would still host meetings. It would still issue statements. It would still be courted by major powers. But the systems that structure the region’s development would increasingly be designed elsewhere.

This is not inevitable. ASEAN has resources it can build upon. It has convening power. It has accumulated habits of cooperation. It has sectoral bodies and technical working groups. It has experience with economic agreements. It has a dense web of external partnerships. It has member states with significant regulatory expertise. It has a strong interest in avoiding domination by any single external actor.

The question is whether these assets can be converted into operational capacity.

The Digital Economy Framework Agreement is therefore important beyond the digital sector. It is a test case. If ASEAN can use DEFA to build real regulatory capacity — not merely announce a larger digital market — it may begin to demonstrate that regionalism can adapt to the new rule-based infrastructures of power.

If it cannot, DEFA may become another example of ambition exceeding machinery. The same applies to trade compliance, energy transition, carbon standards, cybersecurity, payments, and platform governance. Each area requires the same shift: from agreement to capacity, from aspiration to implementation, from diplomatic centrality to regulatory credibility.

This does not require perfection. ASEAN will remain slow. It will remain uneven. It will remain constrained by sovereignty, consensus, and the political diversity of its members. But slow does not have to mean hollow. Flexible does not have to mean weak. Intergovernmental does not have to mean incapable.

The task is to build institutions that fit ASEAN’s political reality while still addressing the demands of the new global economy.

This means starting where cooperation is possible: technical standards, training, interoperability, mutual recognition, regulatory peer learning, shared digital tools, cybersecurity exercises, public procurement principles, and common negotiating positions with external partners.

Small institutional gains can accumulate.

The history of development shows that capacity is rarely built in one dramatic moment. It is built through repeated practices, institutional routines, technical learning, and political struggle. ASEAN’s challenge is to treat regulatory capacity not as an administrative afterthought, but as a strategic priority.

This is what rule-shaping requires. It is not enough to be present at the table. It is necessary to know the language of the rules, possess the institutions that implement them, and have enough collective credibility to negotiate them.

That is the difference between participation and power.

Southeast Asia has become central to the world economy because others need the region. But need does not automatically translate into autonomy. The region will gain autonomy only if it can organise its centrality.

For ASEAN, that means moving beyond the comfort of declarations.

The next stage of regionalism will be judged less by what ASEAN says than by what ASEAN can make work.

Conclusion: Rule-Taking Is Not Regional Autonomy

Southeast Asia has become central to the new global economy because the world has become less stable.

This is the paradox at the heart of the present moment. The region is attractive because others need it: as a manufacturing alternative, a digital market, a source of minerals, a logistics platform, an energy-growth region, a diplomatic arena, and a strategic space between competing powers. Its importance has increased because global capitalism has become more fragmented, more insecure, and more political.

But importance is not the same as power.

A region can be central to supply chains without controlling technology. It can host digital platforms without governing data. It can attract cloud infrastructure without shaping standards. It can process critical minerals without commanding industrial architecture. It can receive investment without setting the terms. It can convene major powers without shaping the systems through which they operate.

This is the rule-taker problem.

It is not a problem of exclusion. Southeast Asia is not being left out of the emerging order. It is being pulled deeper into it. The danger is different: the region may become indispensable while remaining dependent on rules, standards, platforms, technologies, finance, and enforcement systems controlled elsewhere.

That is subordinated centrality.

This issue has argued that the next phase of Southeast Asian political economy will not be defined only by investment flows, trade agreements, industrial zones, energy projects, or diplomatic partnerships. It will also be defined by the rules that govern them.

• Who verifies origin?

• Who certifies compliance?

• Who governs data?

• Who controls payment rails?

• Who owns cloud infrastructure?

• Who sets cybersecurity standards?

• Who defines carbon credibility?

• Who regulates platforms?

• Who determines whether digital systems serve public goals or private monopolies?

These questions are not technical details. They are the new terrain of development.

For much of the post-Cold War period, Southeast Asia prospered through adaptation. Governments learned to operate within a relatively open global economy. They attracted investment, joined production networks, preserved diplomatic flexibility, and built national development strategies around selective integration.

That era is changing.

Issue 1 of this briefing argued that the era of low-cost adaptation is ending. Issue 2 argued that resilience without power can become a trap. This issue has taken the argument one step further: in a world of conditional access, rule-taking without institutional capacity becomes a new form of dependence.

The crucial issue is no longer only whether Southeast Asia can connect to the world economy. The question is whether it can govern the terms of connection.

This is why ASEAN matters.

ASEAN has been remarkably successful at what it was historically designed to do: manage diversity, reduce conflict, preserve channels of dialogue, and maintain a regional diplomatic framework among states with very different political systems, development levels, and strategic preferences.

But the new global economy demands capacities that ASEAN was not originally built to provide.

• It demands regulatory credibility.

• It demands implementation.

• It demands interoperability.

• It demands institutions that can produce trust.

The gap between ASEAN’s diplomatic language and its operational machinery is therefore becoming more consequential. Declarations, roadmaps, blueprints, and frameworks remain useful. But they cannot by themselves certify supply chains, secure data, regulate platforms, coordinate energy transition, or negotiate digital dependence.

ASEAN’s missing middle is the space between aspiration and capacity.

The region does not need to become a supranational state. That is neither politically realistic nor historically necessary. But it does need to build regulatory public goods: shared standards, mutual recognition systems, cybersecurity cooperation, data-governance principles, customs coordination, digital trust frameworks, interoperable payments, technical support for weaker members, and collective bargaining capacity with external partners.

These may sound modest. They are not. They are the foundations of regional autonomy in a world where power is increasingly embedded in systems.

Southeast Asia cannot write all the rules of the global economy. No region can. But it can decide whether it will encounter those rules as fragmented national economies or as a region with enough institutional capacity to negotiate, adapt, and shape them.

That is the choice.

If ASEAN remains primarily a diplomatic forum, Southeast Asia may continue to be courted by every major power while the systems that organise its development are designed elsewhere.

If ASEAN becomes a more capable regulatory actor, the region may begin to convert centrality into bargaining power.

This will not be easy.

ASEAN’s members differ enormously in capacity, interests, political regimes, legal systems, and strategic alignments. Some benefit from opacity. Some fear external standards. Some resist deeper cooperation. Some external actors prefer bilateral asymmetry to regional coordination. Implementation will be slow, uneven, and contested.

But the alternative is fragmented adaptation. And fragmented adaptation is no longer enough.

In the coming decade, the difference between rule-taking and rule-shaping will become one of the central questions of Southeast Asian development. The countries of the region will still need investment, trade, technology, energy, infrastructure, and external partnerships. But they will also need institutions capable of ensuring that these connections do not simply reproduce dependence in new forms.

This is the deeper meaning of developmental autonomy today. Autonomy does not mean isolation. It means the capacity to make choices under constraint.

It means having institutions strong enough to negotiate external pressures rather than merely absorb them. It means turning standards into capability, digital integration into public infrastructure, data flows into governed systems, and regional cooperation into bargaining power.

Southeast Asia’s future will not be decided only by how much it grows. It will be decided by whether the region can organise its centrality. For ASEAN, that means moving beyond the comfort of declarations. The next stage of regionalism will be judged less by what ASEAN says than by what ASEAN can make work.

Sources and Further Reading

This issue draws on official ASEAN statements, policy reports, enforcement data, and current reporting on digital infrastructure and regional payment systems. The aim is not to provide an exhaustive bibliography, but to identify the materials that help clarify the political economy of rule-taking, conditional access, digital governance, and ASEAN’s regulatory capacity.

Core sources used in this issue

ASEAN Digital Economy Framework Agreement
ASEAN’s statement on the conclusion of DEFA negotiations is central to this issue. ASEAN presents DEFA as its first region-wide digital economy agreement and as a milestone toward a digitally integrated, secure, interoperable, competitive, and inclusive regional economy. (ASEAN Main Portal)

ASEAN digital trade and e-commerce documentation
ASEAN’s digital economy materials provide broader institutional context for DEFA, including the ambition to unlock a much larger digital economy by 2030 and the importance of implementation across very different member states. (OECD)

OECD Digital Trade Review of ASEAN
The OECD’s 2026 review is useful for understanding the potential trade effects of DEFA and the implementation challenge. It estimates that, depending on ambition, DEFA could increase intra-ASEAN trade by 13 to 20 percent and total trade by 3 to 4 percent. (OECD)

USTR Section 301 forced-labour investigations
The USTR’s June 2026 findings and proposed actions are important for the argument that market access is increasingly tied to enforcement capacity, documentation, and proof. (United States Trade Representative)

CBP UFLPA enforcement dashboard
CBP’s UFLPA enforcement statistics and 2026 dashboard update are used as evidence of the broader shift toward traceability, shipment-level scrutiny, and supply-chain documentation as part of market access. (Customs and Border Protection)

IEA Southeast Asia Energy Outlook 2026
The IEA’s 2026 outlook is useful background for the energy-governance dimension of the argument. It notes that total energy investment in Southeast Asia reached over USD 100 billion in 2025, but still represented only around 3 percent of global energy investment. (IEA)

Digital infrastructure and undersea cables
Reuters’ report on the Microsoft–Lightstorm-led I-2SEA cable is useful for the discussion of cloud, AI, undersea cables, and the material infrastructure of digital dependence. The planned cable would link India, Malaysia, and Singapore and support AI, cloud, and hyperscale workloads. (Reuters)

Regional payment connectivity
AMRO’s work on ASEAN+3 cross-border payments helps frame payment systems as financial infrastructure, not merely consumer convenience. Its analysis stresses both the benefits of faster regional payment connectivity and the policy risks for financial stability and monetary sovereignty. (amro-asia.org)

ASEAN regional payment declaration
The ASEAN Leaders’ Declaration on Regional Payment Connectivity and Local Currency Transaction provides the official regional framework for understanding payments as part of ASEAN financial integration and local-currency use. (ASEAN Main Portal)

Further Reading for the Analytical Framework

Amsden, Alice H. The Rise of “The Rest”: Challenges to the West from Late-Industrializing Economies. Oxford: Oxford University Press, 2001.

Chang, Ha-Joon. Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press, 2002.

Cohen, Julie E. Between Truth and Power: The Legal Constructions of Informational Capitalism. New York: Oxford University Press, 2019.

Doner, Richard F., Bryan K. Ritchie, and Dan Slater. “Systemic Vulnerability and the Origins of Developmental States: Northeast and Southeast Asia in Comparative Perspective.” International Organization 59, no. 2 (2005): 327–361.

Fourcade, Marion, and Kieran Healy. “Seeing Like a Market.” Socio-Economic Review 15, no. 1 (2017): 9–29.

Gereffi, Gary, John Humphrey, and Timothy Sturgeon. “The Governance of Global Value Chains.” Review of International Political Economy 12, no. 1 (2005): 78–104.

Rodrik, Dani. “Industrial Policy for the Twenty-First Century.” CEPR Discussion Paper No. 4767. London: Centre for Economic Policy Research, 2004.

Srnicek, Nick. Platform Capitalism. Cambridge: Polity Press, 2017.

Wade, Robert. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press, 1990.

Weiss, Linda. The Myth of the Powerless State: Governing the Economy in a Global Era. Ithaca, NY: Cornell University Press, 1998.

Zuboff, Shoshana. The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power. New York: PublicAffairs, 2019.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.

Europe Sea Briefing Issue 2

3.62MB ∙ PDF file

Download

Download

A standard becomes developmental only when the capacity to meet it is built.

Executive Summary

Europe increasingly shapes Southeast Asia not only through trade, investment, and diplomacy, but through regulation. Environmental standards, due diligence requirements, carbon pricing, deforestation rules, sustainability reporting, and labour provisions are becoming central instruments of the European Union’s external economic influence.

These initiatives pursue legitimate objectives. Climate change, deforestation, labour exploitation, weak supply-chain accountability, and irresponsible corporate conduct are real problems. Yet regulation alone cannot generate development.

Whether higher standards promote industrial upgrading or simply increase the cost of participation depends on the capabilities that firms, workers, suppliers, and public institutions possess to meet them.

This briefing argues that Europe should complement its regulatory agenda with a strategy centred on capability-building. Its distinctive contribution to Southeast Asia will not come from competing with China through manufacturing scale or with the United States through technological dominance. It will come from supporting the institutions that sustain long-term industrial transformation: vocational education, supplier development, applied research, engineering capabilities, business associations, certification systems, and social dialogue.

Europe’s influence in Southeast Asia will increasingly depend on whether it exports rules alone — or helps build the capabilities that make those rules developmental.

Key Findings

• Europe’s regulatory influence is becoming one of its principal sources of international economic power.

• Higher standards can promote industrial upgrading, but only where firms and institutions possess the capabilities required to meet them.

• The central challenge is the capability gap between regulatory requirements and the productive, technological, organisational, and institutional capacities of partner countries.

• Europe’s comparative advantage lies not only in regulation, but in institutions that support learning, innovation, supplier upgrading, technical education, and social dialogue.

• A successful Europe–Southeast Asia partnership should move beyond compliance towards capability-building.

I. Introduction

Europe increasingly presents itself as a partner of Southeast Asia. The language of partnership appears in summit declarations, strategic documents, trade agreements, and official speeches. It conveys an image of cooperation grounded in mutual interests, shared objectives, and a common commitment to sustainable development.

Yet this is not always how Europe is experienced across the region.

For many firms, policymakers, and public institutions, Europe is encountered first not as an investor, a source of technology, or a strategic partner, but as a regulator. Carbon border adjustment, deforestation regulations, corporate sustainability reporting, due diligence obligations, environmental standards, labour provisions, and digital governance increasingly shape the conditions under which Southeast Asian firms can access European markets.

This reflects an important transformation in Europe’s international role. Unlike China, the European Union does not exercise influence primarily through manufacturing scale. Unlike the United States, it does not dominate the world’s leading digital platforms, frontier technologies, or security architecture. Europe’s external economic influence increasingly derives from its ability to define the rules governing access to one of the world’s largest markets.

These rules pursue legitimate objectives. Climate change demands more ambitious environmental policies. Consumers increasingly expect responsible business conduct. Global supply chains require greater transparency. Labour rights and sustainability have become integral components of contemporary economic governance.

The issue is therefore not whether Europe should regulate. The issue is whether regulation alone can achieve the developmental objectives that Europe increasingly associates with its external economic policy.

Standards establish expectations. They do not automatically create the capabilities needed to meet them.

This distinction is particularly important in Southeast Asia, where countries have become deeply integrated into global production networks but continue to display significant differences in technological sophistication, supplier development, workforce skills, institutional quality, and innovation capacity.

Under these conditions, identical regulations can produce very different outcomes. Where capabilities already exist, standards may accelerate industrial upgrading. Where capabilities remain weak, the same standards may increase costs, reinforce asymmetries, and exclude firms from higher-value markets.

This briefing argues that Europe’s future role in Southeast Asia should therefore be assessed not only by the standards it promotes, but by its contribution to building the capabilities that enable those standards to become instruments of development.

This argument builds directly on the framework introduced in Issue 1 of the Europe–Southeast Asia Briefing, which proposed that development should be understood through the accumulation of four complementary forms of capability: production, supplier, technological, and institutional capabilities.

Issue 2 extends that argument by asking a simple but increasingly important question:

Can Europe move beyond exporting regulations to become a genuine partner in capability-building?

II. Europe’s Regulatory Power

Europe’s regulatory power has become one of its most distinctive sources of international influence.

For decades, the European Union has shaped global markets through standards governing product safety, competition policy, consumer protection, environmental performance, food security, and data governance. Increasingly, this regulatory influence extends beyond the European market itself. Firms wishing to access European consumers frequently adapt production processes, supply-chain management, reporting systems, and corporate governance practices to comply with European requirements.

In this sense, Europe exports rules.

This form of influence has become even more significant as the European Green Deal has expanded the Union’s regulatory agenda. Instruments such as the Carbon Border Adjustment Mechanism, the European Union Deforestation Regulation, corporate sustainability reporting requirements, and mandatory due diligence seek not only to improve conditions within Europe but also to shape production practices throughout global value chains.

From a normative perspective, these initiatives are difficult to contest. They respond to genuine global challenges that cannot be addressed through voluntary commitments alone. From a developmental perspective, however, they raise a more complex question. Do regulations merely define higher standards, or do they also create the conditions under which those standards can be achieved?

This distinction has received too little attention. Much of the policy debate assumes that regulation naturally induces adaptation: firms respond to incentives, governments improve institutions, and markets reward better performance. Reality is often less straightforward. Adaptation depends upon capabilities.

The ability to reduce carbon emissions, establish traceability systems, strengthen labour protections, or comply with sustainability reporting requirements presupposes investments in technology, engineering, management systems, education, certification bodies, public administration, and supplier development.

In other words, regulation presupposes institutions capable of translating standards into practice. Where such institutions are absent or underdeveloped, regulation may produce compliance costs without generating corresponding developmental gains.

The question therefore is not whether Europe regulates too much. The question is whether Europe is investing sufficiently in the capabilities that allow regulation to become a catalyst for industrial transformation rather than simply a condition for market access.

III. From Regulation to Capability-Building

Europe’s growing regulatory influence raises a broader question than compliance alone. The critical issue is not simply whether firms can satisfy new standards. It is whether those standards contribute to industrial transformation.

The answer depends on capabilities.

Throughout the history of industrialisation, countries have rarely advanced simply because they participated in international trade or attracted foreign investment. They advanced because firms, workers, suppliers, universities, research institutions, and public agencies gradually acquired the capabilities required to master increasingly complex forms of production.

The same principle applies today.

Environmental standards, carbon accounting, due diligence obligations, and sustainability reporting all require firms to perform new activities. They must measure emissions, trace supply chains, redesign production processes, train engineers, improve management systems, and coordinate with suppliers.

These requirements are not merely regulatory. They are capability-intensive.

The question therefore becomes whether firms, suppliers, and public institutions possess the productive, technological, and organisational capacities required to respond.

This briefing refers to the distance between regulatory demands and existing capacities as the capability gap.

The capability gap is not simply a technical problem. It is a developmental one.

Countries that possess stronger engineering capabilities, more sophisticated suppliers, better vocational education systems, and more effective public institutions are better positioned to transform regulation into innovation. Countries where these capabilities remain weak may instead experience regulation primarily as an additional cost of market participation.

The distinction is fundamental. Standards do not automatically produce development. Capabilities determine whether standards become catalysts for upgrading or barriers to participation.

This observation builds directly upon the analytical framework introduced in Issue 1 of the Europe–Southeast Asia Briefing. Four forms of capability remain particularly important.

Production capabilities determine whether firms can manufacture efficiently and consistently.

Supplier capabilities determine whether domestic firms participate in higher-value production networks.

Technological capabilities determine whether firms and institutions absorb, adapt, and improve technologies.

Institutional capabilities sustain learning through vocational education, universities, research organisations, business associations, labour institutions, and effective public administration.

Regulatory requirements increasingly depend upon all four.

Box 1 — The EUDR and the Capability Gap

The European Union Deforestation Regulation provides a clear illustration of why standards require capabilities.

Its objective is straightforward: products entering the European market should not contribute to deforestation. The principle is widely supported. Implementation, however, depends upon capabilities that are distributed very unevenly.

Large multinational companies often possess sophisticated traceability systems, digital monitoring tools, compliance departments, and certification expertise. Millions of smallholders across Southeast Asia do not. For them, compliance may require land registration, geolocation technologies, digital record-keeping, certification procedures, and institutional support that are not always available.

Recent analyses by the Stockholm Environment Institute have highlighted the risk that the regulation may unintentionally disadvantage smaller producers unless accompanied by substantial investments in capability-building. Malaysia has already responded by developing programmes intended to help smallholders adapt to the new requirements.

The lesson extends far beyond palm oil. The question is not whether higher environmental standards are desirable. The question is whether producers possess the capabilities required to comply.

Where they do, standards can stimulate technological upgrading and strengthen sustainability. Where they do not, standards may reinforce existing inequalities within global production networks.

The capability gap therefore becomes the missing link between regulation and development.

Recognising the capability gap changes how Europe should understand partnership. Much of Europe’s external economic policy continues to operate through what might be called a compliance model. Standards are established, rules are clarified, partner countries adjust, and success is measured by compliance. Compliance undoubtedly matters. Without common standards there can be no credible environmental governance, responsible business conduct, or effective supply-chain accountability.

Yet compliance is not development. Development asks a different question. Does the process of meeting higher standards strengthen domestic capabilities? Does it improve supplier performance? Does it deepen engineering knowledge? Does it encourage technological learning? Does it strengthen vocational education? Does it improve the institutions through which firms, workers, and public agencies solve increasingly complex production problems?

These questions shift attention away from rules themselves and towards the institutions that make learning possible.

From this perspective, regulation should not be understood as the end of partnership. It should become its beginning. Every major regulatory initiative should be accompanied by mechanisms that strengthen the capacities required to implement it: technical assistance, supplier upgrading, engineering education, certification systems, applied research, vocational training, institutional cooperation, and social dialogue. Only then do standards become developmental.

The remainder of this briefing develops the central argument. It explains why Europe's comparative advantage lies in institution-building rather than regulation alone, examines the role of labour as a productive capability, and explores what a genuine developmental partnership with Southeast Asia might look like. This and future issues of the Europe–Southeast Asia Briefing are available to paid subscribers, who support the research behind this series.

IV. Europe’s Comparative Advantage: Building Capabilities Rather than Dependencies

Europe is often compared with China and the United States as though all three were competing through the same instruments. They are not.

China’s influence is rooted in manufacturing scale, industrial ecosystems, infrastructure finance, and increasingly technological capabilities. The United States continues to exercise influence through technological leadership, finance, security alliances, and the global reach of its firms.

Europe occupies a different position. Its influence increasingly derives from the quality of its institutions.

This distinction is frequently overlooked because institutions are less visible than factories, infrastructure projects, or breakthrough technologies. Yet institutions are precisely what allow productive systems to accumulate knowledge over long periods.

Europe’s comparative advantage lies not simply in technical standards or regulation, but in institutional ecosystems that connect firms, universities, vocational education, research organisations, business associations, labour institutions, and public policy.

These ecosystems did not emerge spontaneously. They are the product of long historical processes of industrialisation, technological competition, public investment, social compromise, and institutional experimentation. They differ substantially across European countries and should not be romanticised as a single model. Nevertheless, they illustrate an important principle: productive capabilities are sustained by institutions that organise learning across the economy.

This is where Europe has something distinctive to offer Southeast Asia. Rather than attempting to compete with China on infrastructure or with the United States on frontier technologies, Europe should concentrate on strengthening the institutional foundations of industrial upgrading.

That means supporting engineering education, vocational training, supplier development, applied research, standards laboratories, certification systems, technology partnerships, and mechanisms that connect universities with industry. It also means supporting institutions that facilitate cooperation between firms, workers, and public authorities.

Europe should therefore think of itself less as a regulator imposing standards and more as a partner helping countries develop the capabilities required to meet increasingly demanding standards while moving into higher-value activities.

This perspective also changes how success should be measured. Traditional indicators focus on trade volumes, investment flows, or the number of regulations adopted. These remain important, but they reveal relatively little about whether productive systems are becoming more capable.

A capability perspective suggests different questions.

• Are domestic suppliers becoming more technologically sophisticated?

• Are firms investing in engineering and design?

• Are vocational education systems responding to industrial demand?

• Are universities collaborating more closely with manufacturing firms?

• Are workers acquiring transferable technical skills?

• Are public institutions becoming more capable of supporting industrial transformation?

These questions move beyond compliance. They focus instead on whether international cooperation leaves behind stronger domestic capabilities.

The distinction is critical. A country may fully comply with European regulations while remaining dependent on imported technologies, foreign suppliers, and external decision-making. Conversely, a country that uses regulatory adjustment to strengthen domestic firms, technical education, research institutions, and supplier networks transforms compliance into industrial upgrading.

The objective of partnership should therefore not be compliance alone. It should be capability formation.

Box 2 — Bosch and the Institutional Dimension of Capability-Building

The long-standing partnership between Bosch Vietnam and LILAMA2 Technical and Technology College illustrates a distinctive European contribution to industrial development.

Rather than focusing exclusively on production, the programme combines practical workplace training with classroom education following elements of the German dual vocational education model. Students alternate between technical instruction and extensive practical experience inside Bosch’s production facilities.

The significance of this initiative extends beyond workforce training. It demonstrates how firms, educational institutions, and public authorities can cooperate to create long-term technical capabilities rather than simply filling immediate labour shortages.

Factories generate employment. Training systems generate capabilities.

This distinction captures an important aspect of Europe’s comparative advantage. European firms often contribute not only through capital investment but through institutional arrangements that connect production, education, and continuous skills development. For Southeast Asian economies seeking to move into more sophisticated manufacturing activities, such institutional partnerships may prove as important as technology transfer itself.

V. Electronics, Learning, and Labour as Productive Capability

The electronics industry shows why Europe’s role in Southeast Asia cannot be understood only through trade, investment, or regulation.

Electronics is one of the sectors in which Southeast Asia has become most deeply integrated into global production networks. Vietnam has become a major electronics exporter. Malaysia has developed one of the region’s most important semiconductor ecosystems. Singapore remains a centre for advanced services, logistics, and high-value manufacturing. Thailand and the Philippines also occupy significant positions in electronics and related supply chains.

Yet electronics also illustrates the limits of integration without capability-building.

A country may assemble sophisticated products without controlling design, intellectual property, advanced components, process innovation, or strategic decision-making. It may attract major foreign investment while domestic suppliers remain concentrated in lower-value activities. It may generate employment and exports without acquiring the deeper engineering capabilities needed for long-term upgrading.

This is why electronics is such a revealing sector for Europe–Southeast Asia relations. Europe is unlikely to compete with East Asian firms in manufacturing scale. It will not replace Samsung, TSMC, Foxconn, or Chinese manufacturing ecosystems. Nor is Europe likely to dominate the frontier of digital platforms in the way the United States does.

Europe’s contribution lies elsewhere. It lies in the organisation of learning.

European firms such as STMicroelectronics, Infineon, Bosch, and Siemens operate within industrial traditions where advanced manufacturing is closely linked to engineering, technical training, supplier development, applied research, and process innovation. Their potential relevance in Southeast Asia is not simply that they bring capital or technology. It is that they can contribute to the institutional ecosystems through which technological capabilities are accumulated.

This matters especially in semiconductors. Semiconductor upgrading is not achieved simply by building factories. It depends on engineers, technicians, clean-room expertise, testing capabilities, process control, supplier depth, research institutions, and long-term workforce development. These are not capabilities that can be purchased instantly. They must be built over time.

Malaysia offers an important example. Its semiconductor ecosystem has developed over decades and now attracts renewed attention as global firms diversify production and seek greater resilience in chip supply chains. European companies such as STMicroelectronics and Infineon are part of this landscape. Their presence matters not only because of investment volumes, but because they operate in a sector where upgrading depends on skills, engineering capacity, supplier ecosystems, and institutional learning.

This is also where the green transition becomes relevant. The decarbonisation of semiconductor production is not only an environmental issue. It is an industrial capability issue. Firms that can combine advanced manufacturing with cleaner energy, efficient processes, and reliable reporting systems will be better positioned in a global economy increasingly shaped by carbon constraints and sustainability requirements.

The lesson is broader than electronics. If Europe wants to be useful in Southeast Asia, it should focus less on presenting itself as an alternative source of investment and more on becoming a partner in the organisation of learning.

That means supporting technical education, engineering cooperation, supplier upgrading, research partnerships, standards laboratories, workplace learning, and social dialogue.

It also means recognising that workers are central to technological upgrading. In many discussions of competitiveness, labour is treated primarily as a cost. Countries compete by offering lower wages, greater flexibility, or weaker constraints on managerial authority. That model can attract investment and generate exports, especially during the early phases of industrialisation. But it cannot sustain industrial upgrading indefinitely.

As economies move towards higher-value activities, labour becomes increasingly important as a source of knowledge. Workers operate sophisticated machinery, identify production problems, adapt technologies to local conditions, transmit skills, and sustain the routines through which productivity improves.

Labour is therefore not simply a factor of production. Nor is it merely a social category whose interests must be balanced against those of firms. Workers are among the principal carriers of productive capabilities.

Much of the knowledge required for industrial upgrading is tacit. It is accumulated through production experience, troubleshooting, process improvement, and the daily interaction between engineers, technicians, supervisors, and shop-floor workers. Industrial learning depends not only on formal research and development but also on the continuous circulation of practical knowledge within firms and across production systems.

This perspective changes how we understand labour institutions.

• Stable employment relationships are not only socially desirable. They reduce the loss of accumulated experience.

• Vocational education is not only an educational policy. It is industrial policy.

• Continuous training is not simply a human-resource practice. It is an investment in technological capability.

• Social dialogue is not only a mechanism for managing industrial relations. It is an institution through which knowledge, experience, and practical solutions circulate between firms, workers, and public authorities.

This argument is particularly relevant for Southeast Asia. During the past three decades, countries across the region have successfully integrated into global production networks by offering competitive labour costs and attractive investment environments. This strategy generated rapid export growth and millions of new manufacturing jobs. Its limitations are now becoming increasingly evident.

The next phase of industrial development cannot rely exclusively on cost competitiveness. It requires productivity growth driven by engineering capabilities, technological learning, stronger domestic suppliers, and more sophisticated production systems.

In that context, labour becomes a strategic resource. The challenge is no longer simply attracting workers into factories. It is enabling factories to become institutions of learning.

Box 3 — Vietnam’s Electronics Industry: From Employment to Capability

Vietnam illustrates both the opportunities and the limits of integration into global value chains.

Over the past two decades, the country has become one of the world’s leading exporters of electronics, attracting massive foreign direct investment from firms such as Samsung, LG, and Intel. Manufacturing employment has expanded rapidly, while electronics has become one of Vietnam’s largest export sectors.

Yet industrial success has not automatically generated deep domestic capabilities. Much of the value created in electronics continues to depend on foreign technology, imported components, and multinational production networks. Domestic suppliers remain concentrated in lower-value activities, while research, design, and strategic decision-making largely remain outside Vietnam.

Current research highlights another dimension of this challenge. Workers in Vietnam’s electronics industry accumulate valuable production experience in globally competitive manufacturing environments. However, high labour turnover, widespread use of temporary contracts, and limited opportunities for career progression reduce firms’ ability to retain and deepen this accumulated knowledge.1

The issue is therefore not only social. It is developmental. Industrial upgrading requires institutions capable of transforming individual learning into organisational capability. Factories create experience. Institutions determine whether that experience becomes productive capability.

This brings us back to the central argument of this briefing. Europe’s comparative advantage does not lie simply in promoting higher standards. Its distinctive contribution lies in helping strengthen the institutions through which productive capabilities are accumulated: vocational education, supplier development, engineering cooperation, applied research, technical standards, business associations, and labour institutions.

These are not separate policy domains. Together they form the ecosystem within which productive transformation becomes possible.

VI. Conclusion: From Regulation to Developmental Partnership

Europe’s growing regulatory influence reflects an important reality. In a world increasingly shaped by climate change, technological competition, and supply-chain governance, standards matter. But standards alone do not generate development.

The central challenge facing Europe–Southeast Asia relations is therefore not whether regulations should exist. It is whether regulations become instruments of capability formation. This requires a different understanding of partnership. Rather than measuring success primarily through compliance, trade volumes, or investment flows, Europe should ask a different question:

Does cooperation leave behind stronger productive capabilities?

If the answer is yes, regulation becomes more than a condition for market access. It becomes part of a broader process of structural transformation.

Europe cannot replicate China’s manufacturing scale. Nor can it rival the United States in technological dominance. Its comparative advantage lies elsewhere. It lies in the institutions that connect firms, workers, universities, suppliers, and public authorities into systems capable of sustaining technological learning over time.

For Southeast Asia, the challenge is equally clear. The objective is not simply to participate in global value chains. It is to deepen domestic capabilities, strengthen local firms, expand technological autonomy, and ensure that integration into the global economy contributes to long-term structural transformation.

Europe’s most valuable export may therefore not be regulation itself. It may be the experience of building institutions through which societies learn, innovate, and continuously upgrade. That is the foundation of a genuine developmental partnership.

Looking Ahead

Issue 3

Indonesia’s Nickel Strategy: Resource Nationalism and the Quest for Industrial Transformation

Indonesia has become one of the world’s central suppliers of nickel, a critical mineral for batteries and the global energy transition. Has Jakarta found a path towards industrial transformation, or does the country’s downstream strategy risk reproducing a new form of commodity dependence?

The next issue of the Europe–Southeast Asia Briefing will examine what Indonesia’s experience reveals about industrial policy, foreign investment, technological learning, and Europe’s role in the emerging green economy.

Asian Political Economy Malaysia Long Reformasi Publishers Edition

2.97MB ∙ PDF file

Download

Download

Asian Political Economy Malaysia Long Reformasi Publishers Edition

2.97MB ∙ PDF file

Download

Download

This essay continues my attempt to read Southeast Asian political crises beyond the biographies of powerful leaders. As with Thaksin in Thailand, Duterte and Marcos in the Philippines, or Jokowi and Prabowo in Indonesia, the point is not to deny the importance of personalities. It is to ask what deeper political-economic conflicts these personalities come to embody. In Malaysia, the long confrontation between Mahathir Mohamad and Anwar Ibrahim was never only a matter of rivalry, betrayal and return. It was the visible form of a deeper crisis inside the UMNO-led developmental order.

Malaysia’s political crisis is usually told as the story of two men.

Mahathir Mohamad, the authoritarian moderniser who ruled the country for more than two decades. Anwar Ibrahim, the ambitious deputy, finance minister and heir apparent who became the symbol of Reformasi after his dismissal and arrest in 1998.

It is a powerful story. It is also too small.

The rupture between Mahathir and Anwar did not create Malaysia’s crisis. It revealed it. Behind the personal drama was the exhaustion of a political-economic order that had held Malaysia together since the aftermath of the 1969 riots: export-led growth, ethnic redistribution, foreign investment, state-created Malay capital, party-linked business and controlled political competition.

Malaysia did not fall into instability because two ambitious men could not share power. It entered a long crisis because the bargain that had sustained UMNO’s dominance could no longer reconcile its own promises: development and patronage, redistribution and elite enrichment, national autonomy and global finance, Malay advancement and democratic accountability.

For nearly three decades, UMNO had been more than a ruling party. It had been the manager of a national bargain. It promised Malay advancement without a full rupture with Chinese capital. It welcomed foreign investment while preserving a strong developmental role for the state. It used growth to soften ethnic tensions, and ethnic redistribution to legitimise capitalist transformation. It distributed opportunities through public agencies, state enterprises, privatisation, contracts, licences and politically connected corporate groups.

This was not simply corruption. Nor was it simply development. It was a distinctive Malaysian political economy: a system in which capitalism, ethnicity and party power were deeply intertwined.

The Asian financial crisis of 1997–98 did not merely attack the ringgit. It attacked this bargain.

As long as growth continued, Malaysia’s contradictions could be managed. The state could promote foreign investment while creating Bumiputera capital. It could support large conglomerates while claiming to represent ordinary Malays. It could speak the language of national development while tolerating deep inequalities of access, influence and wealth. It could sustain authoritarian rule because economic success gave the ruling coalition a powerful claim to legitimacy.

The crisis changed the question. It was no longer simply about how the gains of growth should be distributed. It became a question of who would absorb the losses.

Should politically connected firms be rescued or disciplined? Should Malaysia submit to the judgement of global financial markets or reassert national control? Should the state protect domestic capital or expose it to restructuring? Should UMNO preserve the networks through which it had governed, or sacrifice them in the name of reform?

This is where Mahathir and Anwar matter. Not as isolated personalities, but as historical figures through whom Malaysia’s contradictions became visible.

Anwar’s language was the language of reform: transparency, discipline, anti-corruption, fiscal prudence and investor confidence. He challenged the excesses of crony capitalism and gave political voice to a growing demand for accountability. But his reformism also carried the logic of market discipline. It suggested that Malaysia could restore credibility by exposing, restructuring or sacrificing parts of its politically connected corporate order.

Mahathir’s language was the language of sovereignty: national autonomy, resistance to external pressure, suspicion of global finance and defence of the developmental state. His capital controls in 1998 showed that there were alternatives to IMF-style crisis management. But his defence of sovereignty also protected important parts of the domestic order that had produced the crisis. He resisted global financial discipline, but he did not dismantle the political-business system through which UMNO had ruled.

This is the central ambiguity of Malaysia’s crisis.

Mahathir was right about the destructive power of global finance, but conservative about domestic power. Anwar was right about corruption and accountability, but insufficiently critical of the market discipline he invoked.

Reformasi was born in this space between two limits.

It was not only a democratic awakening, although it was certainly that. It was also a rupture inside Malaysia’s ruling social coalition. UMNO had long claimed to be the indispensable guardian of Malay interests, national stability and economic development. But by the late 1990s, the very development it had overseen had created new social forces: urban Malays, students, professionals, Islamic reformists, civil society activists and middle-class voters who no longer accepted that political loyalty should be exchanged for state protection.

UMNO’s own development model had produced some of the forces that now challenged UMNO.

That is why Malaysia’s post-1998 crisis did not end with Anwar’s imprisonment, Mahathir’s retirement, Najib Razak’s rise, the 1MDB scandal, the 2018 defeat of Barisan Nasional, Mahathir’s return, or Anwar’s eventual arrival in the prime minister’s office in 2022. Each moment seemed decisive. None resolved the deeper contradiction.

Malaysia had moved beyond the old UMNO order, but it had not yet created a stable alternative.

The result has been a long Reformasi: not a single movement, not a single election, not a single victory, but a prolonged crisis of political economy. The dominant-party system lost its hegemony. The Malay political bloc fragmented. The old machinery of patronage weakened but did not disappear. The demand for reform entered government, but only by making compromises with the very forces it had once opposed.

Malaysia’s crisis, then, is not the story of a country destabilised by two ambitious men. It is the story of a developmental bargain that could no longer hold together growth, redistribution, ethnicity, capital and political authority.

Mahathir and Anwar mattered because they fought over the future of that bargain. But the crisis was larger than both of them.

The Bargain After 1969

To understand why the 1998 rupture became so explosive, we need to return to the settlement created after 1969.

The racial riots of May 1969 were a foundational shock for postcolonial Malaysia. They exposed the fragility of a political order built on elite bargaining among ethnic communities, but also on deep economic inequalities. Malay political dominance existed alongside the continuing strength of Chinese capital. Rural Malays remained disproportionately poor. Urban growth had not dissolved ethnic segmentation. The promise of national unity through development suddenly looked vulnerable.

The response was the New Economic Policy.

Officially, the NEP had two goals: to eradicate poverty irrespective of race and to restructure society so that ethnicity would no longer be identified with economic function. In practice, it became much more than a social policy. It was a project to rebuild the Malaysian state, reorganise capitalism and consolidate UMNO’s authority.

This is where the work of scholars such as Jomo K. S. and Edmund Terence Gomez is indispensable. The NEP cannot be understood only as affirmative action. Nor can it be reduced to “cronyism”, as if the problem were simply moral corruption. It was a state-led attempt to transform the social composition of Malaysian capitalism.

The state did not merely redistribute income. It tried to create new owners.

Through public agencies, state enterprises, credit allocation, licences, contracts, education policies, share ownership schemes and later privatisation, the Malaysian state sought to expand Bumiputera participation in the modern economy. It aimed to produce a Malay professional class, a Malay managerial class and, most politically significant, a Malay capitalist class.

This was the core of the post-1969 bargain.

Chinese capital would not be expropriated. Foreign investment would still be welcomed. Export-oriented industrialisation would continue. But the state would intervene to ensure that Malays were not left as spectators in a capitalist economy dominated by others. UMNO would present itself as the party able to manage this transformation: protector of Malay interests, guarantor of national stability, broker among communities and organiser of development.

For a time, the bargain worked.

Malaysia grew rapidly. Poverty declined. Industrialisation accelerated. Foreign investors came, especially in electronics and export manufacturing. A new Malay middle class expanded through education, public employment and professional opportunities. The state gained developmental legitimacy. Unlike many postcolonial regimes that promised redistribution but delivered stagnation, Malaysia could point to visible economic progress.

But success had a political price.

The more the state intervened to create Bumiputera capital, the more access to the state became a route to accumulation. Contracts, licences, concessions, shares, privatisation deals and corporate restructuring became instruments through which wealth was allocated. UMNO was not governing the economy from outside. It was increasingly embedded within the economy itself.

Malaysian capitalism was not simply market-led. It was not simply state-led either. It was organised through political business: a dense relationship among ruling parties, state institutions, public enterprises, private firms and politically connected entrepreneurs.

That distinction matters. Calling the system “corrupt” is too easy. Corruption suggests a deviation from normal capitalism. But in Malaysia, political allocation was not a marginal distortion. It was one of the mechanisms through which capitalism was built, ethnic redistribution was pursued and ruling-party power was reproduced.

UMNO’s authority rested on its ability to convert development into loyalty. It distributed access to education, jobs, contracts, credit and corporate opportunity. It allowed Malay advancement to be experienced not as class conflict, but as national correction. It made capitalism politically acceptable by embedding it in a language of ethnic justice and developmental necessity.

Yet the same mechanisms that stabilised Malaysia also created future vulnerabilities.

First, the NEP blurred the line between redistribution and elite formation. It helped many ordinary Malays, but it also created opportunities for well-connected business groups. The language of communal uplift could legitimise the enrichment of a narrow corporate elite.

Second, UMNO’s control over economic allocation made political competition more dangerous. Losing power did not simply mean losing office. It meant losing access to the machinery through which wealth, contracts and influence were distributed.

Third, the system depended on growth. As long as the economy expanded, contradictions could be softened. Ordinary Malays could gain educational and employment opportunities. Chinese business could continue to prosper. Foreign investors could profit. UMNO-linked capital could grow. The state could claim that political control was the price of stability and development.

But what would happen if growth faltered?

What would happen if the state could no longer distribute gains, but had to decide who would absorb losses?

That question remained largely hidden during the boom years. It would return with destructive force in 1997.

The Mahathir Boom and the Fragility of Success

Mahathir Mohamad did not invent Malaysia’s post-1969 political economy. But he transformed its scale, ambition and ideological language.

When he became prime minister in 1981, the NEP was already a decade old. UMNO was already the central manager of Malaysia’s ethnic-developmental bargain. The state had already assumed a decisive role in shaping ownership, employment, education and access to economic opportunity. Under Mahathir, however, this system acquired a new confidence.

Malaysia would no longer be imagined only as a postcolonial society seeking stability after ethnic conflict. It would be imagined as a future industrial power.

Vision 2020 gave this ambition its clearest expression. Malaysia was to become a fully developed nation by the year 2020. The promise was not merely economic. It was civilisational. Malaysia would overcome dependency, master technology, build infrastructure, create national champions and prove that a Muslim-majority, postcolonial, multiethnic society could enter modernity on its own terms.

This was the progressive side of Mahathirism. It rejected the idea that small postcolonial states should accept a subordinate place in the global economy. It admired Japan and South Korea more than Anglo-American laissez-faire. It understood development as a national project, not merely a market outcome.

But Mahathir’s developmentalism was never separate from the political economy through which UMNO governed.

The 1980s and 1990s saw the expansion of privatisation, mega-projects, infrastructure development, corporate restructuring and state-backed conglomerates. Highways, ports, airports, industrial zones, property developments and prestige projects became symbols of a country moving fast. The skyline would express the nation’s transformation.

Yet privatisation did not mean a simple retreat of the state. In Malaysia, it often meant the transfer of state-created opportunities to politically connected corporate actors. The state remained central, but its role changed. It allocated concessions, guaranteed projects, selected winners, backed firms, restructured companies and opened new spaces for accumulation.

A highway concession, a telecommunications licence, a construction contract or a major property project was not just a business deal. It was part of a wider architecture in which political power and capitalist accumulation reinforced each other.

This was the Mahathir-era mutation of the NEP bargain. The official language remained one of Bumiputera advancement and national development. But increasingly, the production of Malay capital was tied to large corporate groups, privatised assets, state-backed finance and political access. The promise of broad communal uplift remained. The mechanisms of implementation increasingly favoured those closest to power.

This was not simply hypocrisy. It was a contradiction built into the model.

If the state wanted to create Malay capital quickly, it needed to select beneficiaries. If it wanted national champions, it had to concentrate resources. If it wanted Bumiputera participation in modern sectors, it had to use contracts, credit, licences and ownership transfers. But the more it did so, the more development became inseparable from patronage.

The system was effective, but fragile.

It was effective because it allowed Malaysia to grow while containing ethnic conflict. Chinese business continued to operate and prosper. Foreign investors continued to use Malaysia as a manufacturing platform. Malays entered universities, professions, public agencies and corporate life in unprecedented numbers. UMNO claimed that only its rule could hold together this complex arrangement.

It was fragile because too much depended on continuous expansion.

Growth made patronage affordable. Growth made inequality tolerable. Growth made ethnic redistribution less threatening to non-Malays. Growth allowed the state to rescue, refinance or reward politically connected firms without forcing a direct confrontation over who paid. Growth turned contradictions into manageable tensions.

The 1990s made the system appear stronger than it was.

Malaysia seemed to have discovered a formula: authoritarian stability without military rule; capitalism without complete laissez-faire; redistribution without socialist rupture; foreign investment without abandoning national ambition; Islamisation without rejecting developmental modernity. It was an attractive model, especially when compared with weaker postcolonial states or the social dislocation produced by neoliberal adjustment elsewhere.

But beneath the confidence was a growing dependence on finance.

The expansion of property, infrastructure and corporate groups required credit. The stock market became an arena of accumulation. Conglomerates expanded through debt and political access. The boundary between productive investment and speculative expansion became less clear. Malaysia wanted the autonomy of a developmental state, but it was increasingly exposed to the discipline of mobile capital.

This was the hidden vulnerability of Mahathir’s Malaysia.

The contradiction was not visible as long as capital flowed in, asset prices rose and growth continued. It became visible when the Asian financial crisis turned success into fragility.

The Crisis Becomes Political

The crisis reached Malaysia as an external shock, but it became politically explosive because it struck an already vulnerable domestic structure.

The ringgit came under pressure. The stock market fell. Capital flowed out. Corporate balance sheets deteriorated. Firms that had expanded through debt suddenly faced refinancing problems. Projects that had looked profitable during the boom became vulnerable once confidence collapsed.

But in Malaysia, finance was never just finance.

The companies under pressure were not anonymous market actors. Many were tied, directly or indirectly, to the networks of political business that had grown during the Mahathir years. Corporate restructuring was therefore not merely technical. It was political.

Which firms should be allowed to fail? Which should be rescued? Which debts should be socialised? Which entrepreneurs should be sacrificed? Which networks of influence should survive?

This was the moment when crisis management collided with regime maintenance.

Anwar Ibrahim, as finance minister and deputy prime minister, initially responded in a language global investors understood: fiscal restraint, monetary discipline, transparency, anti-corruption and the need to restore confidence. His position had real force. The boom had produced excesses, and many of those excesses were protected by political connections. To speak against cronyism was not simply to repeat a neoliberal slogan. It was to name a real pathology inside Malaysian capitalism.

But Anwar’s reformism was dangerous precisely because it touched the structure of power.

To attack cronyism in Malaysia was not only to attack a few corrupt businessmen. It was to challenge a mode of political-economic organisation. It meant questioning the mechanisms through which UMNO had distributed opportunity, financed loyalty and organised capitalist accumulation. It meant asking whether the very networks that had helped build Mahathir’s Malaysia had now become obstacles to its survival.

The language of reform therefore became a language of threat.

Mahathir saw the crisis differently. For him, the central enemy was not domestic cronyism but global finance. Speculators, rating agencies, currency traders and international financial orthodoxy appeared as forces trying to destroy the developmental autonomy of postcolonial states. Malaysia, in this view, was not being punished because it had failed. It was being punished because it had succeeded too independently.

There was truth in Mahathir’s critique. The Asian financial crisis showed the destructive power of mobile capital. It revealed how quickly years of development could be destabilised by financial panic. It exposed the hypocrisy of a global order that celebrated liberalisation during booms and demanded austerity during crises. Mahathir understood that accepting the full discipline of financial markets would reduce the policy space of the Malaysian state.

But his critique also had limits. Malaysia’s vulnerability had not been created solely from outside. It had also been produced by the domestic political economy of debt, property, patronage and corporate expansion. To blame speculators alone was to avoid asking how Malaysia had become so exposed.

This was the deeper conflict between Mahathir and Anwar.

For Anwar, Malaysia had to restore credibility by disciplining itself.
For Mahathir, Malaysia had to defend sovereignty by disciplining capital flows.

For Anwar, the crisis revealed the moral and institutional failures of crony capitalism.
For Mahathir, it revealed the violence of global financial capitalism.

Both were partly right. Both were incomplete.

Anwar was right that Malaysia’s domestic political-business networks had become a source of fragility. But his solution risked accepting too much of the external discipline imposed by markets and international financial orthodoxy. Mahathir was right that global finance could destroy national development strategies. But his response protected not only national autonomy, but also parts of the domestic order that needed transformation.

The tragedy of 1998 was that Malaysia’s two most powerful political figures each grasped one side of the contradiction.

The conflict soon moved beyond policy. It became a succession struggle, an ideological confrontation and a crisis of regime authority. Anwar was not an outsider. He was Mahathir’s deputy, finance minister and presumed successor. His challenge came from inside the ruling order. That made it far more dangerous than criticism from opposition parties or civil society.

Anwar’s dismissal in September 1998 transformed an elite conflict into a national crisis.

The man who had been presented as the future of UMNO became the symbol of opposition to UMNO. His arrest, humiliation and prosecution gave Reformasi a moral centre. What had begun as a dispute over economic policy and succession became a broader movement against authoritarianism, corruption and injustice.

Mahathir survived. Anwar was imprisoned. Capital controls restored policy space. Malaysia avoided the humiliation of an IMF programme. The economy recovered. In the short term, the state reasserted control.

But something had broken.

The old UMNO order did not collapse in 1998, but it lost its innocence. Its claim to embody national development could no longer go uncontested. Its promise to represent Malay interests fractured. Its use of patronage became more visible. Its control over succession was permanently weakened. Its legitimacy was no longer secured simply by growth.

That is why 1998 was not just a crisis year. It was the beginning of Malaysia’s long Reformasi.

Reformasi and the Social Forces UMNO Created

Reformasi is often remembered as a democratic movement. That is correct, but incomplete.

It was a movement against authoritarianism, corruption and the abuse of state power. It demanded justice for Anwar Ibrahim. It challenged the use of courts, police and media to discipline political opposition. It gave new energy to civil society and helped turn Malaysia’s opposition from a fragmented set of parties into a broader national force.

But Reformasi was also something deeper: a revolt inside the social world that UMNO had helped create.

For decades, UMNO had justified its dominance through development. It claimed that political stability was necessary for growth, that Malay advancement required UMNO protection, and that national unity depended on a ruling coalition able to balance ethnic interests. This claim was not simply ideological manipulation. Many Malaysians had indeed experienced upward mobility under the post-1969 settlement. Poverty declined. Education expanded. Malay participation in universities, professions, administration and corporate life increased. A new Malay middle class emerged from the very policies UMNO had promoted.

Yet this success changed the social basis of politics.

The Malay society of the late 1990s was not the rural Malay society of the early NEP years. It was more urban, more educated, more professional, more Islamicised, more exposed to global ideas and more capable of political mobilisation. Many Malays still depended on state protection, public employment or access to UMNO-linked networks. But many others had acquired enough education, confidence and social autonomy to question the party’s monopoly over Malay representation.

This was UMNO’s paradox.

The party had promised to uplift Malays. But by helping to produce a more educated Malay middle class, it also helped produce citizens who were less willing to accept paternalistic rule. Development created loyalty, but it also created expectations. Education produced administrators and professionals, but also critics. Islamisation strengthened Malay identity, but also opened moral languages that could be used against corruption and injustice.

Reformasi gave these tensions a name.

Anwar’s fall mattered because he was not a marginal dissident. He had been at the centre of the system. He was Malay, Muslim, educated, charismatic and deeply embedded in the political world that UMNO claimed to represent. His humiliation therefore could not easily be dismissed as the complaint of Chinese opposition parties, left-wing activists or liberal NGOs. It was experienced by many as a rupture within the Malay political community itself.

This is why Reformasi was so dangerous for UMNO.

It did not simply challenge the government from outside. It contested UMNO’s claim to be the sole legitimate guardian of Malay interests. It suggested that Malay dignity could be defended against UMNO, not only through UMNO. It allowed Islamic reformists, students, professionals and urban Malays to speak a language of justice that was not reducible to ethnic patronage.

Before 1998, opposition to UMNO had often been fragmented by ethnicity, ideology and geography. The Democratic Action Party had strong support among non-Malay voters but was easily portrayed by UMNO as a threat to Malay interests. PAS mobilised Islamic opposition but was often confined to particular social and regional bases. Civil society groups raised issues of rights, environment, labour and democracy, but struggled to transform these into a national political challenge.

Reformasi helped connect these worlds.

It created a bridge between democratic rights and Malay political dissent, between Islamic moral critique and anti-corruption politics, between middle-class frustration and opposition coalition-building. It did not dissolve Malaysia’s ethnic divisions. But it weakened the old formula through which UMNO had contained them.

The movement also exposed a class contradiction within the NEP order.

The NEP had been justified in the name of Malay advancement as a whole. But by the 1990s, many Malays could see that the greatest benefits of state-backed accumulation flowed to those with political access. Contracts, shares, concessions and corporate opportunities did not reach all Malays equally. The language of communal uplift increasingly coexisted with visible elite enrichment.

This did not mean that ordinary Malays rejected redistribution. They did not suddenly become free-market liberals. Nor did they abandon concerns about inequality between communities. But Reformasi allowed many to distinguish between policies that expanded social opportunity and policies that enriched politically connected elites in the name of the community.

That distinction was politically explosive.

If Malay advancement no longer required unconditional loyalty to UMNO, then UMNO’s ideological foundation weakened. If corruption could be criticised from within Malay society, then anti-corruption politics could no longer be dismissed as anti-Malay. If Islam could be used to condemn injustice rather than legitimise authority, then UMNO’s moral authority became vulnerable. If educated Malays could join non-Malay opposition forces without feeling they were betraying their community, then the structure of Malaysian electoral politics began to shift.

Reformasi therefore broke the old political imagination.

After 1998, it became possible to think of Malaysia without permanent UMNO dominance. It became possible to imagine Malay politics outside UMNO. It became possible to build opposition coalitions that connected justice, anti-corruption, institutional reform and social resentment.

But Reformasi also had limits.

It could delegitimise UMNO’s monopoly, but it could not easily define a new political economy. It brought together liberals, Islamists, social democrats, Malay reformists, non-Malay opposition parties, NGOs, students and professionals. They agreed that UMNO’s authoritarianism and corruption had to be challenged. They did not necessarily agree on the future of the Malaysian state, the role of Islam, the meaning of the NEP, the place of ethnic redistribution, or the relationship between market reform and social justice.

This is one reason why Malaysia’s post-1998 crisis became so long.

Reformasi weakened the old order before a new order was ready to replace it. UMNO survived, but its hegemony was damaged. The opposition grew, but remained internally divided. Malay politics pluralised, but also became more competitive and anxious. The state continued to rely on development and redistribution, but could no longer claim that these required one-party dominance.

Reformasi did not end Malaysia’s developmental bargain. It exposed its exhaustion.

From Electoral Erosion to Anwar’s Return

The years after Reformasi did not bring immediate regime change.

Mahathir survived. UMNO remained in power. Barisan Nasional continued to dominate the state. Malaysia did not experience the dramatic collapse that ended Suharto’s rule in Indonesia. The economy recovered, the machinery of patronage endured, and the ruling coalition retained formidable control over media, institutions and electoral resources.

But survival was not the same as restoration.

After 1998, UMNO could no longer present itself as the natural centre of Malaysian politics without challenge. Its claim to represent Malay interests had been fractured by Anwar’s movement and by the growth of PAS. Its claim to represent development had been weakened by the visibility of political business. Its claim to represent stability had been damaged by the violence of Anwar’s dismissal and prosecution.

The old order remained in place, but its hegemony had been wounded.

Mahathir’s retirement in 2003 seemed to offer a controlled transition. Abdullah Ahmad Badawi promised cleaner, softer and more consultative government. His landslide victory in 2004 suggested that Barisan Nasional could still renew itself from within. Many voters wanted reform, but still expected reform to come from the ruling coalition. The hope was that UMNO could correct its excesses without abandoning the system that had guaranteed stability.

That hope did not last.

By 2008, the gap between promise and transformation had become impossible to ignore. Barisan Nasional lost its two-thirds parliamentary majority and several state governments. This was more than an electoral setback. It was proof that the post-1998 opposition had become a durable force. Reformasi had moved from street mobilisation to electoral realignment.

Yet the opposition still faced a central difficulty. It could unite around anti-corruption, institutional reform and opposition to UMNO dominance. But it struggled to define a coherent alternative to the post-1969 bargain. What should happen to the NEP? How could redistribution be maintained without reproducing ethnic patronage? How could Malay anxieties be addressed without preserving UMNO’s monopoly? How could Malaysia remain developmental without returning to political business?

These questions remained unresolved.

Najib Razak’s rise after 2009 was an attempt to modernise the old order without dismantling it. He spoke the language of transformation, performance, moderation and national unity. “1Malaysia” promised a more inclusive national identity. Economic reform programmes promised competitiveness and efficiency.

But the foundations of power remained familiar. UMNO still depended on patronage. State-linked companies and public investment remained central. Ethnic redistribution remained politically sensitive. Malay anxiety could still be mobilised when reform seemed to threaten established protections. The ruling coalition tried to modernise its language while preserving the structures that sustained it.

The contradiction became devastating with 1MDB.

The scandal mattered not only because of the scale of alleged corruption. It mattered because it confirmed a suspicion that had existed since Reformasi: that the language of development, national investment and state-led ambition could be used to concentrate wealth and power without accountability. In the Mahathir era, political business had been tied to privatisation, concessions, infrastructure and domestic corporate restructuring. Under Najib, the same logic appeared in a more globalised and financialised form: sovereign funds, offshore networks, investment vehicles and transnational flows of money.

The scale had changed. The principle was familiar.

State power, political survival and accumulation were still entangled.

This is why 1MDB was so destructive for Barisan Nasional. It did not appear as an isolated scandal. It appeared as proof that the system could not reform itself. For many Malaysians, the problem was no longer simply that Najib had betrayed UMNO’s legacy. It was that UMNO’s legacy had made such a scandal politically possible.

The 2018 election therefore became a historic rupture.

Barisan Nasional lost federal power for the first time since independence. Najib fell. Pakatan Harapan formed the government. The old party-state order had been removed from office.

The symbolism was extraordinary. Mahathir, the leader who had crushed Reformasi in 1998, returned as the head of the coalition that inherited Reformasi’s legacy. Anwar, the former prisoner and long-time opposition leader, was pardoned and again positioned as the future prime minister.

But the breakthrough contained its own contradiction.

Pakatan Harapan was held together by a powerful negative consensus: Najib had to go, 1MDB had to be confronted, and Barisan Nasional’s monopoly had to end. But removing a discredited government is not the same as building a new political economy. The coalition contained liberals, reformists, social democrats, former UMNO figures, Malay nationalists, civil society activists and parties with very different views on ethnicity, Islam, redistribution and the state.

They could agree on ending Najib’s rule. They could not easily agree on what should replace the UMNO developmental bargain.

Mahathir’s return made this contradiction sharper. He was useful because he could reassure Malay voters who feared that reform meant the end of Malay political power. He gave Pakatan Harapan a bridge into a world that UMNO had long monopolised. But he was also the embodiment of the political economy Reformasi had challenged: executive dominance, developmental nationalism, suspicion of liberal reform and an ambiguous relationship with succession.

The question of Anwar’s succession therefore returned as a structural problem. In 1998, the Mahathir-Anwar rupture had exposed the crisis of the UMNO order. After 2018, the unresolved relationship between the two men exposed the fragility of the coalition that had replaced it.

The collapse of the Pakatan Harapan government in 2020 showed that Malaysia had moved beyond one-party dominance, but not into stable democratic consolidation. The old order was broken. A new order had not yet been built. Governments changed, coalitions shifted, parties split, and former enemies became partners. Politics became more competitive, but also more fragmented.

UMNO could lose office without disappearing. Reformasi could win an election without consolidating a new governing bloc.

Anwar’s eventual appointment as prime minister in 2022 was therefore historically powerful but structurally ambiguous. The leader most associated with Reformasi finally reached the office from which he had been excluded in 1998. Yet he did so not as the leader of a triumphant reformist majority, but as the head of a unity government that included forces from the old Barisan Nasional world.

Reformasi entered the state, but not on the terms imagined by its most idealistic supporters.

This is not simply a moral failure. It is the logic of Malaysia’s long crisis. Anwar cannot govern as if the UMNO order has simply disappeared. He governs a fragmented society, an anxious Malay electorate, a competitive Islamic opposition, a still-powerful bureaucracy, state-linked corporate structures, and a coalition system in which reform depends on compromise with actors shaped by the old regime.

His premiership embodies the paradox of post-1998 Malaysia. He carries the moral memory of Reformasi, but he governs through the incompleteness of Reformasi’s victory.

The Crisis That Never Ended

Malaysia’s crisis is not the story of a country destabilised by two ambitious men.

Mahathir and Anwar mattered because they gave political form to a deeper contradiction. Mahathir embodied the achievements and limits of developmental nationalism: ambition, industrialisation, state capacity and resistance to global financial discipline, but also authoritarianism, patronage and executive dominance. Anwar embodied the achievements and limits of Reformasi: accountability, justice and democratic aspiration, but also the difficulty of transforming moral opposition into a coherent political economy.

The deeper story is the breakdown of the UMNO developmental bargain.

For decades, UMNO held together growth, ethnic redistribution, foreign investment, state intervention and political control. The bargain worked as long as development produced enough gains to distribute. But the Asian financial crisis exposed the fragility of a system in which state power, party loyalty, ethnic redistribution and capitalist accumulation had become inseparable.

When crisis arrived, Malaysia had to decide who would pay.

That is why the Mahathir-Anwar rupture became so explosive. Anwar’s reformism challenged the domestic networks of political business. Mahathir’s capital controls challenged the external discipline of global finance. Both responses addressed real problems. Neither resolved the full contradiction.

Mahathir resisted global finance without democratising domestic power. Anwar challenged corruption without fully answering how Malaysia could preserve redistribution, state capacity and national autonomy beyond UMNO’s old structures.

This is why Reformasi became long.

It broke UMNO’s monopoly, but did not create a stable replacement. It opened Malay politics, but also intensified competition over Malay representation. It made democratic change possible, but did not settle the future of the NEP, the developmental state, political Islam, state-linked capital or Malaysia’s place in global capitalism.

The lesson is broader than Malaysia.

Across Southeast Asia, political crises often appear as leadership dramas: Thaksin and the Thai establishment, Duterte and the Marcos restoration, Jokowi and Prabowo, Mahathir and Anwar. But these figures matter because they condense deeper struggles over state power, capitalist development, redistribution, class formation and national legitimacy.

Malaysia’s trajectory is distinctive because its instability did not emerge from the absence of development. It emerged from the exhaustion of a developmental order that had once been remarkably effective.

UMNO built Malaysian capitalism through a bargain that combined social mobility with patronage, redistribution with elite formation, foreign investment with national ambition, and stability with political control. That bargain did not collapse in 1998. But it was exposed. From that moment, Malaysia entered a prolonged search for a new organising principle.

That search is still unfinished.

Malaysia survived the Asian financial crisis. It avoided an IMF programme. It recovered economically. In that narrow sense, Mahathir won.

But the political economy that entered the crisis did not emerge unchanged. UMNO’s monopoly was broken. Reformasi created a new language of justice and accountability. Malay politics fragmented. Barisan Nasional eventually fell. Anwar finally reached power.

Malaysia survived the crisis. But it has been living ever since with the political consequences of how it survived.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.

Corporate Power In Asia 05 Petronas First Edition 2026

26.8MB ∙ PDF file

Download

Download

Petronas is one of the most successful state-owned enterprises in the world.

The company operates across dozens of countries, manages some of the most technologically sophisticated activities in the global energy industry and generates revenues that exceed the GDP of many developing nations. Over the past half century, it has transformed itself from a newly created national oil company into a respected multinational corporation with capabilities spanning exploration, production, refining, petrochemicals and liquefied natural gas.

Few postcolonial states have created an institution of comparable quality. This fact presents a puzzle.

If Petronas were the only thing we knew about Malaysia, we might expect the country to rank among the world’s leading technological powers. We might expect a landscape populated by globally competitive corporations, advanced industrial ecosystems and nationally controlled technological champions. After all, Petronas demonstrates that Malaysia has been capable of building sophisticated institutions, training highly skilled engineers and competing successfully in one of the most demanding sectors of the global economy.

Yet Malaysia followed a different path. The country industrialized successfully. It reduced poverty, expanded education and became one of Southeast Asia’s most prosperous societies. It established itself as an important manufacturing centre and integrated deeply into global production networks. But unlike South Korea or Taiwan, it never developed a broad ecosystem of globally significant technology firms. It became highly capable at participating in the world economy without exercising comparable influence over the technologies that increasingly shape it.

This raises a question that lies at the heart of modern Malaysian development: Why did Malaysia succeed in building Petronas, yet struggle to reproduce Petronas elsewhere?

The question is important because it challenges two influential ways of thinking about development.

The first is the idea that natural resources are inherently a curse. According to this view, oil wealth tends to weaken institutions, encourage rent-seeking and reduce incentives for technological upgrading. Countries rich in resources become dependent upon them.

Malaysia does not fit this narrative easily. Petronas became a source of capability rather than dependency. It accumulated technological expertise, developed organizational competence and helped finance one of the most successful developmental experiences in the postcolonial world.

The second narrative is more optimistic. It assumes that success in one sector naturally generates success elsewhere. Capabilities diffuse. Institutions learn. Engineers carry expertise from one industry to another. Over time, isolated achievements evolve into broader systems of innovation.

Malaysia complicates this story as well. Petronas succeeded spectacularly. Yet the conditions that produced that success proved surprisingly difficult to replicate. The company became a world-class institution. The wider economy remained far more dependent on foreign technologies, multinational corporations and external centres of innovation than many Malaysian policymakers had hoped.

The challenge facing Malaysia, therefore, was not simply how to build capabilities. It was how to diffuse them.

This distinction lies at the centre of the Petronas story. The company reveals that creating one exceptional institution may be easier than transforming an entire economy. It demonstrates that developmental success can generate new constraints even as it solves old problems. Most importantly, it suggests that the path from capability to technological leadership is neither automatic nor inevitable.

The history of Petronas is therefore not simply the history of an oil company. It is the history of a developmental ambition. It is the story of how a postcolonial state sought to transform resource wealth into national capability, how it succeeded beyond most expectations and why that success ultimately raised a more difficult question than the one it originally set out to answer.

To understand that paradox, however, we must begin with the colonial economy from which Malaysia emerged and the developmental challenges that shaped the ambitions of those who sought to transform it.

I. Colonial Prosperity and the Problem of Development

When Malaysia achieved independence in 1957, it faced a developmental challenge that differed from that of many postcolonial states. The problem was not poverty. The problem was dependence.

By the standards of the developing world, Malaya was relatively prosperous. Decades of integration into the global economy had produced modern infrastructure, functioning administrative institutions and export industries capable of generating substantial wealth. The country was one of the world’s leading producers of rubber and tin, commodities that linked it closely to the industrial economies of Europe, North America and Japan.

This prosperity, however, concealed a structural weakness. The colonial economy excelled at producing commodities but not capabilities.

British rule had organized economic life around extraction and export. Railways connected mines and plantations to ports. Financial institutions facilitated international trade. Investment flowed into sectors capable of supplying raw materials to global markets. Economic growth occurred, but the technologies, research capabilities and strategic decisions that determined the direction of development remained concentrated elsewhere.

Malaya participated in the world economy. It did not shape it. This distinction would become increasingly important after independence.

Many postcolonial leaders inherited economies characterized by scarcity. Malaysia inherited an economy characterized by success of a particular kind. Commodity exports generated wealth, but they did not necessarily create the technological capabilities associated with industrial modernity. The country produced rubber but not automobiles, tin but not advanced machinery. It supplied inputs to industrialization occurring elsewhere.

The challenge facing Malaysian policymakers was therefore unusual. How could a country move from prosperity to capability? This question became even more complicated because the colonial economy had left behind a highly segmented social structure. British authorities had encouraged large-scale migration from China and India to support economic expansion. Over time, economic functions became associated with different communities. Chinese Malaysians played prominent roles in commerce and urban business, Indians were heavily represented in plantation labour, while many Malays remained concentrated in rural agriculture and the public sector.

The result was a pattern of development in which economic inequality, ethnicity and modernization often appeared intertwined. These divisions did not prevent growth. But they complicated the politics of development.

By the time of independence, Malaysia faced two interconnected challenges. The first was economic: how to reduce dependence on commodities and develop more sophisticated productive capabilities. The second was political: how to ensure that modernization strengthened rather than undermined national cohesion.

Neither challenge could be solved simply through continued growth. The country required new institutions capable of expanding participation in modern sectors while simultaneously increasing national control over strategic areas of the economy. Development would have to become more than a process of generating wealth. It would have to become a process of building capabilities.

This was the question that haunted Malaysian policymakers during the first decades after independence. How could the country acquire greater control over its own economic future?

The answer that eventually emerged differed from those pursued elsewhere in Asia. South Korea would rely on powerful private conglomerates disciplined by the state. Taiwan would combine state intervention with networks of domestic firms and research institutions. Singapore would build a highly technocratic form of state capitalism.

Malaysia chose a different path. The turning point came after the political crisis of 1969, when policymakers concluded that development required not only growth but also the deliberate creation of national capabilities. It was within this new vision of development that Petronas would eventually emerge—not simply as an oil company, but as an institution designed to solve a problem inherited from the colonial era: the problem of dependence.

II. Nation-Building and the Search for Capability

The crisis that transformed Malaysian development did not begin as an economic crisis. It began as a crisis of nation-building.

By the late 1960s, Malaysia’s economy was performing reasonably well. Commodity exports remained strong, infrastructure continued to expand and living standards had improved since independence. Yet growth had not resolved the deeper tensions inherited from the colonial era. Economic opportunity remained unevenly distributed, while many Malays perceived themselves as underrepresented in the modern sectors of the economy.

The issue was not simply inequality. It was ownership. Political independence had transferred authority from colonial rulers to a sovereign state, but many of the most dynamic sectors of the economy remained dominated by foreign firms and established business networks whose origins predated independence. For a growing number of policymakers, this raised uncomfortable questions about the meaning of development itself.

Could a nation be considered fully developed if it lacked significant control over its most important economic activities? The riots that followed the 1969 general election forced these questions to the centre of political life. The violence shocked the country and exposed the fragility of the post-independence settlement. More importantly, it convinced many within the political leadership that economic growth alone could not guarantee stability. Development had to be understood not merely as an increase in national income, but as a process through which broader segments of society acquired access to modern economic opportunities.

The result was the New Economic Policy (NEP), introduced in 1971. The NEP is often remembered for its redistributive objectives and its efforts to increase Bumiputera participation in the economy. These dimensions were important, but they tell only part of the story. The deeper significance of the policy lay in its understanding of development as capability building.

The architects of the NEP believed that Malaysia needed more than growth. It needed engineers. Managers. Scientists. Entrepreneurs. Institutions capable of operating in technologically sophisticated sectors. The goal was not simply to redistribute wealth, but to create the human and organizational capacities required for a more autonomous form of development.

This represented a significant shift in thinking. During the colonial period, prosperity had depended largely upon the successful export of commodities. The NEP implied a different vision. Malaysia would not remain merely a producer of raw materials. It would cultivate the capabilities necessary to participate more actively in shaping its own economic future. In practice, this required a larger role for the state.

Universities expanded. Technical education received greater attention. Government agencies acquired new responsibilities. Public enterprises became important instruments of developmental policy. Rather than acting solely as a regulator, the state increasingly sought to become a builder of capabilities.

Yet ambition alone was not enough. Creating capabilities is difficult. It requires institutions capable of sustaining learning over long periods of time. It requires opportunities for engineers and managers to acquire practical experience. Above all, it requires sectors through which knowledge can be accumulated and organizational competence can develop.

Malaysia needed a vehicle for this process. Unexpectedly, that vehicle emerged from beneath the seabed. The global oil shocks of the 1970s transformed petroleum into one of the world’s most strategic resources. Across the developing world, governments sought greater control over energy industries that had long been dominated by multinational corporations. For many countries, oil represented a source of revenue.

For Malaysia, it appeared to offer something more: a chance to build capabilities. This distinction would prove decisive. When Malaysian policymakers decided to create a national oil company in 1974, they were not simply pursuing resource nationalism. They were attempting to solve a developmental problem that had existed since independence.

How could a postcolonial state acquire the capabilities needed to exercise greater control over its economic future? Petronas was conceived as part of the answer.

III. Creating Petronas: More Than Resource Nationalism

Petronas was created in 1974 during a period when governments across the developing world were seeking greater control over natural resources. The timing was not accidental. The oil shocks of the 1970s transformed global perceptions of energy. Petroleum was no longer viewed merely as a valuable commodity. It had become a strategic asset capable of reshaping national fortunes. From the Middle East to Latin America, states sought to challenge arrangements through which foreign corporations exercised extensive control over oil production and revenues.

Malaysia participated in this broader wave of resource nationalism. Yet to view Petronas simply as a Malaysian version of a global trend would be misleading. The company’s creation reflected a distinctly Malaysian concern. The central issue was not ownership alone. It was capability.

Many resource-rich countries had discovered that formal ownership of natural resources did not necessarily translate into meaningful control. Governments could nationalize assets, renegotiate contracts or increase taxation. None of these measures automatically produced engineers, geologists, project managers or technological expertise. Ownership could be transferred by law. Capability had to be learned. This distinction shaped the Malaysian approach from the beginning.

The Petroleum Development Act of 1974 vested ownership of the country’s petroleum resources in a newly created state-owned enterprise, Petroliam Nasional Berhad—Petronas. On paper, the legislation represented a significant assertion of national sovereignty. In practice, however, the company entered an industry dominated by multinational corporations possessing decades of accumulated experience and technological knowledge.

Petronas began with very little of its own. It had no large cadre of experienced petroleum engineers. It lacked the organizational depth required to manage complex offshore operations. Compared with firms such as Shell or Exxon, it was a newcomer operating in one of the most technologically demanding industries in the world.

This reality forced Malaysian policymakers to confront an uncomfortable fact. The country could not simply replace foreign expertise. It had to learn from it. Unlike some nationalization projects elsewhere, Petronas was therefore designed not as an instrument of immediate autonomy but as an institution of gradual capability accumulation. International oil companies continued to operate in Malaysia, but under new arrangements that gave the state greater authority over resources while preserving access to foreign technology and expertise.

This strategy required patience. The objective was not to demonstrate independence overnight. The objective was to ensure that Malaysians would eventually possess the skills necessary to operate the industry themselves. In retrospect, this decision may have been the most important choice made during the company’s formative years. Many governments treated natural resources primarily as sources of revenue. Petronas treated them as opportunities for learning.

How did a national oil company become one of the most capable institutions in the developing world—and why did its success prove so difficult to replicate?

The rest of this essay is for paid subscribers.

Throughout the late 1970s and 1980s, the company invested heavily in education, training and organizational development. Malaysian engineers were sent abroad for advanced study. Technical personnel worked alongside international specialists. New generations of managers acquired experience negotiating contracts, overseeing projects and coordinating increasingly complex operations. Knowledge that had previously resided outside the country gradually became embedded within Malaysian institutions.

The process extended far beyond technical skills. Petronas learned how to evaluate investment opportunities, manage risk, coordinate large-scale infrastructure projects and operate within highly competitive international markets. These capabilities were not specific to oil alone. They were forms of organizational knowledge associated with sophisticated modern enterprises. The company was becoming more than a producer of energy. It was becoming a school of development.

This transformation helps explain why Petronas occupies such a distinctive place in Malaysian history. The company’s importance did not derive solely from the revenues it generated. Its deeper significance lay in its role as an institution through which the state sought to create capabilities that had been largely absent from the colonial economy. In effect, Petronas became a practical answer to the developmental question that had emerged after 1969. How could Malaysia acquire greater control over its economic future? The answer was not simply through ownership. It was through learning.

Over time, this strategy produced results that exceeded even the expectations of many of the company’s architects. By the late twentieth century, Petronas had evolved from a modest national oil company into one of the most capable organizations in the developing world.

Its success was remarkable. The more remarkable question is what happened next. For if Petronas demonstrated that Malaysia could build a world-class institution, why did similar institutions prove so difficult to create elsewhere in the economy?

IV. Learning to Master Energy

The success of Petronas should not be measured primarily in barrels of oil or cubic metres of natural gas. Its most important achievement was institutional.

Over the course of several decades, the company acquired capabilities that many newly independent states had struggled to develop. It learned how to operate in one of the most technologically demanding industries in the world. It accumulated expertise in engineering, project management, logistics, finance and international negotiation. Most importantly, it transformed these capabilities from the knowledge of individuals into the routines of an organization.

This process was neither automatic nor inevitable. Many resource-rich countries have generated substantial revenues without creating comparable institutions. Oil wealth can be surprisingly poor at producing learning. Governments may become dependent on rents, while foreign companies continue to perform the most technologically sophisticated activities. Revenues increase, but domestic capabilities remain limited.

Petronas followed a different trajectory. Rather than treating oil simply as a source of income, the company treated it as a source of knowledge.

Its activities expanded steadily across the energy value chain. Exploration led to production. Production led to refining. Refining led to petrochemicals. The company invested heavily in liquefied natural gas, one of the most technologically sophisticated segments of the industry. At each stage, new capabilities had to be acquired. Engineers confronted increasingly complex technical problems. Managers learned how to coordinate larger and more geographically dispersed operations. Organizational routines became more sophisticated.

The company’s development can be understood as a process of cumulative learning. Each capability created the foundation for the acquisition of another. This dynamic was particularly evident in the LNG sector. Liquefied natural gas requires advanced engineering, specialized infrastructure and highly coordinated logistics. Natural gas must be cooled to extremely low temperatures, transported across long distances and integrated into global supply networks whose complexity rivals that of advanced manufacturing industries. Success depends not only on technical competence but also on organizational excellence. Petronas became one of the world’s leading LNG companies. This achievement is significant because it demonstrates that the company was not simply benefiting from the existence of natural resources. Many countries possess gas reserves. Far fewer possess the capabilities required to compete successfully in global LNG markets.

The same pattern appeared elsewhere. As Petronas expanded internationally, it began operating in environments that offered little protection from competition. Projects in Africa, Central Asia, Latin America and the Middle East required the company to manage unfamiliar regulatory systems, negotiate with foreign governments and compete with some of the world’s largest energy firms. Success could no longer be attributed to privileged access to domestic resources alone. The company had become globally competitive. By the 1990s, Petronas was no longer merely learning from international corporations. In many areas, it had become their peer.

This transformation challenges a common assumption about state-owned enterprises. Much of the literature on economic development treats public ownership as a source of inefficiency. State-owned firms are often portrayed as politically constrained, technologically conservative and organizationally weak. While such outcomes certainly exist, Petronas demonstrates that they are not inevitable. Under certain conditions, public ownership can facilitate long-term investments in learning that private firms might find difficult to sustain.mThe result was the emergence of one of the most capable institutions in the postcolonial world. Petronas generated revenues, but many companies generate revenues.

What made it exceptional was its ability to generate capabilities. It trained generations of engineers and managers. It created organizational routines capable of handling extraordinary levels of technical complexity. It demonstrated that Malaysia could build institutions operating at the highest levels of international competition.

The Petronas Twin Towers, completed in 1998, symbolized this achievement. They were not merely monuments to wealth. They were monuments to competence. For many Malaysians, the towers represented proof that the country had moved beyond its colonial role as a producer of commodities. They embodied a broader developmental aspiration: the belief that Malaysians could master sophisticated technologies, build world-class organizations and compete successfully on the global stage.

In important respects, that aspiration had already been realized. Petronas had become exactly the kind of institution that policymakers after 1969 had hoped to create. This is what makes the next stage of the story so surprising.

If Malaysia could build an institution like Petronas, why did it not build many more? Why did the capabilities accumulated within the company remain so difficult to reproduce elsewhere? The answer lies not in the limits of Petronas, but in the consequences of its success.

V. The Petronas Paradox: When Success Changes the Question

The conventional interpretation of Malaysia’s development tends to focus on what the country did not achieve. Malaysia did not produce a Samsung. It did not create a globally dominant semiconductor industry. It did not emerge as a major centre of technological innovation comparable to South Korea, Taiwan or, more recently, parts of China.

These observations are not wrong. But they may ask the wrong question. The more interesting question is not why Malaysia failed to follow the Korean path. It is why Malaysia followed a different path altogether.

By the 1990s, Malaysia had already accomplished something that many developing countries never achieved. It had created a world-class institution operating in one of the most technologically sophisticated sectors of the global economy. Petronas generated revenues, accumulated capabilities and enhanced the country’s international standing. It demonstrated that Malaysians could master complex technologies and manage large organizations at the highest level.

In important respects, Malaysia had already solved the developmental problem that had preoccupied policymakers after independence. The country was no longer searching for competence. It had found it. This is where the comparison with South Korea becomes particularly revealing.

South Korea’s developmental trajectory was shaped by scarcity. The country possessed few natural resources and faced intense geopolitical pressures. Economic survival depended upon exports, industrial upgrading and the continuous pursuit of more sophisticated technologies. Korean firms could not rely on oil revenues or commodity exports. They had little choice but to climb the technological ladder.

Malaysia faced a different set of incentives. Petronas generated substantial revenues. Foreign investment flowed into manufacturing. Living standards improved steadily. The economy diversified successfully. The developmental model was delivering growth, stability and rising prosperity.

The question confronting policymakers was therefore fundamentally different. South Korea had to become technologically competitive. Malaysia had the option not to. This is not an argument about complacency. Nor is it an argument that Malaysian leaders lacked ambition. The issue is structural.

Development is shaped not only by aspirations but also by pressures. Countries often undertake difficult reforms when existing models cease to deliver satisfactory results. South Korea’s relentless drive toward technological upgrading emerged partly because alternatives were limited. Malaysia’s success reduced the urgency of such choices.

Petronas played an important role in this process. The company generated resources that expanded the state’s room for manoeuvre. Revenues financed infrastructure, education and industrial development. The success of the company strengthened confidence in Malaysia’s developmental strategy. It demonstrated that the state could build sophisticated institutions and compete internationally. In doing so, however, Petronas changed the developmental conversation. The challenge was no longer how to escape underdevelopment. The challenge became how to move beyond successful development. These are very different problems.

Escaping underdevelopment requires growth, industrialization and capability accumulation. Moving beyond successful development requires the creation of innovation ecosystems, research-intensive industries and institutions capable of generating new technologies rather than mastering existing ones. Petronas excelled at the first challenge. The second proved far more difficult.

The capabilities accumulated within the company remained concentrated within the company. Engineers became world-class energy specialists. Managers learned how to coordinate highly complex international operations. Organizational knowledge deepened over time. Yet these capabilities did not generate a broader ecosystem comparable to those that emerged around semiconductors in Taiwan or advanced manufacturing in South Korea.

This was not because Petronas failed to create capabilities. It was because capability creation and capability diffusion are different processes. Building one exceptional institution requires vision, resources and organizational discipline. Building an economy that repeatedly generates exceptional institutions requires something else: dense networks of firms, research centres, investors, universities and entrepreneurs interacting across multiple sectors. Malaysia proved remarkably successful at the first task. It was less successful at the second. The result was a distinctive developmental trajectory.

The country became highly capable without becoming technologically dominant. It produced a world-class institution without producing a world-class innovation system. Petronas therefore reveals a broader truth about development. Success is not the opposite of failure. Success creates its own constraints.

The company’s achievements solved many of the problems that confronted Malaysia in the 1970s. They generated prosperity, confidence and institutional strength. Yet precisely because those problems were solved, the pressures that might have driven more radical forms of technological transformation became weaker. This is the Petronas Paradox.

The company did not prevent development. It was one of the greatest achievements of Malaysian development. Yet by succeeding so well, it changed the incentives shaping what came next. The question facing Malaysia was no longer whether it could build a world-class institution. Petronas had already answered that question.

The challenge was whether it could transform one world-class institution into a world-class system. That challenge remains unresolved.

VI. Beyond Petronas

The Petronas Paradox remains relevant because the conditions that produced the company are gradually disappearing.

For most of its history, Petronas operated within a world in which energy occupied a privileged position in the global economy. Oil and natural gas were strategic resources. Industrial growth depended upon them. States sought to secure access to them. Companies capable of mastering the technologies of extraction, refining and distribution possessed enormous economic and political significance.

That world is changing. The transition toward lower-carbon energy systems, the rise of digital technologies and the growing importance of knowledge-intensive industries are reshaping the foundations of economic power. Future competitive advantages are increasingly likely to emerge from sectors such as advanced manufacturing, artificial intelligence, semiconductors, biotechnology and renewable energy technologies.

These industries differ from oil in one crucial respect. They are rarely dominated by a single institution. Technological leadership emerges from ecosystems composed of firms, universities, research centres, investors and entrepreneurs. Innovation depends upon dense networks of interaction rather than the capabilities of one organization alone.

This is precisely where the Petronas story becomes most relevant. For half a century, the company demonstrated Malaysia’s ability to build a world-class institution. The challenge facing the country today is whether it can build a world-class ecosystem. The distinction may appear subtle, but it represents one of the most important transitions in development. Building an exceptional organization requires leadership, resources and institutional discipline. Building an ecosystem requires the repeated generation of innovation across multiple sectors and multiple organizations.

Petronas remains one of Malaysia’s greatest assets in this effort. The company continues to generate expertise, train highly skilled professionals and operate at the technological frontier of important segments of the energy industry. It also possesses the financial resources and organizational capabilities needed to adapt to a changing world. Yet the future significance of Petronas may depend less on what it achieves within the energy sector than on whether the capabilities it embodies can finally diffuse more broadly throughout the economy.

The central developmental question has therefore changed once again. In the 1970s, Malaysia asked whether it could build a world-class institution. Today, the question is whether it can build a world-class innovation system. The answer will determine whether Petronas remains an exceptional achievement of the twentieth century or becomes the foundation for a new phase of Malaysian development.

VII. Conclusion: The Limits of Success

Petronas is often celebrated as a symbol of Malaysian achievement. It deserves that reputation.

Over the course of half a century, the company transformed itself from a newly created national oil enterprise into one of the most capable organizations in the developing world. It mastered complex technologies, accumulated sophisticated organizational capabilities and demonstrated that a postcolonial state could build an institution capable of competing internationally at the highest level.

In doing so, Petronas solved a problem that had haunted Malaysia since independence.

The country had inherited a colonial economy that generated wealth but not control. It participated in the global economy without exercising significant influence over the forces shaping it. Petronas altered that relationship. Through the company, Malaysia acquired capabilities that had previously resided elsewhere. It learned how to manage complexity, develop expertise and operate in a strategic sector on its own terms.

This was a remarkable achievement. Yet the history of Petronas also reveals a deeper truth about development. The most difficult challenge is not always escaping failure. Sometimes it is moving beyond success.

Much of the literature on economic development is concerned with the transition from poverty to prosperity. The assumption is that once capabilities begin to accumulate, further progress will follow. Institutions learn. Technologies diffuse. Success generates more success.

Malaysia’s experience suggests a more complicated reality. Petronas became a world-class institution. The capabilities that made this possible did not automatically spread throughout the wider economy. Excellence emerged, but it remained concentrated. The country developed a globally competitive company without developing a globally competitive innovation system.

This is the Petronas Paradox.

The company’s success solved many of the problems that confronted Malaysia during the twentieth century. It generated revenue, strengthened state capacity and enhanced national confidence. Yet by doing so, it also altered the incentives that drove development. The urgency that pushed countries such as South Korea and Taiwan toward relentless technological upgrading was less intense in a society where the developmental model was already delivering prosperity and stability.

Petronas did not prevent Malaysia from advancing. On the contrary, it was one of the principal engines of Malaysian advancement. But development unfolds through thresholds. Solving one problem rarely solves the next. The capabilities required to master an existing industry are not necessarily the same as those required to create entirely new industries. Building a world-class institution is not the same as building a world-class ecosystem.

This distinction places Petronas in a unique position within the broader history of Asian development. Samsung illustrates how technological leadership can emerge from manufacturing-led industrialization. Astra reveals the limits of industrial upgrading when innovation remains concentrated elsewhere. CP Group demonstrates how corporate power can flourish without transforming a country’s technological position. VinGroup represents an attempt to accelerate the transition toward technological sovereignty.

Petronas tells a different story. It shows that a country can build a world-class institution and still struggle to reproduce that success. It demonstrates that capability building is possible, but that capability diffusion is far more difficult. Most importantly, it reveals that development is not simply constrained by scarcity, weakness or failure.

It can also be constrained by success. That may be the most important lesson of the Malaysian experience. The question confronting the country today is no longer whether it can build institutions of global significance. Petronas settled that question long ago. The question is whether the capabilities embodied by Petronas can become the foundation for something larger: a system capable of generating excellence repeatedly rather than exceptionally.

In that sense, the most revealing question is no longer how Malaysia built Petronas. It is whether Malaysia can build a future in which Petronas is no longer unique.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.

Sapeb Issue 2

1.34MB ∙ PDF file

Download

Download

Southeast Asia’s new political economy of risk transfer

Southeast Asia is becoming more important because the world economy has become more insecure.

Firms need alternative production sites. Major powers need diversified supply chains. Advanced economies need critical minerals for green technologies. Energy importers need secure routes and sources. Governments need partners that can help them reduce dependence on rivals.

This creates opportunities for Southeast Asia. It also creates a trap.

What appears as resilience from the perspective of external powers may become risk transfer inside Southeast Asian societies. Supply-chain de-risking becomes compliance pressure. Energy security becomes fiscal and household vulnerability. The green transition becomes mineral extraction. Multipolarity becomes a portfolio of dependencies.

The central question is therefore not whether Southeast Asia can adapt. It has already shown that it can. The harder question is whether the region can convert its new centrality into bargaining power.

This briefing examines that question through four issues:

• China+1 and the new politics of trade compliance;

• energy security and the socialization of vulnerability;

• critical minerals and the risk of green extractivism;

• multipolarity and the limits of strategic flexibility.

The argument is simple: resilience without power is a trap. To avoid that trap, Southeast Asian states must move from absorbing risk to setting terms.

Continue Reading

The full briefing examines why Southeast Asia’s new importance does not automatically translate into autonomy — and why the region’s next development challenge is to convert connection into leverage.

Resilience Is Not Neutral

Resilience is the word governments use when uncertainty can no longer be avoided.

No state declares itself in favour of vulnerability. Secure supply chains, stable energy systems, diversified partnerships, reliable infrastructure, stronger institutions: all appear reasonable and necessary.

Yet resilience is not neutral. It raises a political question: resilience for whom, and at whose expense?

This question is becoming central to Southeast Asia’s political economy. The region is being asked to respond to a world that has become more fragmented, more insecure, and more strategic. Trade rules are hardening. Energy markets are volatile. Critical minerals are being securitized. Digital systems are becoming geopolitical. External partnerships are multiplying.

At first glance, this confirms Southeast Asia’s growing importance.

The region is courted by every major power. It is central to debates over China+1 production, semiconductors, electric vehicles, renewable energy, critical minerals, maritime security, and the future of global trade. It offers factories, workers, ports, minerals, markets, diplomatic forums, and strategic geography.

But importance is not the same as power.

Southeast Asia is increasingly important because others need it to reduce their own vulnerabilities. Multinational firms need alternative production sites. Advanced economies need reliable suppliers. Major powers need partners that can dilute dependence on rivals. Energy importers need diversified routes and so urces. Green industries need minerals. Security actors need access, alignment, and reassurance.

In this sense, Southeast Asia is becoming a region of global back-up systems: back-up factories, back-up mineral sources, back-up energy corridors, back-up diplomatic options. That creates leverage. But leverage must be organized. If it is not, Southeast Asia may become the place where global risks are relocated rather than resolved.

This is the resilience trap.

The region may continue to attract investment, host strategic industries, and receive diplomatic attention, while the deeper structure of dependence remains intact. Factories may move, but technology may not. Minerals may be processed, but innovation may remain external. Energy systems may diversify, but vulnerability may persist. Partnerships may multiply, but bargaining power may not.

The issue is not whether Southeast Asia should be open to the world economy. It must be. Its prosperity depends on trade, investment, technology, finance, migration, tourism, and connectivity.

The issue is whether openness can be converted into capacity. That is the central question of this briefing.

1. China+1’s Hidden Invoice

China+1 is no longer only an investment opportunity. It is becoming a compliance test.

For much of the past decade, Southeast Asia appeared to be one of the main beneficiaries of supply-chain diversification. As firms sought to reduce excessive dependence on China, governments across the region positioned themselves as stable, open, competitive, and strategically useful.

The first phase of China+1 rewarded availability. Countries benefited because they could receive production.

The next phase will reward governability. Countries will be judged not only by whether they can manufacture goods, but by whether they can prove where those goods come from, how they were produced, who worked on them, and whether they comply with labour, environmental, and origin rules imposed by major markets.

This is the end of the easy China+1 dividend.

The factory is no longer enough. The audit trail matters. The customs document matters. The labour inspection matters. The supplier database matters. The ability to produce cheaply remains important, but the ability to certify production credibly is becoming a condition of market access.

The U.S. Trade Representative’s 2026 forced-labour-related Section 301 investigations are a clear signal of this shift. The issue is not only whether specific allegations are substantiated in particular cases. The broader point is that access to major markets is increasingly tied to proof of compliance, enforcement capacity, and traceability.

This changes the meaning of competitiveness. A country may offer low wages, good ports, industrial zones, and tax incentives. But if it cannot verify rules of origin, monitor subcontracting, enforce labour standards, or document supply chains, its export model becomes vulnerable.

This creates a new hierarchy among developing economies.

The winners will not necessarily be those with the lowest costs. They will be those able to combine cost competitiveness with administrative credibility. The losers may be countries that can produce, but cannot prove; export, but cannot certify; attract factories, but cannot govern the networks behind them.

Compliance is often presented as a technical matter. It is more than that.

It is a new form of power within global capitalism. It determines who carries the burden of proof, who pays for verification, who absorbs the cost of uncertainty, and who can be excluded from markets when documentation is considered inadequate.

Advanced economies and multinational corporations seek to de-risk their supply chains. But risk does not disappear. It is redistributed downward and outward. Importing countries impose stricter rules. Lead firms demand documentation from suppliers. Suppliers pass costs onto subcontractors. Smaller firms struggle to comply. Workers may absorb the pressure through tighter margins, weaker bargaining power, or intensified monitoring.

What appears as de-risking at the top of the chain becomes discipline at the bottom. This is the compliance trap.

A country falls into the compliance trap when it remains integrated into global markets but depends on external actors to validate its participation. It can produce, but not certify on its own terms. It can export, but only under rules written elsewhere. It can attract investment, but must continuously prove that it is not a site of evasion, violation, or contamination.

This is not the same as the subcontractor trap, but the two are connected. In the subcontractor trap, countries manufacture without controlling technology, design, branding, or intellectual property. In the compliance trap, they participate in trade without controlling the standards, verification systems, and regulatory judgments that determine market access.

In both cases, production occurs domestically while power remains external.

Compliance pressure can become developmental if states use it to build domestic capacity: stronger customs administration, credible labour inspection, better supplier databases, deeper local linkages, and more capable firms.

But if governments treat compliance only as an external burden, China+1 may become compliance+1: a model in which Southeast Asia receives factories but also receives the burden of proving, documenting, and policing the contradictions of a fragmented global economy.

The next stage of industrial development will not be decided only on the factory floor. It will be decided in customs offices, labour inspectorates, supplier databases, audit reports, payroll systems, logistics platforms, and trade negotiations.

In the old globalization, Southeast Asia had to show that it could produce. In the new globalization, it must show that it can govern production.

2. Who Pays for Energy Security?

Energy security is back. But it is not simply a question of supply. It is a question of who absorbs vulnerability.

For much of the past decade, the dominant language was energy transition. Governments, development banks, investors, and international organizations spoke of renewables, decarbonization, net-zero targets, electric vehicles, carbon markets, solar and wind power, and green finance.

That language remains necessary. Southeast Asia cannot avoid the climate crisis.

But transition is not the same as security.

A country can install renewable capacity and still suffer from grid weakness. It can import LNG and still be exposed to price volatility. It can subsidize fuel and still deepen fiscal vulnerability. It can attract private energy investment and still lack coherent planning. It can promise decarbonization while locking itself into new fossil-fuel dependencies.

The central question is not whether Southeast Asia needs an energy transition but who pays for making that transition secure.

Recent energy shocks have made the problem visible. ASEAN governments have responded by emphasizing supply diversification, intra-regional energy trade, renewables, LNG, electric vehicles, and emergency preparedness. This reflects a structural exposure: several Southeast Asian economies remain vulnerable to imported fuel prices, shipping routes, grid constraints, and fiscal pressures.

Myanmar represents the extreme case. Fuel shocks have intensified an already fragile economy, raising transport and production costs and worsening foreign-exchange pressures. Vietnam represents a different problem: rapid renewable expansion demonstrated the power of incentives, but also exposed the limits of investment-led transition when grids, regulation, and payment systems lag behind.

These cases differ sharply. Their lesson is similar. Energy transition cannot be treated as a sequence of private projects. It requires system coordination.

Energy vulnerability is socialized. When global fuel prices rise, governments absorb part of the shock through subsidies, state-owned enterprises, public borrowing, or delayed investment. Households absorb it through higher living costs. Workers absorb it through inflation that erodes wages. Small firms absorb it through electricity and transport expenses. Poor communities absorb it through reduced access, precarious livelihoods, and exposure to pollution. Future generations absorb it through debt, emissions, and delayed infrastructure reform.

This is the energy version of the resilience trap.

Governments try to reduce vulnerability, but the tools available can create new vulnerabilities. They subsidize fuel to protect citizens, but strain public finances. They import LNG to reduce coal use, but increase exposure to global gas markets. They attract renewable investment, but depend on external technology and finance. They promote electric vehicles, but rely on imported batteries, minerals, and charging infrastructure. They call for regional energy cooperation, but remain reluctant to depend on neighbours for essential supply.

Each solution displaces risk rather than eliminating it. This is why markets cannot solve the problem alone. Markets can build projects. They cannot determine the social distribution of energy risk. They can finance generation capacity, but they cannot alone coordinate grids, storage, pricing, land, demand management, industrial strategy, and social protection.

Only states can do that. This is why the developmental state returns through the electricity grid. Energy policy is becoming industrial policy.

Southeast Asian governments want to move into semiconductors, electric vehicles, batteries, data centers, digital infrastructure, and advanced manufacturing. But these sectors require reliable and increasingly clean electricity. Investors may tolerate many risks, but they will hesitate where power supply, tariffs, grid access, or regulation are uncertain.

Energy security is therefore becoming a condition of competitiveness.

A resilient energy system is not simply one with many suppliers or many technologies. It is one in which shocks can be absorbed without pushing intolerable costs onto the weakest groups, destroying public finances, undermining industrial strategy, or delaying decarbonization indefinitely.

The choice is not between energy security and energy transition. The choice is between fragmented resilience — more projects, more imports, more subsidies, more emergency measures — and developmental resilience: stronger grids, better planning, fairer pricing, cleaner production, domestic capabilities, regional cooperation, and social protection for those who bear the costs of change.

The difference between the two is not technology. It is politics.

3. Clean Technology’s Dirty Frontier

The green transition may reproduce old extractive hierarchies under a new vocabulary.

Critical minerals are now central to electric vehicles, batteries, renewable energy, digital infrastructure, defence technologies, and industrial sovereignty. Southeast Asia is increasingly important to this geography.

Indonesia’s nickel, Myanmar’s rare earths, the Philippines’ mineral reserves, Malaysia’s processing capacities, Vietnam’s industrial ambitions, and Thailand’s automotive supply chains all connect the region to the material foundations of the global energy transition.

This creates opportunity. It also creates danger.

The opportunity is resource-based industrialization. Countries that control minerals needed for green and digital technologies can demand domestic processing, attract downstream investment, develop industrial clusters, and capture more value.

The danger is green extractivism.

Minerals may be called critical, strategic, or green, but the political economy can remain familiar: resources extracted from peripheral regions, processed under foreign or oligarchic control, exported through global value chains, and used to support technological transformation elsewhere.

The G7 push to diversify critical-minerals supply chains away from China confirms the strategic importance of the issue. OECD and other policy analyses point to the same problem: Southeast Asia has mineral endowments and manufacturing potential, but processing, technology, finance, and final markets remain highly concentrated.

Indonesia’s nickel strategy is the key regional case. By restricting raw ore exports and pushing investment into domestic processing, Jakarta challenged the older orthodoxy that developing countries should simply export commodities according to comparative advantage.

The ambition is clear: turn mineral control into industrial upgrading.

But downstream processing can also become a processing trap. Countries may move beyond raw material exports without acquiring control over technology, design, standards, finance, or final markets. Smelters may be built, exports may rise, and investment numbers may look impressive, while domestic firms remain weak and foreign actors dominate the higher-value segments of the chain.

Myanmar shows the darker side. Rare-earth mining in conflict-affected borderlands has generated concerns about pollution, weak governance, cross-border risks, and damage to rivers and livelihoods. The minerals required for clean technologies can be produced through dirty and violent forms of extraction.

A nickel mine is not an industrial strategy. A rare-earth deposit is not technological autonomy. A smelter is not necessarily upgrading. A battery plant does not automatically create domestic innovation.

Resource wealth becomes developmental only when states and firms build the capabilities needed to move beyond extraction. This is the critical-minerals version of the resilience trap.

Advanced economies seek resilient green supply chains. Firms seek secure mineral inputs. Major powers seek alternatives to dependence on China. But the risks of producing that resilience are often shifted to mineral-rich regions. Southeast Asia becomes essential because others need to de-risk. Yet the process of de-risking elsewhere can create new ecological, social, and fiscal risks inside the region.

This is green risk transfer.

The benefits of critical minerals are often national or global: exports, investment, industrial strategy, clean technologies, geopolitical relevance. The costs are often local: land loss, pollution, water stress, labour risk, deforestation, community displacement, and social conflict.

A battery used to reduce emissions elsewhere may depend on environmental degradation in a mining region. Critical minerals require a different kind of state.

Not merely a state that grants licenses, attracts investors, and builds infrastructure. A developmental mineral state must negotiate, regulate, discipline, coordinate, and learn. It must connect extraction to industrial upgrading. It must prevent foreign investment from becoming enclave production. It must protect communities without abandoning development. It must ensure that environmental standards are not treated as external obstacles, but as part of long-term national capability.

The regional dimension matters. Critical-mineral strategies are usually national. But supply chains are regional and global. Minerals extracted in one country may be processed in another, assembled into components elsewhere, and sold into distant markets. Environmental damage may cross borders. External powers can bargain bilaterally, exploiting differences among states.

Without coordination, Southeast Asian countries may compete against one another by offering weaker regulation, cheaper land, tax incentives, subsidized energy, or more permissive environmental rules.

If Southeast Asia does not coordinate, others will coordinate around it. The central question is not whether critical minerals will make Southeast Asia important but whether they will make Southeast Asia more powerful.

4. The Portfolio of Dependencies

Multipolarity does not automatically create autonomy.

Southeast Asia has long practiced strategic flexibility. Its governments have engaged China economically, maintained security ties with the United States and its allies, welcomed Japanese and Korean investment, cultivated European markets, attracted Gulf capital, and kept ASEAN at the center of regional diplomacy.

This was not neutrality. It was flexibility.

For several decades, this strategy worked because the international system allowed room for ambiguity. Economic integration could often be separated from security competition. A country could trade heavily with China while cooperating militarily with the United States. It could receive infrastructure finance, manufacturing investment, tourists, development assistance, and energy partnerships from different actors without treating these relationships as mutually exclusive.

That room is narrowing.

The problem is not that Southeast Asia has fewer partners. It has more than ever. Almost every major power now treats the region as strategically important. They arrive with trade frameworks, infrastructure initiatives, defence cooperation, energy deals, critical-mineral partnerships, digital projects, climate finance, and diplomatic summits.

At first glance, this looks like autonomy. It is not necessarily autonomy.

The 2026 State of Southeast Asia survey captures the region’s unease over major-power rivalry, economic unpredictability, climate risks, and ASEAN implementation challenges. The narrow China-U.S. “forced choice” result is less important as a prediction than as a signal: strategic perceptions are unstable, divided, and sensitive to external behaviour.

Recent ASEAN external diplomacy points in the same direction. The ASEAN-Russia summit in Kazan, with its emphasis on energy, trade, security, digitalization, science, and humanitarian cooperation, illustrates the widening field of external partnerships. Southeast Asia is not trapped in a simple U.S.-China binary.

But this does not solve the autonomy problem.

Every partnership has material content. Energy cooperation may affect fuel dependence. Digital cooperation may shape technological ecosystems. Security cooperation may influence strategic calculations. Trade cooperation may impose standards or create exposure. Infrastructure cooperation may generate long-term obligations.

The problem is not partnership itself. The problem is whether Southeast Asian states can negotiate partnerships that strengthen domestic and regional capacity rather than deepen fragmented dependence.

More partners can widen options. But they can also multiply dependencies.

A country may reduce dependence on one power while becoming dependent on several others in different domains. It may rely on China for intermediate goods, the United States for export markets, Japan for infrastructure, Europe for regulatory access, Gulf states for energy, Korea for manufacturing investment, and external technology firms for digital systems.

This is not independence. It is a portfolio of dependencies.

Hedging works best when choices can be delayed or separated. But domains are converging. Trade is linked to labour standards, sanctions, tariffs, and geopolitical screening. Energy is linked to security, climate, finance, and industrial policy. Critical minerals are linked to batteries, defence, green technologies, and great-power competition. Digital infrastructure is linked to data sovereignty, cybersecurity, artificial intelligence, and surveillance.

This convergence makes ambiguity harder. A summit declaration can remain ambiguous. A fibre-optic cable cannot. A port lease cannot. A military access agreement cannot. A cloud infrastructure contract cannot. A battery supply chain cannot. A semiconductor ecosystem cannot.

These are material commitments. Once built, they structure future policy options. Southeast Asia’s autonomy will be decided less by diplomatic language than by infrastructures.

ASEAN remains valuable. It provides a platform that prevents Southeast Asia from being reduced entirely to bilateral relationships with larger powers. It sustains habits of consultation. It gives smaller states diplomatic visibility. It preserves the idea that the region has a collective identity and should not be treated simply as a strategic chessboard.

But ASEAN centrality is not the same as regional power.

ASEAN can convene, but can it coordinate? It can issue statements, but can it implement? It can create forums, but can it shape infrastructure choices, digital standards, energy systems, critical-mineral strategies, or industrial policy?

This is the gap between diplomatic centrality and political-economic capacity.

External powers understand this gap. They engage ASEAN when useful, but they also negotiate bilaterally with member states, state-owned enterprises, private firms, militaries, and sectoral agencies. This allows Southeast Asian governments to diversify. It also allows external actors to fragment the region.

The old question was: how can Southeast Asia avoid choosing sides? The new question is: how can Southeast Asia build the power to choose terms? That is a much more demanding question.

Conclusion: Resilience Is Not Power

The four issues examined in this briefing are usually discussed separately.

Tariffs and traceability belong to trade policy. Energy security belongs to fuel markets, grids, and climate transition. Critical minerals belong to industrial policy and resource governance. Multipolarity belongs to diplomacy and strategic affairs.

But they are not separate. They are different expressions of the same transformation.

Southeast Asia is becoming more important because the world economy has become more insecure. This creates opportunities, but also a trap: the region may become the place where global risks are relocated rather than resolved.

In trade, de-risking appears as supply-chain diversification, but becomes compliance pressure.

In energy, security appears as diversification and transition, but becomes fiscal and household vulnerability.

In critical minerals, the green transition appears as a global necessity, but can become extraction and ecological sacrifice.

In diplomacy, multipolarity appears as expanded choice, but can become fragmented dependence.

This is the resilience trap.

Resilience is presented as empowerment. But resilience can also become the language through which weaker actors are asked to absorb instability created elsewhere. The central political-economic question is therefore: who pays for resilience?

For much of the post-Cold War period, Southeast Asia prospered through adaptation. The region adjusted to globalization, attracted capital, expanded exports, deepened production networks, and maintained diplomatic flexibility. This was a real achievement.

But adaptation has limits.

A region can adapt to global production networks without controlling technology. It can adapt to foreign investment without building domestic firms. It can adapt to energy markets without securing energy sovereignty. It can adapt to critical-mineral demand without escaping extraction. It can adapt to great-power rivalry without acquiring autonomy.

Adaptation can become a habit. And when adaptation becomes a habit, resilience can become another name for endurance.

This is the danger Southeast Asia now faces. The region may continue to grow, attract investment, host strategic industries, and receive diplomatic attention, while the deeper structure of dependence remains intact.

Factories may move, but technology may not. Minerals may be processed, but innovation may remain external. Energy systems may diversify, but vulnerability may persist. Partnerships may multiply, but bargaining power may not.

The result would be a paradoxical form of success: Southeast Asia would become more central to the world economy, but not necessarily more powerful within it.

Centrality is not power.

A place can be central because others need to use it. Power exists when that place can set the terms on which it is used.

That is why the next development challenge is not simply to become more connected. Southeast Asia is already connected. The challenge is to convert connection into leverage.

Leverage requires capacity. Not only administrative efficiency, but the ability to discipline capital, protect workers, regulate extraction, bargain with external powers, coordinate regionally, and prevent the costs of resilience from being pushed downward onto weaker firms, households, workers, and communities.

Capacity is power organized institutionally.

This is why the state is returning to the center of Southeast Asian political economy. Not because markets have disappeared, and not because globalization has ended. The state is returning because markets cannot decide who should bear the costs of global disorder.

But state intervention is not automatically developmental.

Governments can use the language of resilience to justify subsidies for powerful firms, opaque deals with foreign investors, repression of labour, dispossession of communities, environmentally destructive extraction, or nationalist projects that do little to build real capability.

This is why the question “resilience for whom?” must remain central.

Autonomy is not the absence of dependence. No Southeast Asian country can be fully independent from the world economy. Nor should it seek to be. The region’s prosperity depends on trade, investment, technology, finance, migration, tourism, and connectivity.

Autonomy means something more specific: the ability to manage dependence without being governed by it.

Autonomy is the power to refuse. The power to refuse investment that creates enclaves without upgrading. The power to refuse energy arrangements that deepen vulnerability. The power to refuse mineral extraction that sacrifices communities. The power to refuse compliance regimes that impose costs without building capacity. The power to refuse diplomatic choices that turn flexibility into subordination.

This power cannot be declared. It must be built.

It is built through domestic firms, skilled workers, capable bureaucracies, credible regulation, public infrastructure, universities, research systems, fiscal resources, regional cooperation, and social legitimacy.

There is no cheap resilience. The previous era allowed Southeast Asia to benefit from forms of adaptation that were often relatively low cost. Governments could open to investment without fully upgrading domestic institutions. They could deepen trade without controlling value chains. They could preserve diplomatic ambiguity without making hard strategic choices.

That era is ending.

The coming period will be less forgiving. Supply chains will be scrutinized. Energy systems will be tested. Minerals will be contested. Technologies will be politicized. Partnerships will come with expectations. Markets will remain essential, but they will no longer appear neutral.

This does not mean Southeast Asia is condemned to dependency. The region has agency. Its governments are experienced. Its societies are dynamic. Its markets are growing. Its strategic position gives it bargaining opportunities.

But agency must be organized.

Southeast Asia’s future will not be determined simply by the number of factories it attracts, the volume of minerals it exports, the summits it hosts, or the partnerships it signs. It will be determined by whether these forms of integration increase domestic and regional power.

The dividing line in the next decade may not be between open and closed economies. It may be between states that absorb risk and states that convert risk into capability. That is the real meaning of resilience. Resilience without power is endurance. Resilience with power is development.

Sources and Further Reading

This briefing draws on recent reports and policy documents from the U.S. Trade Representative, the World Bank, ASEAN, the ASEAN Centre for Energy, OECD, ISEAS–Yusof Ishak Institute, IISS, Stimson Center, Reuters, and Associated Press.

For trade and supply-chain compliance, see USTR materials on the 2026 Section 301 forced-labour investigations and recent reporting on tariff risks for ASEAN economies.

For energy security, see World Bank analysis of the East Asia and Pacific outlook, ASEAN statements on energy resilience, and ASEAN Centre for Energy work on Southeast Asia’s dependence on Middle Eastern crude.

For critical minerals, see OECD work on critical minerals in Southeast Asia and India, G7 statements on supply-chain diversification, IISS analysis of ASEAN’s critical-minerals strategy, and Stimson Center research on mining, conflict, and environmental risks in Myanmar’s borderlands.

For regional perceptions and strategic autonomy, see the 2026 State of Southeast Asia survey by ISEAS–Yusof Ishak Institute and recent reporting on ASEAN’s expanding external partnerships.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.

Asian Political Economy Laos Deh Battery Of Asia Publishers Edition

3.29MB ∙ PDF file

Download

Download

Few countries have wagered their future on a single development idea as boldly as Laos.

Over the past three decades, the small, landlocked country has attempted one of the most ambitious economic transformations in contemporary Asia. The idea appeared deceptively simple. Laos possessed abundant rivers flowing through mountainous terrain. Its neighbours possessed growing industries, expanding cities, and increasing demand for electricity. If these rivers could be harnessed through large-scale hydropower projects, Laos could export energy to the rest of the region. Geography itself could be transformed from a burden into an opportunity.

Successive governments embraced this vision enthusiastically. Laos would become the “Battery of Southeast Asia.” The slogan captured a powerful aspiration. Few countries in the world face as many structural constraints as Laos. With a population of fewer than eight million people, limited industrial capabilities, a relatively small domestic market, and no direct access to the sea, the country appeared poorly positioned to follow the export-oriented industrialization path associated with East Asia’s most celebrated development success stories.

Unlike South Korea, Taiwan, or even more recently Vietnam, Laos lacked the demographic scale, manufacturing base, and institutional capacities necessary to rapidly integrate into global manufacturing networks. Industrialization on the East Asian model appeared difficult, if not impossible.

Hydropower offered an alternative. Electricity exports promised foreign exchange earnings without requiring sophisticated technological capabilities. Dams would attract foreign investment. Revenues would finance infrastructure, public services, and modernization. Development could proceed without fundamental changes to the country’s political system. The ruling Lao People’s Revolutionary Party could preserve political stability while delivering economic growth.

For a time, the strategy appeared remarkably successful. Dams multiplied across the country. International investors arrived. Roads improved. Economic growth accelerated. Laos graduated from the category of the world’s poorest economies and began to present itself as an emerging player within mainland Southeast Asia. International institutions often portrayed hydropower as one of the country’s greatest comparative advantages.

Yet beneath this apparent success lies a more complicated story.

Despite decades of hydropower expansion, Laos remains one of Southeast Asia’s least industrialized economies. Much of the investment underpinning the sector originates abroad. Public debt has expanded dramatically. Local communities have borne significant social and environmental costs. The country’s economic future has become increasingly intertwined with decisions made in Bangkok, Beijing, Hanoi, and the boardrooms of foreign investors.

The Lao experience therefore raises a broader question extending far beyond the Mekong River. Can infrastructure generate development? More specifically, can the export of electricity produced through large-scale infrastructure projects provide the foundations for structural transformation? Or does it merely reorganize dependency in new forms?

These questions matter because Laos is not unique. Across the developing world, governments increasingly turn toward infrastructure as a solution to the challenge of development. Ports, railways, energy projects, industrial corridors, and special economic zones promise to unlock growth by connecting countries to regional and global markets. Infrastructure has become one of the defining development paradigms of the twenty-first century.

The assumption is straightforward. Build the infrastructure, attract the investment, and development will follow. The experience of Laos suggests that reality may be more complicated.

This essay argues that the Lao hydropower strategy should be understood not simply as an energy policy but as a particular model of integration into regional capitalism. The ambition to become the Battery of Southeast Asia has generated growth and transformed the country’s physical landscape. Yet it has also produced new forms of dependency rooted in foreign finance, uneven regional integration, and limited domestic productive transformation.

The issue is therefore not whether dams “work.” They clearly can generate electricity, revenues, and economic growth. The more difficult question is whether they can generate development.

To answer that question, we need to understand how a small socialist country emerging from decades of war came to place such extraordinary hopes in the power of its rivers.

I. A Country Looking for a Development Model

To understand why Laos embraced hydropower so enthusiastically, one must first appreciate the magnitude of the developmental challenge the country faced at the end of the twentieth century.

Modern Laos emerged from war among the poorest countries in the world. Decades of conflict had left deep scars on the country’s economy and society. During the broader Indochina wars, Laos became one of the most heavily bombed countries in history. Large areas of the countryside remained contaminated by unexploded ordnance. Infrastructure was limited. Educational attainment was low. The industrial base was extremely weak.

When the Lao People’s Revolutionary Party came to power in 1975, it inherited a country with few of the conditions commonly associated with successful industrialization. The new leadership initially pursued a socialist development strategy based on central planning and state ownership. As elsewhere in the socialist world, the state sought to direct economic activity through administrative mechanisms rather than markets. Yet Laos faced severe structural constraints. The domestic market was tiny. Human capital was limited. State capacity remained weak outside major urban centres. Dependence on foreign aid—particularly from the Soviet Union and Vietnam—became unavoidable.

By the mid-1980s, the limitations of this model had become increasingly apparent. The crisis confronting Laos was not unique. Across the socialist world, governments were struggling to reconcile ideological commitments with economic realities. In China, Deng Xiaoping had already initiated market-oriented reforms. Vietnam would launch Đổi Mới in 1986. Laos followed a similar path through the introduction of the New Economic Mechanism that same year.

The reforms represented a profound shift in economic thinking.

Price controls were gradually relaxed. Private enterprise was tolerated and eventually encouraged. Foreign investment was welcomed. State-owned enterprises were restructured. Market mechanisms increasingly replaced administrative allocation. Yet unlike the transitions occurring in Eastern Europe after the collapse of communism, political liberalization did not accompany economic reform. The Lao People’s Revolutionary Party maintained its monopoly over political power while pursuing selective market opening.

In principle, the objective resembled that of other socialist market economies: harness market forces to accelerate development without relinquishing political control. In practice, however, Laos confronted a very different set of circumstances from those facing either China or Vietnam.

China possessed an enormous domestic market, abundant labour, and coastal regions ideally positioned to attract export-oriented investment. Vietnam benefited from a large population, a stronger tradition of state administration, relatively high educational attainment, and proximity to East Asian production networks. By the 1990s, Vietnam was increasingly able to attract foreign manufacturers seeking low-cost production sites.

Laos lacked many of these advantages.

Its population was small and geographically dispersed. The country was landlocked, increasing transportation costs and reducing competitiveness in manufacturing. Domestic purchasing power remained limited. Infrastructure deficiencies made integration into global supply chains difficult. Even basic logistical challenges—from roads and border crossings to electricity provision—constrained industrial expansion.

The contrast with Vietnam is particularly revealing. During the same period that Laos was searching for a development strategy, Vietnam was beginning its ascent as a manufacturing economy. Foreign firms established factories producing garments, footwear, and eventually electronics. Industrial zones multiplied. Exports diversified. Millions of workers entered wage employment linked to global value chains.

Laos followed a different path. This divergence was not simply the result of better or worse policy choices. Geography mattered. History mattered. Scale mattered. Development strategies are always shaped by the opportunities and constraints confronting policymakers.

For Lao leaders, the question was therefore not whether to imitate South Korea or Taiwan. The question was what forms of development remained available to a small, landlocked economy with limited industrial capabilities operating within an increasingly globalized world economy.

Natural resources appeared to provide the answer. Timber exports expanded rapidly during the early reform period. Mining attracted growing attention. But it was hydropower that seemed to offer the greatest promise.

The logic was compelling. If Laos could not compete internationally by exporting manufactured goods, perhaps it could export something else. Unlike manufacturing, hydropower did not require millions of workers or sophisticated industrial ecosystems. Unlike high-technology industries, it did not depend upon extensive domestic research capabilities. Instead, it relied upon a resource the country possessed in abundance: rivers.

The Mekong River and its numerous tributaries descend through Laos’s mountainous terrain with considerable hydrological potential. Engineers and international development agencies had long recognized this possibility. What changed during the 1990s was the regional context that made exploitation commercially viable.

Thailand’s rapidly industrializing economy required ever-increasing quantities of electricity. Demand projections suggested persistent energy shortages. Regional economic integration deepened. Foreign investors became more willing to finance large infrastructure projects in developing economies.

Suddenly, Laos’s rivers appeared not as geographical features but as economic assets. The transformation was profound. Development came to be imagined less through the creation of factories and more through the construction of dams. Rivers became engines of growth. Water became a source of export revenue. Infrastructure itself became the developmental strategy.

For policymakers in Vientiane, this vision possessed undeniable appeal. Hydropower promised growth without mass industrialization, export earnings without extensive manufacturing capabilities, and modernization without political liberalization.

The Battery of Southeast Asia was born not merely from ambition, but from necessity. Yet the very conditions that made the strategy attractive also contained the seeds of its future contradictions. Because Laos lacked the domestic capital, technical expertise, and financial resources necessary to develop the sector independently, realizing the hydropower dream would require extensive reliance on external actors.

The country’s path toward energy-led development would therefore become inseparable from its integration into regional capitalism. The rivers of Laos could generate electricity. But who would own the dams, finance their construction, purchase the power, and ultimately capture the benefits remained very different questions.

II. Selling Rivers: How the Mekong Became an Energy Frontier

If the Battery of Southeast Asia was born from Laos’s search for a viable development strategy, it could only become reality because of transformations occurring beyond the country’s borders. The story of Lao hydropower is therefore not simply a national story. It is a regional one.

Dams are often presented as technical responses to domestic energy needs. Governments require electricity. Engineers identify suitable sites. Investors provide financing. Infrastructure follows. Yet the rapid expansion of hydropower in Laos cannot be understood through such a narrow lens. The country’s dams were not built primarily to satisfy domestic consumption. They were built to feed the growing energy demands of neighbouring economies.

The most important of these was Thailand.

During the final decades of the twentieth century, Thailand experienced one of the fastest episodes of economic growth in the developing world. Manufacturing expanded rapidly. Cities grew. Household consumption increased. Industrial estates multiplied along the eastern seaboard and around Bangkok. Electricity demand surged.

This transformation created a dilemma for Thai policymakers. Economic growth required secure and affordable energy supplies. Yet domestic power generation faced mounting obstacles. New projects often encountered environmental opposition. Land acquisition became increasingly difficult. Local communities proved more capable of mobilizing resistance against controversial developments. At the same time, authorities feared that energy shortages might undermine industrial competitiveness.

One solution was to look beyond national borders. Rather than generating all electricity domestically, Thailand could import power from neighbouring countries with abundant natural resources and fewer political constraints. Laos appeared uniquely suited to this role.

The arrangement seemed mutually beneficial. Thailand would secure reliable electricity supplies without bearing the full social and environmental costs associated with dam construction. Laos would receive investment, export revenues, and an opportunity to accelerate economic development. The relationship embodied the language of regional cooperation increasingly promoted throughout Southeast Asia during the post-Cold War period.

Beneath this rhetoric of mutual benefit, however, lay deeper asymmetries.

Thailand entered the relationship as a middle-income industrial economy with diversified productive capabilities. Laos entered as one of the poorest countries in Asia. Thai institutions possessed greater financial resources, technical expertise, and bargaining power. Thai utilities could influence the terms under which energy would be purchased. Lao authorities often faced pressure to accommodate investor expectations.

The Electricity Generating Authority of Thailand (EGAT) became one of the central actors in this emerging regional energy architecture. Long-term power purchase agreements signed with EGAT provided the financial guarantees necessary to attract investment into large hydropower projects. Investors were willing to commit billions of dollars because future buyers had already been identified. Thai demand effectively transformed potential hydropower into bankable assets.

Without Thailand, the Battery of Southeast Asia might never have moved beyond an aspirational slogan. Yet Thailand was only one part of a broader process reshaping mainland Southeast Asia.

During the 1990s and 2000s, regional integration accelerated. The countries of the Greater Mekong Subregion became increasingly connected through roads, bridges, transmission lines, investment flows, and trade agreements. Supported by institutions such as the Asian Development Bank, policymakers promoted the idea that infrastructure would transform borders from barriers into corridors of growth.

The Mekong itself became central to these ambitions. For centuries, the river had functioned primarily as an ecological system and source of livelihood. It sustained fisheries, irrigated agricultural production, facilitated transportation, and shaped cultural life throughout mainland Southeast Asia. Tens of millions of people depended directly or indirectly upon its seasonal rhythms.

Increasingly, however, policymakers and investors began to imagine the Mekong differently. Its value was no longer measured primarily through fish catches or agricultural productivity. Instead, it was expressed in megawatts. Rivers became energy resources waiting to be exploited.

Maps once depicting watersheds and ecosystems were transformed into inventories of potential dam sites. Engineers calculated generating capacity. Financial analysts estimated returns on investment. Governments negotiated concession agreements. Hydrological flows became commodities embedded within regional markets.

This transformation represented more than technological progress. It reflected a profound change in the relationship between nature and capital. From a critical political economy perspective, the Mekong was becoming an energy frontier.

Frontiers occupy a distinctive place within the history of capitalism. They represent spaces incorporated into expanding circuits of accumulation. Forests become timber concessions. Agricultural land becomes plantations. Mineral deposits become extractive industries. Resources that previously existed outside market relations are reorganized according to the logic of profitability and exchange.

In Laos, rivers underwent precisely this transformation. Water itself could not be exported. Electricity generated from water could. The distinction mattered because it reshaped the geography of development.

Instead of moving labour-intensive manufacturing into Laos, regional capitalism increasingly moved resource extraction there. The country became integrated into regional production systems through its comparative advantage in natural endowments rather than through industrial upgrading.

The implications of this model were significant. Manufacturing exports often generate learning effects. Workers acquire skills. Domestic suppliers emerge. Firms adapt technologies. Production capabilities may gradually deepen over time, even if the process remains uneven and dependent upon foreign investment.

Hydropower operates differently. Dam construction requires sophisticated engineering expertise, but much of this expertise can be imported temporarily. Once operational, hydropower facilities generate relatively limited employment compared with manufacturing industries. The sector may produce substantial revenues without necessarily fostering broad-based industrial ecosystems.

Growth, in other words, does not automatically translate into transformation. This distinction helps explain one of the central paradoxes of the Lao experience. By many conventional indicators, the hydropower strategy succeeded. Electricity exports expanded dramatically. Foreign investment flowed into the country. Economic growth accelerated. Infrastructure improved. Laos became more deeply integrated into regional markets.

Yet the structure of the economy changed less than many had anticipated. The country became increasingly important within regional energy networks while remaining relatively peripheral within regional production networks.

This outcome was not inevitable. Supporters of hydropower argued that revenues generated through electricity exports could eventually finance diversification. Infrastructure improvements might reduce logistical constraints. The energy sector could provide the foundations for broader industrial development.

These arguments contained a degree of plausibility. After all, development has rarely followed a single path. Resource-based growth has sometimes provided capital for subsequent transformation. Norway used oil revenues to strengthen domestic capabilities. Malaysia leveraged commodity exports to support industrialization. Even the developmental states of East Asia initially relied upon sectors characterized by relatively low levels of technological sophistication.

The critical question, however, concerns what happens next. Do resource revenues become instruments for building new productive capacities? Or do they create incentives to deepen dependence upon the very sectors generating immediate returns? For Laos, this question became increasingly urgent as more dams were constructed across the Mekong basin and its tributaries.

The Battery of Southeast Asia was no longer a vision. It had become an economic reality. But the deeper issue remained unresolved. If rivers had been successfully transformed into export commodities, who ultimately controlled this new energy economy? Who owned the battery?

III. Who Owns the Battery? Foreign Capital and the Political Economy of Hydropower

At first glance, the hydropower boom appears to represent a triumph of national development strategy. The Lao state identified a comparative advantage, mobilized investment, and transformed a previously underutilized resource into a source of export earnings. New dams generated electricity. Revenues flowed into the economy. Infrastructure expanded. International observers pointed to hydropower as evidence that even small, landlocked countries could exploit globalization to their advantage.

Yet a deceptively simple question complicates this success story. Who actually owns the Battery of Southeast Asia? Ownership is not merely a legal matter. It lies at the heart of political economy because ownership determines who captures profits, who exercises decision-making power, who bears risks, and who ultimately benefits from development.

If a country’s principal export sector is controlled primarily by external actors, can that sector provide the foundations for autonomous development? The Lao hydropower sector reveals the complexity of this question.

Unlike the oil industries of some resource-rich states, hydropower development in Laos has not been dominated by a single national champion. The country lacked the domestic capital, engineering expertise, and financial resources necessary to undertake large-scale dam construction independently. Building dams requires enormous upfront investments, sophisticated technical knowledge, and the ability to absorb substantial risks over long time horizons.

Few developing countries possess these capabilities domestically. Laos certainly did not. Foreign investors therefore became indispensable. This dependence on external capital was not accidental. It was built into the very structure of the development model. From the outset, Lao authorities recognized that realizing the Battery of Southeast Asia would require partnerships with international firms, development institutions, and neighbouring states.

As a result, the country’s hydropower sector evolved through a series of complex arrangements linking domestic political authority with transnational capital. Many projects adopted Build-Operate-Transfer (BOT) structures. Under these arrangements, foreign investors finance and construct infrastructure projects. They then operate the facilities for a specified concession period—often several decades—during which they recover investments and generate profits. Eventually, ownership may revert to the host state.

From one perspective, BOT agreements represent pragmatic solutions to financing constraints. Countries with limited fiscal resources gain access to infrastructure that might otherwise remain unattainable. Risks are shared between public and private actors. Governments avoid immediate debt burdens associated with direct public financing. From another perspective, however, BOT structures raise important questions about sovereignty and value capture.

If foreign firms control strategic assets for thirty years, who benefits from the revenues generated during those decades? How much bargaining power do governments possess when negotiating contracts? Who absorbs losses if projected returns fail to materialize?

The answers often reflect broader inequalities in the international economy. Thai firms were among the earliest and most influential participants in the Lao hydropower sector. Companies linked to Thailand’s energy industry recognized the commercial opportunities created by growing electricity demand at home and abundant hydrological resources across the border. Long-term power purchase agreements with Thai buyers reduced uncertainty and enhanced the attractiveness of investments.

This relationship reinforced existing asymmetries. Thailand occupied the position of industrial consumer. Laos assumed the role of energy supplier. The pattern resembled older forms of international economic specialization in which peripheral economies exported raw materials while more advanced economies concentrated higher-value activities domestically. The resource had changed. The underlying logic had not entirely disappeared.

Vietnamese companies also became important actors. Shared political histories and longstanding relationships between the two ruling communist parties facilitated cooperation. Vietnamese investors participated in various energy and infrastructure projects, further embedding Laos within regional economic networks.

Over time, however, China’s role expanded dramatically. Chinese state-owned enterprises entered the hydropower sector with increasing confidence and resources. Backed by access to substantial financing and supported by broader geopolitical initiatives, Chinese firms became central players in the transformation of Laos’s infrastructure landscape. Their involvement reflected larger shifts occurring across Asia.

China’s extraordinary economic rise generated not only demand for resources but also an outward expansion of capital, technology, and construction expertise. Infrastructure became one of the principal mechanisms through which Chinese firms internationalized their activities. Roads, ports, railways, industrial zones, and energy projects proliferated across the developing world.

Laos emerged as a particularly important destination. This growing Chinese presence has frequently been interpreted through the language of geopolitical competition. Media discussions often focus on questions of strategic influence, debt dependency, or fears of a so-called “debt trap.”

While such concerns deserve attention, they can also oversimplify reality. Chinese involvement did not create Laos’s dependence on external capital. It transformed it.

Long before Chinese firms became major actors, the Battery of Southeast Asia already relied upon foreign investors, imported expertise, and external markets. Thailand had played this role for decades. International financial institutions had encouraged market-oriented reforms and regional integration. BOT arrangements had long structured hydropower development.

China entered an existing political economy rather than inventing it from scratch. This observation matters because it shifts the analytical focus away from national stereotypes toward structural relationships. The central issue is not whether Thai, Vietnamese, or Chinese investors are inherently benevolent or predatory. The more important question concerns the position occupied by Laos within regional capitalism.

As a small economy with limited domestic savings and technological capabilities, Laos often negotiates from a position of relative weakness. The need for investment constrains policy choices. Governments eager to accelerate development may accept terms they would otherwise reject. Immediate developmental gains can outweigh longer-term concerns regarding ownership and control.

Dependency, in this sense, does not imply absolute domination. Rather, it describes relationships characterized by unequal bargaining power and asymmetric interdependence. Laos needs investors. Investors generally have alternatives. This asymmetry shapes outcomes.

The implications become particularly significant when considering the distribution of economic benefits generated by hydropower. Dams produce multiple streams of value. Construction contracts generate profits for engineering firms. Electricity sales produce revenues over decades. Financial institutions receive returns on loans. Governments collect taxes, royalties, and concession fees. Local elites may gain access to new opportunities linked to infrastructure expansion.

Yet these benefits are not distributed equally. Foreign firms often capture substantial shares of profits during concession periods. Technical expertise remains concentrated outside the country. High-skilled positions may be filled by expatriate personnel. Domestic linkages remain weaker than those associated with more labour-intensive forms of industrialization.

This does not mean that Laos gains nothing. On the contrary, the country has benefited in important ways. Public revenues have increased. Electricity access has expanded. Infrastructure improvements have supported broader economic activity. Economic growth has contributed to poverty reduction.

The issue is one of proportion and trajectory. How much value remains within the domestic economy? To what extent does participation in the hydropower sector strengthen local capabilities? Can dependence on foreign capital gradually evolve into greater national autonomy? Or does success within the energy sector reinforce the very structures limiting broader transformation?

These questions point toward a deeper tension at the heart of the Battery of Southeast Asia. Hydropower has undoubtedly generated wealth. But wealth and development are not identical. A country may export billions of dollars’ worth of electricity while remaining dependent upon external finance, imported technology, and foreign markets. Growth can coexist with vulnerability.

The Battery of Southeast Asia may therefore illuminate an uncomfortable truth about contemporary development. The challenge is not simply generating economic activity. It is determining who controls it.

For Laos, the answer remains contested. The country succeeded in selling its rivers. Whether it succeeded in owning the future those rivers were meant to finance is a far more complicated question.

IV. The Costs Nobody Sees: Displacement, Livelihoods, and the Human Geography of Energy

The story of the Battery of Southeast Asia is often told through the language of megawatts, investment flows, and export revenues.

Governments announce generating capacity. Investors calculate rates of return. International organizations publish growth statistics. Journalists photograph gleaming turbines and massive concrete structures rising above river valleys. The numbers are impressive. A new dam can generate hundreds or even thousands of megawatts of electricity. Export contracts may be worth billions of dollars over their lifetime. Economic growth accelerates. Infrastructure expands.

Yet development is experienced differently depending on where one stands. From the perspective of a policymaker in Vientiane, a hydropower project may represent modernization and national progress. From the perspective of an investor in Bangkok or Beijing, it may represent a profitable opportunity. For communities living along the rivers that are transformed into reservoirs, the same project may mean the loss of agricultural land, the disruption of fisheries, and the difficult process of rebuilding livelihoods under entirely new conditions.

This tension is not unique to Laos. Large infrastructure projects have generated similar controversies across the world. Dams have long occupied a peculiar place in the developmental imagination. For much of the twentieth century, they were celebrated as symbols of progress. They promised electrification, flood control, irrigation, and industrialization. Leaders from Jawaharlal Nehru in India to Gamal Abdel Nasser in Egypt portrayed dams as monuments to national development. Only later did the social costs of these projects receive wider attention.

The Lao experience reflects this broader historical trajectory. As hydropower expanded throughout the country, thousands of people found themselves directly affected by dam construction. Villages located in areas designated for reservoirs had to be relocated. Agricultural systems built over generations were disrupted. Communities that had depended on river ecosystems for food and income confronted new uncertainties.

Resettlement became one of the defining features of the hydropower era. Official narratives often describe resettlement in relatively technical terms. Households receive compensation. New housing is constructed. Alternative livelihood programmes are introduced. Infrastructure in resettlement sites may even improve compared with previous conditions. Access to roads, schools, electricity, and healthcare can expand.

These improvements are real. Many families have indeed gained access to services that were previously unavailable. New settlements sometimes provide more durable housing and better physical infrastructure than isolated rural villages. It would therefore be misleading to portray all resettlement experiences as uniformly disastrous.

At the same time, compensation is rarely a simple matter of replacing what has been lost. Livelihoods are embedded in social relationships, ecological knowledge, and cultural practices that are difficult to quantify in monetary terms.

A rice field is not simply a productive asset. It may represent family history, local identity, and accumulated knowledge about seasonal cycles. A river is not merely a source of fish. It structures everyday routines, social interactions, and systems of reciprocity within communities. When these relationships are disrupted, rebuilding them can take years—if it proves possible at all.

One of the most significant challenges concerns the transition from subsistence-oriented livelihoods toward increasing dependence on markets. Many rural households in Laos historically combined multiple activities. Rice cultivation, fishing, livestock raising, forest gathering, and small-scale trade created diversified livelihood strategies capable of absorbing shocks. Families rarely depended upon a single source of income.

Hydropower projects often transform this balance. Loss of access to fisheries or agricultural land may encourage households to seek wage labour, engage in commercial agriculture, or rely more heavily on purchased food. Cash compensation may provide short-term resources but not necessarily long-term security. Livelihood diversification gives way to new forms of dependence on markets over which local communities exercise limited control.

The consequences are uneven. Some households adapt successfully. Access to roads and markets may create new opportunities. Younger generations may pursue non-farm employment. Entrepreneurial families can sometimes benefit from changing economic conditions.

Others struggle. Older residents may find adaptation particularly difficult. Those with limited education or fewer social connections often face greater vulnerability. Compensation payments can be exhausted quickly. Promised livelihood programmes may fail to deliver sustainable outcomes. The transition from one economic system to another becomes a source of insecurity rather than opportunity.

This unevenness is perhaps the most important feature of the hydropower experience. Development generates winners and losers. Yet the language through which development is discussed often obscures these distributional questions.

National statistics aggregate gains while concealing how they are distributed across society. A dam may contribute positively to GDP growth even if the communities most directly affected experience declining living standards. Export revenues may increase while certain groups bear disproportionate costs. The issue is therefore not simply whether development occurs. It is who pays for it.

Hydropower also raises questions about labour that are frequently overlooked. Energy debates tend to focus on technology and finance rather than work. Unlike manufacturing industries, dams do not employ vast numbers of workers once construction is complete. This characteristic is sometimes presented as an advantage. Electricity generation produces high economic value without requiring large labour forces.

From another perspective, however, this reveals one of the limitations of the model. Historically, industrialization transformed societies not only through growth but through employment. Factories created jobs, facilitated urbanization, and generated new forms of social organization. Labour-intensive industries integrated millions of people into wage employment, however exploitative those conditions sometimes proved to be.

Hydropower functions differently. Construction phases generate temporary employment, often involving migrant workers and specialized technical personnel. Once projects become operational, labour requirements decline sharply. The sector can generate significant revenues without producing broad-based employment opportunities.

This distinction matters politically. Development strategies shape the kinds of societies that emerge alongside them. Manufacturing economies confront questions about labour rights, wages, and industrial relations. Resource-based economies often confront questions concerning rents, redistribution, and access to resources.

Laos increasingly finds itself navigating the latter terrain. The tragedy of the Xe-Pian Xe-Namnoy dam collapse in 2018 brought many of these issues into sharper focus. When a saddle dam failed in southern Laos, the resulting floods devastated surrounding communities. Lives were lost. Thousands were displaced. The disaster triggered intense debate regarding construction standards, regulatory oversight, and accountability.

For critics, the collapse exposed the dangers associated with rapid infrastructure expansion under conditions of limited transparency and regulatory capacity. For supporters, it represented a tragic exception rather than evidence of systemic failure. Regardless of interpretation, the episode highlighted an uncomfortable reality.

Infrastructure is never purely technical. It is political. Decisions regarding where dams are built, how risks are assessed, whose voices are heard during planning processes, and how compensation is distributed reflect underlying structures of power.

The costs associated with hydropower are therefore not accidental by-products of an otherwise neutral development strategy. They are integral to it.

This observation does not imply that Laos should never have pursued hydropower. Every development pathway involves trade-offs. Industrialization generates pollution. Urbanization produces inequality. Agricultural modernization transforms rural life. There are no cost-free routes to economic transformation. The question is whether those costs are recognized, debated, and distributed fairly.

In Laos, the benefits of hydropower are often nationalized through the language of development and modernization. The costs, however, are frequently localized. They are borne by specific communities living along specific rivers whose experiences rarely appear in export statistics or investment reports. This creates a striking paradox.

The Battery of Southeast Asia illuminates cities hundreds of kilometres away. Yet many of the people living closest to the rivers that power this transformation continue to confront uncertainty about their own futures. The challenge is therefore not simply producing more electricity. It is ensuring that the development made possible by that electricity is experienced as meaningful and just by those who sacrifice the most to produce it.

As Laos’s energy ambitions expanded during the 2010s, another issue increasingly complicated this equation: the growing role of China and the emergence of new forms of financial dependence tied to infrastructure itself.

V. China, Debt, and the Infrastructure Question

No discussion of Laos’s contemporary political economy can avoid the subject of China.

Over the past decade, few countries have become as closely associated with debates about Chinese finance, infrastructure investment, and debt as Laos. International headlines frequently portray the country as a cautionary tale: a small and vulnerable state overwhelmed by the ambitions of a rising superpower, gradually surrendering control over strategic assets in exchange for loans it cannot afford to repay.

The narrative is compelling. It is also incomplete.

There is little doubt that China’s presence in Laos has expanded dramatically. Chinese companies have become major investors in hydropower, mining, real estate, and transport infrastructure. Chinese tourists transformed local economies before the pandemic. Mandarin has become increasingly visible in urban centres and border regions. The Belt and Road Initiative (BRI) has elevated Laos from a peripheral economy to an important node within Beijing’s vision of continental connectivity.

Perhaps no project symbolizes this transformation more clearly than the Laos–China Railway. When the railway opened in late 2021, it represented a remarkable engineering achievement. Stretching more than 400 kilometres between the Chinese border and Vientiane, the line passes through mountains, tunnels, and bridges that would once have seemed unimaginable in one of Southeast Asia’s poorest countries.

Supporters celebrated the railway as a historic breakthrough. A landlocked country, they argued, could finally become “land-linked.” Transportation costs would decline. Trade would expand. Tourism would recover. Laos would become integrated into regional supply chains stretching from southern China through mainland Southeast Asia.

Critics saw something different. The project’s enormous cost—equivalent to a substantial proportion of Laos’s GDP—raised concerns about debt sustainability. Could a country with such limited fiscal resources absorb liabilities of this magnitude? Would projected economic benefits materialize quickly enough to justify the investment?

These questions quickly merged into broader discussions of so-called Chinese “debt-trap diplomacy.” According to this argument, China deliberately extends excessive loans to vulnerable countries in order to gain strategic leverage when repayment difficulties emerge. Infrastructure projects become instruments of geopolitical influence disguised as development assistance. The concept gained enormous visibility in media and policy circles. Yet the evidence supporting such claims remains contested. In Laos, as elsewhere, reality is more complicated than the slogan suggests.

First, Laos’s dependence on external finance predates the Belt and Road Initiative. The Battery of Southeast Asia itself was built through foreign capital, long before China’s contemporary rise. Thai investors played central roles in the hydropower sector. International financial institutions encouraged regional integration and infrastructure-led development. Bilateral donors supported large projects. Public-private partnerships became normalized as solutions to fiscal constraints. China entered an existing development model.It did not create it.

Second, Lao policymakers were not passive victims of external manipulation. For the government in Vientiane, Chinese finance addressed very real constraints. Traditional development assistance was often insufficient to meet ambitious infrastructure goals. Western investors frequently showed limited interest in projects characterized by long time horizons and uncertain returns. Domestic savings remained inadequate. Chinese institutions appeared willing to provide financing and technical expertise at a scale few others could match. From this perspective, engagement with China reflected strategic calculation rather than simple dependence. The alternatives available to Laos were limited. If development required infrastructure, and infrastructure required capital, where else could that capital be found?

This does not mean that concerns regarding debt are misplaced. On the contrary, Laos experienced a serious debt crisis during the early 2020s. External debt expanded rapidly. Currency pressures intensified. Foreign exchange reserves came under strain. Inflation surged. The government faced increasing difficulties servicing obligations while maintaining economic stability.

The causes of these problems were multiple. The pandemic disrupted tourism revenues and economic activity. Global economic volatility increased financial pressures. Long-standing structural weaknesses became more visible. Infrastructure-related liabilities contributed to the problem, even if they did not entirely explain it. The result was a growing recognition that ambitious development strategies financed through borrowing carry significant risks.

Hydropower illustrates this dynamic particularly clearly.

Dams require enormous upfront investments. Returns materialize gradually over decades through electricity sales. If demand projections prove overly optimistic, construction costs rise unexpectedly, or macroeconomic conditions deteriorate, financial assumptions can quickly unravel. Infrastructure projects are therefore bets on the future. Governments borrow against expectations of growth that has not yet occurred. Sometimes those bets succeed spectacularly.

South Korea’s industrial expansion required massive investments undertaken under conditions of uncertainty. China’s infrastructure boom transformed the country’s productive landscape. Even the developmental states celebrated in economic history routinely embraced risks that could easily have ended badly. Failure is not predetermined. But neither is success. The critical issue concerns the relationship between infrastructure and transformation. Can infrastructure generate the productive capacities necessary to justify the debts incurred to build it?

This question became increasingly urgent in Laos following the establishment of Electricité du Laos Transmission Company Limited (EDL-T) in 2020. Under the arrangement, substantial control over the country’s electricity transmission network was transferred to a joint venture involving China Southern Power Grid.

Supporters viewed the agreement as pragmatic. Electricité du Laos faced mounting financial difficulties. The transmission network required investment and modernization. Partnering with an experienced external actor could improve efficiency while reducing immediate fiscal pressures.

Critics interpreted the move differently. Electricity transmission constitutes strategic infrastructure. It connects producers and consumers, determines how power flows through the economy, and influences future development trajectories. Transferring significant operational control to a foreign partner appeared, for some observers, to symbolize the erosion of economic sovereignty.

The debate revealed a deeper tension embedded within contemporary globalization. Interdependence creates opportunities. It also redistributes control. Infrastructure can expand national capabilities while simultaneously embedding countries within transnational systems over which they exercise only partial authority.

This tension is hardly unique to Laos. European economies depend on foreign energy suppliers. Developing countries rely on multinational technology firms. Advanced industrial states confront vulnerabilities associated with global supply chains. The difference lies largely in asymmetry.

Large economies often possess alternatives. Smaller economies possess fewer. For Laos, the challenge is therefore not whether to engage with China. Disengagement is neither realistic nor desirable. China is the country’s largest neighbour, a major source of investment, and an increasingly important economic partner. The question instead concerns the terms of engagement.

Can Laos leverage external partnerships to strengthen domestic capabilities? Can infrastructure investments generate productive spillovers extending beyond the projects themselves? Can interdependence evolve into greater resilience rather than deeper vulnerability? These are ultimately political questions rather than technical ones.

Debt sustainability cannot be reduced to ratios and repayment schedules alone. It depends on what borrowed resources make possible. Borrowing to finance consumption differs from borrowing to expand productive capacity. Infrastructure becomes transformative only if it enables broader processes of economic change. This returns us to the central puzzle confronting the Battery of Southeast Asia.

Laos has succeeded in attracting investment on a remarkable scale. It has built dams, transmission lines, and railways that previous generations could scarcely have imagined. Yet the ultimate test of these achievements lies elsewhere. Do they alter the country’s position within the regional economy? Do they create new capabilities? Do they generate pathways beyond dependence on resource exports and external finance?

Infrastructure can connect markets. It can accelerate growth. It can reshape landscapes. But by itself, it cannot answer the most fundamental question of development. What kind of economy is being built? For Laos, that question remains unresolved. And nowhere is it more evident than in the distinction between economic growth and structural transformation.

VI. Can Dams Produce Development? Growth, Transformation, and the Limits of Resource-Led Development

By almost any conventional measure, the Lao economy has changed dramatically over the past three decades.

Economic growth accelerated after the market reforms of the late 1980s. Infrastructure expanded. Access to electricity improved. Poverty rates declined significantly from the extremely high levels that characterized the early years of reform. Vientiane was transformed from a sleepy provincial capital into a far more dynamic urban centre. Roads connected previously isolated regions. Foreign investment flowed into sectors that scarcely existed a generation earlier.

These achievements should not be dismissed lightly. Too often, critical analyses of development focus exclusively on failures while overlooking genuine improvements in people’s lives. For millions of Lao citizens, the country of today offers opportunities that simply did not exist in the 1980s. Children are more likely to attend school. Households are more likely to have access to electricity. Life expectancy has improved. Consumer goods that were once unimaginable have become commonplace.

Growth matters. The problem is that growth and development are not the same thing. This distinction lies at the heart of some of the most important debates in political economy.

For much of the post-war period, economists often assumed that economic growth would eventually generate broader transformation. As national income increased, productive structures would become more sophisticated. Labour would move from low-productivity activities into higher-productivity sectors. Technological capabilities would deepen. Industrialization would create the foundations for sustained prosperity.

Development, in this view, followed a relatively predictable path. Poor countries would gradually become richer countries. Reality proved less straightforward.

Beginning in the 1950s and 1960s, scholars associated with structuralist and dependency approaches challenged these assumptions. Growth, they argued, could coexist with persistent inequalities and external dependence. Countries might experience rising incomes without fundamentally changing their position within the international division of labour. Exporting more of the same products did not necessarily produce development.

Raúl Prebisch and other structuralist thinkers observed that economies specializing in primary commodities often struggled to achieve sustained transformation. Fluctuating prices, limited technological spillovers, and dependence on external markets constrained long-term prospects.

Later dependency theorists pushed the argument further. Underdevelopment, they suggested, was not merely an earlier stage of development. It could be actively reproduced through unequal relationships linking peripheral economies to centres of accumulation.

One need not embrace every aspect of classical dependency theory to recognize its continuing relevance. The experience of Laos illustrates why. The Battery of Southeast Asia has generated growth. But has it generated transformation?

Answering this question requires looking beyond GDP statistics toward the underlying structure of the economy. Historically, successful late industrializers accomplished something more profound than economic expansion. They changed what they produced. Japan moved from textiles to automobiles and electronics. South Korea evolved from labour-intensive manufacturing toward semiconductors and advanced technologies. Taiwan developed sophisticated industrial capabilities rooted in dense networks of suppliers, engineers, and research institutions. More recently, Vietnam has become deeply integrated into global manufacturing chains producing everything from garments to smartphones and electronic components.

These transitions were neither automatic nor painless. They involved state intervention, institutional learning, educational investments, and strategic engagement with foreign capital. They generated new contradictions and inequalities of their own. Yet they shared an important characteristic. Each created increasingly complex productive capabilities. The economy learned to do new things.

Hydropower follows a different logic. A dam can generate electricity for decades. Once operational, it may provide stable revenues with relatively limited additional investment. This stability partly explains the sector’s attractiveness.

Yet precisely because hydropower is capital-intensive rather than labour-intensive, its developmental effects can be more limited. It creates infrastructure. It does not necessarily create industrial ecosystems. The sector requires engineers, technicians, financial specialists, and construction expertise. But many of these capabilities can be imported temporarily. Unlike manufacturing clusters, hydropower projects often generate weaker backward and forward linkages throughout the domestic economy.

This helps explain one of the central paradoxes of the Lao model. The country exports increasing quantities of electricity while remaining heavily dependent on imports for many manufactured goods. It has become a producer of energy without becoming a producer of complex industrial products.

This does not imply that hydropower is inherently incompatible with development. Resource-based sectors have sometimes served as foundations for broader transformation. Norway famously converted oil wealth into one of the world’s most sophisticated sovereign wealth systems while maintaining strong institutions and extensive social protections. Malaysia used revenues from commodities such as rubber, tin, and later petroleum to support industrial diversification. Botswana managed diamond wealth more successfully than many observers thought possible.

Natural resources need not become curses. The crucial question concerns what governments do with the opportunities resources create. Do they invest revenues in education and human capital? Do they strengthen domestic firms? Do they promote diversification? Do they encourage technological upgrading? Or do immediate returns reduce incentives to undertake more difficult reforms?

In Laos, the answer remains ambiguous.

Hydropower revenues have supported important improvements in infrastructure and public services. At the same time, industrial diversification has progressed slowly. Manufacturing remains relatively limited. Much of the economy continues to depend upon natural resources, external demand, and foreign investment.

The challenge is not merely economic. It is political. Structural transformation often disrupts existing arrangements of power. Building competitive manufacturing sectors requires investments with uncertain returns. It demands improvements in education, bureaucracy, and regulatory capacity. It may strengthen new social groups with interests distinct from established elites. Industrialization can generate labour movements, urban constituencies, and pressures for institutional change.

Resource-led growth can sometimes appear less politically disruptive. Rents generated through natural resources allow governments to distribute benefits without fundamentally altering underlying structures. Political stability becomes easier to maintain. Yet this stability may come at a cost.

The economy becomes more vulnerable to external shocks. Dependence on a narrow range of sectors persists. Opportunities for broad-based capability formation remain limited. This dilemma is increasingly visible across the developing world. As concerns about climate change accelerate the global energy transition, many countries hope to leverage their natural endowments—whether lithium, cobalt, rare earth minerals, or renewable energy potential—to secure a place within emerging green economies.

The assumption is familiar. Resource abundance will finance development. Laos represents an early test case for this proposition. Hydropower is frequently portrayed as a form of green energy. Compared with fossil fuels, it offers obvious environmental advantages in terms of carbon emissions. Regional electricity trade can support decarbonization efforts across Southeast Asia. Yet even renewable resources do not automatically produce developmental transformation.

The politics of renewable energy can reproduce older patterns of dependence if control over finance, technology, and markets remains concentrated elsewhere. The green transition may alter what is extracted. It does not necessarily alter how accumulation occurs. This insight carries broader implications. The challenge confronting Laos is not unique to hydropower. It concerns the relationship between specialization and autonomy in an increasingly interconnected world economy.

Can small economies integrate into global markets while preserving the capacity to shape their own developmental trajectories? Can foreign investment become a catalyst for domestic learning rather than a substitute for it? Can growth generated through resource exports evolve into more diversified forms of production? There are no easy answers.

Perhaps the Battery of Southeast Asia will ultimately provide the financial foundations for broader transformation. Infrastructure investments may gradually reduce barriers to industrial development. Improved connectivity through projects such as the Laos–China Railway could facilitate new forms of economic activity. Future generations may look back and interpret hydropower as merely the first stage of a longer developmental journey.

That possibility remains open. But it should not be assumed. The experience of Laos reminds us that development is not simply about producing more. It is about producing differently. Dams can generate megawatts. They can generate revenues. They can even generate growth. Whether they can generate the capabilities required for genuine structural transformation remains one of the most important unanswered questions in Asian political economy. And it is this question that ultimately determines whether the Battery of Southeast Asia represents a pathway out of peripheral status—or merely a more sophisticated way of managing it.

VII. Conclusion: Illuminating the Region, Transforming the Nation?

Few countries embody the promises and contradictions of contemporary development as vividly as Laos.

Over the past three decades, the country has attempted something remarkable. Emerging from war, poverty, and isolation, it sought to transform one of its most obvious geographical constraints into an economic opportunity. A small, landlocked nation with limited industrial capabilities decided that its rivers could become engines of modernization. Hydropower would generate export revenues. Infrastructure would attract investment. Growth would finance development.

The vision was bold. In many respects, it worked.

Laos today is not the Laos of the 1980s. Roads connect regions that were once isolated. Access to electricity has expanded dramatically. Poverty has declined. Cities have grown. Infrastructure has improved. The country has become more visible within regional economic networks. The very idea that Laos could play a significant role in Southeast Asia’s energy future would once have seemed implausible.

The Battery of Southeast Asia is not simply a slogan. It is a reality. And yet, reality has proven more complicated than the slogan suggests.

The dams that transformed Laos also transformed its relationship with the wider world. The country’s development strategy became deeply dependent upon foreign investors, external markets, and transnational infrastructure networks. Thailand’s energy demand helped make hydropower commercially viable. Chinese finance expanded the possibilities for ambitious infrastructure projects while introducing new forms of vulnerability. Regional integration generated opportunities but also reinforced asymmetries.

At the same time, the benefits and burdens of this transformation have been distributed unevenly. Communities living along the Mekong and its tributaries have often borne costs that remain largely invisible in national accounts. Resettlement, ecological disruption, and changing livelihoods remind us that development is experienced not only through aggregate indicators but through everyday life. Growth creates winners and losers. The language of modernization can obscure difficult questions about who sacrifices, who benefits, and who decides.

Perhaps most importantly, the Lao experience forces us to reconsider what we mean by development itself. For decades, development has often been measured through indicators such as GDP growth, export earnings, and investment inflows. By these standards, Laos has achieved much. Yet political economy encourages us to ask different questions.

What kinds of capabilities are being created? Who controls strategic assets? How are risks distributed? Does economic expansion alter a country’s position within the international division of labour, or merely reinforce it? These questions lead us back to the distinction between growth and transformation.

Growth concerns quantity. Development concerns structure. A country can export more while continuing to specialize in activities over which it exercises limited control. It can attract investment without building domestic technological capabilities. It can construct impressive infrastructure while remaining vulnerable to external shocks. It can become richer without necessarily becoming more autonomous.

Laos illustrates these tensions with unusual clarity.

The Battery of Southeast Asia has generated electricity, revenues, and economic growth. What remains uncertain is whether it can generate the foundations of a more diversified and resilient economy. Can hydropower revenues be converted into investments in education, industrial capabilities, and innovation? Can infrastructure become a platform for broader transformation rather than an endpoint in itself? Can dependence on natural resources evolve into more complex forms of production?

The answers to these questions will shape the country’s future. They also speak to a much wider debate. Across Asia, governments are once again embracing infrastructure as a development strategy. Railways, ports, renewable energy projects, industrial corridors, and digital networks are expected to unlock growth and secure prosperity. The assumption underlying these initiatives is that connectivity creates opportunity and that opportunity generates development.

Laos reminds us that the relationship is not automatic. Infrastructure matters. But infrastructure alone is not enough. Dams can illuminate cities hundreds of kilometres away. They can power factories, shopping malls, and industrial estates beyond national borders. They can transform rivers into commodities and landscapes into assets. They can even alter the geopolitical significance of small states. What they cannot do by themselves is answer the fundamental political question at the heart of development: Development for whom?

The future of Laos will depend less on the number of megawatts it exports than on how the wealth generated by those megawatts is used. If hydropower becomes a stepping stone toward diversification, capability building, and greater economic autonomy, the Battery of Southeast Asia may yet fulfil its promise. If not, the country risks remaining locked into a position where it powers the development of others more effectively than it transforms its own.

Perhaps that is the enduring lesson of the Lao experience. Rivers can be dammed. Electricity can be exported. Growth can be measured. But development is ultimately about something more difficult: the capacity of societies to shape their own futures.

Whether Laos can achieve that transformation remains uncertain. For students of Asian political economy, however, the country’s experience offers an invaluable reminder that the central challenge of development has never been simply how to generate wealth. It has always been how to convert wealth into power, capabilities, and the possibility of a different future.

The lights generated by the rivers of Laos increasingly illuminate Southeast Asia. Whether they will illuminate a path toward genuine transformation within Laos itself is a question that remains very much unanswered.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.

Corporate Power In Asia 04 Astra International First Edition 2026

2.31MB ∙ PDF file

Download

Download

Every morning, millions of Indonesians set out on journeys that would have been almost unimaginable to their grandparents. Motorcycles weave through Jakarta’s congested streets carrying office workers, university students and food-delivery riders. Family cars inch along toll roads linking sprawling suburbs to industrial estates on the outskirts of the capital. Trucks transport manufactured goods across Java, while heavy machinery extracts minerals and clears land in the outer islands. Across the world’s largest archipelago, mobility has become one of the defining experiences of modern life.

Few of those making these journeys pause to consider the corporation that helped make them possible.

The vehicles they drive often bear familiar international names—Toyota, Daihatsu, Honda and Isuzu—but behind many of these brands stands Astra International, one of Southeast Asia’s largest conglomerates and arguably the company that has done more than any other to shape Indonesia’s industrial transformation. Through its automotive partnerships, component manufacturing, financial services and distribution networks, Astra has become deeply embedded in the economic and social fabric of the country.

Its rise coincided with one of the most remarkable episodes of economic change in modern Southeast Asian history.

When Indonesia gained independence, it inherited the structures of a colonial economy organized around the extraction of natural resources and the export of agricultural commodities. Industrial capabilities were limited, technical expertise was scarce and the institutions associated with modern manufacturing remained underdeveloped. Yet within the span of a few decades, the country developed one of Southeast Asia’s largest automotive industries. Industrial employment expanded, supplier networks emerged, domestic engineering capabilities improved and millions of households experienced rising levels of prosperity and mobility.

Astra stood at the centre of this transformation.

Unlike Samsung in South Korea or Toyota in Japan, however, Astra never evolved into a globally recognized technological leader. It did not design its own vehicles, establish internationally competitive automotive brands or occupy the technological frontier of the industry. Yet neither was it merely a distributor of foreign products operating on behalf of multinational corporations. Through joint ventures, local manufacturing operations and the development of extensive supplier networks, Astra participated directly in the construction of Indonesia’s industrial capabilities. Indonesian managers, technicians and engineers acquired sophisticated forms of knowledge related to production, quality control and process organization. Local firms increasingly supplied components that had previously been imported. The country moved well beyond simple assembly.

This raises a question that extends far beyond the history of a single corporation.

Why did a strategy that succeeded in building substantial manufacturing capabilities stop short of technological leadership?

For much of the twentieth century, theories of development assumed that industrialization followed a relatively linear trajectory. Countries would begin with labour-intensive production, accumulate capabilities, move into increasingly sophisticated manufacturing and eventually approach the technological frontier. The experiences of Japan, South Korea and Taiwan appeared to confirm this progression.

Indonesia suggests a more complicated reality.

Industrial development does not necessarily unfold as a straightforward movement from dependence to autonomy. Countries may acquire important productive capabilities without mastering the technologies that define an industry. They may industrialize without producing globally competitive national champions. The transition from assembly to manufacturing can occur relatively rapidly, while the transition from manufacturing competence to technological leadership proves far more difficult.

Astra’s history offers an unusually revealing perspective on these dilemmas.

Its rise was inseparable from the legacies of colonialism, the authoritarian developmentalism of Suharto’s New Order and the expansion of Japanese production networks across Asia. It helped transform the everyday experience of mobility in Indonesia and contributed to the emergence of one of the region’s largest manufacturing economies. At the same time, it embodied the constraints that late-industrializing societies encounter as they seek to move beyond production toward greater control over innovation itself.

The story of Astra is therefore neither one of failure nor one of triumphant catch-up. Rather, it is the story of a country that achieved a great deal and then confronted the limits of that achievement. It is a story about the thresholds of industrial development: how they are crossed, why they matter and why some prove more difficult than others.

To understand how Indonesia learned to manufacture without ever building its own Toyota, however, one must begin with the colonial economy from which the country emerged and the uncertain search for a path toward development in the years following independence.

I. From Colonial Economy to Postcolonial Capitalism

When Indonesia proclaimed its independence in 1945, it inherited a political territory of immense scale and diversity, but not an industrial economy capable of sustaining the aspirations of the new republic. The Dutch colonial state had integrated the archipelago into global markets for centuries, yet it had done so in ways that privileged extraction over transformation. Sugar, coffee, rubber, tobacco, tin and oil flowed outward toward international markets, while the technologies, financial institutions and industrial capabilities associated with modern manufacturing remained concentrated in foreign hands.

The Dutch East Indies had been one of the world’s most profitable colonial possessions. Railways, ports and administrative institutions had been developed to facilitate the movement of commodities from plantation and mine to global markets rather than to encourage the emergence of a diversified domestic economy. Industrial production existed, but it remained limited and overwhelmingly subordinate to colonial priorities. Indigenous entrepreneurship was constrained, technical education remained underdeveloped and large-scale enterprises were dominated by European capital.

Political independence therefore did not automatically translate into economic sovereignty.

Indonesia emerged from the Second World War and the subsequent war of independence with damaged infrastructure, limited administrative capacity and a severe shortage of technical expertise. The challenge confronting the country’s leaders was immense. Building a nation required more than political unity across thousands of islands; it required the creation of productive capacities capable of supporting social transformation and improving the lives of a rapidly growing population.

The first two decades of independence were marked by experimentation, uncertainty and intense debate over the meaning of development itself.

Under President Sukarno, economic policy reflected broader efforts to define a distinctive postcolonial path. Nationalism, anti-imperialism and the pursuit of economic independence occupied a central place within official discourse. Dutch enterprises were nationalized, the role of the state expanded and development became closely associated with the unfinished project of decolonization. Yet the ambitions of the new republic often exceeded its institutional capacities. Political instability, regional rebellions, chronic fiscal pressures and accelerating inflation complicated efforts to establish coherent economic strategies.

For domestic businesses, the environment was both difficult and full of possibility.

The retreat of colonial capital created openings for Indonesian entrepreneurs willing to navigate a fluid and often unpredictable landscape. It was in this context that Astra International was established in 1957 by William Soeryadjaya and several associates as a modest trading company based in Jakarta. The timing was significant. The same year witnessed the nationalization of major Dutch enterprises, symbolizing Indonesia’s determination to reclaim economic control after centuries of colonial domination.

There was little to suggest that Astra would eventually become one of Southeast Asia’s largest conglomerates.

Its early activities were relatively straightforward. The company imported and distributed a variety of products, including machinery and office equipment, serving a domestic market that remained limited but increasingly oriented toward modernization. Like many firms operating in newly independent states, Astra’s initial success depended less on technological sophistication than on adaptability, commercial judgement and the ability to identify opportunities created by changing political conditions.

The background of William Soeryadjaya also reflected a broader feature of Southeast Asian capitalism. Born Tjia Kian Liong into a Chinese-Indonesian family, he belonged to a community that had long occupied an important, though often contested, position within the commercial life of the region. Throughout Southeast Asia, ethnic Chinese entrepreneurs frequently played prominent roles in trade, finance and distribution, drawing upon networks that transcended national boundaries. Their economic importance was often accompanied by political vulnerability, particularly during periods of heightened nationalism and social tension.

Indonesia was no exception. Chinese-Indonesian business communities contributed significantly to the development of domestic capitalism, yet their position remained precarious, shaped by shifting relationships with political authority and broader debates concerning identity and belonging. The emergence of companies such as Astra cannot be understood solely through the lens of ethnicity, but neither can it be separated entirely from the commercial structures and social dynamics inherited from the colonial period.

By the early 1960s, however, the future of the Indonesian economy remained uncertain. Sukarno’s increasingly confrontational foreign policy, deteriorating macroeconomic conditions and intensifying competition among the military, nationalist forces and the Indonesian Communist Party (PKI) contributed to a climate in which long-term investment became increasingly difficult. Few observers would have predicted that within a generation Indonesia would become one of the principal manufacturing centres of Southeast Asia.

The turning point arrived through a profound political rupture.

The transition from Sukarno’s Guided Democracy to Suharto’s New Order transformed the institutional foundations of Indonesian capitalism. It altered the relationship between state and society, redefined the country’s engagement with the international economy and created the conditions under which firms such as Astra would flourish. The industrial transformation that followed was neither the inevitable outcome of market forces nor the straightforward realization of nationalist aspirations. Rather, it emerged from the interaction of authoritarian state-building, global geopolitical realignments and the regional expansion of East Asian capital.

It was within this new political economy that Astra ceased to be merely a trading company and began its long evolution into the corporation that would help motorize modern Indonesia.

II. The New Order and the Japanese Century

The Indonesia that emerged from the upheavals of the mid-1960s was profoundly different from the republic that Astra had entered as a modest trading company less than a decade earlier. The transition from Sukarno’s Guided Democracy to Suharto’s New Order represented not merely a change of leadership, but the establishment of a new political and economic settlement whose consequences would shape the country’s developmental trajectory for more than thirty years.

The violence that accompanied this transformation remains one of the most traumatic episodes in modern Southeast Asian history. Following the failed coup attempt of September 1965, the Indonesian military launched a campaign of repression directed against the Indonesian Communist Party (PKI) and its perceived supporters. Hundreds of thousands of people were killed, while many more were imprisoned, dismissed from their jobs or subjected to long-term discrimination. The destruction of one of the largest communist movements outside the socialist world fundamentally altered the balance of power within Indonesian society.

Its economic implications were profound.

Trade unions and peasant organizations that had previously participated in debates over the country’s future disappeared from public life. Alternative visions of development centred on redistribution, mass participation and economic nationalism were marginalized. In their place emerged a political order that derived its legitimacy from promises of stability, growth and modernization. The New Order presented itself as the antidote to the turmoil of the preceding years, offering technocratic competence in place of ideological conflict.

A new generation of economists assumed positions of influence within the state. Often educated in the United States and later known collectively as the “Berkeley Mafia,” they advocated macroeconomic stabilization, fiscal discipline and a more pragmatic engagement with the international economy. Inflation was brought under control, relations with international financial institutions were restored and foreign investment was actively encouraged.

Indonesia, in short, reopened itself to the world.

This did not mean the abandonment of national development as an objective. Rather, the means through which development would be pursued changed significantly. The state no longer sought to achieve economic sovereignty primarily through nationalization and direct control. Instead, it aimed to accelerate industrialization by attracting foreign capital, technologies and managerial expertise while cultivating domestic business groups capable of mediating between international firms and local conditions.

The timing of this shift proved fortuitous.

Across East Asia, Japanese corporations were entering a period of extraordinary expansion. The postwar economic miracle had transformed companies such as Toyota, Honda and Komatsu into global industrial leaders. Rising incomes at home, coupled with increasing labour costs and the growing integration of regional markets, encouraged these firms to look beyond Japan’s borders. Southeast Asia, with its large populations and untapped consumer markets, became an increasingly attractive destination.

Indonesia occupied a special place within these calculations.

Its domestic market was enormous by regional standards. The oil boom of the 1970s provided the government with resources to invest in infrastructure and support economic expansion. Urbanization accelerated, while rising incomes generated demand for consumer goods previously beyond the reach of much of the population. Although per capita income remained relatively modest, the country’s long-term potential was difficult to ignore.

For Japanese firms, however, entering Indonesia required more than financial investment.

The country’s regulatory environment remained complex, bureaucratic procedures could be unpredictable and political relationships mattered greatly. Success depended upon finding local partners capable of navigating these realities while maintaining the confidence of foreign investors. Astra increasingly distinguished itself as precisely such a partner.

Its relationship with Toyota proved decisive.

What initially began as a distribution agreement gradually evolved into something much more substantial. Astra became involved in local assembly operations and helped establish the networks necessary to support an expanding automotive industry. As production increased, so too did the complexity of the company’s activities. Dealerships had to be organized across a geographically fragmented nation. Suppliers had to be identified and developed. Workers required training, quality standards had to be maintained and production schedules coordinated.

This was no longer a trading business.

By the late 1970s and early 1980s, Astra had become an integral part of Indonesia’s industrialization process. Similar partnerships followed with Daihatsu, Isuzu and Honda, while the company’s heavy equipment subsidiary, United Tractors, established close relationships with Komatsu, linking Astra’s fortunes to the broader expansion of mining, construction and plantation agriculture throughout the archipelago.

The evolution of these partnerships is particularly important because it complicates simplistic accounts of dependent development.

It would be misleading to portray Astra merely as an agent distributing foreign products within the Indonesian market. The company participated directly in the construction of industrial capabilities. Assembly operations required the development of managerial expertise, production discipline and technical competence. Indonesian engineers and technicians acquired experience in increasingly sophisticated manufacturing environments. Local suppliers learned to satisfy demanding standards concerning quality, timing and reliability. New forms of industrial knowledge became embedded within domestic institutions.

At the same time, there were limits to this process.

The technologies underpinning the industry remained largely Japanese. Vehicle platforms, engine design, advanced engineering and research and development continued to be concentrated within corporate headquarters abroad. Indonesian participation deepened primarily in the sphere of production rather than innovation. Astra became exceptionally skilled at organizing and coordinating industrial activity, but it exercised only limited influence over the technological direction of the industry itself.

Yet this outcome was not necessarily regarded as problematic at the time.

From the perspective of both the Indonesian state and Astra’s leadership, the immediate priorities were growth, employment and industrial expansion. The country was moving beyond its colonial role as an exporter of primary commodities. Manufacturing capabilities were expanding. Workers were acquiring new skills. Domestic suppliers were becoming increasingly sophisticated. Few policymakers were inclined to question a model that appeared to be delivering tangible improvements in living standards.

By the 1980s, Indonesia had embarked upon a process of industrial transformation that would have seemed improbable only two decades earlier. The question was no longer whether the country could manufacture. Increasingly, it was what kind of manufacturing power it was becoming.

The answer would emerge not only inside factories and boardrooms, but through the gradual accumulation of capabilities that blurred the boundary between assembly and production, revealing both the possibilities and the limits of late industrialization.

III. Learning to Manufacture: The Threshold of Industrial Capability

One of the most persistent misconceptions surrounding Indonesia’s industrial development is the assumption that the country’s automotive sector consisted primarily of assembling imported components designed and manufactured elsewhere. Such an interpretation captures an important part of the story, but only part of it. It underestimates both the scale of the capabilities that were actually created and the significance of the learning processes that accompanied industrialization under the New Order.

Indonesia did not remain a nation of screwdriver factories.

From the 1970s onward, the government sought to deepen domestic participation in manufacturing through a combination of investment incentives, local content requirements and policies designed to encourage the development of supporting industries. The objective was not necessarily to create indigenous automotive brands capable of competing with Toyota or Honda, but to ensure that industrialization generated broader economic spillovers. The presence of multinational manufacturers would be justified not only by employment creation, but also by the transfer of skills, the growth of supplier networks and the gradual expansion of domestic productive capabilities.

Astra became one of the principal vehicles through which this process unfolded.

As assembly operations expanded, the company increasingly invested in the development of local supply chains. Components that had initially been imported began to be produced domestically. Metal stamping, plastics, batteries, tyres and a growing range of parts entered the sphere of Indonesian manufacturing. Through Astra Otoparts and numerous joint ventures, the company helped nurture an ecosystem of suppliers whose capabilities evolved alongside those of the automotive industry itself.

This transformation required much more than physical investment.

Modern manufacturing depends upon the mastery of routines and disciplines that are often invisible to outsiders. Production schedules must be coordinated with extraordinary precision. Defects have to be identified and eliminated. Inventories need to be managed efficiently. Suppliers must deliver components that conform to exacting standards, often within narrow timeframes. Quality control becomes not simply a technical function, but an organizational culture.

These capabilities cannot be acquired overnight.

They emerge through repetition, training and experience. Engineers learn how to adapt production processes to local conditions. Technicians develop expertise in maintenance and troubleshooting. Managers acquire familiarity with systems of inventory control, procurement and workflow organization. Workers become accustomed to increasingly demanding expectations concerning productivity and precision.

A significant body of industrial knowledge was therefore accumulated within Indonesia.

This knowledge was practical rather than scientific in nature. It involved learning how to manufacture efficiently, how to coordinate complex production systems and how to improve existing processes incrementally. It was embedded in factories, supplier relationships and professional communities rather than in research laboratories and patent portfolios.

In development economics, this distinction is sometimes described as the difference between production capability and innovation capability.

Production capability refers to the ability to manufacture goods competitively according to internationally recognized standards. Innovation capability involves the capacity to generate new products, develop proprietary technologies and shape the future direction of an industry. The former is demanding and difficult to achieve; the latter is rarer still.

Indonesia clearly developed the first.

By the 1990s, the country’s automotive sector had advanced far beyond simple assembly. Domestic content levels increased substantially. Local firms became capable suppliers within increasingly sophisticated production networks. Indonesian engineers and managers acquired expertise comparable in many respects to their counterparts elsewhere in the region. The capabilities required to sustain a modern manufacturing industry had become deeply rooted in the national economy.

What Indonesia did not develop to the same extent were the institutions associated with frontier innovation.

Vehicle architecture continued to be designed abroad. Engine development remained concentrated in Japanese headquarters. Decisions regarding major technological trajectories were made elsewhere. Research and development expenditures remained modest by international standards, while domestic firms faced limited incentives to undertake the enormous financial risks associated with creating entirely new automotive platforms.

This distinction matters because it encourages a more nuanced understanding of industrial development.

Too often, countries are divided into simplistic categories: those that succeeded and those that failed, those that innovated and those that merely assembled. Indonesia’s experience fits uneasily within such binaries. It succeeded in crossing thresholds that many developing countries never reach. It built manufacturing capabilities, created supplier networks and generated substantial industrial employment. Yet it stopped short of becoming a technological leader.

The question, therefore, is not why Indonesia failed to industrialize. It plainly did industrialize.

Nor is the relevant comparison simply whether Astra became an Indonesian Toyota. Such a comparison risks measuring all developmental experiences against the exceptional trajectories of a handful of East Asian economies.

The more interesting question is why the process of capability accumulation appeared to plateau.

Why did the transition from assembly to manufacturing proceed relatively successfully, while the transition from manufacturing competence to technological leadership proved so much more elusive? Was this outcome the result of deliberate policy choices that prioritized growth and employment over innovation? Did the profitability of partnerships with established multinational firms reduce incentives for indigenous technological development? Or did the enormous costs and uncertainties associated with frontier innovation simply exceed what Indonesian firms and policymakers were prepared to bear?

There are no simple answers.

What Astra’s history demonstrates, however, is that industrial development unfolds through successive thresholds rather than through a single leap from backwardness to modernity. Indonesia crossed several of those thresholds with remarkable success. The capabilities it acquired transformed the economy and reshaped the lives of millions of Indonesians.

At the same time, the threshold separating industrial competence from technological leadership remained stubbornly difficult to cross.

The consequences of this achievement—and its limits—extended far beyond the factory floor. They shaped the ways Indonesians moved through cities, accessed new opportunities and experienced the promises of modern life itself.

The rest of this essay is for paid subscribers. Upgrade to continue reading about how Astra helped reshape everyday life in Indonesia, survived the Asian Financial Crisis, and why its remarkable success stopped short of technological leadership.

IV. Motorizing Indonesia: Mobility and the Making of Everyday Capitalism

Industrialization is often measured through aggregate indicators: growth rates, export volumes, manufacturing output or productivity statistics. Such measures are indispensable, yet they can obscure the ways in which economic transformation is experienced in everyday life. For most Indonesians, the significance of Astra was not encountered in discussions of local content requirements or supplier upgrading. It was encountered on the streets of Jakarta, Surabaya and Medan; in the decision to purchase a family’s first motorcycle; in the possibility of commuting to a factory located many kilometres from home; in the growing ability to move across an increasingly urban and interconnected society.

If Astra helped build Indonesia’s manufacturing capabilities, it also helped redefine the practical experience of modernity.

When Indonesia emerged from colonial rule, mobility remained limited for much of the population. Outside major urban centres, transport infrastructure was often inadequate, and private vehicle ownership was confined largely to elites and a narrow middle class. The country’s vast geography compounded these difficulties. Spread across more than seventeen thousand islands, Indonesia confronted not only the developmental challenges common to many postcolonial states but also the logistical complexities associated with governing and integrating an archipelagic nation.

The economic expansion of the New Order gradually altered these conditions.

Urbanization accelerated as millions of Indonesians migrated in search of employment and educational opportunities. Jakarta expanded far beyond its historical boundaries, absorbing surrounding districts into an increasingly integrated metropolitan region. Industrial estates emerged in Bekasi, Karawang and Tangerang, linking manufacturing growth to the outward expansion of the city. New residential developments proliferated, often at considerable distance from places of work.

This changing geography created new demands.

Mobility ceased to be merely a convenience and became a necessity. Workers needed to travel greater distances between home and factory. Small entrepreneurs sought access to wider markets. Families attempted to reconcile aspirations for improved housing with the practical requirements of employment and education. Economic growth transformed not only incomes but also the spatial organization of everyday life.

The motorcycle emerged as one of the defining technologies of this transformation.

Affordable, fuel-efficient and adaptable to congested urban environments, it democratized mobility in ways the automobile could not. Factory workers commuting from peripheral settlements, street vendors transporting goods, students travelling to universities and delivery riders navigating crowded streets all came to depend upon two-wheeled transport. The motorcycle expanded access to opportunities that had previously been constrained by geography and inadequate public infrastructure.

Astra occupied a central position within this process.

Through its longstanding relationship with Honda and its extensive distribution networks, the company became one of the principal suppliers of the vehicles through which Indonesians experienced social mobility in both the literal and metaphorical sense. Yet its influence extended beyond manufacturing and sales. The development of consumer finance proved equally significant. For many households, purchasing a motorcycle or automobile outright remained impossible. Access to credit bridged the gap between aspiration and affordability, allowing future expectations of income to be translated into present forms of consumption.

The expansion of credit reshaped patterns of economic life.

A family’s first motorcycle often represented more than a practical purchase. It signified entry into a different relationship with time and space. Commuting became easier, employment opportunities expanded and social networks extended beyond the immediate neighbourhood. The automobile retained its association with middle-class achievement, but the motorcycle broadened access to the forms of mobility upon which participation in modern economic life increasingly depended.

In this respect, Astra resembled many of the corporations that have shaped contemporary capitalism. Its power derived not simply from production, but from its ability to organize everyday practices. Samsung’s influence in South Korea extended through hospitals, insurance and consumer electronics; CP Group transformed the routines of production and consumption in Thailand through agribusiness and retail. Astra’s distinctive contribution lay in the infrastructures of movement through which Indonesians navigated work, family and aspiration.

These transformations, however, also generated new tensions.

The dramatic growth in private vehicle ownership contributed to chronic congestion, particularly in Jakarta, where traffic became both a symbol of economic dynamism and a source of profound frustration. Dependence upon motorcycles and automobiles reflected the inability of public transportation systems to keep pace with rapid urban expansion. Consumer credit broadened access to mobility while simultaneously exposing households to new forms of financial vulnerability. Environmental concerns, from deteriorating air quality to rising carbon emissions, increasingly accompanied the benefits associated with motorization.

Modernity, as Indonesia discovered, rarely resolves one set of problems without creating another.

Yet it is difficult to overstate the extent to which mobility transformed the texture of everyday life. The ability to travel independently, to seek employment beyond one’s immediate surroundings, to transport goods efficiently or simply to visit relatives living several hours away altered the practical meaning of citizenship and belonging. Economic development became tangible not only through rising incomes, but through the expansion of horizons and possibilities.

By the late twentieth century, Astra had become far more than a successful industrial conglomerate. It had evolved into one of the institutions through which Indonesians negotiated the opportunities and contradictions of rapid social change. The company helped construct an economy organized not only around production but also around circulation: the movement of people, commodities and aspirations across a society undergoing profound transformation.

It was precisely this success that made the events of 1997 so shocking. For decades, the combination of authoritarian stability, industrial expansion and expanding consumption had appeared to offer a viable path to development. The Asian Financial Crisis revealed how fragile that apparent stability could be, exposing vulnerabilities that rapid growth had long concealed beneath the surface of Indonesia’s economic miracle.

V. Crisis, Reform and the Reinvention of Indonesian Capitalism

For much of the 1980s and early 1990s, the developmental trajectory pursued by the New Order appeared to have vindicated itself. Economic growth remained robust, poverty declined, manufacturing expanded and a new urban middle class emerged. International observers increasingly spoke of an “East Asian Miracle,” identifying the region as evidence that rapid industrialization and integration into global markets could deliver sustained improvements in living standards. Indonesia, although less celebrated than Japan, South Korea or Taiwan, seemed to have secured its own place within this broader narrative of Asian success.

Astra was among its principal beneficiaries.

The company had evolved from a trading enterprise into a diversified industrial conglomerate whose activities extended across automobiles, motorcycles, heavy equipment and financial services. It occupied a privileged position within Indonesia’s automotive sector and had become deeply embedded in the routines of production and consumption that characterized the country’s emerging industrial society. There were few reasons to expect that the foundations of this success would soon be called into question.

The Asian Financial Crisis of 1997 altered that perception with extraordinary speed.

What began as a speculative attack on the Thai baht soon spread throughout the region, revealing vulnerabilities that years of impressive growth had obscured. Financial liberalization, short-term capital inflows and extensive borrowing denominated in foreign currencies had generated forms of fragility that became visible only once confidence evaporated. As investors withdrew funds and currencies collapsed, firms that had appeared stable suddenly found themselves confronting existential threats.

Indonesia was among the countries most severely affected.

The rupiah lost much of its value in a matter of months. Inflation surged, banks struggled to remain solvent and economic activity contracted sharply. Companies with debts denominated in foreign currencies faced dramatically increased repayment burdens, while declining purchasing power undermined domestic demand. The crisis quickly transcended the boundaries of economics, exposing deeper tensions within the political order constructed under Suharto.

For ordinary Indonesians, the consequences were immediate and painful.

Factories reduced production or closed altogether. Workers lost jobs that had seemed secure only months earlier. Poverty rates, which had fallen substantially during previous decades, rose once again. Families accustomed to gradual improvements in their material circumstances confronted uncertainty and anxiety. The prosperity generated by industrialization suddenly appeared less permanent than many had assumed.

Astra itself did not escape these pressures.

Like numerous Asian conglomerates during the boom years, the company had diversified its operations and expanded in an environment shaped by optimism regarding future growth. The collapse of the rupiah increased the burden of foreign-denominated liabilities, while deteriorating economic conditions threatened the consumer markets upon which much of its business depended. The crisis exposed the extent to which Indonesia’s developmental achievements had become intertwined with international financial systems over which domestic actors exercised limited control.

Yet the significance of the crisis lay not only in the vulnerabilities it revealed, but also in the resilience it demanded.

As economic conditions deteriorated, public dissatisfaction with the New Order intensified. Student demonstrations spread across university campuses, civil society organizations became increasingly vocal and urban unrest challenged the regime’s claims to legitimacy. In May 1998, after more than three decades in power, Suharto resigned.

The fall of the New Order initiated one of the most ambitious democratic transitions in the contemporary developing world.

Competitive elections became institutionalized, censorship weakened and independent labour unions re-emerged after decades of state control. Decentralization transferred significant authority from Jakarta to regional governments, while civil society expanded its role within public life. Indonesia entered a period of political experimentation whose outcomes remained uncertain but whose significance was undeniable.

What is striking in retrospect, however, is not only the extent of political change but also the continuity evident within the economic sphere.

Astra survived.

The company restructured its operations, adapted to altered circumstances and retained its central position within Indonesia’s industrial economy. The organizational capabilities that had contributed to its earlier success—long-term relationships, managerial flexibility and an ability to navigate shifting institutional environments—again proved invaluable. While many firms disappeared or lost their prominence, Astra emerged from the crisis as one of the enduring pillars of Indonesian capitalism.

The post-crisis period also transformed the ownership structures through which Indonesian corporations operated. Among the most notable developments was the growing role of Jardine Matheson, the Hong Kong-based conglomerate whose origins stretched back to the era of British imperial commerce in Asia. Over time, Jardine consolidated its position as Astra’s largest shareholder, illustrating the increasingly transnational character of corporate ownership in an age of globalization.

The symbolism was striking. One of Indonesia’s most important corporations, deeply embedded in the country’s industrial and social life, became linked to a business group whose own history reflected an earlier phase of Asian capitalism shaped by colonial trade and imperial expansion. Astra remained unmistakably Indonesian in terms of its workforce, operations and societal significance, yet the capital sustaining it had become increasingly global.

This evolution reflected broader transformations in the nature of contemporary capitalism. Production remained rooted in specific places and communities, while ownership, finance and strategic decision-making crossed national boundaries with increasing ease. National economies became ever more deeply integrated into systems of global interdependence that simultaneously expanded opportunities and redistributed risks.

For Indonesia, the crisis represented neither a simple rupture nor a straightforward continuation. It marked the end of authoritarian developmentalism while preserving many of the industrial structures that developmentalism had helped create. Astra embodied this duality. It was both a product of the New Order and a survivor of its collapse, adapting to democratic politics without relinquishing its position at the centre of the country’s industrial economy.

By the early twenty-first century, Indonesia had recovered much of the momentum lost during the crisis. Growth resumed, consumer markets expanded and industrial production stabilized. Yet the questions raised by Astra’s trajectory had not disappeared. The country had demonstrated an impressive capacity to build manufacturing capabilities and weather profound political and economic upheaval. Whether it could translate those capabilities into greater technological influence remained unresolved.

The answer would increasingly depend on forces reshaping the global automotive industry itself. As electric vehicles, battery technologies and new competitors began to redefine the future of mobility, Indonesia once again found itself confronting a familiar challenge: how to transform participation in global production into a stronger capacity to shape its direction.

VI. Electric Futures: Beyond the Astra Model?

For most of Astra’s history, the fundamental architecture of the automotive industry remained remarkably stable. Japanese manufacturers occupied the commanding heights of the sector, internal combustion engines provided the technological foundation of mobility and Indonesia’s place within regional production networks appeared relatively secure. Astra prospered by doing what it had learned to do exceptionally well: coordinating relationships between foreign producers, domestic suppliers, state institutions and Indonesian consumers. Its success depended less on technological disruption than on organizational excellence and gradual capability accumulation.

Today, however, that industrial order is being transformed.

The transition to electric mobility represents one of the most significant technological shifts in the history of the automobile. Unlike previous improvements in fuel efficiency or manufacturing techniques, the move toward electric vehicles alters the very foundations upon which automotive competitiveness has long rested. Batteries increasingly replace engines as the critical technological component. Software becomes central to the driving experience. Semiconductors, charging systems and digital integration acquire strategic importance. The skills and assets that defined leadership in the age of the internal combustion engine may not guarantee success in the age of electrification.

Periods of technological transition often unsettle established hierarchies.

Companies that once appeared invulnerable discover that the sources of their competitive advantage have weakened, while new actors exploit opportunities created by uncertainty. Chinese manufacturers have emerged as perhaps the most striking beneficiaries of this transformation. Firms such as BYD have combined large-scale production, substantial investments in battery technologies and aggressive pricing strategies to challenge incumbents in global markets. Tesla has altered expectations regarding the integration of software and mobility, while even the major Japanese firms have been forced to reconsider strategies developed during decades of dominance.

For Indonesia, this disruption presents an unusual combination of opportunity and risk.

Unlike earlier periods of industrialization, the country enters the transition with a substantial manufacturing base, an experienced industrial workforce and a domestic market large enough to attract international attention. It also possesses resources that have suddenly become strategically important. Indonesia holds some of the world’s largest nickel reserves, a critical input for many battery technologies. What was once regarded primarily as a mineral endowment has increasingly come to be seen as a potential source of industrial leverage.

Successive Indonesian governments have sought to capitalize on this advantage.

Policies restricting the export of unprocessed nickel have aimed to encourage downstream investment and domestic value addition. Rather than repeating the familiar pattern of exporting raw materials while importing finished products, policymakers have attempted to attract investment in refining, battery production and electric vehicle manufacturing. The objective is ambitious but clear: to move further along the value chain and secure a more influential position within the industries shaping the future of mobility.

In some respects, these ambitions represent a continuation of longstanding developmental aspirations.

Since independence, Indonesian leaders have repeatedly confronted the challenge of transforming the country’s considerable assets—its population, natural resources and strategic location—into forms of productive power capable of reducing dependence on external actors. The language has evolved from anti-colonial nationalism to developmental pragmatism and now to discussions of green transitions and critical minerals. Yet the underlying question remains strikingly familiar: how can participation in the global economy be translated into greater influence over the technologies and institutions that govern it?

Astra’s position within this emerging landscape is particularly revealing.

The company enters the electric era with considerable strengths. Decades of experience have endowed it with extensive distribution networks, sophisticated supplier relationships and a deep understanding of Indonesian consumers. It possesses organizational capabilities that few domestic competitors can match and maintains long-standing partnerships with manufacturers that continue to command substantial technological and financial resources. If adaptation and coordination are decisive, Astra remains exceptionally well positioned.

At the same time, the transition exposes the limits of the developmental model upon which its success was built.

Astra’s historical achievement lay in mastering production and organization rather than in generating proprietary technologies. It helped Indonesia cross important thresholds of industrial capability without assuming responsibility for the scientific and engineering frontiers of the automotive industry. Whether that distinction will matter more in the age of electric mobility remains uncertain. The answer depends partly on whether future competitiveness will continue to reward organizational integration or increasingly favour those controlling batteries, software and intellectual property.

The question is not simply whether Indonesia will participate in the electric future. It already is. Chinese, Japanese and South Korean firms are investing in various segments of the emerging ecosystem, while domestic policymakers actively seek to shape the country’s role within new supply chains. The more difficult issue concerns the quality of that participation.

Can Indonesia leverage its mineral wealth and accumulated industrial experience to deepen its technological capabilities? Can firms such as Astra move beyond their traditional strengths and assume greater influence over innovation itself? Or will the country once again occupy an intermediate position—more sophisticated than a supplier of raw materials, yet still dependent upon technologies developed elsewhere?

History provides reasons for both optimism and caution.

Indonesia has repeatedly demonstrated an extraordinary capacity for adaptation. It moved from colonial extraction to industrial production, from authoritarian rule to democratic consolidation and from financial crisis to renewed growth. Astra itself survived transformations that might have overwhelmed less resilient institutions. Yet history also reminds us that industrial structures possess a powerful tendency toward continuity. Established relationships, organizational routines and distributions of expertise can persist even during periods of apparent disruption.

The transition to electric mobility therefore represents more than a technological challenge. It constitutes another developmental threshold. Indonesia successfully crossed the threshold separating extraction from manufacturing and, later, the threshold separating assembly from increasingly sophisticated production capabilities. Whether it can now cross the threshold separating industrial competence from technological leadership remains one of the most consequential questions confronting the country’s economic future.

Astra’s history does not provide a definitive answer. What it does reveal is that development is not a linear journey from dependence to autonomy. It is a process of negotiating successive thresholds, each more demanding than the last, in which earlier successes create new possibilities while simultaneously shaping the limits of what appears achievable.

The future of Indonesian capitalism may well depend on whether those limits prove more flexible than they have in the past.

VII. Conclusion: The Limits of Success

When Astra International was founded in 1957, Indonesia remained a predominantly agrarian society emerging from the legacies of colonial rule. Industrial capabilities were limited, technical expertise was scarce and the country’s economic future appeared uncertain. The challenge confronting the new republic was not simply to generate growth, but to transform an economy historically organized around extraction into one capable of sustaining broader forms of social and economic development.

Over the following decades, that transformation took place.

Indonesia became one of Southeast Asia’s largest manufacturing economies. Industrial employment expanded, supplier networks deepened and millions of households experienced improvements in living standards unimaginable to earlier generations. The country’s roads filled with motorcycles and automobiles that symbolized not merely rising prosperity but participation in a new form of modern life. Astra stood at the centre of this process. Through its partnerships with Japanese manufacturers, its investments in local production and its ability to coordinate increasingly sophisticated industrial networks, the company helped build the institutional foundations of Indonesia’s automotive economy.

These achievements deserve to be taken seriously.

Too often, discussions of development focus disproportionately on what countries fail to accomplish, measuring success exclusively against the experiences of a handful of exceptional cases. Judged by the standards of postcolonial Indonesia rather than those of Japan or South Korea, Astra’s contribution was extraordinary. It participated in the creation of manufacturing capabilities where few had previously existed. It supported the emergence of domestic supplier networks, facilitated the transfer of organizational knowledge and helped transform mobility from a privilege enjoyed by a minority into an ordinary feature of everyday life.

Indonesia did not merely assemble imported products.

It learned how to manufacture.

At the same time, Astra’s history reveals that industrial development unfolds through a series of thresholds that are neither automatic nor inevitable. The transition from extraction to manufacturing proved difficult but achievable. The transition from simple assembly to increasingly sophisticated production capabilities also occurred with considerable success. Indonesian engineers, technicians and managers acquired forms of expertise that enabled the country to participate meaningfully in complex industrial activities.

The transition from industrial competence to technological leadership proved more elusive.

The most strategic dimensions of the automotive industry—vehicle design, advanced engineering, frontier research and the development of proprietary technologies—remained concentrated elsewhere. Indonesia built one of Southeast Asia’s largest automotive sectors without producing its own Toyota. This outcome should not be understood simply as evidence of failure. Rather, it reflects the particular ways in which opportunities, constraints and incentives were configured within Indonesia’s political economy. Partnerships with multinational firms generated employment, learning and prosperity, while simultaneously reducing the pressures and perhaps the necessity to pursue riskier forms of indigenous innovation.

Astra therefore occupies an important place in the broader history of Asian capitalism.

It was neither a Korean-style technological champion nor merely an agent of foreign interests. It represented a distinctive path of development rooted in integration, capability accumulation and organizational sophistication. Its history demonstrates that countries can industrialize successfully without becoming technological leaders, and that substantial developmental achievements may coexist with enduring asymmetries in the control of knowledge and innovation.

This insight has implications extending far beyond Indonesia.

Much of the contemporary Global South occupies a similar position between dependency and autonomy, between simple production and frontier innovation. The challenge confronting these societies is no longer whether industrialization is possible. Many have already demonstrated that it is. The more difficult question concerns how successive developmental thresholds can be crossed and whether participation in global production can eventually be translated into greater influence over the technologies shaping the future.

The transition to electric mobility has reopened these questions in new forms. Indonesia’s mineral resources, accumulated manufacturing experience and large domestic market may provide opportunities unavailable to previous generations. Whether those opportunities will be sufficient to overcome the barriers separating industrial competence from technological leadership remains uncertain.

What Astra’s history ultimately reminds us is that development is not a single leap from backwardness to modernity. It is an uneven process of learning, adaptation and negotiation in which each success creates both new possibilities and new constraints. The most revealing question is therefore not why Indonesia failed to become Japan or South Korea. It is why a country that achieved so much found the next threshold so difficult to cross.

In that sense, Astra International was more than the company that motorized Indonesia. It was one of the institutions through which a postcolonial society learned how to become industrial, prosperous and modern, while confronting the enduring challenge of determining how far those achievements could carry it toward shaping its own technological future.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.

18:2026 Asian Political Economy Jokowi And Prabowo Publishers Edition

2.91MB ∙ PDF file

Download

Download

I. The Puzzle of Indonesian Politics

For much of the last decade, Indonesian politics appeared to revolve around a clear contrast. On one side stood Jokowi: a former furniture businessman, mayor of Solo, and governor of Jakarta whose rise symbolized the possibilities created by democratic reform and decentralization after the fall of Suharto. On the other side stood Prabowo: a former general, member of one of Indonesia’s wealthiest families, and representative of a political tradition associated with the New Order and its authoritarian legacies.

For many observers, the rivalry appeared straightforward. Jokowi represented democratic renewal; Prabowo represented a return to the past. Yet the transition from Jokowi to Prabowo challenges this interpretation.

Far from preventing Prabowo’s rise, Jokowi actively facilitated it. The outgoing president not only supported his former rival but also helped construct the political coalition that carried him to victory. The election of Jokowi’s son, Gibran Rakabuming Raka, as vice president further reinforced perceptions of continuity between the two administrations.

This development forces us to reconsider the nature of Jokowi’s presidency itself.

Was Jokowi really the outsider many believed him to be? Did his rise represent a challenge to oligarchic power? Or did he ultimately become the architect of a new political settlement that incorporated both old and new elites into a remarkably stable ruling coalition?

These questions matter because Indonesia occupies a unique position in Southeast Asia.

Unlike the Philippines, where the conflict between Marcos and Duterte reveals fragmentation within the elite and the absence of a coherent developmental coalition, Indonesia appears to have moved in the opposite direction. Political competition remains vigorous, but a broad consensus has emerged around infrastructure development, industrial upgrading, resource nationalism, and state-led economic transformation.

The transition from Jokowi to Prabowo therefore provides an opportunity to explore a larger political economy question. Has Indonesia succeeded in constructing the developmental coalition that many other countries seek? Or has the consolidation of such a coalition come at the cost of democratic contestation and political pluralism?

This essay argues that the Jokowi-Prabowo transition should not be understood as a simple restoration of the old oligarchy. Rather, it represents the consolidation of a broad developmental coalition that combines elements of Indonesia’s traditional elite with newer political and economic actors. The paradox is that Jokowi’s greatest achievement may also contain the seeds of a new problem. By integrating diverse elites into a common developmental project, he helped create political stability and economic coherence. But he may also have weakened the forces capable of holding that coalition accountable.

To understand this paradox, we must first revisit the origins of Jokowi’s rise.

II. Jokowi and the Promise of Democratic Transformation

When Jokowi emerged on the national stage, he seemed to embody everything that made post-Suharto Indonesia different from its past.

The fall of Suharto in 1998 had transformed Indonesia’s political landscape. Democratization weakened the dominance of the military. Decentralization redistributed authority away from Jakarta. Direct elections created opportunities for new political actors. Local governments acquired greater importance. Regional leaders gained visibility and influence.

Jokowi was a product of this transformation.

Unlike most previous Indonesian presidents, he did not emerge from the military, a major political dynasty, or the upper levels of the national bureaucracy. His political career began in Solo, where he gained a reputation for pragmatic governance, administrative competence, and a willingness to engage directly with citizens.

His subsequent election as governor of Jakarta reinforced the image of an outsider challenging established political practices.

In many respects, Jokowi’s rise resembled broader political developments elsewhere in Southeast Asia. Like Rodrigo Duterte in the Philippines, he emerged from local politics rather than the national elite. Like Thaksin Shinawatra in Thailand, he appeared to represent a challenge to established power structures. Yet unlike either figure, he lacked an overtly populist style. His appeal rested less on confrontation than on managerial competence.

For many Indonesians, Jokowi symbolized the promise of democratic mobility. He demonstrated that national leadership could emerge from outside traditional elite networks. His election seemed to confirm the success of Indonesia’s democratic transition.

Yet from the beginning, there were reasons to be cautious about this interpretation.

Political outsiders rarely govern as outsiders for long.

Indonesia’s political system remained heavily influenced by powerful business interests, political parties, military networks, and regional elites. Winning elections required coalitions. Governing required compromises. The question was never whether Jokowi would interact with oligarchic structures. The question was whether he would transform them or be absorbed by them.

The answer would gradually emerge over the course of his presidency.

III. From Outsider to Coalition Builder

The most common interpretation of Jokowi’s presidency emphasizes continuity with his origins. According to this narrative, Jokowi remained fundamentally different from Indonesia’s traditional elites. He preserved his image as a pragmatic reformer, focused on infrastructure, economic development, and administrative efficiency rather than ideological battles or elite politics.

There is considerable truth in this view.

Yet it risks overlooking a crucial transformation that occurred during his decade in power. Jokowi did not remain an outsider. He became one of the most effective coalition builders in contemporary Indonesian history.

This transformation was not necessarily a betrayal of his original project. On the contrary, it may have been a precondition for its success.

Unlike reformers who seek to weaken elite power, Jokowi gradually pursued a strategy of elite incorporation. Rather than confronting established interests, he brought them into a broader developmental coalition.

This approach helps explain both the achievements and contradictions of his presidency.

Infrastructure as Political Economy

The centerpiece of Jokowi’s development strategy was infrastructure.

Roads, ports, airports, railways, industrial estates, and energy projects became defining features of his administration. The scale of investment was unprecedented in post-Suharto Indonesia.

Many observers interpreted this primarily as a technocratic project. Indonesia’s infrastructure deficit was real. Improved connectivity could reduce costs, strengthen national integration, and support economic growth.

Yet infrastructure was also political. It created opportunities for coalition building across Indonesia’s extraordinarily diverse political landscape.

Regional governments benefited from investment. Construction firms secured contracts. State-owned enterprises expanded their activities. Local business groups gained new opportunities. Political leaders across the archipelago could claim credit for visible development projects.

Infrastructure therefore became more than an economic policy. It became a mechanism for integrating diverse interests into a common developmental agenda.

This represented a significant departure from earlier periods of Indonesian politics, when competition among elites often revolved around access to state resources without a clear developmental framework. Under Jokowi, development itself became a source of political legitimacy.

The Return of Industrial Policy

If infrastructure was the most visible dimension of Jokowi’s strategy, industrial policy was arguably the most significant.

For several decades, discussions of development in many countries were dominated by assumptions that market liberalization and integration into global value chains would eventually generate upgrading and structural transformation.

Indonesia increasingly moved in a different direction. The clearest example is the policy of downstreaming.

Successive Indonesian governments had long worried about the country’s dependence on exports of raw materials. Under Jokowi, these concerns translated into a more assertive effort to promote domestic processing and value addition.

Nickel became the symbol of this strategy.

Rather than exporting raw nickel ore, Indonesia sought to encourage domestic processing, attract investment into smelting and refining, and position itself as a key player in global battery and electric vehicle supply chains.

The policy generated controversy. Critics pointed to environmental costs, regulatory uncertainty, and dependence on foreign capital, particularly from China.

Yet the broader significance of downstreaming lies elsewhere.

It reflected a growing consensus among Indonesian elites that participation in the global economy should be managed strategically rather than left entirely to market forces.

This consensus is remarkably broad. Nationalists support it because it promises greater economic sovereignty. Business groups support it because it creates investment opportunities. State institutions support it because it strengthens fiscal and political capacity. Even many political opponents accept its basic logic.

The Accommodation of Power

The success of Jokowi’s developmental agenda depended on political stability. This requirement pushed him toward an increasingly inclusive coalition-building strategy.

One of the most striking examples was his relationship with Prabowo. During the 2014 and 2019 elections, the two men appeared to represent opposing political camps. Their rivalry was often portrayed as a contest between democratic reform and authoritarian nostalgia. Yet after the 2019 election, Jokowi appointed Prabowo as Minister of Defence.

At the time, many observers interpreted the decision as a pragmatic effort to reduce political polarization. In retrospect, it appears to have been part of a broader strategy. Rather than excluding rivals, Jokowi sought to incorporate them.

The same logic extended beyond Prabowo. Political parties, regional elites, business groups, military figures, and bureaucratic interests were gradually absorbed into an increasingly broad governing coalition.

This strategy produced stability. It reduced political conflict. It facilitated policy implementation. It strengthened investor confidence. But it also had consequences. As more actors joined the governing coalition, the space for meaningful opposition narrowed. The political center expanded, but political contestation weakened.

Was Jokowi Captured by the Oligarchy?

This question has become increasingly prominent in debates about Indonesia.

Some critics argue that Jokowi ultimately abandoned his reformist origins and became captive to oligarchic interests. Others argue that he never possessed the autonomy necessary to challenge those interests in the first place. Both interpretations contain elements of truth, but neither is entirely satisfactory.

The concept of oligarchy often implies a distinction between reformers and entrenched elites. Yet successful development has rarely occurred through the complete exclusion of powerful economic actors.

The more relevant question is not whether oligarchs exist. Every capitalist economy contains large concentrations of economic power. The question is how those interests are incorporated into the development process. Viewed from this perspective, Jokowi’s achievement was not the defeat of oligarchic power but its partial integration into a broader developmental project.

Large business groups benefited from infrastructure expansion, industrial policy, and economic growth. At the same time, they operated within a framework increasingly oriented toward national development objectives.

This arrangement resembles aspects of developmental states elsewhere in Asia, where close relationships between political and economic elites often played a central role in industrial transformation.

Yet it also creates new risks. When developmental coalitions become too broad, they can weaken mechanisms of accountability. When opposition becomes marginal, policy debates may narrow. When elite consensus becomes dominant, democratic competition can lose some of its substance.

These tensions became increasingly visible during Jokowi’s second term. And they provide the key to understanding why Prabowo’s rise should not be interpreted as a break with the Jokowi era. In many respects, it represents its logical culmination.

IV. Prabowo and the Consolidation of the Developmental Coalition

The election of Prabowo Subianto has often been interpreted as a return of Indonesia’s old elite.

The argument is understandable.

Prabowo is a former general. He comes from one of Indonesia’s most prominent families. His political career stretches back to the final years of the New Order. For many Indonesians, he remains associated with a political tradition very different from the democratic optimism that accompanied Reformasi.

Viewed from this perspective, his election appears to represent a restoration. Yet such an interpretation risks overlooking what actually happened during the Jokowi years.

Prabowo did not defeat the Jokowi project. He inherited it. Indeed, it is difficult to imagine Prabowo’s victory without the political architecture that Jokowi spent a decade constructing.

This distinction is crucial. A restoration implies a return to a previous order. What Indonesia is experiencing instead may be something closer to the consolidation of a new political settlement.

The End of Reformasi Politics?

For much of the post-Suharto period, Indonesian politics was shaped by the legacy of Reformasi.

Political competition revolved around questions of democratization, civil-military relations, decentralization, corruption, and institutional reform. These issues did not disappear under Jokowi, but they gradually became less central to political debate.

Instead, a different agenda emerged. Infrastructure. Industrial policy. Downstreaming. Investment. Food security. Energy transition. National competitiveness.

The shift is significant because it reflects a broader transformation in the priorities of both political elites and voters.

The generation that experienced the fall of Suharto viewed democracy itself as the central political project. A younger generation increasingly evaluates governments according to their ability to deliver economic development.

Prabowo understood this change. His electoral campaign was not built around nostalgia for authoritarianism. Nor was it primarily a nationalist campaign in the style of earlier political contests. Instead, he presented himself as the guarantor of continuity.

The message was simple: the development trajectory established under Jokowi would continue. This helps explain why Jokowi’s endorsement proved so valuable.

Voters were not being asked to choose between two radically different futures. They were being asked to support the continuation of a project they already associated with economic growth, infrastructure development, and national ambition.

The Military Returns—But Not Quite

One of the most common concerns surrounding Prabowo’s presidency involves the role of the military.

Indonesia’s democratic transition was built upon a gradual reduction of military influence in politics. The armed forces remained important, but they no longer occupied the central position they held during the New Order.

Prabowo’s background inevitably raises questions about whether this trend could be reversed.

There are reasons for caution. The military continues to enjoy significant prestige. National security concerns are becoming more prominent. The state is playing an increasingly active role in strategic sectors. These developments create opportunities for greater military influence.

Yet it would be misleading to view contemporary Indonesia through the lens of the 1980s or 1990s. Today’s Indonesia is vastly different. The economy is more diversified. Political parties are stronger. Civil society is more developed. Regional governments possess greater autonomy. Business interests are more influential.

The military remains powerful, but it operates within a fundamentally different environment.

For this reason, Prabowo’s presidency is unlikely to represent a simple return to New Order politics. The more plausible scenario is a hybrid arrangement in which military, bureaucratic, political, and business elites coexist within a broader developmental coalition.

The New Oligarchy—or a New Developmental State?

This brings us to the central political economy question. Is Prabowo consolidating the power of an old oligarchy?

The answer depends on what we mean by oligarchy.

If the term refers to the continued concentration of wealth and political influence among powerful elites, then the answer is clearly yes. Indonesia remains characterized by substantial concentrations of economic power. Large business groups continue to play a central role in national development. Political dynasties remain influential. Access to power remains highly unequal.

But this observation is not sufficient.

The more interesting question is whether these elites are simply extracting rents or whether they are embedded within a broader developmental project. Historically, successful industrializers rarely eliminated elite power. South Korea, Taiwan, Japan, and even contemporary China all relied on complex relationships between political authority and economic elites.

The crucial issue was whether those relationships encouraged productive transformation.

Indonesia’s experience under Jokowi suggests that many elite actors increasingly share an interest in industrial upgrading.

Nickel processing. Electric vehicle production. Infrastructure. Renewable energy. Digital industries. Food security.

These are not merely government priorities. They have become priorities for substantial segments of Indonesian capital as well.

This convergence helps explain why developmental policies have enjoyed relatively broad support. It also helps explain why Prabowo’s election did not trigger major uncertainty among investors or business groups. Unlike many political transitions, this one involved considerable continuity in economic strategy.

The Risks of Success

Paradoxically, Indonesia’s greatest political economy achievement may now generate its own challenges.

Compared with many countries in Southeast Asia, Indonesia has succeeded in creating an unusually broad consensus around development.

This consensus has produced important benefits. Policy continuity has improved. Infrastructure investment has expanded. Industrial policy has become more coherent. Long-term planning has become easier. Yet consensus also carries risks.

When major political actors share similar economic priorities, the space for meaningful debate can shrink. Questions about environmental sustainability, labour rights, inequality, governance, indigenous communities, and democratic accountability may receive less attention than they deserve.

The challenge is not that Indonesia lacks a developmental coalition. The challenge is that the coalition may become so dominant that alternative voices struggle to influence policy.

V. Development, Democracy, and the Indonesian Exception

The transition from Jokowi to Prabowo invites us to reconsider not only the nature of Indonesian politics but also some broader assumptions about political development in Southeast Asia.

Over the past two decades, scholars and observers have often focused on the tensions between democracy and development. Indonesia appeared to offer an encouraging answer to this dilemma. Following the collapse of the New Order, the country underwent one of the most ambitious democratic transitions in the developing world. Decentralization redistributed power. Elections became genuinely competitive. Civil society expanded. New political actors emerged. Unlike many pessimistic predictions made in the late 1990s, democratization did not produce state collapse or economic stagnation.

Jokowi’s rise seemed to confirm the success of this trajectory. He was widely celebrated as evidence that Indonesia’s democratic institutions could generate new leadership from outside traditional elite circles. His presidency appeared to demonstrate that democratic openness and developmental ambition could coexist.

Yet the transition to Prabowo complicates this narrative.

Rather than producing a continuous renewal of political leadership, Indonesia’s democratic system has gradually generated a broad elite consensus around a particular development model. The remarkable feature of contemporary Indonesian politics is not the intensity of political conflict but the degree of agreement that now exists on many fundamental economic questions.

Few major political actors challenge the logic of infrastructure-led development. Few oppose downstreaming or industrial policy. Few question the ambition to transform Indonesia from a commodity exporter into a more sophisticated industrial economy. There are disagreements over implementation, priorities, and distributional consequences, but the overall direction enjoys support across much of the political spectrum.

This consensus is one of the reasons Indonesia appears increasingly different from the Philippines.

In the Philippines, political competition remains intense, but debates about long-term economic transformation often remain secondary to struggles between competing elite factions. As I argued in a previous essay, the conflict between Marcos and Duterte reveals a fragmented elite structure and the absence of a coherent developmental coalition.

Indonesia presents almost the opposite picture. The developmental coalition exists. The challenge is no longer how to create it but how to ensure that it remains accountable, inclusive, and capable of adaptation.

Thailand provides another useful comparison. The rise of Thaksin Shinawatra represented the emergence of a new political and economic coalition that challenged Bangkok’s traditional establishment. Yet the resulting conflict produced almost two decades of political polarization, military interventions, constitutional redesigns, and recurring crises. The Thai elite struggled to accommodate new social and economic forces within existing institutions.

Indonesia’s trajectory has been remarkably different. Rather than producing prolonged confrontation, new actors were gradually incorporated into an expanding coalition. Jokowi’s accommodation with Prabowo symbolizes this process. What appeared at one stage as a conflict between competing visions of Indonesia ultimately became a project of political integration.

This may help explain why Indonesia has enjoyed a degree of political stability that many observers would not have predicted fifteen years ago.

At the same time, stability should not be confused with the resolution of all contradictions.

Indonesia continues to face profound challenges. The country’s industrial ambitions depend heavily on global demand, foreign investment, and technological partnerships. Environmental pressures associated with resource extraction remain significant. Regional inequalities persist. Labour relations remain contested. The energy transition will create both opportunities and tensions. Most importantly, questions of democratic accountability have not disappeared simply because economic policy enjoys broad support.

Indeed, one of the central paradoxes of contemporary Indonesia may be that success has generated new dilemmas.

For many years, the country’s primary challenge was fragmentation. The concern was whether democratic politics could generate sufficient coherence to support long-term development. Under Jokowi, that challenge was largely overcome. A broad coalition emerged around infrastructure, industrial policy, and economic transformation.

The question facing Indonesia today is different. Can a developmental coalition remain innovative and accountable once it becomes dominant? Can economic transformation continue without narrowing the space for democratic contestation? Can political stability be maintained without drifting toward excessive concentration of power?

These are not uniquely Indonesian questions. They have appeared, in different forms, throughout the history of late industrialization. Developmental states have often succeeded precisely because they were able to align political authority and economic interests around a common national project. Yet that same concentration of purpose has sometimes weakened democratic oversight and limited political pluralism.

This is why Prabowo’s presidency should not be understood simply as a return of the old oligarchy. Such an interpretation underestimates the transformations that occurred during the Jokowi era. Nor should it be seen as a straightforward continuation of democratic reform. The reality is more complex.

Prabowo inherits a political system that is simultaneously more developmental and more concentrated than the one Jokowi first entered. He takes office at a moment when Indonesia possesses greater confidence in its economic future than at any time since the Asian Financial Crisis. Yet he also inherits the responsibility of ensuring that developmental ambition does not come at the expense of democratic vitality.

The deeper significance of the Jokowi-Prabowo transition therefore lies not in the personalities of the two men. It lies in what their relationship reveals about the evolution of Indonesian capitalism. The story is not one of democratic renewal giving way to oligarchic restoration. It is the story of how an outsider became a coalition builder, how a developmental project became the organizing principle of national politics, and how that very success has created a new set of political questions.

Indonesia has largely solved the problem of building a developmental coalition. Whether it can preserve democratic accountability while that coalition consolidates its power may become the defining political question of the next decade.

V. Beyond the Oligarchy Debate

Much of the academic literature on post-Suharto Indonesia has been shaped by a powerful argument: despite democratization, oligarchic power survived.

According to this perspective, the fall of Suharto transformed political institutions but did not fundamentally alter the underlying distribution of economic power. Wealthy business groups, political dynasties, and well-connected elites adapted successfully to democratic competition. Elections became more open, political participation expanded, and civil liberties improved, but the commanding heights of the economy remained concentrated in relatively few hands.

This argument captures an important reality. Contemporary Indonesia remains highly unequal. Economic power continues to be concentrated among large conglomerates and politically connected business groups. Campaign financing, media ownership, and access to state resources all reflect this concentration of wealth.

Yet the transition from Jokowi to Prabowo suggests that the concept of oligarchy, while useful, may no longer be sufficient to explain the dynamics of Indonesian political economy.

The problem is not that oligarchs disappeared. They clearly did not. The problem is that the oligarchy thesis often tells us too little about the direction of economic change.

An economy can be dominated by powerful elites and still undergo significant structural transformation. Indeed, some of the most successful developmental states in Asia were characterized by close relationships between political authority and concentrated economic power. South Korea’s chaebol, Taiwan’s state-linked enterprises, Japan’s industrial groups, and contemporary China’s large state-business networks all demonstrate that concentrated economic power is not necessarily incompatible with industrial upgrading.

The more relevant question is therefore not whether elites are powerful. It is what they do with that power.

Under Jokowi, many influential economic actors became increasingly committed to projects that extended beyond the extraction of rents from protected markets. Infrastructure expansion, downstreaming, renewable energy, digitalization, and manufacturing investment created opportunities for profit, but they also contributed to broader processes of economic transformation.

This does not mean that developmental goals always prevail over private interests. Nor does it imply that industrial policy is free from corruption, patronage, or political favoritism. Rather, it suggests that important segments of Indonesia’s elite now have a material interest in national economic upgrading.

That observation helps explain why the transition from Jokowi to Prabowo has been marked by continuity rather than disruption.

Prabowo inherits not only a political coalition but also a developmental consensus. The central actors in Indonesian politics may disagree about the distribution of benefits, the pace of reform, or the role of the state, but they broadly share the objective of moving Indonesia toward a higher position within the global economy.

This is where Indonesia differs not only from the Philippines but also from many countries in the Global South. The country’s dominant elites increasingly compete over how development should occur rather than over whether development should occur.

The danger, therefore, may not be oligarchic domination in its traditional form. The greater risk is that a broad developmental consensus becomes so entrenched that it limits debate about alternative paths, distributional consequences, environmental costs, or democratic accountability.

The challenge facing Indonesia is not simply to restrain oligarchic power. It is to ensure that a developmental coalition remains open to contestation, criticism, and adaptation as the country confronts new economic and social challenges.

VI. Conclusion: From Democratic Transition to Developmental Consolidation

The transition from Jokowi to Prabowo should not be understood as a simple return of the old oligarchy. Nor should it be interpreted as the straightforward continuation of Indonesia’s democratic transition.

In many ways, it marks the end of one historical phase and the beginning of another.

The first twenty years after the fall of Suharto were dominated by the political challenges of Reformasi: democratization, decentralization, civilian control over the military, and the construction of new political institutions. Jokowi emerged from this period. His rise seemed to confirm that Indonesia had successfully opened political space for actors outside the traditional elite.

Yet Jokowi’s historical significance lies not simply in where he came from, but in what he built. Over a decade in power, he helped construct a broad coalition around infrastructure development, industrial policy, resource-based upgrading, and economic transformation. Rather than confronting established elites, he incorporated them into a developmental project. Rather than producing a new political divide, he gradually reduced the importance of old ones.

Prabowo is the beneficiary of this process.

His election does not signal the defeat of the Jokowi model. It demonstrates its success. The remarkable fact is not that a former general became president. The remarkable fact is that he did so by presenting himself as the guarantor of continuity rather than change.

This is what makes Indonesia increasingly distinct within Southeast Asia.

In the Philippines, political competition remains intense, but developmental coalitions remain weak. In Thailand, attempts to construct new developmental coalitions repeatedly generated conflict between emerging and established elites. Vietnam continues to rely on a powerful state apparatus to coordinate industrial transformation. Indonesia occupies a different position. It has developed a broad consensus around economic upgrading while preserving competitive electoral politics.

Whether this achievement proves durable remains uncertain.

Developmental coalitions are often strongest during periods of rapid growth and expanding opportunities. They become more difficult to sustain when growth slows, resources become scarcer, or social demands diversify. Indonesia’s ambitions in downstreaming, green energy, industrial upgrading, and technological development will inevitably generate new conflicts over distribution, labour, the environment, and the role of the state.

The central question facing Indonesia is therefore no longer whether it can build a developmental coalition. Jokowi largely accomplished that task.

The question is whether such a coalition can remain democratic, adaptable, and accountable once it becomes the dominant force in national politics.

Seen from this perspective, the transition from Jokowi to Prabowo is not a story about democratic failure or oligarchic restoration. It is the story of how Indonesia moved from democratic transition to developmental consolidation—and of the new tensions that emerge when development itself becomes the organizing principle of political life.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.

Europe Sea Briefing Issue 1

3.52MB ∙ PDF file

Download

Download

The issue is not whether Vietnam is succeeding. The issue is what kind of success is being created.

I. Introduction

Vietnam has become one of Europe’s favorite economic success stories.

At a time when European governments and firms are seeking to reduce vulnerabilities associated with excessive dependence on China, Vietnam appears to offer an attractive alternative. Political stability, rapid economic growth, an increasingly skilled workforce, and deep integration into global manufacturing networks have transformed the country into one of the principal destinations for investment and supply-chain diversification in Asia.

The numbers are impressive.

Since the entry into force of the EU–Vietnam Free Trade Agreement (EVFTA) in 2020, trade between the European Union and Vietnam has expanded significantly. Vietnam is now the European Union’s largest trading partner in ASEAN. Electronics, machinery, textiles, footwear, and furniture produced in Vietnam increasingly supply European consumers and industries.

For many policymakers, business associations, and investors, the logic appears straightforward. Europe seeks alternatives to China. Vietnam provides them. Case closed.

Yet this narrative leaves an important question unanswered. What exactly is being diversified?

Production is certainly moving. Investment is increasing. Exports are expanding. But does diversification away from China fundamentally change Vietnam’s position in the global economy? Or does it simply change the geography of dependency?

From a European perspective this question matters because Vietnam’s rise is not merely a Vietnamese story. It is increasingly becoming part of Europe’s own strategy for managing economic security, supply-chain resilience, and industrial competitiveness in an era of geopolitical uncertainty.

The conventional view assumes that diversification automatically strengthens autonomy. The political economy of global production suggests a more complicated reality.

Factories can relocate while technologies remain concentrated elsewhere. Exports can expand while domestic capabilities develop more slowly. A country can become less dependent on China in one dimension while remaining deeply integrated into production systems that continue to be shaped by China in another.

Vietnam offers perhaps the clearest example of this tension. Its success as a manufacturing platform is undeniable. The more difficult question is whether that success is generating the productive, technological, supplier, and institutional capabilities necessary for long-term industrial transformation.

This is where Europe becomes relevant. The future of Europe–Vietnam economic relations should not be assessed simply by looking at trade volumes, investment flows, or the number of firms relocating production.

The more important question is whether the relationship contributes to capability-building. Can Europe help Vietnam move beyond assembly? Can diversification become a pathway toward greater autonomy?

Or will Europe–Vietnam economic integration ultimately reproduce familiar patterns in which production expands while control over technology, innovation, and strategic decision-making remains concentrated elsewhere?

The issue is not whether Vietnam is succeeding. The issue is what kind of success is being created.

II. Vietnam’s Manufacturing Miracle

Few countries have transformed their position in the global economy as rapidly as Vietnam.

When economic reforms began in the late 1980s, Vietnam was one of Asia’s poorest countries. Today it is one of the world’s most export-oriented economies and a central node in global manufacturing networks.

This transformation has been particularly visible in manufacturing.

Over the past two decades, Vietnam has become a major exporter of electronics, machinery, garments, footwear, furniture, and a growing range of industrial products. Global companies increasingly view the country not simply as a source of low-cost labour, but as a reliable manufacturing platform integrated into regional and global supply chains.

The electronics sector illustrates the scale of this transformation.

A generation ago, Vietnam played only a marginal role in global electronics production. Today it is one of the world’s leading exporters of smartphones, computers, consumer electronics, and electronic components. Electronics and machinery have become central to the country’s export profile and to its integration into the global economy.

Foreign investment has played a decisive role in this process. Multinational corporations have invested billions of dollars in production facilities, logistics networks, supplier ecosystems, and workforce development. In many sectors, foreign firms have become the backbone of Vietnam’s export economy.

The results are visible in trade statistics, employment creation, infrastructure development, and economic growth.

For Europe, Vietnam’s rise has come at a particularly significant moment. The deterioration of US–China relations, concerns over supply-chain vulnerabilities, and growing discussions about economic security have encouraged firms to diversify production across Asia. Vietnam has emerged as one of the principal beneficiaries of this shift.

The EVFTA has reinforced this trend. For European firms seeking a manufacturing base in Southeast Asia, Vietnam offers a combination of advantages that is difficult to ignore: political stability, a large and relatively skilled workforce, competitive labour costs, an active industrial policy, and preferential access to both regional and global markets.

From this perspective, the enthusiasm surrounding Vietnam is entirely understandable. The country has become one of the most successful examples of export-led industrialization in the contemporary global economy.

Yet success stories can sometimes obscure as much as they reveal. The more successful Vietnam becomes, the more important it is to ask a deeper question. What exactly is driving this success?

III. The Electronics Paradox

The answer appears straightforward: foreign investment.

Over the past two decades, multinational corporations have transformed Vietnam into one of the world’s most important manufacturing hubs. Electronics provides the clearest example.

Today, Vietnam exports smartphones, computers, electronic components, and consumer electronics on a scale that would have been difficult to imagine twenty years ago. The country has become deeply integrated into global production networks and occupies an increasingly important position within Asian manufacturing.

At first sight, this appears to be a remarkable development success story. And it is. Yet the electronics sector also reveals some of the limitations of Vietnam’s current development model.

The reason is simple. Export success and industrial upgrading are not the same thing. A country can export large volumes of sophisticated products without controlling the technologies, intellectual property, design capabilities, or strategic decisions that generate the highest shares of value.

This distinction is particularly important in industries such as electronics, where production is fragmented across multiple countries and firms.

A smartphone exported from Vietnam may contain components produced in China, South Korea, Japan, Taiwan, Europe, and the United States. The final assembly may take place in Vietnam, but many of the most valuable activities—including advanced components, software, product design, branding, and research and development—are often located elsewhere.

As a result, the rapid growth of electronics exports does not necessarily imply an equivalent growth in domestic capabilities. This is one of the central paradoxes of contemporary globalization. A country can become indispensable to global production without becoming indispensable to technological innovation.

Samsung illustrates both the possibilities and the limits of Vietnam’s current development model. Few foreign investors have contributed more to Vietnam’s industrial transformation. Samsung’s investments helped turn Vietnam into one of the world’s leading exporters of smartphones and consumer electronics. The company’s manufacturing complexes employ tens of thousands of workers and have become central to Vietnam’s export performance.

In many respects, Samsung represents a development success story. Yet Samsung also illustrates a more difficult question. Can an economy become a global manufacturing hub without developing equivalent technological capabilities?

For years, Vietnamese policymakers have sought to increase the participation of domestic firms within Samsung’s supplier network. Progress has occurred, but it has been slower and more difficult than many initially expected.

The challenge is not simply attracting multinational corporations. The challenge is ensuring that domestic firms acquire the capabilities needed to become competitive suppliers, engineering partners, and eventually innovators.

Building factories is easier than building capabilities. Understandably, the objective of multinational corporations is to produce efficiently and competitively, not to solve the developmental challenges of host countries.

The question is a broader one. To what extent does participation in global value chains generate domestic learning? Do local firms become more sophisticated suppliers? Do Vietnamese engineers move into higher-value activities? Do domestic firms acquire technological capabilities that allow them to innovate rather than merely produce? Or does the economy remain concentrated in activities where strategic decisions, technological leadership, and product development are controlled elsewhere?

These questions become particularly important as Vietnam seeks to move beyond a development model based primarily on labour cost advantages. Competing through lower costs can generate rapid growth. Sustaining growth over the long term requires something different. It requires capabilities.

The challenge facing Vietnam today is therefore not the challenge it faced twenty years ago. The challenge is no longer integration into global manufacturing networks. That objective has largely been achieved. The challenge is transforming participation into capability-building.

To understand what this means, we need a more precise way of thinking about industrial development. Not all forms of integration generate the same developmental outcomes. Some create capabilities. Others reproduce dependence.

Distinguishing between the two is essential for understanding both Vietnam’s future and Europe’s role within it.

Subscribers can continue reading for:

• The Capability Framework

• From Integration to Capability-Building

• The China Paradox

• What Can Europe Offer That Others Cannot?

• Industrial Upgrading as a Social Process

• Three Priorities for Europe

• Conclusion: Beyond Diversification

  This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.

IV. The Capability Framework

Most discussions of economic development focus on outcomes. Trade volumes. Export growth. Foreign direct investment. GDP performance.

These indicators matter. They tell us whether an economy is growing, whether it is attracting investment, and whether it is becoming more integrated into international markets. What they do not tell us is whether a country is developing the capabilities necessary for long-term industrial transformation.

For this reason, this briefing adopts a different perspective. The central question is not simply whether economic integration expands. It is whether integration contributes to capability-building.

This distinction is crucial. Countries can become deeply integrated into global value chains while remaining dependent on external technologies, external suppliers, and external centres of decision-making. Participation does not automatically generate transformation. To assess industrial development, this briefing focuses on four forms of capability.

Production Capabilities

Production capabilities refer to the ability to manufacture efficiently, reliably, and competitively.

They include production management, quality control, logistics, workforce organization, and the ability to meet international standards. These capabilities are often the first step in industrialization.

Vietnam has been extraordinarily successful in developing them. Its manufacturing sector can now compete in some of the world’s most demanding industries. The country’s rise as an electronics exporter demonstrates that these capabilities are no longer in question.

Yet production capabilities alone do not guarantee technological upgrading. Many countries become successful manufacturing platforms without acquiring control over the technologies and innovations embedded within production.

Supplier Capabilities

Supplier capabilities refer to the ability of domestic firms to participate in production networks and progressively move into more sophisticated activities. This includes the ability to manufacture components, meet technical standards, deliver reliably, and establish long-term relationships with lead firms.

Supplier capabilities matter because they determine whether industrialization spreads beyond a relatively narrow export sector. An economy dominated by foreign-owned firms may generate impressive exports while creating limited opportunities for domestic firms. The development of supplier capabilities is therefore one of the key mechanisms through which participation in global value chains can generate broader developmental benefits.

Vietnam has made progress in this area, but the results remain uneven. Despite years of policy efforts, many Vietnamese firms continue to occupy relatively low-value positions within electronics supply chains. The number of domestic suppliers linked to multinational corporations has increased, yet technologically sophisticated activities remain concentrated among foreign firms and foreign suppliers.

The challenge is not simply participation. The challenge is upgrading.

Technological Capabilities

Technological capabilities refer to the ability to absorb, adapt, improve, and eventually create technology. These capabilities include engineering skills, product development, research and development, design functions, and innovation. They are often the most difficult capabilities to develop.

Technological capabilities determine whether a country remains dependent on technologies developed elsewhere or becomes an active participant in innovation processes. This is where many late-industrializing economies encounter their greatest challenges.

Moving from production to innovation requires more than investment. It requires learning. It requires engineers. It requires research institutions. It requires long-term commitments to knowledge creation and technological adaptation.

Vietnam has made important advances in engineering education and technical training. Yet the gap between manufacturing products and designing them remains considerable. The country’s long-term position in global value chains will depend on whether this gap narrows.

Institutional Capabilities

Institutional capabilities refer to the organizations and social arrangements that sustain industrial development over time. These include vocational training systems, universities, research institutions, industrial policies, business associations, labour institutions, and mechanisms of social dialogue.

Institutional capabilities are frequently overlooked in discussions of industrial upgrading. Yet they are often the foundation upon which all other capabilities are built.

Factories do not create capabilities by themselves. Capabilities are created through institutions that support learning, skills formation, knowledge diffusion, and technological adaptation.

Industrial upgrading is therefore not only a technological process. It is also an institutional process. This insight is particularly relevant for understanding Europe’s potential contribution to Southeast Asia.

Many of Europe’s most successful industrial systems have historically relied on dense networks linking firms, training institutions, research organizations, business associations, and labour market institutions.

These arrangements may be less visible than trade statistics or investment flows. Yet they are often decisive in determining whether industrialization generates long-term developmental benefits.

From Integration to Capability-Building

The framework leads to a simple proposition: participation in global value chains does not automatically generate development.

The crucial question is whether participation contributes to capability-building. This requires looking beyond trade and investment flows and asking:

· Does foreign investment strengthen domestic suppliers?

· Do production networks foster technological learning?

· Do education systems and labour market institutions support upgrading?

· Does integration enhance autonomy?

· Or does it reproduce dependence in new forms?

Viewed through this lens, Vietnam’s development trajectory appears both impressive and incomplete.

The country has succeeded in building strong production capabilities. Its achievements in supplier, technological, and institutional capabilities are more uneven. This does not diminish Vietnam’s success. Rather, it helps explain the challenges that lie ahead. And it provides a useful framework for understanding Europe’s potential contribution.

The future of Europe–Vietnam relations will not be determined simply by the amount of trade or investment between them. It will depend on whether that relationship contributes to the development of capabilities.

That is where the discussion becomes particularly interesting. Because once we shift our attention from trade flows to capabilities, a second paradox becomes visible. The same diversification that appears to reduce dependence on China may continue to rely on production systems that remain deeply connected to China.

V. The China Paradox

Much of the current enthusiasm surrounding Vietnam is linked to a broader strategic objective: diversification away from China.

For governments and businesses alike, the logic appears compelling. Excessive dependence on a single country creates vulnerabilities. Diversification increases resilience. By relocating production to countries such as Vietnam, firms can reduce exposure to geopolitical tensions, trade disputes, and supply-chain disruptions.

This reasoning is understandable. But it often rests on an oversimplified view of how contemporary production systems actually function. The implicit assumption is that production can be moved from China to Vietnam. Reality is often more complex.

In many industries, particularly electronics, Vietnam and China do not occupy separate production systems. They occupy different positions within the same production system.

The relocation of assembly activities to Vietnam does not necessarily imply the relocation of suppliers, technologies, engineering capabilities, or industrial ecosystems. In fact, Vietnam’s manufacturing expansion has often increased demand for imported machinery, components, and intermediate goods. Many of these continue to originate in China.

This is particularly evident in electronics. A smartphone assembled in Vietnam may ultimately be exported to Europe. Yet many of the components used in that product continue to come from Chinese suppliers or from supplier networks deeply embedded within China’s industrial ecosystem.

The geography of production changes. The geography of capabilities changes much more slowly.

This creates what might be called the China paradox. The more production shifts to Vietnam, the more Vietnam may depend on imported inputs originating elsewhere within regional value chains.

From a Vietnamese perspective, this is not necessarily a problem. Participation in regional production systems has generated employment, exports, industrial growth, and learning opportunities. Vietnam has benefited enormously from its integration into Asian manufacturing networks.

The challenge lies elsewhere.

· How can participation become a platform for deeper capability-building?

· How can domestic firms move into more sophisticated activities?

· How can local suppliers capture a larger share of value?

· How can technological capabilities become embedded within the domestic economy?

These questions become increasingly important as wages rise and the advantages associated with low-cost labour begin to diminish.

From a European perspective, the implications are equally significant. Much of Europe’s discussion about economic security assumes that diversification automatically reduces strategic vulnerability.

The Vietnamese case suggests a more complicated reality. Diversification can reduce dependence on a specific location. It does not necessarily reduce dependence on a specific production system.

A supply chain that appears geographically diversified may remain technologically concentrated. A factory can move. An ecosystem is much harder to relocate.

China’s strength does not derive solely from the number of factories located within its borders. It derives from decades of accumulated production capabilities, supplier networks, engineering expertise, logistics infrastructure, research institutions, and industrial clustering.

These capabilities cannot be replicated quickly. Nor can they be replaced simply by relocating final assembly. This observation does not invalidate diversification. Diversification remains a rational and necessary strategy.

The point is different. Diversification should not be confused with autonomy. Autonomy depends on capabilities. A country becomes more autonomous when it develops productive, supplier, technological, and institutional capabilities that increase its range of strategic choices.

Viewed from this perspective, the key question is not whether Vietnam can attract production relocating from China. The key question is whether Vietnam can use that relocation to strengthen its own capabilities.

And this is precisely where Europe may have something distinctive to offer. Because Europe cannot compete with China in scale. But it may be able to contribute to the development of capabilities that support long-term industrial upgrading.

That possibility deserves closer attention.

VI. What Can Europe Offer That Others Cannot?

At this point, a skeptical reader might ask a simple question: if Vietnam remains dependent on foreign technology and imported inputs, what difference can Europe make?

The answer begins by recognizing that Europe cannot compete with China on China’s terms. Its manufacturing ecosystem is unparalleled. Dense supplier networks, industrial clusters, logistics capabilities, and a vast domestic market create advantages that few countries can replicate.

Nor can Europe compete with the United States on American terms. The United States remains the global leader in many areas of advanced technology, digital innovation, venture capital, and frontier research.

Europe’s comparative advantage lies elsewhere. It is institutional. More specifically, it lies in the institutions that support capability-building.

This distinction matters because Vietnam’s challenge today is fundamentally different from the challenge it faced thirty years ago.

The central question is no longer how to attract foreign investment. Vietnam has already demonstrated remarkable success in doing so. The question is how to transform participation in global value chains into deeper domestic capabilities.

· How can local suppliers become more competitive?

· How can Vietnamese firms move into higher-value activities?

· How can technological learning be accelerated?

· How can productivity growth be sustained as wages rise?

· How can industrial upgrading continue after the era of low-cost labour?

These are precisely the kinds of challenges in which European experience may be particularly relevant.

Beyond Investment

Much of Europe’s industrial success has historically rested on institutions that receive relatively little attention in contemporary discussions of globalization: vocational training systems, applied engineering education, research partnerships, industrial clusters, business associations, supplier development programmes, mechanisms of social dialogue.

These institutions are often treated as secondary to investment and technology. In reality, they are among the foundations upon which industrial capabilities are built.

Germany’s dual vocational training system is perhaps the best-known example, but similar traditions can be found across much of Europe. Their purpose is not simply to provide labour to industry. They create mechanisms through which skills, knowledge, and productive capabilities are reproduced and upgraded over time.

Vietnam has already begun experimenting with some of these approaches. One notable example is the partnership between Bosch and the LILAMA2 Technical and Technology College, which introduced elements of the German dual vocational training model. The objective is not merely to train workers for a specific factory. It is to develop skills that can support more sophisticated industrial activities across the economy.

Bosch’s experience is interesting for reasons that go beyond investment. The company illustrates a broader European approach that links production with workforce development, technical education, and long-term skills formation.

This may appear less spectacular than the construction of a new factory. Yet from a developmental perspective it addresses a fundamental challenge. Factories create employment. Training systems create capabilities.

The distinction matters because technological upgrading depends not only on machines and capital, but also on the accumulation of skills, experience, and technical knowledge. Vietnam’s long-term competitiveness will depend increasingly on the latter.

Semiconductors and the Next Stage of Upgrading

The challenge becomes even more visible in electronics and semiconductors.

Vietnam has become highly successful in manufacturing electronic products. The next question is whether it can increase participation in activities such as engineering, design, testing, advanced packaging, and innovation.

This transition is difficult. It requires far more than capital investment. It requires engineers, researchers, universities, laboratories, technical standards, and dense interactions between firms and knowledge institutions.

This is where European firms may have a distinctive role to play. Companies such as STMicroelectronics are interesting not simply because of their technological capabilities, but because of their long-standing engagement with universities, engineering education, and ecosystem development.

Unlike the assembly-oriented logic that often dominates discussions of manufacturing relocation, semiconductor development depends heavily on knowledge ecosystems. The value of such ecosystems extends beyond individual factories. They create opportunities for learning, engineering, and technological adaptation that can contribute to broader capability-building.

The challenge for Vietnam is therefore not simply to attract more electronics factories. It is to embed knowledge more deeply within the domestic economy.

VII. Industrial Upgrading Is Also a Social Process

This brings us to a dimension of development that is often overlooked. Industrial upgrading is not only a technological process. It is also a social process.

The development of capabilities depends not only on machines, technologies, and investment, but also on skills formation, labour institutions, workforce stability, and mechanisms through which knowledge is transmitted and accumulated.

In policy debates, labour is often treated primarily as a cost. From a capability perspective, labour is also a source of knowledge.

Workers accumulate experience, solve production problems, adapt technologies, and transmit skills. The development of productive capabilities therefore depends not only on investment and technology, but also on the institutions that shape learning within the workplace.

This is one reason why vocational training, workforce development, and social dialogue should be understood as components of industrial policy rather than merely social policy.

In this respect, different models of industrialization may generate different developmental outcomes. The contrast is perhaps most visible in electronics.

Some multinational corporations have built extraordinarily efficient production systems while maintaining highly centralized control over technology, decision-making, and labour relations.

Others emerge from institutional environments characterized by stronger traditions of vocational training, worker representation, collective bargaining, and social dialogue.

The point is not that one model is inherently superior. The point is that different institutional arrangements may generate different forms of learning and capability-building.

This question deserves far more attention than it currently receives. Discussions of industrial upgrading often focus on technology and capital while treating labour as a cost.

Yet the development of productive and technological capabilities depends fundamentally on people. Workers do not simply operate production systems. They carry knowledge. They accumulate experience. They transmit skills. They are part of the capability-building process itself.

For this reason, labour institutions are not separate from industrial development. They are part of it. This may ultimately represent one of Europe’s most distinctive contributions.

Not simply technology. Not simply investment. But institutions that support learning, skills formation, technological upgrading, and capability-building.

VIII. Three Priorities for Europe

If Europe wishes to contribute to Vietnam’s long-term industrial transformation, three priorities stand out.

First, support supplier upgrading.

European firms and business associations can play an important role in strengthening the capabilities of local suppliers, helping domestic firms meet technical standards, improve quality, and move into more sophisticated segments of production networks.

Second, invest in technical education and engineering capabilities.

The transition from assembly to higher-value activities depends on engineers, technicians, and researchers. Partnerships between firms, universities, and training institutions can help create the human capital necessary for technological upgrading.

Third, support innovation ecosystems.

Industrial transformation ultimately requires more than production capacity. It requires institutions that facilitate knowledge creation, technological adaptation, and collaboration between firms and research organizations.

These priorities may appear less dramatic than large-scale investment announcements. Yet they address the foundations of long-term industrial development. The objective is not simply to produce more. It is to develop greater capabilities.

IX. Conclusion: Beyond Diversification

Vietnam’s rise has become one of the defining economic stories of contemporary Asia.

For Europe, it represents an attractive partner at a moment when governments and firms are seeking to diversify supply chains, reduce vulnerabilities, and navigate an increasingly uncertain international environment.

The logic is compelling. Vietnam offers political stability, manufacturing capabilities, growing technological sophistication, and deep integration into global markets. Few countries appear better positioned to benefit from the reorganization of global production networks.

Yet the success of Vietnam also raises a broader question. What does diversification actually achieve?

If diversification simply relocates production while leaving control over technology, innovation, advanced manufacturing capabilities, and strategic decision-making concentrated elsewhere, its developmental and strategic consequences may be more limited than often assumed.

The Vietnam case suggests that geography and dependency are not the same thing. Factories can move. Supply chains can be reorganized. Trade flows can be redirected. Yet the underlying distribution of capabilities may remain remarkably stable.

This is why the future of Europe–Vietnam relations should not be evaluated primarily through export statistics, investment flows, or the number of firms relocating production from China.

Those indicators matter. But they do not tell us whether productive, supplier, technological, and institutional capabilities are deepening. They do not tell us whether technological learning is accelerating. And they do not tell us whether greater integration is generating greater autonomy.

The more important question is whether Vietnam can use its current position within global value chains as a platform for capability-building. Can participation become learning? Can assembly become engineering? Can engineering become innovation? Can integration become transformation? These are the questions that will shape Vietnam’s long-term development trajectory.

They are also the questions that should shape Europe’s engagement with Vietnam. Europe’s contribution will ultimately be judged not by how much production it relocates, nor by how many trade agreements it signs. It will be judged by whether it helps create the conditions under which capabilities can emerge, deepen, and evolve.

Vietnam has already mastered integration. The next challenge is more demanding. It is to transform integration into capability-building, and capability-building into autonomy.

This challenge is not unique to Vietnam. Similar tensions can be observed across Southeast Asia, where governments seek to attract investment while simultaneously pursuing industrial upgrading, technological learning, and greater strategic autonomy.

In that sense, Vietnam is not only a national case. It is a window onto a broader regional question. How can countries use globalization not simply to participate in production networks, but to strengthen the capabilities that allow them to shape their own developmental futures?

For Europe, the lesson is equally important. Its relevance in Southeast Asia will not depend on competing with China in scale or with the United States in technological dominance.

It will depend on whether it can become a partner in capability-building. That is a more modest ambition. But it may also be a more realistic—and ultimately more consequential—one.

Next Issue: Can Indonesia Move Beyond Resource Power?

Nickel, batteries, industrial policy, and the struggle to transform natural resources into technological capabilities.

Because the issue is not simply what countries produce. It is what capabilities they develop. And, ultimately, what forms of autonomy those capabilities make possible.

Europe Sea Briefing Issue 0

3.53MB ∙ PDF file

Download

Download

Europe’s value in Southeast Asia lies not in its power, but in its ability to support diversification without demanding alignment. Whether it can do so depends on how it navigates three emerging contradictions.

Editor’s Note

Europe and Southeast Asia face a similar challenge: how to preserve autonomy while remaining deeply integrated into a global economy increasingly shaped by geopolitical rivalry, technological competition, and industrial transformation.

This briefing explores Europe–Southeast Asia relations from the perspective of political economy. Rather than focusing on diplomatic declarations or headline events, it examines the deeper forces shaping the relationship: trade and investment, industrial policy, supply chains, labor, technology, energy transition, and development.

The objective is not simply to describe what is happening between Europe and Southeast Asia, but to understand why it is happening, who benefits, who bears the costs, and what alternatives may exist.

This briefing is written for those who need to understand not only the evolution of Europe–Southeast Asia relations, but also their broader implications for development, autonomy, and the changing international order.

Why Europe Matters Now

Southeast Asia does not need Europe because Europe is powerful. It needs Europe because Europe is not.

This may sound paradoxical. Europe is often portrayed as a declining actor in world affairs, squeezed between an increasingly assertive China and a United States determined to preserve its global primacy. It lacks China’s economic centrality and America’s military reach. It struggles to speak with a single voice. Its ambitions frequently exceed its capabilities.

Yet these very limitations may be Europe’s greatest asset in Southeast Asia.

As rivalry between Washington and Beijing intensifies, Southeast Asian governments are seeking to preserve what they have long valued most: autonomy. They do not want to choose between China and the United States. They want access to markets, technology, investment, and security partnerships without becoming excessively dependent on any single power.

This challenge is becoming more difficult.

The world economy is entering a new phase. Supply chains are being reorganized. Industrial policy has returned. Technological competition is intensifying. Economic security is becoming a central concern for governments. The assumptions that shaped globalization over the past three decades are increasingly being questioned.

Both Europe and Southeast Asia are adapting to this new environment.

In Europe, debates about strategic autonomy reflect growing concerns over dependence on external actors for energy, technology, critical materials, and security. In Southeast Asia, governments continue to pursue diversification as a way of preserving room for manoeuvre amid growing pressure from competing powers.

Although the two regions occupy very different positions in the international system, they face a surprisingly similar question: how can autonomy be preserved in a world characterized by deep interdependence?

This is where Europe becomes relevant.

Europe cannot—and should not seek to—replace either China or the United States in Southeast Asia. The more interesting question is whether Europe can help expand the range of options available to Southeast Asian states—and whether Southeast Asia, in turn, can help Europe build a more diversified set of economic and political relationships in Asia.

The answer is far from obvious.

Why Southeast Asia Needs More Than Two Options

For decades, Southeast Asian states have managed relations among larger powers with remarkable skill. ASEAN itself was built on the idea that regional stability depends not on choosing sides, but on preserving flexibility.

This strategy succeeded because the international environment offered multiple opportunities. The United States provided security guarantees and access to markets. China became a driver of trade, investment, tourism, and industrial growth. Japan remained a major source of finance and technology. Europe, Australia, India, and other partners added further options.

The result was not neutrality in the strict sense of the term. Southeast Asian governments have rarely been neutral. Rather, they have pursued diversification. Their objective has been to avoid excessive dependence on any single external power.

Today, this strategy is becoming more difficult.

China’s economic weight in Southeast Asia is unprecedented. Chinese firms, capital, infrastructure projects, manufacturing networks, digital platforms, and supply chains are deeply embedded throughout the region. For most countries, reducing economic engagement with China is neither realistic nor desirable. China’s rise has created enormous opportunities for growth and industrialization.

At the same time, these opportunities generate new vulnerabilities. The more central China becomes to trade, investment, production networks, and critical infrastructure, the greater its potential influence over national development trajectories.

The United States presents a different challenge.

Washington remains indispensable in areas ranging from security and finance to advanced technology and access to global markets. Yet American engagement in Asia is increasingly shaped by strategic competition with China. Economic and security cooperation are increasingly linked to broader geopolitical objectives.

From the perspective of many Southeast Asian governments, the problem is not that the United States is withdrawing from the region. The problem is that American engagement increasingly comes with strategic expectations attached.

The result is a narrowing of political and economic space.

China is often too important economically to distance oneself from. The United States is often too important strategically to ignore. Neither relationship can simply be abandoned. Yet excessive dependence on either side can reduce policy autonomy.

This is the central dilemma facing Southeast Asia today.

Contrary to much of the commentary surrounding great-power competition, the region is not searching for a new hegemon. Nor is it looking for protection from one superpower against another. What many Southeast Asian governments seek is a wider range of options.

Autonomy in the twenty-first century does not mean self-sufficiency. It means the ability to diversify partnerships, preserve policy space, and avoid becoming trapped within the strategic priorities of others.

This is why Europe matters.

Not because it can replace China or the United States, but because it can contribute to a broader strategy of diversification.

Whether Europe is willing—or able—to play such a role remains an open question.

Europe as a Source of Diversification

Europe cannot replace China.

No realistic assessment of Southeast Asia’s political economy can support such a claim. China is deeply integrated into the region’s production networks, trade flows, investment patterns, and industrial development strategies. Geography alone gives China an importance that no external actor can match.

Nor can Europe replace the United States.

Europe lacks the military capabilities, alliance structures, technological dominance, and security presence that underpin American influence throughout the Indo-Pacific. Whatever ambitions European leaders may express, Europe is unlikely to become a decisive strategic actor in the region.

Yet these limitations may be precisely what makes Europe valuable.

Most discussions of international relations assume that influence derives from power. The stronger the actor, the more useful it becomes as a partner. But this logic overlooks an important reality. For smaller and medium-sized states, the most useful partner is not always the strongest one. Often it is the one that expands options without demanding exclusive alignment.

This is the opportunity Europe offers.

Europe’s comparative advantage is not military power, financial dominance, or geopolitical influence. It is its ability to support diversification without demanding exclusive alignment.

Unlike the United States, Europe is not seeking to organize Southeast Asia into a security architecture directed against China. Unlike China, it does not possess the economic centrality required to shape the region’s development trajectory on its own.

This does not make Europe neutral. European governments and firms pursue their own interests, as all states do. But the nature of those interests differs from those of the major powers that dominate discussions of the Indo-Pacific.

Europe’s influence rests less on coercion than on attraction. It offers access to one of the world’s largest markets. It remains an important source of technology, industrial know-how, investment, research cooperation, and higher education. European regulations increasingly shape global production standards in areas ranging from environmental protection and product safety to digital governance and supply-chain transparency.

For Southeast Asian states seeking to diversify their external relationships, these assets matter.

The relationship is not one-sided. Southeast Asia is becoming increasingly important for Europe as well. It is one of the few regions where Europe can expand economic, technological, and diplomatic engagement without being trapped in a binary logic of alliance or rivalry. In this sense, Southeast Asia may be as important for Europe’s search for strategic autonomy as Europe is for Southeast Asia’s search for diversification.

The crucial point, however, is not what Europe offers. It is how Europe offers it.

Europe becomes relevant only if it is perceived as contributing to autonomy rather than creating new forms of dependency. It must be seen as a partner in industrial transformation rather than merely a market, a regulator, or an alternative production platform.

Whether Europe can meet that challenge remains uncertain. Three contradictions will be particularly important.

Europe’s Three Contradictions

If Europe is to become a meaningful partner for Southeast Asia, it will need to navigate a number of tensions that are already visible today. These are not temporary obstacles. They are structural contradictions rooted in the changing political economy of globalization.

The first concerns strategic autonomy.

Europe increasingly speaks the language of autonomy while remaining deeply dependent on the United States for security and closely intertwined with China economically. The question is therefore not whether Europe seeks autonomy, but whether it can achieve enough autonomy to become a distinct and credible actor in Asia.

The second contradiction concerns the green transition.

Europe has positioned itself as a global leader in climate policy and sustainability regulation. Yet environmental standards are also economic instruments. They shape access to markets, influence investment decisions, and affect industrial competitiveness. The challenge for Europe is therefore not simply to promote higher standards, but to ensure that environmental cooperation is perceived as a pathway to development rather than as a new form of conditionality.

The third contradiction concerns diversification itself.

European firms increasingly seek alternatives to China, and Southeast Asia has become one of the principal destinations of this strategy. Yet diversification does not automatically produce autonomy. Investment can generate exports without creating technological capabilities. Growth can occur without significantly reducing dependence. The key question is whether expanding economic ties will strengthen local capabilities and industrial upgrading—or simply reproduce existing patterns of dependency in a new form.

These contradictions do not determine the future of Europe–Southeast Asia relations.

But they will help shape it.

Understanding them is essential for anyone seeking to understand where the relationship is heading and what opportunities—and risks—it may create for both regions.

Why This Briefing Exists

Europe–Southeast Asia relations are attracting growing attention from governments, businesses, and researchers. Yet much of the discussion remains dominated either by diplomatic narratives or by broader debates about competition between the United States and China.

Both perspectives are important. Neither is sufficient.

This briefing starts from a different premise: that the relationship between Europe and Southeast Asia is best understood through political economy. Trade, investment, industrial policy, technology, labor, energy transition, and development are not secondary issues. They are the foundations upon which diplomatic and geopolitical relationships are built.

Each issue will focus on a specific question relevant to policymakers, business associations, researchers, and practitioners engaged with Europe–Southeast Asia relations. Some issues will examine industrial transformation and supply chains. Others will focus on trade, investment, sustainability, technology, labor, or competing development strategies.

The aim is straightforward: to provide a deeper understanding of the opportunities, tensions, and contradictions that will shape relations between Europe and Southeast Asia in the years ahead.

For Members: A Deeper Analysis

The purpose of the member briefing is not simply to follow developments, but to identify emerging tensions before they become visible in official policy debates, business strategies, or diplomatic agendas.

Each month, members receive a deeper analysis of the political economy shaping relations between Europe and Southeast Asia. Rather than focusing on headlines or official declarations, the member briefing examines the structural forces, policy choices, and strategic trade-offs that increasingly influence governments, businesses, and institutions across both regions.

Topics include:

• trade, investment, and economic security;

• industrial policy and supply-chain restructuring;

• the green transition and its distributive consequences;

• technology, regulation, and industrial competitiveness;

• labor, development, and social transformation;

• the implications of geopolitical change for Europe–Southeast Asia relations.

The objective is not simply to identify trends, but to understand their causes, their consequences, and their likely direction.

In this inaugural member briefing, I examine three contradictions that are likely to shape Europe–Southeast Asia relations over the coming decade:

Strategic autonomy versus Atlantic dependence.

Green cooperation versus green protectionism.

Diversification versus new forms of dependency.

These contradictions are already visible today. Their evolution will help determine whether Europe and Southeast Asia can build a relationship that expands autonomy—or whether they will reproduce new forms of dependence under different conditions.

Subscriber Briefing

The Three Contradictions That Matter Most

The following analysis is not intended to predict outcomes. It is intended to identify the tensions most likely to shape future choices by governments, businesses, and institutions on both sides of the Europe–Southeast Asia relationship.

1. Strategic Autonomy versus Atlantic Dependence

The first contradiction concerns Europe’s ability to act as an autonomous actor in Asia.

This matters because Europe’s relevance to Southeast Asia depends less on its economic size than on its political distinctiveness.

If Europe merely reproduces American priorities in the Indo-Pacific, its value to Southeast Asian governments will remain limited. The region already has a security relationship with Washington. It does not need a second, weaker version of the same actor.

The challenge is that Europe increasingly finds itself pulled in two directions.

On the one hand, European leaders speak of strategic autonomy. The concept reflects a growing awareness that excessive dependence—whether on Russian energy, Chinese manufacturing, American technology, or external security guarantees—creates vulnerabilities.

On the other hand, many European responses to developments in Asia remain strongly influenced by transatlantic priorities.

This creates a credibility problem.

From the perspective of Southeast Asian governments, Europe’s attractiveness lies precisely in the possibility that it offers something different: an important market, a source of technology and investment, and a diplomatic actor that does not demand alignment in the context of great-power rivalry.

Yet this perception could weaken if Europe increasingly defines its role in Asia through the language of containment, economic security, or geopolitical competition.

The issue is not whether Europe should cooperate with the United States. Such cooperation is inevitable and often desirable. The issue is whether Europe can maintain sufficient autonomy to pursue its own interests in Asia.

Can Europe demonstrate that strategic autonomy is more than a slogan? Or will Southeast Asia increasingly conclude that Europe remains an important economic actor but a secondary geopolitical one. The answer will shape the relationship for years to come.

2. Green Cooperation versus Green Protectionism

The green transition has the potential to become the most important area of cooperation between Europe and Southeast Asia over the next decade.

It could also become the greatest source of tension.

This contradiction matters because it touches the core of the relationship: trade, investment, industrial policy, and development.

Europe increasingly treats climate policy as an integral component of economic policy. Environmental standards, carbon regulation, sustainable finance, supply-chain transparency, and industrial decarbonization are becoming central elements of its economic strategy.

From Brussels, this appears both logical and necessary. From Jakarta, Hanoi, Bangkok, or Kuala Lumpur, the picture often looks more complicated.

Many Southeast Asian governments support decarbonization. They are also pursuing industrialization. Their challenge is not simply to reduce emissions, but to create jobs, build technological capabilities, and move up the value chain.

This creates an unavoidable tension.

European policymakers often see environmental standards as instruments of sustainable development. Many actors in Southeast Asia also see them as instruments of market power.

The question is not whether European climate policies are justified. The question is who bears the costs of adjustment.

Carbon-related regulations, sustainability reporting requirements, and new supply-chain standards may accelerate decarbonization. They may also reshape competitive advantages within the global economy.

This is why debates surrounding the Carbon Border Adjustment Mechanism, deforestation regulations, sustainable supply chains, and critical raw materials have attracted such attention across Southeast Asia.

The concern is not merely commercial. It is developmental.

Many policymakers in the region worry that environmental conditionality may restrict policy space precisely at the moment when countries are attempting to accelerate industrial upgrading.

For Europe, this creates a strategic challenge.

If climate cooperation is perceived primarily as regulation and compliance, resistance will grow.

If it is accompanied by technology transfer, investment, research cooperation, skills development, and support for industrial transformation, the same policies may be viewed very differently.

The future of Europe–Southeast Asia relations may therefore depend less on environmental targets than on the political economy of the transition itself.

Can Europe become a partner in Southeast Asia’s green industrialization?

Or will its climate agenda increasingly be perceived as a sophisticated form of protectionism?

3. Diversification versus New Dependency

The third contradiction concerns one of the most widely discussed trends in the global economy: diversification away from China.

For many European policymakers and businesses, the logic appears straightforward. Excessive dependence on a single country creates vulnerabilities. Diversification reduces risk.

Southeast Asia has become one of the principal beneficiaries of this strategy.

European investment is expanding. Supply chains are being reorganized. Governments across the region are competing to attract firms looking for alternatives to China.

But diversification is not the same as autonomy. A production network can move geographically while preserving the same underlying structure of dependency.

Assembly activities can relocate. Ownership can remain concentrated elsewhere.

Exports can increase while technological capabilities remain limited.

Employment can expand without significantly increasing domestic value added.

The critical question is therefore not where production takes place.

The critical question is who controls technology, finance, intellectual property, logistics, and access to markets.

Vietnam provides an instructive example.

The country has emerged as one of the principal beneficiaries of supply-chain diversification. Foreign investment has increased. Manufacturing exports have expanded rapidly. The European Union has become a more important economic partner.

At first sight, this appears to represent a successful reduction of dependence.

Yet the reality is more complex.

Many export industries continue to rely heavily on imported intermediate goods, machinery, components, and technologies. In several sectors, dependence on Chinese suppliers remains substantial. In others, decision-making power remains concentrated within multinational corporations.

The result is a paradox. A country may become less dependent on China in one area while remaining deeply integrated into production systems that continue to be shaped by China in others.

The same question applies to Europe’s engagement with Southeast Asia more broadly.

Will European investment contribute to technological learning, supplier development, research capacity, skills formation, and industrial upgrading?

Or will it primarily relocate selected segments of production while preserving existing hierarchies within global value chains?

For many Southeast Asian countries, the challenge is no longer simply to attract foreign investment. It is to strengthen domestic productive capabilities and capture a greater share of value creation.

In other words, the issue is not integration into the global economy. The issue is the terms of integration.

Europe can play an important role in this process. European industrial traditions, advanced manufacturing capabilities, vocational training systems, and networks of specialized firms offer opportunities that differ from both the American and Chinese models.

But this outcome is not automatic.

If diversification simply produces new forms of dependence, the benefits will be limited.

If it contributes to technological upgrading, industrial transformation, and stronger domestic capabilities, it may become one of the most significant drivers of autonomy available to Southeast Asian economies.

The future of Europe–Southeast Asia economic relations may ultimately depend on which of these two paths prevails.

Looking Ahead

Europe and Southeast Asia are entering a period of profound transformation.

Supply chains are being reorganized. Industrial policy is returning. Economic security has become a central concern. The green transition is reshaping patterns of production and trade. Geopolitical rivalry increasingly intersects with economic decision-making.

In this new environment, the relationship between Europe and Southeast Asia is likely to become more important—and more contested.

The most important question is not whether economic links between the two regions will expand.

The more important question is what kind of relationship will emerge.

Will Europe become a partner in Southeast Asia’s industrial transformation, or merely another source of external dependence?

Will the green transition create new opportunities for cooperation, or new sources of friction?

Can both regions strengthen their autonomy while remaining deeply integrated into the global economy?

These are the questions that will guide future issues of this briefing.

The next issue will move from the general to the specific.

Vietnam has emerged as one of the principal beneficiaries of supply-chain diversification and one of Europe’s most important economic partners in Southeast Asia. Yet beneath the success story lies a more complex reality involving industrial upgrading, dependence on imported technologies and intermediate goods, labor transformation, and competing development strategies.

Next Issue

Can Vietnam Become Europe’s Manufacturing Partner in Asia?

Or does that ambition misunderstand how contemporary production networks actually work?

Because the future of Europe–Southeast Asia relations will not be determined by diplomatic declarations alone.

It will be determined by the ways in which states, firms, workers, and institutions respond to the changing political economy of globalization.

About the Author

Pietro P. Masina is Professor of Southeast Asian History at the University of Naples L’Orientale. His research focuses on development, industrial transformation, labor, and political economy in East and Southeast Asia. He has published extensively on economic development, globalization, labor relations, and the changing political economy of Asia.

17:2026 Asian Political Economy Duterte Publishers Edition

3.09MB ∙ PDF file

Download

Download

I. Beyond Geopolitics: The Marcos–Duterte Rivalry and the Political Economy of the Philippines

The growing conflict between President Ferdinand Marcos Jr. and Vice President Sara Duterte has become the central drama of Philippine politics. Most commentary has focused on foreign policy. Rodrigo Duterte pursued a pragmatic accommodation with China and sought greater distance from the United States. Marcos Jr., by contrast, has overseen a remarkable strengthening of security ties with Washington and has aligned the Philippines more closely with a broader coalition of regional powers concerned about China’s growing assertiveness.

This geopolitical shift is real and important. Yet it risks obscuring a more fundamental question. Does the rivalry between the Marcos and Duterte camps represent competing visions of economic development and social change? Or is it primarily a struggle between rival political dynasties operating within the same political-economic order?

The question matters because Southeast Asia offers several examples of political conflicts that were not simply personal rivalries but reflected deeper transformations in the structure of capitalism. In Thailand, the rise of Thaksin Shinawatra challenged the traditional dominance of Bangkok-based elites by mobilizing a new coalition of provincial business interests, rural voters, and emerging middle classes. In Indonesia, Joko Widodo’s ascent reflected the growing political influence of actors outside the traditional nexus of military and oligarchic power that had dominated the New Order era. In Vietnam, meanwhile, economic reforms have fostered the emergence of new alliances between state institutions, domestic corporations, and globally integrated manufacturing sectors.

Does Duterte represent a similar phenomenon? Did his rise signal the emergence of a new coalition of economic interests capable of challenging the traditional configuration of power in the Philippines? Or did his anti-establishment rhetoric conceal a deeper continuity in the country’s political economy?

This essay argues that Duterte was both more and less transformative than commonly assumed. More transformative because he gave political expression to regional elites and social groups that had long felt marginalized by Manila-centered politics. Less transformative because his movement never developed a coherent project of economic restructuring comparable to those associated with Thaksin in Thailand or, in a different way, with developmental coalitions elsewhere in Asia. The result was a significant reconfiguration of political power without a corresponding transformation of the underlying model of development.

The contemporary clash between the Marcos and Duterte families should therefore be understood not simply as a dispute over foreign policy or personal ambition. At a deeper level, it reflects the unresolved tensions within Philippine capitalism: between Manila and the regions, between established oligarchic networks and emerging provincial elites, and between competing strategies for maintaining political dominance in a country that has struggled to achieve the industrial transformation experienced by many of its Asian neighbours.

The Philippine Exception?

From a political economy perspective, the Philippines occupies a peculiar position within Southeast Asia.

Like Thailand, Indonesia, Malaysia, and Vietnam, it entered the post-colonial era with significant developmental challenges. Yet unlike several of its neighbours, it failed to sustain a long-term process of industrial upgrading capable of transforming the structure of the economy.

This failure cannot be explained by a lack of entrepreneurial talent or integration into the global economy. Filipino firms have successfully expanded in banking, retail, real estate, telecommunications, food processing, and other sectors. Millions of Filipinos have demonstrated extraordinary adaptability in global labour markets. The country possesses substantial human capital and remains one of the largest economies in Southeast Asia.

The problem lies elsewhere. The Philippines has historically struggled to construct the kind of developmental coalition that proved crucial in other Asian success stories. In countries such as South Korea and Taiwan, strong states forged alliances with domestic industrial capital and used a combination of protection, discipline, and export promotion to accelerate industrial upgrading. In contemporary Vietnam, state institutions continue to play an active role in shaping industrial development and technological learning. Even Thailand, despite its political instability, succeeded in attracting large-scale manufacturing investment and integrating domestic firms into regional production networks.

The Philippines followed a different path. Economic power remained concentrated in a relatively small number of family-controlled conglomerates whose interests were often rooted in commerce, finance, utilities, real estate, and protected domestic markets rather than technologically dynamic manufacturing sectors. Political power remained fragmented among competing elite families, regional dynasties, and local patronage networks.

The result was not economic stagnation. The Philippine economy has often grown rapidly. Rather, the result was a pattern of growth that generated relatively limited structural transformation. Remittances, services, consumption, and business-process outsourcing became major drivers of expansion, while manufacturing played a less transformative role than in several neighbouring economies.

It was within this political-economic landscape that Rodrigo Duterte emerged.

II. Duterte’s Rise: A Revolt of the Periphery?

When Rodrigo Duterte won the presidency in 2016, many observers interpreted his victory primarily through the lens of populism. His coarse language, anti-establishment rhetoric, and relentless focus on crime and public order invited comparisons with populist leaders elsewhere in the world. Yet such interpretations often overlooked an equally important dimension of his appeal: Duterte was the first president from Mindanao, a region that had long perceived itself as marginalized by the Manila-centered political order.

To understand the significance of Duterte’s rise, it is necessary to look beyond his personality and examine the historical geography of power in the Philippines.

Political and economic power in the Philippines has traditionally been concentrated in Luzon, particularly in Metro Manila and the surrounding provinces. The country’s largest conglomerates, most influential political families, major media organizations, leading universities, and central government institutions are overwhelmingly concentrated there. Although political dynasties exist throughout the archipelago, the national elite has historically been dominated by networks rooted in the capital and its surrounding regions.

This concentration of power has generated persistent regional grievances. Mindanao, despite its abundant natural resources and strategic importance, has often been portrayed as peripheral to the country’s economic and political core. Infrastructure deficits, poverty, insurgency, and uneven development have reinforced perceptions of neglect.

Duterte’s political career was deeply rooted in this context. As mayor of Davao City, he cultivated an image of effective local leadership in contrast to what many Filipinos perceived as the dysfunction of national politics. His appeal extended far beyond Mindanao, but his regional origins remained central to his political identity. For many supporters, Duterte represented not simply an individual candidate but a challenge to the dominance of the traditional Manila establishment.

This regional dimension distinguishes Duterte from many other contemporary populists. His movement was not merely a revolt against political elites in general. It was also a revolt against a particular configuration of elite power.

The language of federalism played an important role in this project. Duterte repeatedly argued that excessive centralization had hindered development and marginalized large parts of the country. Federalism was presented as a mechanism for redistributing power away from Manila and toward the regions.

Although federal reform ultimately failed to materialize, the proposal revealed something important about Duterte’s political coalition. His supporters included not only lower-income voters frustrated with existing institutions but also local political elites who believed they would benefit from greater regional autonomy and access to resources.

This raises an important question. Did Duterte represent the emergence of a new ruling coalition?

A Philippine Thaksin?

The comparison with Thailand’s Thaksin Shinawatra is illuminating.

Like Duterte, Thaksin emerged from outside the traditional political establishment. He challenged entrenched elites who had long dominated national politics and built a broad electoral coalition that extended far beyond the metropolitan center. His support was particularly strong among groups that felt excluded from existing power structures, including rural populations and provincial business interests.

Both leaders cultivated anti-establishment images despite their own elite backgrounds. Both portrayed themselves as practical problem-solvers rather than conventional politicians. Both generated intense hostility among sections of the traditional establishment.

Yet the similarities should not obscure fundamental differences.

Thaksin’s rise coincided with significant changes in Thailand’s political economy. The rapid economic growth of the 1980s and 1990s had created new business groups, expanded provincial markets, and strengthened economic actors outside Bangkok. Thaksin’s political project reflected these transformations.

His governments introduced policies that helped consolidate a new social coalition. Universal healthcare, village development funds, credit expansion, and support for local enterprises were not simply welfare measures. They were mechanisms for integrating rural populations into a broader political and economic project.

In this sense, Thaksin represented more than a change in political leadership. He represented an attempt to construct a new hegemonic bloc combining sections of capital with previously marginalized social groups.

Duterte’s project was different.

Although he challenged the established political order, he never articulated a comparable developmental vision. His administration pursued infrastructure development through the Build, Build, Build program and sought to attract investment, particularly from China. However, these initiatives did not amount to a coherent strategy for transforming the structure of the Philippine economy.

Unlike Thaksin, Duterte did not create major new welfare institutions. Nor did he develop a clear program for industrial upgrading, technological development, or the creation of nationally competitive manufacturing sectors.

As a result, his movement was politically disruptive but economically less transformative.

New Elites or Old Elites in New Clothes?

This does not mean that Duterte represented no new interests.

The Philippine elite is not a homogeneous entity. It consists of multiple factions whose interests sometimes diverge. The rise of Duterte arguably reflected the growing influence of regional political dynasties, local business groups, construction interests, and economic actors outside the traditional Manila-centered establishment.

Mindanao itself had undergone significant economic changes in the decades preceding Duterte’s rise. Agribusiness expanded, urban centers such as Davao experienced rapid growth, and local business communities became increasingly influential. These developments created constituencies that sought greater representation at the national level.

From this perspective, Duterte can be interpreted as the political expression of a partially emerging regional elite.

However, this interpretation has limits.

Unlike the business groups that supported developmental projects in parts of East Asia, these emerging interests were not concentrated in technologically dynamic industries. They did not advocate an ambitious industrial strategy. Nor did they seek a fundamental restructuring of the country’s integration into the global economy.

Consequently, Duterte’s challenge to the traditional elite remained incomplete.

He altered the distribution of political influence among elite factions, but he did not fundamentally transform the economic foundations of elite power itself.

This distinction is crucial.

A conflict between rival elite groups is not necessarily a conflict between alternative models of development. In many cases, competing factions seek control over the same institutions and resources while sharing broadly similar assumptions about economic organization.

The evidence suggests that this was largely the case in the Philippines. Duterte challenged who governed, but he was less successful in changing how the economy functioned.

This helps explain why the current conflict between the Marcos and Duterte camps can appear simultaneously dramatic and limited. Dramatic because it involves real struggles over political power, regional influence, and foreign policy orientation. Limited because neither side has articulated a fundamentally different vision of industrialization, redistribution, or economic transformation.

The deepest problems of Philippine development therefore remain unresolved. The country continues to face the challenge of building a developmental coalition capable of promoting industrial upgrading, reducing technological dependence, and creating more inclusive patterns of growth.

These issues survived Duterte’s presidency and continue to shape the political economy of the Marcos era.

III. Marcos Jr. and the Restoration of the Center

The election of Ferdinand Marcos Jr. in 2022 appeared, at first glance, to mark the return of a familiar political order. The son of the former dictator secured a landslide victory through an alliance that united powerful political dynasties, local political machines, and broad segments of the electorate. To many observers, his victory symbolized the resilience of the traditional Philippine elite and the remarkable capacity of established families to reproduce their power across generations.

Viewed from this perspective, the current conflict between Marcos and Duterte can be interpreted as a struggle between an old center and a more recent challenger. Duterte represented the political ascent of regional elites, particularly from Mindanao, while Marcos embodied the restoration of Manila’s traditional dominance.

There is some truth in this interpretation. Yet it is also incomplete.

The Marcos coalition is not simply a revival of the political order that existed before Duterte. Philippine capitalism has evolved significantly over the past three decades. The country’s largest conglomerates have expanded into new sectors, integrated more deeply into global markets, and accumulated unprecedented economic resources. Financial institutions have become more sophisticated. Real estate, infrastructure, telecommunications, logistics, and retail have grown rapidly. Foreign investment has become increasingly important.

Consequently, the contemporary elite is not identical to the elite of the 1970s or even the 1990s.

What Marcos represents is less a return to the past than a reassertion of a particular model of governance. Unlike Duterte’s confrontational populism, Marcos has emphasized stability, predictability, and investor confidence. His administration has projected an image of technocratic competence and international respectability. The language of economic management has largely replaced the language of disruption.

This shift has important implications for understanding the nature of the current political conflict.

Continuity Behind the Conflict

At the level of political style, the differences between Duterte and Marcos are striking.

Duterte cultivated an image of permanent confrontation. He attacked critics, challenged established institutions, and presented himself as an outsider fighting entrenched interests. Marcos, by contrast, has emphasized consensus, continuity, and stability.

Yet political style should not be confused with political economy.

On many fundamental economic questions, the differences are less pronounced than the rhetoric might suggest.

Both administrations have prioritized infrastructure development.

Duterte’s flagship initiative was Build, Build, Build. Marcos rebranded and expanded the approach through Build Better More. The names differ, but the underlying assumption remains the same: infrastructure investment is expected to drive growth, improve competitiveness, and attract investment.

Infrastructure development is undoubtedly important. The Philippines suffers from significant logistical bottlenecks, inadequate transport networks, and uneven regional connectivity. Yet infrastructure alone cannot solve deeper developmental challenges.

The critical question is what kind of productive transformation infrastructure is intended to support.

In countries such as South Korea, Taiwan, and more recently Vietnam, infrastructure investment formed part of broader industrial strategies aimed at strengthening domestic productive capabilities. Roads, ports, and power systems were built alongside policies designed to promote technological learning, export competitiveness, and industrial upgrading.

In the Philippines, the connection between infrastructure and industrial transformation has often been weaker.

This continuity is evident in the Marcos administration’s broader economic agenda. The government has focused on attracting foreign investment, improving the business environment, and expanding participation in regional economic networks. These objectives are reasonable and potentially beneficial. Yet they do not amount to a developmental project capable of fundamentally altering the country’s position within regional and global production systems.

The result is a striking paradox.

The Philippines has achieved respectable growth rates in many years. It has attracted increasing levels of foreign investment. It possesses a young population and a relatively well-educated workforce. Yet it continues to struggle with the challenge that developmental states elsewhere in Asia confronted more successfully: the creation of domestic technological capabilities and internationally competitive industrial sectors.

The Missing Developmental Coalition

This brings us to a broader issue.

One of the most important insights of political economy is that successful industrial transformation rarely emerges automatically from market forces alone. It usually requires coalitions of political and economic actors that share an interest in long-term productive development.

Historically, such coalitions have taken different forms.

In South Korea and Taiwan, state institutions forged close but often disciplined relationships with industrial capital. In Singapore, the state played a central coordinating role. In contemporary Vietnam, the state continues to guide industrial policy while leveraging foreign investment to support domestic capability-building. Even in Thailand, despite political instability, alliances between state institutions, foreign manufacturers, and domestic firms facilitated the emergence of significant manufacturing clusters.

The Philippines presents a contrasting case.

Its political system has been remarkably successful at generating electoral competition, but less successful at producing developmental coalitions capable of sustaining long-term industrial transformation.

Part of the explanation lies in the structure of elite interests.

Many of the country’s most powerful business groups derive substantial profits from sectors such as real estate, finance, retail, utilities, and protected domestic markets. These sectors can generate significant wealth without requiring the kind of technological upgrading associated with advanced manufacturing.

This does not imply that these groups oppose development. Nor does it mean they are economically unproductive. The point is simply that their incentives differ from those of industrial capital seeking to compete in technologically demanding global markets.

As a result, the political demand for ambitious industrial policy has often been weaker than in several neighbouring countries.

This structural reality helps explain the limitations of both Duterte and Marcos.

Duterte challenged existing political arrangements but did not construct a new developmental coalition.

Marcos has restored stability but has not fundamentally altered the incentives that shape the behaviour of the country’s dominant economic actors.

Beyond Personal Rivalries

The Marcos-Duterte conflict is often portrayed as a clash of personalities, dynasties, and political ambitions. All these elements are undeniably important.

Yet focusing exclusively on personalities risks obscuring the deeper question of why Philippine politics repeatedly produces intense political competition without corresponding economic transformation.

The answer may lie in the nature of the underlying political-economic system.

Competing elite factions battle fiercely for access to state power. Political alliances shift constantly. Electoral contests generate winners and losers. Yet the broader structure of capitalism remains remarkably resilient.

Neither Duterte nor Marcos has fundamentally challenged the dominance of large family-controlled conglomerates. Neither has pursued a comprehensive strategy for reducing technological dependence. Neither has attempted to construct a developmental state comparable to those found elsewhere in East and Southeast Asia.

This does not mean the two leaders are identical. Their political styles, foreign policy orientations, and governing coalitions differ in important ways.

But the differences should not obscure a deeper continuity.

The central challenge facing the Philippines remains the same as it was before Duterte entered Malacañang and before Marcos returned to it: how to create a political and economic coalition capable of transforming growth into sustained industrial development.

The answer to that question will likely shape the country’s future far more profoundly than the outcome of the current feud between its two most powerful political families.

IV. Why Vietnam, Thailand, and Indonesia Produced Developmental Coalitions—and the Philippines Did Not

The limitations of both Duterte and Marcos become clearer when viewed through a comparative Southeast Asian lens.

The central question is not whether the Philippines has experienced economic growth. It has. Nor is the question whether the country possesses capable entrepreneurs, dynamic firms, or globally competitive sectors. It does.

The more important question is why the Philippines has struggled to generate the kind of developmental coalition that, despite many imperfections, emerged in other major Southeast Asian countries.

The comparison is particularly revealing because the Philippines entered the post-war period with significant advantages. During the 1950s and early 1960s, it was often considered one of the most economically advanced countries in Southeast Asia. Few observers at the time would have predicted that South Korea, Taiwan, or even later Vietnam would eventually surpass it in industrial development.

Yet this is precisely what happened.

Thailand: The Emergence of New Capital

Thailand offers perhaps the most illuminating comparison because it experienced a political conflict that superficially resembles the Duterte-Marcos divide.

Like the Philippines, Thailand has long been characterized by powerful families, regional inequalities, and tensions between the capital and the provinces. Political power has historically been concentrated in Bangkok, while large sections of the population lived in rural areas that were often politically marginalized.

The rise of Thaksin Shinawatra transformed this landscape.

Thaksin did not challenge capitalism. Nor did he seek to dismantle elite power. Instead, he represented the emergence of a different segment of the elite—one linked to telecommunications, finance, provincial business networks, and a rapidly expanding domestic market.

What made Thaksin politically transformative was his ability to forge an alliance between new business interests and previously neglected social groups.

His policies expanded healthcare, increased rural credit, strengthened local economies, and integrated millions of rural citizens more fully into the national market. These measures were not merely electoral tactics. They reflected the interests of an emerging capitalist class that viewed rural populations not simply as voters but as consumers, entrepreneurs, and participants in economic modernization.

The result was a new political coalition that fundamentally altered Thai politics.

Traditional elites resisted fiercely because they recognized that Thaksin’s project threatened their long-standing dominance.

No equivalent coalition emerged in the Philippines under Duterte.

Although Duterte mobilized regional grievances and challenged the Manila establishment, he never developed an economic project capable of integrating marginalized groups into a broader developmental strategy. His coalition remained politically powerful but economically less transformative.

Indonesia: Decentralization and the Rise of New Political Actors

Indonesia presents another instructive comparison.

The fall of Suharto in 1998 produced one of the most significant political transformations in modern Southeast Asian history. Democratization and decentralization redistributed power away from Jakarta and created opportunities for new political actors.

Joko Widodo’s rise reflected these changes.

Unlike many previous Indonesian leaders, Jokowi emerged from local politics rather than the military or the traditional national elite. His political career was built in Surakarta and later Jakarta, giving him a reputation as a pragmatic administrator rather than a representative of established oligarchic networks.

Yet the significance of Jokowi extends beyond biography.

Indonesia’s economy possesses a substantial manufacturing base, extensive natural resources, and a large domestic market. Political elites, business groups, and state institutions have repeatedly engaged in debates about industrial policy, resource nationalism, downstream processing, and technological upgrading.

One may disagree with particular policies, but the developmental question remains central to Indonesian politics.

The same cannot easily be said of the Philippines.

Industrial transformation rarely occupies the center of political debate. Electoral competition tends to focus on personalities, corruption, governance, public order, and patronage rather than competing visions of structural economic change.

This difference matters because it shapes the kinds of coalitions that emerge.

Indonesia’s political struggles often involve disagreements over how development should occur. Philippine political struggles more frequently concern who controls the state.

Vietnam: The Developmental State in the Age of Globalization

The contrast with Vietnam may be the most striking.

Vietnam and the Philippines followed very different historical trajectories. Vietnam emerged from decades of war and began market-oriented reforms much later. Yet over the past three decades, Vietnam has achieved a remarkable degree of industrial transformation.

Foreign investment has played a crucial role in this process. Critics sometimes argue that Vietnam remains excessively dependent on multinational corporations. There is truth in this observation. Yet it overlooks an important distinction.

Vietnam’s political leadership has generally viewed foreign investment not as an end in itself but as a mechanism for industrial upgrading.

The objective has been to attract technology, build productive capacity, improve infrastructure, develop skilled labour, and gradually strengthen domestic firms.

The results remain uneven and incomplete. Nevertheless, industrial policy occupies a central place in national development strategy.

Large Vietnamese corporations such as VinGroup illustrate this ambition. Whatever one thinks of particular ventures, the broader goal is clear: to move beyond dependence on foreign technology and create domestic technological capabilities.

Comparable ambitions are far less visible among the dominant corporate groups of the Philippines.

This difference has profound implications. In Vietnam, influential economic actors increasingly have an interest in technological upgrading. In the Philippines, many of the most powerful economic actors can prosper without it.

The Political Economy of Developmental Absence

These comparisons suggest that the central issue is not simply leadership. The problem is structural.

Thailand produced Thaksin because economic transformations had created new capitalist interests seeking greater political influence.

Indonesia produced Jokowi because democratization and decentralization opened space for new actors within an economy where industrial development remained a central concern.

Vietnam’s leadership continues to pursue industrial upgrading because state institutions and important segments of domestic capital share an interest in enhancing national productive capabilities.

The Philippines presents a different configuration. Its political system remains highly competitive. Elections are vibrant. Political participation is extensive. Yet the underlying structure of economic interests has not generated a coalition strongly committed to industrial transformation.

This helps explain both Duterte’s limitations and Marcos’s continuity. Duterte challenged established elites but lacked a developmental project. Marcos restored stability but operates within the same structural constraints. Neither has been able to create the coalition necessary to transform the country’s position within the regional political economy.

The Real Significance of the Marcos-Duterte Feud

Viewed in comparative perspective, the current conflict appears in a different light.

The feud is not merely a personal dispute between two ambitious families. Nor is it simply a contest over foreign policy. It reflects an unresolved struggle over political power within a capitalist system that has not undergone the kind of transformation seen elsewhere in Asia.

The irony is striking. The Philippines possesses many of the ingredients necessary for successful development: a large population, significant human capital, strong entrepreneurial traditions, and deep integration into global markets.

What it has lacked is a developmental coalition capable of aligning political authority, state institutions, and economic interests around a long-term strategy of industrial upgrading. Until such a coalition emerges, changes in political leadership—even dramatic ones—are likely to produce more continuity than transformation.

This may be the most important lesson of the Marcos-Duterte rivalry. Beneath the noise of political conflict lies a deeper reality: the unresolved challenge of development itself.

V. Conclusion: The Unfinished Question of Philippine Development

The political conflict between the Marcos and Duterte families has often been interpreted as a struggle for power between two rival dynasties. There is certainly an element of truth in this view. Personal ambitions, family interests, and political calculations have all contributed to the deterioration of what once appeared to be a formidable alliance.

Yet reducing the conflict to a family feud risks missing its broader significance.

The rise of Rodrigo Duterte revealed real tensions within Philippine society and politics. His victory demonstrated that large sections of the electorate were dissatisfied with the traditional configuration of power centered on Manila. His support was particularly strong among groups and regions that felt excluded from the benefits of economic growth and marginalized within the national political system.

In this sense, Duterte represented something new.

He was not simply another member of the traditional political establishment. He gave political expression to regional grievances that had accumulated over decades. He challenged the assumption that national leadership must emerge from the same geographical and social centers that had historically dominated Philippine politics. His ascent symbolized the growing political importance of Mindanao and other regions outside the traditional core of power.

Yet Duterte was also less transformative than many supporters hoped and many critics feared.

Unlike Thaksin Shinawatra in Thailand, he did not construct a durable developmental coalition linking new economic interests with a broader project of social and economic transformation. Unlike some of the political changes that occurred in Indonesia after democratization, Duterte’s rise did not fundamentally alter the relationship between state institutions and economic development. Nor did it produce a new vision of industrialization capable of reshaping the country’s position in the regional economy.

His challenge was therefore political more than economic. He disrupted the existing distribution of power among elite factions without fundamentally changing the structure of Philippine capitalism itself.

The election of Ferdinand Marcos Jr. reflected the limits of that disruption.

Marcos did not simply restore the past. The Philippines of the 2020s is not the Philippines of the 1970s, and contemporary elites operate in a far more globalized and competitive environment. Nevertheless, his administration has largely reinforced existing patterns of economic governance. Infrastructure, investment promotion, macroeconomic stability, and international partnerships remain central priorities. These policies may contribute to growth, but they do not constitute a major departure from the country’s existing development model.

Consequently, the most striking feature of the Marcos-Duterte rivalry is not the extent of their differences but the limits of those differences.

Their foreign policy orientations diverge significantly. Their political styles could hardly be more different. Their support bases overlap only partially. Yet neither side has articulated a comprehensive strategy for addressing the structural challenges that have long constrained Philippine development.

Those challenges remain formidable.

The Philippines continues to lag behind several of its Southeast Asian neighbours in manufacturing capability and technological upgrading. Economic growth has often been impressive, but growth alone has not generated the kind of structural transformation that reshaped economies such as South Korea, Taiwan, and increasingly Vietnam. Large business groups remain influential, yet few have become major drivers of technological innovation or industrial upgrading. Political competition remains vibrant, but developmental questions rarely occupy the center of political debate.

This is perhaps the most important contrast with other major countries in Southeast Asia.

In Thailand, the rise of Thaksin reflected the emergence of new social and economic coalitions linked to broader processes of market expansion and capitalist development. In Indonesia, debates over industrial policy, resource nationalism, and economic transformation remain central to political life. In Vietnam, the state continues to pursue industrial upgrading as a core national objective, however imperfectly.

The Philippines has followed a different path.

Its political system has proven remarkably effective at generating competition among elites. It has been less effective at generating consensus around a long-term developmental project.

The deeper significance of the Marcos-Duterte conflict therefore lies not in what it reveals about the two families themselves, but in what it reveals about the Philippine political economy. The rivalry exposes unresolved tensions between Manila and the regions, between established and emerging elite groups, and between competing visions of foreign policy. Yet it also highlights the absence of a powerful coalition committed to transforming the country’s productive structure.

This raises a final question.

Could the Philippines eventually produce its own version of a developmental coalition—one capable of linking state institutions, domestic capital, and broader social groups around a project of industrial upgrading and technological learning? Could a future political movement combine the regional energy that propelled Duterte’s rise with a more coherent developmental vision? Or does the fragmented nature of Philippine capitalism make such a coalition particularly difficult to construct?

The answer remains uncertain.

What is clear, however, is that the future of the Philippines will be shaped less by the outcome of the current feud between Marcos and Duterte than by the country’s ability—or inability—to address the developmental challenges that both leaders ultimately left unresolved.

The real question confronting the Philippines is therefore not who governs, but what kind of economic transformation the country wishes to pursue. Until that question moves to the center of political debate, changes in leadership are likely to generate political drama without fundamentally altering the country’s developmental trajectory.

Support Independent Research on Asia

If you enjoy these essays and would like to support this project, please consider becoming a paid subscriber.

The Asian Political Economy newsletter is an independent effort to provide accessible, research-based analysis of economic development, political change, and international relations across Asia. As a university professor and researcher, I aim to bridge academic scholarship and public debate, offering perspectives that go beyond headlines and conventional narratives.

Paid subscribers help make this work possible and receive access to exclusive content, including:

• Corporate Power in Asia – in-depth analyses of the business groups and corporations shaping Asia’s economies

• Southeast Asia Political Economy Briefing – regular updates on key political and economic developments across the region

• Europe–Southeast Asia Briefing – insights into the evolving relationship between Europe and one of the world’s most dynamic regions

Your support allows me to dedicate more time to research, writing, and expanding this platform.

If you find value in this work, I hope you will consider upgrading to a paid subscription.

Thank you for reading and for being part of this growing community.

Sapeb Issue 1

1.24MB ∙ PDF file

Download

Download

Why This Briefing

This is the first issue of the Southeast Asia Political Economy Briefing, a monthly attempt to make sense of the region beyond the noise of daily news.

There is no shortage of information about Southeast Asia. Every day brings reports on elections, coups, investment flows, territorial disputes, trade agreements, supply-chain shifts, energy projects, and diplomatic summits. Yet more information does not necessarily produce better understanding. Often it produces the opposite: a rapid succession of events, each treated as urgent, but rarely connected to the deeper historical and political-economic processes that give them meaning.

This briefing starts from a different premise. The most important developments in Southeast Asia are rarely isolated events. They are symptoms of longer transformations: the restructuring of global capitalism, the changing role of the state in development, the legacies of the Cold War, the uneven integration of the region into global production networks, and the growing difficulty of maintaining autonomy in a world of sharpening great-power competition.

The purpose of this series is therefore not to summarize the news. It is to ask what the news reveals.

Each month, I will select a small number of developments and examine them through the lenses of history and critical political economy. The aim is to understand not only what is happening, but what kind of regional order is being produced: who benefits, who bears the costs, which institutions are being tested, and which development models are reaching their limits.

This first issue advances a central argument: Southeast Asia is entering a phase in which the contradictions of its own success are becoming harder to manage.

For three decades, much of the region benefited from a relatively favorable international environment. Export-led industrialization, foreign direct investment, global value chains, tourism, remittances, and strategic flexibility allowed many Southeast Asian states to grow rapidly without fully resolving deeper structural tensions. Governments could attract capital while preserving political control. They could deepen economic ties with China while maintaining security relationships with the United States and its allies. They could participate in globalization while avoiding many of the institutional constraints associated with deeper forms of regional integration.

This was not passivity. Southeast Asian governments were often highly skillful in navigating global change. They adapted to shifting international conditions, exploited openings created by global production networks, and used ambiguity as a diplomatic resource.

But adaptation was easier when the international environment was relatively open, when economic integration could be separated from security competition, and when the costs of postponing difficult choices remained manageable.

That world has not disappeared. But it is changing.

Globalization is becoming more fragmented. Industrial policy has returned. Technology is increasingly treated as a security issue. Energy has again become strategic. Climate pressures are intensifying. China is more powerful, the United States more anxious, and middle powers more active. The room for ambiguity—the diplomatic and economic space in which Southeast Asian states have often operated with considerable skill—is narrowing.

This does not mean that Southeast Asia is entering a period of inevitable decline. On the contrary, the region remains economically dynamic and politically resourceful. But the easy assumptions of the previous era are no longer sufficient. Attracting investment is not the same as achieving technological upgrading. Maintaining neutrality is not the same as preserving autonomy. Producing ASEAN declarations is not the same as building regional capacity. Managing crises is not the same as resolving the structural conditions that produce them.

The question, then, is not whether Southeast Asia can still grow. It can. The more difficult question is whether the institutions, development strategies, and diplomatic practices that served the region during the age of globalization are adequate for the more fragmented world now emerging.

The four essays in this issue examine that question from different angles: Myanmar and the paradox of ASEAN’s success; Vietnam and the risk of remaining a successful subcontractor; the South China Sea and the scarcity of strategic autonomy; and energy security as a sign of the return of industrial policy and state planning.

Together, they suggest a common conclusion: for much of the post-Cold War era, Southeast Asia prospered by adapting to global change. The next decade may require something more difficult. The region will have to shape outcomes, build capabilities, and make choices it could once afford to postpone.

The era of low-cost adaptation is ending.

1. Myanmar and the Paradox of ASEAN’s Success

More than five years after the military coup of February 2021, Myanmar remains trapped in a conflict for which no obvious political solution exists. The military has failed to re-establish effective control over large parts of the country. The opposition has demonstrated remarkable resilience but remains fragmented. Ethnic armed organizations continue to pursue diverse and sometimes competing agendas. What initially appeared to many observers as a temporary crisis has evolved into one of the most serious political ruptures in Southeast Asia since the end of the Cold War.

Most analyses focus on the conflict itself: battlefield developments, humanitarian conditions, diplomatic initiatives, or the prospects for negotiations. These issues are important. Yet from a regional perspective, Myanmar is significant not only because of what is happening inside the country but because of what the crisis reveals about ASEAN.

The most important lesson of Myanmar may be that ASEAN’s greatest strength has become one of its greatest weaknesses.

This is a deliberately uncomfortable proposition.

For decades, ASEAN’s success rested on a small number of principles: sovereignty, consensus, and non-interference. These principles helped create one of the most stable regional organizations in the developing world. They reduced tensions among neighboring states, reassured governments concerned about regime security, and enabled cooperation among countries with vastly different political systems.

The historical achievement should not be underestimated.

When ASEAN was founded in 1967, much of Southeast Asia was marked by insurgencies, interstate tensions, authoritarian rule, and great-power intervention. The organization’s institutional architecture reflected those realities. Its purpose was not to build a supranational community. It was to create a stable framework within which sovereign states could coexist and cooperate.

Measured against that objective, ASEAN was remarkably successful.

The problem is that the region no longer confronts the same challenges.

Many of the most important issues facing Southeast Asia today are transnational by nature. Migration, environmental degradation, cybercrime, organized crime, energy security, public health emergencies, and climate change do not respect national borders. They generate costs that spill across states and increasingly blur the distinction between domestic and regional affairs.

Myanmar has exposed this transformation in particularly dramatic fashion.

The conflict has generated refugee flows, humanitarian pressures, illicit economic activities, border security concerns, and expanding networks of transnational crime. In practice, the consequences of state fragmentation inside Myanmar have become regional problems regardless of ASEAN’s formal commitment to non-interference.

This creates a paradox.

The principles that once made regional cooperation possible now make collective action more difficult.

ASEAN’s traditional diplomatic toolkit was designed to manage relations among functioning sovereign states. Myanmar presents a different challenge: a fragmented political landscape in which sovereignty itself is contested and where the costs of instability are increasingly borne by neighboring countries.

The Five-Point Consensus, adopted in 2021, reflected ASEAN’s longstanding preference for dialogue, consultation, and gradual diplomacy. Yet the limited impact of the initiative raises an uncomfortable question.

If ASEAN cannot respond effectively to a crisis with such profound regional consequences, what kinds of crises can it respond to?

This is not merely a question about Myanmar.

The deeper issue concerns the future of regional governance in Southeast Asia.

Climate change, environmental disasters, migration, cyber threats, energy security, and organized crime all involve forms of interdependence that sit uneasily with rigid interpretations of non-interference. The challenge confronting ASEAN is therefore not whether it can abandon its founding principles. It cannot. The challenge is whether those principles can evolve sufficiently to address problems for which they were never originally designed.

Thailand’s increasingly pragmatic engagement with actors inside Myanmar illustrates the dilemma. Geography imposes realities that diplomatic formulas cannot eliminate. Faced with migration pressures, border insecurity, and economic disruption, neighboring states inevitably seek practical solutions regardless of broader diplomatic disagreements.

This suggests that the most important question raised by Myanmar is not whether the conflict can be resolved in the near future. It probably cannot.

The more important question is whether ASEAN can adapt to a regional environment in which sovereignty remains essential but is no longer sufficient.

The irony is striking. ASEAN’s institutional architecture helped create one of the most stable regional orders in the developing world. Yet that same architecture now struggles to address the consequences of state failure, transnational threats, and deepening regional interdependence.

Myanmar may therefore be remembered not only as a national tragedy but as the moment when the assumptions underpinning Southeast Asia’s regional order came under their most serious scrutiny since the end of the Cold War.

Questions for the Future

• Can ASEAN preserve the principle of non-interference while addressing problems with significant cross-border consequences?

• Has non-interference become a source of institutional rigidity rather than regional stability?

• Will member states increasingly rely on informal coalitions and bilateral initiatives when ASEAN mechanisms prove insufficient?

• Is Myanmar an exceptional case, or does it foreshadow broader challenges confronting regional governance in Southeast Asia?

• Can ASEAN adapt its institutions without undermining the principles that made its success possible?

Continue Reading

This month’s briefing argues that Southeast Asia is entering a period in which adaptation is no longer enough.

The essays below examine:

• Vietnam’s attempt to escape the subcontractor trap;

• the growing scarcity of strategic autonomy in the South China Sea;

• the return of the developmental state across Southeast Asia;

• and why the region’s future depends on transforming success into power.

The remainder of this briefing is available to paid subscribers.

2. Vietnam’s Next Development Model: Escaping the Subcontractor Trap

Few countries have benefited from globalization as successfully as Vietnam.

Over the past three decades, the country has transformed itself from one of the poorest societies in Asia into a major manufacturing hub integrated into global production networks. Foreign investment has surged, exports have expanded dramatically, and living standards have improved at a pace that would have seemed unimaginable in the late 1980s. In recent years, Vietnam has also benefited from the reorganization of global supply chains as multinational corporations seek alternatives to excessive dependence on China.

The numbers are impressive. The narrative is familiar.

Vietnam is often described as one of the great success stories of contemporary globalization. The problem is that success can obscure emerging constraints.

For most of the past three decades, Vietnam’s development challenge was relatively straightforward. The country needed jobs, capital, technology, and access to export markets. Foreign direct investment provided all four. The strategy worked remarkably well. Vietnam became deeply integrated into global production networks and established itself as one of Asia’s most attractive manufacturing locations.

Today, however, the central question is no longer whether Vietnam can attract investment.

The real question is whether Vietnam risks becoming the world’s most successful subcontractor.

This may sound paradoxical.

After all, subcontracting has been the foundation of the country’s economic success. Vietnam manufactures smartphones, electronics, garments, machinery, and an increasing range of sophisticated industrial products. Yet success in manufacturing does not necessarily translate into control over technology, innovation, branding, or the most profitable segments of production.

This distinction lies at the heart of Vietnam’s next development challenge.

Consider the semiconductor sector, which has become one of the priorities of the To Lam administration. Vietnam is attracting growing investment in semiconductor assembly, testing, and packaging. International technology firms increasingly view the country as a strategic location within global supply chains. Government officials regularly emphasize the opportunities created by the restructuring of the global semiconductor industry.

These developments are undoubtedly positive.

Yet the crucial question is not whether Vietnam participates in semiconductor production. The crucial question is where it participates.

Assembly is not design. Packaging is not innovation. Participation is not control.

The history of industrialization contains numerous examples of countries that became successful manufacturing platforms without acquiring the technological capabilities associated with the industries they hosted. They generated exports, employment, and growth, but remained dependent on foreign firms for technology, intellectual property, and access to final markets.

Vietnam’s challenge is to avoid that outcome. This issue extends far beyond semiconductors.

The same questions arise in artificial intelligence, digital technologies, renewable energy, advanced manufacturing, and increasingly in sectors linked to the green transition. In each case, the issue is not whether Vietnam can attract investment. It already can. The issue is whether Vietnamese firms can develop the capabilities necessary to shape production networks rather than simply participate in them.

This is where To Lam’s agenda becomes particularly interesting.

Since assuming the country’s highest political office, he has repeatedly emphasized science and technology, innovation, digital transformation, artificial intelligence, administrative reform, and what Vietnamese policymakers increasingly describe as a new era of national development.

Many outside observers interpret this as a technological strategy.

In reality, it may be something more ambitious.

What appears to be emerging is an attempt to shift Vietnam from a development model centered on factor accumulation—more labor, more capital, more investment—to one centered on capability formation.

If this interpretation is correct, the implications are significant.

The central question is no longer how Vietnam can attract global capital. The question is whether Vietnam can use global integration to build domestic technological and organizational power.

Historical comparisons are instructive.

Japan, South Korea, Taiwan, and China did not become technological powers simply because they participated in global markets. They became technological powers because they used participation to strengthen domestic capabilities. Foreign technology was acquired, adapted, and eventually improved upon. Domestic firms moved into increasingly sophisticated activities. The objective was never integration alone. It was greater control over the terms of integration.

Vietnam cannot simply replicate these experiences. The contemporary global economy is more integrated, multinational corporations are more powerful, and technology has become increasingly entangled with national security concerns.

Nevertheless, the underlying challenge remains remarkably similar.

Can Vietnam create firms capable of becoming technological leaders rather than technological followers?

The answer depends less on technology than on institutions.

Vietnam does not suffer from a shortage of foreign investment. Nor does it lack talented engineers or entrepreneurial energy. The more difficult challenge concerns the institutions that connect these resources: universities, research centers, state agencies, financial systems, and domestic enterprises.

This is why the success of To Lam’s strategy should not be measured primarily by export growth, FDI inflows, or the number of semiconductor projects announced.

Those indicators belong largely to the previous development model.

The more revealing indicators are different.

Can firms such as Viettel, FPT, VinFast, and a new generation of technology companies become globally competitive innovators rather than successful followers? Can Vietnamese firms generate intellectual property rather than merely utilize it? Can domestic enterprises move from suppliers to system integrators, designers, and technology owners?

These questions are ultimately more important than the number of factories built or the volume of foreign investment attracted.

The central development question facing Vietnam is no longer whether it can join the global economy. That question has already been answered. The challenge now is whether it can transform economic integration into technological and institutional power. In many respects, this is a more difficult task than industrialization itself.

Questions for the Future

• Can Vietnam create globally competitive domestic firms in strategic sectors, or will these remain dominated by foreign corporations?

• Does To Lam’s emphasis on science and technology represent a genuine shift in the development model?

• Can Vietnam move beyond assembly and packaging into design, innovation, and intellectual property creation?

• Are firms such as Viettel, FPT, and VinFast the foundations of a new developmental strategy, or isolated exceptions?

• Can Vietnam escape the subcontractor trap while remaining deeply integrated into the global economy?

3. The South China Sea and the Scarcity of Strategic Autonomy

Twenty years ago, it was possible to think about the South China Sea primarily as a territorial dispute. Today, that is no longer sufficient.

The conventional interpretation focuses on competing maritime claims, naval deployments, and the strategic rivalry between China and the United States. These factors remain important. Yet they do not fully explain why the South China Sea has become one of the defining issues of contemporary Southeast Asian politics.

The real significance of the South China Sea lies elsewhere.

It reveals the growing scarcity of strategic autonomy.

For much of the post-Cold War period, Southeast Asian governments pursued one of the most successful diplomatic strategies in the developing world. They deepened economic integration with China while maintaining security relationships with the United States and its allies. They welcomed investment from Japan, South Korea, Europe, and increasingly India. They participated in globalization without becoming fully dependent on any single external power.

This balancing act was not simply a foreign policy success. It was a development strategy.

The economic rise of Southeast Asia depended on the ability of governments to engage simultaneously with multiple centers of economic and political power. Export-oriented industrialization, foreign direct investment, technology transfer, tourism, and participation in global value chains all benefited from a relatively open international environment in which geopolitical competition remained manageable.

Strategic autonomy was therefore not merely a diplomatic preference. It was one of the foundations of economic growth.

Today, however, the conditions that made this strategy possible are changing.

The relationship between economics and security is becoming increasingly blurred.

During the era of hyper-globalization, trade, investment, and technology were largely treated as economic questions. Governments sought growth, firms sought profits, and geopolitical considerations often remained secondary. Economic integration was widely assumed to reduce political tensions and create mutual interests that discouraged conflict.

That assumption is becoming increasingly difficult to sustain.

Semiconductors, artificial intelligence, telecommunications networks, digital infrastructure, critical minerals, ports, batteries, energy systems, and advanced manufacturing are no longer viewed simply as economic assets. They are increasingly regarded as strategic assets. Decisions that once belonged primarily to the sphere of economics are now shaped by national security concerns.

This transformation has profound implications for Southeast Asia.

The region’s development model was built on openness. Yet openness becomes more difficult when technological ecosystems, supply chains, and investment flows are increasingly shaped by geopolitical rivalry.

The South China Sea is where this contradiction becomes visible.

The dispute is often framed as a confrontation between China and the United States. In reality, the most important actors are the Southeast Asian states themselves. Vietnam, Indonesia, Malaysia, Singapore, and the Philippines all confront variations of the same challenge: how to preserve room for independent action in a regional environment increasingly structured by competition among larger powers.

This objective is frequently described as neutrality. The term is misleading.

Southeast Asian governments are not attempting to remain neutral. They are attempting to remain flexible.

Neutrality implies standing outside geopolitical competition. Flexibility means engaging simultaneously with competing powers while avoiding excessive dependence on any of them. It is a far more active and demanding strategy.

Vietnam’s diplomacy illustrates this logic particularly well. Hanoi has deepened economic ties with China while expanding strategic cooperation with the United States, Japan, India, Australia, South Korea, and Europe. The objective is not alignment. It is diversification.

Indonesia has followed a similar path. Despite deep economic engagement with China, Jakarta has consistently resisted efforts to transform Southeast Asia into a simple arena of great-power competition. Singapore, despite its close security relationship with Washington, has likewise sought to maintain productive relations with Beijing.

Across the region, governments continue to pursue variations of the same strategy.

The problem is that flexibility becomes harder to maintain as rivalry intensifies.

Technology standards, digital infrastructure, industrial policy, supply chains, and energy systems are increasingly linked to geopolitical competition. Governments may find it easier to diversify military partnerships than to diversify technological ecosystems. They may be able to balance diplomatic relationships more easily than production networks.

This creates a growing tension between economic integration and strategic autonomy.

The irony is striking. The very success of globalization has increased Southeast Asia’s exposure to geopolitical risk. The deeper the region became integrated into global production networks, the more vulnerable it became to disruptions generated by competition among major powers.

Seen from this perspective, the South China Sea is not primarily about rocks, reefs, or maritime boundaries.

It is about the future of Southeast Asia’s development model.

The greatest threat to Southeast Asian autonomy may therefore not be military conflict in the South China Sea, although that risk remains real. It may instead be the gradual erosion of the flexibility that has underpinned the region’s political and economic success since the end of the Cold War.

Strategic autonomy is becoming Southeast Asia’s scarcest resource. The defining question of the coming decade is whether the region can preserve it.

Questions for the Future

• Can Southeast Asian states continue balancing among competing powers as economics and security become increasingly intertwined?

• Is diversification still sufficient to preserve strategic autonomy?

• Will governments be forced to make choices that they have successfully avoided for decades?

• Can ASEAN help preserve regional flexibility, or will strategic competition increasingly bypass regional institutions?

• Is strategic autonomy becoming incompatible with deep economic integration?

4. The Return of the Developmental State

In January 2020, Indonesia banned exports of nickel ore.

At the time, many economists criticized the decision. The policy violated the conventional wisdom that had guided much of the developing world since the 1990s. Rather than allowing markets to determine the international division of labor, Jakarta was attempting to shape it. Rather than exporting raw materials and importing manufactured goods, the government sought to force investment into domestic processing industries.

The policy was controversial. It remains controversial.

Yet it may also represent one of the most important economic experiments in contemporary Southeast Asia.

Indonesia’s nickel strategy reflects a broader transformation taking place across the region. After decades during which development was largely understood as a process of integration into global markets, governments are increasingly rediscovering a much older question:

How can states shape economic development rather than simply adapt to it?

The significance of this shift extends far beyond Indonesia.

For much of the post-Cold War period, economic policymaking in Southeast Asia operated under a relatively simple assumption. Governments should maintain macroeconomic stability, attract foreign investment, liberalize trade, and integrate into global production networks. States remained important, but markets were generally expected to determine the allocation of resources and the direction of structural transformation.

The model produced impressive results. Foreign investment surged. Manufacturing expanded. Poverty declined. Exports grew rapidly. Southeast Asia became one of the principal beneficiaries of globalization.

Yet success generated new vulnerabilities.

The COVID-19 pandemic exposed weaknesses in global supply chains. The energy shock triggered by the war in Ukraine highlighted the risks associated with external dependence. Growing rivalry between China and the United States transformed technology, investment, and trade into matters of national security.

The lesson drawn by many governments has been remarkably similar.

Efficiency is no longer enough. Resilience matters.

This realization is reshaping development strategies across Southeast Asia.

Indonesia’s nickel policy is perhaps the clearest example. The objective is not simply to increase exports. It is to use control over natural resources as a mechanism for industrial upgrading. By encouraging domestic processing and attracting investment in batteries, electric vehicles, and related industries, Jakarta hopes to capture a larger share of value within emerging green supply chains.

Whether the strategy ultimately succeeds remains uncertain.

The more important point is that the policy would have been almost unthinkable under the dominant development orthodoxy of the 1990s.

A similar shift can be observed elsewhere.

Vietnam’s growing emphasis on semiconductors, artificial intelligence, and technological capability formation reflects a belief that participation in global markets is no longer sufficient. Thailand’s efforts to position itself within electric vehicle supply chains, Malaysia’s focus on advanced manufacturing, and Singapore’s investments in strategic technologies all point in the same direction.

Across the region, governments are asking questions that would have sounded surprisingly old-fashioned only a decade ago.

· Which industries matter most?

· What capabilities should be developed domestically?

· How much dependence on foreign suppliers is acceptable?

· What role should the state play in technological upgrading?

These are classic questions of developmental-state thinking. The irony is that they are returning precisely because globalization has been so successful.

Southeast Asia remains deeply integrated into the global economy. Trade, investment, and foreign technology continue to play indispensable roles. Yet greater integration has also increased exposure to external shocks. Dependence that once appeared economically efficient increasingly appears strategically risky.

This tension is especially visible in energy.

For much of the past decade, discussions of energy policy focused primarily on climate change and decarbonization. These concerns remain important. Yet governments are increasingly rediscovering a more traditional objective: energy security.

Vietnam’s renewable energy boom provides a revealing example. The rapid expansion of solar and wind generation demonstrated the country’s capacity to attract investment. It also exposed weaknesses in planning, grid infrastructure, and regulatory coordination. The lesson was clear. Energy transition is not simply a market process. It requires state capacity.

This insight applies far beyond energy.

The deeper issue is whether Southeast Asian states possess the institutional capabilities necessary to manage a more uncertain world. Industrial policy is easy to announce. Developmental states are difficult to build.

The historical examples of Japan, South Korea, Taiwan, and China are often invoked in contemporary debates. Yet what distinguished these experiences was not merely state intervention. It was the existence of capable institutions able to coordinate investment, discipline firms, support technological learning, and adapt policy when circumstances changed.

This remains the central challenge.

The future of Southeast Asian development may depend less on whether governments embrace industrial policy and more on whether they can build the state capacities required to implement it effectively.

The return of the developmental state is therefore not primarily an economic story. It is a story about power, institutions, and the changing relationship between states and markets.

For three decades, Southeast Asia prospered by adapting to globalization. Increasingly, governments are concluding that adaptation alone is no longer sufficient.

Questions for the Future

• Is Southeast Asia witnessing a temporary resurgence of industrial policy, or the emergence of a new development paradigm?

• Can governments strengthen state capacity without undermining the openness that supported decades of growth?

• Will industrial policy produce genuine technological upgrading, or merely new forms of dependence on foreign capital and technology?

• Can Southeast Asian states coordinate industrial strategies at the regional level, or will competition among them intensify?

• Most importantly, do governments possess the institutional capacities required to become developmental states rather than merely interventionist states?

Conclusion: Southeast Asia’s Hard Choices

The four issues discussed in this briefing may appear unrelated.

Myanmar concerns civil war and regional diplomacy. Vietnam’s development strategy concerns industrialization and technological upgrading. The South China Sea involves maritime disputes and geopolitical competition. Energy security touches on infrastructure, climate policy, and industrial development.

Yet beneath these differences lies a common theme.

For much of the post-Cold War period, Southeast Asia benefited from an unusual historical moment. Globalization expanded. Foreign investment flowed into the region. International trade grew rapidly. Strategic competition among major powers remained relatively manageable. Governments could often avoid difficult choices because the costs of postponing them were relatively low.

This was the era of low-cost adaptation. Southeast Asian states became exceptionally skilled at it.

They attracted foreign capital without fundamentally resolving questions of domestic technological capability. They deepened economic integration while maintaining considerable strategic flexibility. They built regional institutions that promoted stability without requiring significant transfers of sovereignty. They embraced globalization without fully confronting the vulnerabilities that accompanied deeper integration.

The strategy worked remarkably well. The result was one of the most successful periods of economic transformation in modern Southeast Asian history.

The problem is that the conditions that made this success possible are changing.

Technology has become geopolitical. Energy has become strategic. Supply chains have become matters of national security. Climate change is creating new forms of economic and political pressure. The distinction between domestic and international affairs is becoming increasingly blurred.

As a result, questions that once appeared settled are returning to the center of political debate.

· Can ASEAN remain effective without adapting some of the principles on which it was founded?

· Can Vietnam move beyond its role as a highly successful manufacturing platform and develop greater technological autonomy?

· Can Southeast Asian states preserve strategic flexibility in a world increasingly defined by rivalry between major powers?

· Can governments build the institutional capacities required for industrial policy, energy transition, and economic resilience?

These are not new questions.

In many respects, they are the same questions that shaped the rise of East Asia during the twentieth century: questions about state capacity, economic sovereignty, technological learning, and the relationship between domestic development and external dependence.

What is different today is the context.

Southeast Asia is confronting these challenges not as a region of poor developing economies seeking industrialization, but as a collection of increasingly prosperous middle-income societies deeply integrated into global markets.

This distinction matters. Many of the region’s current problems are, in fact, problems of success.

Myanmar reveals the limits of institutions that were highly effective under earlier conditions. Vietnam’s challenges emerge precisely because industrialization has been so successful. The growing scarcity of strategic autonomy is a consequence of deep integration into the global economy. The return of industrial policy reflects concerns generated by globalization itself.

The defining challenge of the next decade is therefore unlikely to be growth alone. The more important question is whether Southeast Asia can convert success into power.

Can the region transform economic integration into technological capability? Can diplomatic flexibility become strategic autonomy? Can regional stability evolve into regional capacity?

These are difficult transitions. History offers no guarantee of success. But they are increasingly unavoidable.

For three decades, Southeast Asia prospered by adapting to global change. The coming decade may require something more demanding. It may require shaping it. That, more than any individual election, summit, or policy announcement, is likely to be the defining political economy story of contemporary Southeast Asia.

Independent political economy analysis of Asia

Asia is transforming the global economy. Yet much of the discussion remains divided between simplified geopolitical narratives, market enthusiasm, and short-term news commentary.

This publication offers something different: historically grounded and critically informed analysis of the political economy of contemporary Asia, with particular attention to Southeast Asia and its changing relationship with Europe.

My aim is to explain not only what is happening, but also why it is happening, who benefits, who bears the costs, and what these transformations mean for development, industrial policy, labour, corporate power, and international economic relations.

The publication builds on my academic research and teaching, but it is written for a wider community of readers: scholars and students, policymakers, diplomats, journalists, business professionals, and anyone seeking a deeper understanding of Asia’s economic and political transformations.

Why subscribe?

By subscribing, you will receive new essays and updates directly in your inbox.

Free subscribers have access to the Asian Political Economy series: original essays examining the development dilemmas, political conflicts, industrial transformations, and changing power structures shaping countries across Asia.

These essays move beyond daily headlines. They combine contemporary analysis with historical perspective and engage with questions that are often neglected in conventional accounts of the region.

What paid subscribers receive

Paid subscriptions make it possible for me to develop more ambitious, research-intensive, and policy-oriented publications.

Paid subscribers receive two premium briefings every month:

Southeast Asia Political Economy Briefing

A monthly assessment of the most important economic and political developments across Southeast Asia.

Rather than simply summarising the news, the briefing identifies structural trends, connects developments across different countries, and examines their implications for growth, industrialisation, labour, inequality, state capacity, and regional cooperation.

Europe–Southeast Asia Briefing

A monthly analysis of the evolving relationship between Europe and Southeast Asia.

The briefing examines trade, investment, industrial policy, supply chains, green and digital transitions, regulation, labour standards, and the broader strategic choices confronting both regions.

It asks how Europe and Southeast Asia can build a relationship that goes beyond market access and geopolitical positioning—and whether their cooperation can contribute to productive upgrading, institutional capacity, and more balanced development.

Publication-quality downloadable editions

Paid subscribers can also download professionally designed, publication-quality editions of both monthly briefings.

These are not simply copies of the online articles. They are carefully edited and visually developed publications designed for reading, reference, teaching, professional circulation, and long-term use.

Each edition brings together the analysis in a polished format that can be saved, annotated, printed, or shared within the limits of personal and professional use.

Early access to Corporate Power in Asia

Paid subscribers also receive each new Corporate Power in Asia long-form study one month before it becomes available to free readers.

This series investigates the corporations that have shaped Asia’s economic transformation—from national champions and family-controlled conglomerates to multinational manufacturers and state-owned enterprises.

Each study examines how corporate power is built, how it interacts with states and political elites, and what it means for industrial development, workers, technological capabilities, and national economic sovereignty.

Support independent research and analysis

A paid subscription is not only a way to access additional material. It directly supports the research, writing, editing, and design required to produce independent, substantial, and accessible political economy analysis.

It allows this publication to remain intellectually independent, to avoid superficial commentary, and to devote the necessary time to subjects that deserve more than a quick response to the latest headline.

If you value historically informed analysis, critical political economy, and serious engagement with the transformations reshaping Asia, I invite you to subscribe.This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.

16:2026 Asian Political Economy Cambodia Publishers Edition

2.78MB ∙ PDF file

Download

Download

I. Introduction

In January 2014, Cambodian security forces opened fire on striking garment workers near Phnom Penh’s Veng Sreng Boulevard. The demonstrations had begun with a demand that seemed modest in the context of one of Asia’s fastest-growing economies: a higher minimum wage. Garment workers argued that the official monthly wage of around USD 100 was no longer sufficient to survive in a country transformed by rapid economic growth, rising urban costs, and expanding inequality. As protests intensified, labour grievances merged with broader political tensions following disputed national elections. The confrontation ended in bloodshed. At least four people were killed and many others injured when military police moved to disperse demonstrators.

The violence shocked international observers not only because of its brutality, but because of where it occurred.

Cambodia had spent years cultivating an international reputation as one of the world’s leading experiments in ethical garment production. Since the early 2000s, the country had become closely associated with Better Factories Cambodia (BFC), a labour monitoring programme developed with the International Labour Organization (ILO) and widely promoted as evidence that export competitiveness and labour standards could coexist. Global brands sourced garments from Cambodia partly because the country was presented as a relatively transparent and socially responsible production platform within the global apparel industry.

How, then, did one of the world’s most celebrated experiments in ethical globalization arrive at Veng Sreng Boulevard?

The question points toward a broader contradiction at the centre of Cambodia’s development trajectory. Over the past three decades, Cambodia has often been portrayed as a post-conflict success story. Emerging from the devastation of war, genocide, and prolonged political instability, the country experienced one of the fastest growth rates in the world between the late 1990s and the COVID-19 pandemic. Poverty declined dramatically. Phnom Penh was transformed by construction booms, foreign investment, and new consumer cultures. Hundreds of thousands of young Cambodians entered wage labour for the first time, while the garment industry became deeply integrated into global production networks supplying major international brands.

Yet Cambodia’s transformation also reveals something more unsettling about contemporary globalization.

The country became deeply integrated into the world economy while remaining locked into relatively low-value activities within global production networks. Cambodia exports garments to the world, but imports most of the textiles used to produce them. It assembles products for global brands while capturing only a small share of the value generated through international supply chains. Growth has been rapid, but industrial upgrading limited. Foreign investment transformed cities and infrastructure, yet domestic technological capabilities remain weak. Cambodia became more globalised without necessarily becoming more economically autonomous.

In this sense, Cambodia may represent one of the clearest examples of a broader phenomenon increasingly visible across the developing world: growth without deep structural transformation.

The garment industry lies at the centre of this paradox. For global brands and international institutions, Cambodia often appeared as a model of successful integration into the world economy. The country combined export-led growth, poverty reduction, and internationally recognised labour monitoring mechanisms. But from another perspective, Cambodia’s development model depended on low wages, labour-intensive assembly, foreign capital, and forms of political control aimed at preserving stability within highly competitive global markets.

The growing role of China adds another layer of complexity. Over the past two decades, Chinese capital has transformed Cambodia’s infrastructure, reshaped urban landscapes, and strengthened the country’s geopolitical significance. Yet the central question remains unresolved: does China offer Cambodia a path beyond dependence on labour-intensive manufacturing, or merely a new version of externally driven development?

This essay examines Cambodia’s place within contemporary global capitalism through the lens of garments, labour, and geopolitical transformation. It argues that Cambodia’s integration into global production networks generated substantial economic growth and real social change while simultaneously reproducing structural forms of dependence linked to low-value manufacturing, foreign capital, and politically managed labour relations.

Cambodia’s story is therefore neither one of simple success nor one of failure. Rather, it reveals a deeper contradiction at the heart of twenty-first century globalization: economies may grow rapidly, societies may change profoundly, and poverty may decline significantly without necessarily producing the forms of industrial transformation once associated with development itself.

II. Cambodia’s Place in the Global Garment Economy

Cambodia’s integration into global production networks accelerated during the 1990s, at precisely the moment when the global garment industry was undergoing profound restructuring. International apparel brands were increasingly fragmenting production across multiple countries in search of lower labour costs and greater flexibility. Manufacturing tasks once concentrated in places such as South Korea, Taiwan, or Hong Kong were progressively relocated to poorer economies capable of offering abundant cheap labour. Cambodia entered the global market at the right moment.

Following the Paris Peace Agreements and the gradual normalization of international relations, Cambodia opened its economy to foreign investment under conditions that made it particularly attractive to labour-intensive manufacturing. Wages were among the lowest in Asia. Industrial infrastructure remained weak, but global apparel production required relatively limited technological capabilities at the assembly stage. International buyers were not searching for advanced industrial ecosystems. They were searching for low-cost labour platforms.

The garment industry rapidly became the core of Cambodia’s export economy. By the early 2000s, garments dominated manufacturing exports, and over time Cambodia emerged as one of the most garment-dependent economies in the world. Even today, garments, footwear, and travel goods account for the overwhelming majority of merchandise exports and employ roughly three-quarters of a million workers, most of them women.

Yet Cambodia’s role within the global garment industry remained highly specific.

The country did not become an integrated textile and apparel producer comparable to China. Nor did it develop the diversified manufacturing capabilities increasingly visible in Vietnam. Cambodia specialised primarily in the labour-intensive assembly stage of production. Fabrics, textiles, machinery, and many intermediate inputs continued to be imported, particularly from China. Design, branding, logistics, finance, and marketing remained concentrated elsewhere: in global corporations headquartered in Europe, North America, Japan, South Korea, Hong Kong, or Singapore.

This distinction is crucial because not all positions within global production networks generate the same developmental outcomes.

Cambodia became deeply integrated into globalization while remaining relatively peripheral within it. The country captured employment and export earnings, but only a limited share of the value generated along the supply chain. The most profitable segments of the industry—branding, technological innovation, finance, retail, and intellectual property—remained overwhelmingly external to the Cambodian economy.

In this sense, Cambodia illustrates one of the central contradictions of contemporary global capitalism. Integration into global value chains may generate rapid growth without necessarily producing strong domestic industrial capabilities. Participation does not automatically imply upgrading.

This becomes clearer when Cambodia is compared with Vietnam.

Both countries entered global production networks through labour-intensive manufacturing and foreign direct investment. Both relied heavily on exports and external capital. Yet over time Vietnam increasingly diversified into electronics, machinery, and higher-value industrial activities, partly through large-scale investments by firms such as Samsung. Cambodia, by contrast, remained much more dependent on garments and low-value assembly production.

The contrast should not be exaggerated. Vietnam itself remains deeply dependent on foreign firms and imported components. But the divergence nevertheless reveals an important difference. Vietnam succeeded, at least partially, in embedding itself within more technologically sophisticated segments of regional production networks. Cambodia remained far more concentrated in sectors where competitive advantage depended primarily on relatively low labour costs.

This concentration shaped the country’s entire development trajectory.

During the 2000s and 2010s, Cambodia experienced remarkably rapid economic growth. Poverty declined substantially. Rural households increasingly depended on remittances from garment workers employed around Phnom Penh and other industrial zones. Urbanisation accelerated, shopping malls expanded, and a new consumer culture emerged among younger generations. For many Cambodians, integration into global capitalism brought very real improvements in living standards compared with the post-conflict poverty of the 1980s and early 1990s.

At the same time, the underlying structure of the economy remained fragile. Cambodia became highly vulnerable to fluctuations in global demand, shifts in trade regimes, and competition from alternative low-cost production sites such as Bangladesh or Myanmar.

The COVID-19 pandemic exposed these vulnerabilities dramatically. As global demand collapsed and supply chains were disrupted, Cambodia’s dependence on garments, tourism, and externally driven construction became painfully visible. Factories suspended operations, tourism evaporated, and economic growth contracted sharply. The crisis revealed how deeply Cambodia’s apparent success depended on external markets and global mobility.

The paradox is striking. Cambodia achieved one of the most successful episodes of post-conflict economic growth in the developing world while remaining locked into a relatively subordinate position within regional and global production systems.

This contradiction lies at the heart of Cambodia’s development trap.

The garment industry transformed the country. But it also locked Cambodia into a form of integration into global capitalism based on labour-intensive assembly, imported inputs, foreign capital, and intense international cost competition. The result was growth—often spectacular growth—but not necessarily the kind of structural transformation historically associated with successful industrial development.

To understand the social consequences of this model, one must move beyond exports and trade statistics toward the workers whose labour made Cambodia’s transformation possible. Because garment factories did not simply produce exports. They transformed Cambodian society itself.

III. Garment Factories and the Remaking of Cambodian Society

The garment industry did not simply transform Cambodia’s economy. It reshaped Cambodian society.

Before the expansion of export manufacturing during the 1990s and 2000s, Cambodia remained overwhelmingly rural. Decades of war, genocide, and political instability had devastated infrastructure, education, and industrial capacity. For many rural households, survival still depended largely on subsistence agriculture, informal labour, and fragile family networks. The rapid growth of garment manufacturing altered this landscape profoundly by creating the country’s first large-scale industrial workforce.

At the centre of this transformation stood young women migrating from rural provinces toward Phnom Penh and surrounding industrial zones.

Like earlier generations of factory workers in South Korea, Taiwan, China, or Bangladesh, Cambodian garment workers were predominantly young women from farming households seeking wage employment unavailable in village economies. By the 2000s, hundreds of thousands of rural daughters had entered factories producing clothing for some of the world’s largest brands.

This migration transformed not only labour markets but also family structures, gender relations, and social aspirations.

For many households, garment employment became essential to survival. Workers regularly sent remittances back to rural provinces, financing food, housing, education, medical expenses, and debt repayment. Entire village economies became indirectly connected to global supply chains through the wages earned in factories around Phnom Penh. Cambodia’s export boom therefore cannot be understood solely through trade statistics or GDP growth. It rested on a massive social reorganisation linking rural households to global capitalism through feminised wage labour.

The effects were contradictory.

On one level, factory employment created forms of autonomy previously unavailable to many young rural women. Wage labour offered income, mobility, and exposure to urban life. Garment workers became consumers as well as producers, participating in the rapid expansion of Cambodia’s urban economy. Shopping malls, smartphones, Korean cosmetics, motorbikes, and new forms of popular culture became increasingly accessible to younger generations shaped by industrialisation and urbanisation.

Phnom Penh itself changed dramatically. During the 1990s, the city still bore visible traces of war and economic collapse. By the 2010s, construction booms, foreign investment, and consumer expansion had transformed the capital into one of Southeast Asia’s fastest-changing urban spaces. Garment factories played a crucial role in this transformation, not only as sites of production but as engines of social change.

Yet the new opportunities created by export manufacturing remained inseparable from new forms of precarity.

Cambodia’s competitiveness within the garment industry depended heavily on maintaining production costs attractive to international buyers. The result was a labour regime characterised by relatively low wages, widespread use of short-term contracts, compulsory overtime, and intense production pressures. Workers often lived in crowded rented rooms on the outskirts of industrial zones while supporting extended families through remittances. Debt became increasingly common, particularly as microfinance expanded rapidly across rural Cambodia.

The apparent empowerment associated with wage labour therefore coexisted with deep insecurity.

This contradiction shaped workers’ political consciousness. Garment workers were not simply victims of exploitation nor passive beneficiaries of globalization. They occupied a more ambiguous position: simultaneously integrated into global capitalism and marginal within it. Factory employment improved living standards compared with rural poverty while also exposing workers to harsh labour conditions and economic vulnerability.

These tensions contributed to the emergence of one of Southeast Asia’s most active labour movements.

Compared with neighbouring Vietnam or China, Cambodia developed a relatively vibrant landscape of independent unions and labour mobilisation. Workers repeatedly organised strikes demanding higher wages, better conditions, and greater recognition. Research by scholars such as Dennis Arnold has shown how Cambodian garment workers challenged assumptions that export-oriented industrialisation necessarily produces politically quiescent labour forces.

The demands raised by workers increasingly extended beyond factory conditions alone. As economic growth accelerated during the 2000s and early 2010s, workers became acutely aware of the widening gap between Cambodia’s celebrated economic success and their own precarious lives. Phnom Penh’s skyline expanded, foreign investment surged, and luxury consumption became increasingly visible. Yet many garment workers remained trapped in exhausting labour regimes that barely guaranteed long-term security.

The protests of 2013–2014 emerged from this contradiction.

Workers demanding a living wage confronted not only factory owners but an entire development model built on labour-intensive exports and international competitiveness. The shootings at Veng Sreng Boulevard therefore represented more than a labour dispute. They exposed the social tensions embedded within Cambodia’s model of export-led growth.

And they revealed a deeper irony.

At precisely the moment Cambodia was internationally celebrated as a model of ethical garment production through Better Factories Cambodia, workers protesting for higher wages were being met with bullets in the streets of Phnom Penh.

This paradox raises a broader question about labour governance under contemporary globalization. Can ethical monitoring and corporate social responsibility fundamentally alter unequal production systems? Or do they merely help stabilize development models still dependent on cheap and disciplined labour?

IV. Better Factories Cambodia: Ethical Capitalism or Managed Contradiction?

Cambodia occupies a unique place in the history of labour governance under globalization. Few low-income countries became as closely associated with attempts to reconcile export competitiveness with labour rights. Since the early 2000s, Better Factories Cambodia (BFC)—developed by the International Labour Organization (ILO) and later incorporated into the ILO–IFC Better Work programme—has often been presented as one of the world’s most ambitious experiments in ethical globalization.

The timing was significant.

During the 1990s, global apparel brands were increasingly confronted with criticism over sweatshops, labour abuses, and exploitative supply chains. Activists, trade unions, and human rights organisations exposed harsh working conditions in factories producing clothing for major Western brands. Corporate social responsibility emerged partly as a response to this crisis of legitimacy.

Cambodia appeared to offer a solution.

Under the 1999 US–Cambodia Textile and Apparel Trade Agreement, the country received expanded access to the American market in exchange for improvements in labour standards and factory monitoring. The arrangement was unusual because it linked trade access directly to labour governance. Cambodia would not compete solely through low wages. It would also market itself as an ethically monitored production platform.

For international organisations and many policymakers, the model appeared promising. Cambodia seemed to demonstrate that globalization did not necessarily require a race to the bottom. Labour standards and export competitiveness could coexist. Monitoring systems could improve working conditions while reassuring global brands concerned about reputational risks.

The programme generated real achievements.

Better Factories Cambodia expanded transparency within the garment sector and created one of the most sophisticated labour monitoring systems in the developing world. Factory inspections became more systematic, reporting mechanisms improved, and compliance with certain labour standards increased. International buyers increasingly used BFC reports when evaluating suppliers, while Cambodia acquired a reputation as one of the more regulated garment exporters in the Global South.

In many respects, Cambodia became a global showcase for ethical supply-chain governance. Yet this apparent success concealed a deeper contradiction.

If Cambodia represented one of the world’s leading experiments in ethical garment production, why did labour conflicts remain so intense? Why did workers continue protesting over wages, precarious contracts, and union repression? Why did one of the most monitored garment industries in the developing world still produce violent confrontations such as those witnessed in Phnom Penh in 2014?

Part of the answer lies in the structure of the global garment industry itself.

Better Factories Cambodia could monitor labour conditions inside factories, but it could not fundamentally alter the power relations shaping global production networks. International brands continued exerting enormous pressure on suppliers through pricing demands, short delivery schedules, and highly competitive sourcing strategies. Factory owners remained under constant pressure to reduce costs. Governments remained concerned with preserving international competitiveness.

Under these conditions, ethical governance often operated within narrow limits.

Monitoring systems could improve compliance with selected labour standards while leaving intact a development model still heavily dependent on low-cost and highly flexible labour. Factories might comply with regulations concerning health and safety while continuing to rely on short-term contracts that weakened workers’ bargaining power. Audits could improve transparency without significantly shifting how value and power were distributed along supply chains.

This does not mean Better Factories Cambodia failed.

On the contrary, evidence suggests the programme improved conditions in important areas and likely prevented some forms of abuse common elsewhere in the garment industry. The more difficult question is different: did labour governance transform Cambodia’s position within global capitalism, or did it help stabilise a model still dependent on labour-intensive assembly and intense cost competition?

From this perspective, Better Factories Cambodia appears less as an alternative to neoliberal globalization than as one of its most sophisticated adaptations.

Ethical monitoring did not replace global competition based on low production costs. Instead, labour governance became incorporated into it. Cambodia demonstrated that relatively improved labour standards could coexist with highly unequal global supply chains, precarious labour regimes, and recurrent struggles over wages and representation.

In this sense, Cambodia anticipated a broader transformation within contemporary capitalism.

Over the past two decades, ethical certification, social auditing, ESG frameworks, and corporate responsibility initiatives have proliferated across global supply chains. Yet these mechanisms often function less as challenges to existing production systems than as ways of rendering them politically and socially sustainable. Labour protection and labour discipline increasingly operate together rather than as simple opposites.

Cambodia became an early laboratory for this model.

The irony is striking. At the very moment Cambodia was celebrated internationally as evidence that ethical capitalism could work, workers inside the country increasingly questioned the meaning of that success. Their demands repeatedly extended beyond compliance toward wages, bargaining power, social protection, and a greater share of the wealth generated through export-led growth.

The struggle, in other words, concerned not only labour standards but development itself. And it was precisely at this moment that another force began reshaping Cambodia’s political economy more profoundly than any labour monitoring programme: the rapid expansion of Chinese capital.

V. China and Cambodia: Escape from Dependence or a New Version of It?

If the garment industry defined Cambodia’s first phase of integration into global capitalism, China has increasingly shaped the second.

Over the past two decades, no external actor has exercised greater influence over Cambodia’s economic transformation. Chinese capital has financed roads, bridges, hydropower projects, airports, special economic zones, luxury real estate, and massive urban construction projects. Phnom Penh’s skyline, once marked by post-war decay and low-rise buildings, became crowded with Chinese-funded towers, condominiums, hotels, and casinos. Cambodia emerged as one of Beijing’s closest political and economic partners in Southeast Asia.

For the Cambodian government, the relationship made strategic sense.

Development required infrastructure, investment, and access to capital on a scale Western donors had often been unwilling or unable to provide. China offered financing with fewer political conditions attached. While Western governments and institutions increasingly linked assistance to governance reforms, labour rights, or democratic accountability, Chinese engagement focused primarily on investment, connectivity, and growth.

At first glance, the partnership appeared transformative.

Cambodia’s infrastructure expanded rapidly. New highways connected industrial zones and ports. Chinese investment accelerated urbanisation and construction booms. Special economic zones multiplied. In aggregate terms, Chinese capital contributed significantly to sustaining Cambodia’s rapid growth trajectory during the 2010s.

Yet beneath this visible transformation lies a more complicated question. Did Chinese investment fundamentally alter Cambodia’s position within regional production networks—or did it largely reinforce an existing development model centred on externally driven accumulation and low-value activities?

This distinction matters because attracting foreign capital and achieving structural transformation are not the same thing.

Much of the optimism surrounding globalization during the 1990s and 2000s rested on the assumption that integration into global markets would gradually allow developing countries to climb the value chain. Labour-intensive manufacturing would supposedly generate learning processes, technological upgrading, and increasingly sophisticated industrial capabilities over time.

Cambodia’s experience complicates this narrative.

Despite decades of rapid growth and rising investment, the country remains heavily dependent on garments, construction, tourism, and relatively low-value manufacturing. Chinese capital expanded infrastructure and stimulated economic activity, but much of it flowed into sectors generating limited technological spillovers: real estate, casinos, speculative construction, and labour-intensive production.

The case of Sihanoukville illustrates this contradiction dramatically.

Once a relatively quiet coastal city, Sihanoukville was transformed within a few years by massive inflows of Chinese capital associated with casinos, tourism, real estate speculation, and infrastructure development. Construction boomed. Chinese-owned businesses proliferated. Entire districts appeared to change language, currency, and rhythm almost overnight.

For supporters of closer ties with China, Sihanoukville symbolised modernization and integration into regional economic networks. For critics, it became a symbol of distorted development: speculative growth detached from local needs, weak regulation, rising inequalities, environmental degradation, and growing social tensions.

The city revealed both the possibilities and the risks of Cambodia’s new economic orientation.

At the same time, Chinese influence expanded within manufacturing itself. Cambodia became increasingly integrated into regional production systems centred on China, particularly through the garment industry. Many Cambodian factories relied heavily on textiles, machinery, and intermediate inputs imported from China. In effect, Cambodia occupied a downstream assembly position within broader China-centred production networks.

This dynamic is important because it highlights the limits of Cambodia’s industrial upgrading.

The country became more integrated into regional capitalism without necessarily becoming more technologically autonomous. Cambodia exports garments to Europe and North America, but much of the value chain remains externally controlled. Imported Chinese textiles are assembled in Cambodian factories using relatively cheap labour before final products are shipped to Western consumer markets.

Cambodia therefore occupies a highly specific position within Asian capitalism: geographically integrated, globally connected, but structurally dependent.

This does not mean Chinese engagement simply reproduces colonial-style dependency. The reality is more complex. Chinese investment has undeniably expanded infrastructure and created economic opportunities. Nor is Cambodia unique in relying heavily on foreign capital. Much of Southeast Asia developed through externally driven industrialisation.

The more difficult issue concerns the quality of integration.

Does foreign investment generate domestic technological capabilities, stronger local firms, and increasing control over higher-value activities? Or does it lock economies into forms of subordinate participation within global production networks?

So far, Cambodia’s trajectory remains ambiguous.

Compared with Vietnam, the contrast is striking. Vietnam also relies heavily on foreign investment and imported components, yet it progressively expanded into electronics and more technologically sophisticated sectors. Cambodia remained far more concentrated in labour-intensive manufacturing and speculative urban growth.

China may therefore have accelerated Cambodia’s growth without fundamentally altering its structural position within regional capitalism. Indeed, Chinese engagement may in some respects have reinforced the underlying logic of Cambodia’s development model: rapid accumulation driven by external capital, labour-intensive production, politically managed stability, and limited domestic upgrading.

At the same time, the geopolitical implications are profound.

As Cambodia became more economically dependent on China, political relations deepened as well. Beijing emerged not only as Cambodia’s largest investor and lender, but also as its most important diplomatic partner. Western pressure concerning democracy, labour rights, or political repression increasingly carried less weight in a context where Chinese support provided economic alternatives and political backing.

Economic transformation and political consolidation therefore became increasingly intertwined. And nowhere were these tensions more visible than in the relationship between labour, political stability, and the Cambodian state itself.

VI. Labour, Stability and the Politics of Development

Cambodia’s development trajectory raises a broader question extending beyond garments, China, or labour standards alone. How did a model so dependent on low-cost manufacturing, foreign capital, and highly unequal global production networks remain politically sustainable for so long?

Part of the answer lies in the relationship between economic transformation and political power.

Cambodia’s integration into global capitalism unfolded alongside the long consolidation of the Cambodian People’s Party (CPP) under Hun Sen, who governed the country for nearly four decades before transferring power to his son, Hun Manet, in 2023. During the same years in which exports expanded and foreign investment accelerated, political authority became increasingly concentrated, opposition forces weakened, and independent civil society faced growing pressure.

Economic liberalisation and political liberalisation did not advance together.

This divergence distinguishes Cambodia from the optimistic assumptions that shaped much of globalization discourse during the 1990s. At the time, many policymakers and international institutions believed that market integration would gradually encourage democratization, strengthen civil society, and produce more accountable forms of governance. Cambodia appeared, for a period, to fit this narrative. Elections were held, trade unions expanded, NGOs proliferated, and international donors played a major role in reconstruction.

Yet over time a different trajectory emerged.

Economic growth continued, but political space narrowed. Labour unions remained active but increasingly constrained. Opposition parties faced growing repression. Independent media weakened. By the late 2010s, Cambodia had moved toward a far more centralized and tightly controlled political system than many observers had expected two decades earlier.

Labour occupied a particularly sensitive position within this transformation.

Garment workers did not simply constitute an industrial workforce. They became one of the country’s largest and most politically significant organised social groups. Hundreds of thousands of young workers concentrated around industrial zones created new possibilities for collective mobilisation. Strikes and demonstrations repeatedly challenged assumptions that export-oriented industrialisation necessarily produces politically passive labour forces.

The tensions surrounding labour became especially visible during the protests of 2013–2014.

At one level, workers were demanding higher wages. But the demonstrations reflected something broader: growing frustration with a development model in which Cambodia’s celebrated economic success coexisted with persistent insecurity, inequality, and weak social protection. Workers producing garments for global brands could see Phnom Penh transformed by luxury consumption, real estate speculation, and foreign investment while their own wages remained barely sufficient to survive.

The protests therefore exposed a deeper contradiction within Cambodia’s growth model. The country’s international competitiveness depended heavily on maintaining relatively low labour costs and preserving an image of political stability attractive to investors. Yet rapid growth and social transformation also generated rising expectations among workers increasingly aware of their own central role within the economy.

This created a structural dilemma. The Cambodian state sought simultaneously to:

• attract foreign capital,

• maintain export competitiveness,

• preserve political stability,

• and contain forms of labour mobilisation capable of disrupting accumulation.

These objectives were not always compatible.

The violent repression of protests in January 2014 revealed the limits of Cambodia’s celebrated model of ethical globalization. At precisely the moment the country was internationally praised for labour monitoring and responsible supply-chain governance, workers demanding a living wage were confronted with military force.

The contradiction was not accidental. Cambodia’s development model relied not only on cheap labour but also on forms of political management capable of limiting disruptions within highly competitive global production networks. Stability became an economic asset.

This does not mean Cambodia simply followed a classic authoritarian developmental model comparable to South Korea or Taiwan during the Cold War era. Those states combined labour repression with aggressive industrial upgrading, strong domestic industrial policies, and technological transformation. Cambodia’s trajectory has been far more externally dependent and less successful in building domestic industrial capabilities.

Instead, Cambodia represents something different: a form of politically managed globalization in which integration into international markets coexists with concentrated political authority, externally driven accumulation, and constrained forms of labour bargaining power.

The relationship with China reinforced aspects of this trajectory.

As Chinese investment and diplomatic support expanded, the Cambodian government became less vulnerable to Western pressure concerning democracy, labour rights, or political reform. Beijing offered infrastructure, loans, and political backing without demanding liberalization. Chinese engagement therefore strengthened not only Cambodia’s economy but also the political conditions under which its development model operated.

At the same time, Cambodian society itself continued changing rapidly.

A younger generation emerged shaped less by memories of war and post-conflict survival than by urbanisation, wage labour, digital connectivity, and consumer aspirations. Smartphones, social media, migration, and expanding education transformed how younger Cambodians understood inequality, opportunity, and political authority. The garment economy did not simply create workers. It created new social expectations.

This may ultimately become one of the most important contradictions within Cambodia’s development model. Rapid growth transformed society more quickly than it transformed the underlying structure of the economy itself. Cambodia became more urban, more connected, more unequal, and more integrated into global capitalism without fully escaping dependence on labour-intensive production and foreign capital.

The result is a society profoundly transformed by globalization but still searching for a path toward deeper economic autonomy.

And this is precisely why Cambodia matters beyond Cambodia itself.

The country reveals something fundamental about twenty-first century capitalism: integration into global production networks can generate spectacular growth, dramatic social transformation, and real poverty reduction without necessarily producing the structural upgrading once associated with successful industrial development.

VII. Conclusion: Cambodia and the Contradictions of Contemporary Globalization

Cambodia’s development over the past three decades challenges some of the central assumptions that shaped the globalization era.

By conventional economic indicators, the country achieved remarkable progress. Growth rates remained among the highest in the world for much of the period between the late 1990s and the COVID-19 pandemic. Poverty declined dramatically. Cities expanded, infrastructure improved, and hundreds of thousands of Cambodians entered wage labour for the first time. Few post-conflict societies experienced such rapid economic transformation.

And yet Cambodia’s trajectory also reveals the limits of equating growth with development.

The country became deeply integrated into global capitalism without fundamentally escaping a structurally subordinate position within regional and global production networks. Garments generated exports and employment but relatively limited technological upgrading. Better Factories Cambodia improved labour governance while leaving intact many of the pressures associated with highly competitive global supply chains. Chinese investment transformed infrastructure and urban landscapes while raising new questions concerning dependence, speculation, and externally driven accumulation.

The result is a paradox increasingly visible across parts of the developing world.

Growth occurred. Society changed profoundly. Poverty declined. Yet the underlying structure of the economy remained heavily dependent on labour-intensive production, foreign capital, imported inputs, and external markets.

Cambodia therefore forces us to confront an uncomfortable possibility: integration into global production networks may generate prosperity without necessarily producing the forms of industrial transformation historically associated with successful development.

This is what makes Cambodia such an important case. For decades, the dominant promise of globalization suggested that developing economies would gradually climb the value chain through export-oriented industrialisation. Low-wage assembly production was supposed to represent a transitional phase leading toward diversification, technological upgrading, and greater economic autonomy.

Cambodia complicates this narrative. The country succeeded in integrating into global markets but remained concentrated in relatively low-value activities. It became highly globalised while capturing only a limited share of the value generated through international production systems. It experienced rapid modernization without fully overcoming structural dependence.

At the same time, the Cambodian experience also reveals how globalization transforms societies in ways extending far beyond economics alone.

The garment industry reshaped family structures, gender relations, migration patterns, and social aspirations. Rural daughters became industrial workers. Villages became dependent on remittances linked to global supply chains. Phnom Penh evolved into a rapidly changing urban landscape shaped by foreign capital, construction booms, and new forms of consumption. A younger generation emerged with expectations profoundly different from those of post-conflict Cambodia.

These transformations were real. But they also generated new tensions.

As workers became more integrated into global capitalism, they also became more conscious of inequality, precarity, and exclusion from the wealth their labour helped produce. The protests of 2013–2014 revealed these contradictions dramatically. Workers demanding a living wage confronted not simply employers, but an entire development model dependent on labour discipline, political stability, and intense international competition.

China’s growing influence may reshape this model, but it has not yet fundamentally resolved its underlying contradictions. Chinese capital accelerated infrastructure development and deepened Cambodia’s regional integration, yet whether this process will ultimately support industrial upgrading or reinforce existing forms of dependence remains uncertain.

Cambodia’s future therefore remains open.

The country may yet diversify, strengthen domestic industrial capabilities, and move into more sophisticated sectors of production. But Cambodia also illustrates how difficult such transitions have become under twenty-first century capitalism, where technological capabilities, intellectual property, finance, and control over supply chains are increasingly concentrated in relatively few global actors.

In this sense, Cambodia is not an exception to globalization. It may instead represent one of its clearest expressions.

Its story reveals both the possibilities and the limits of contemporary development: an economic model capable of generating rapid growth and profound social transformation while leaving unresolved the deeper question of structural autonomy.

That may ultimately be the defining contradiction not only of Cambodia’s development trap, but of globalization itself.

Support Independent Research on Asia

If you enjoy these essays and would like to support this project, please consider becoming a paid subscriber.

The Asian Political Economy newsletter is an independent effort to provide accessible, research-based analysis of economic development, political change, and international relations across Asia. As a university professor and researcher, I aim to bridge academic scholarship and public debate, offering perspectives that go beyond headlines and conventional narratives.

Paid subscribers help make this work possible and receive access to exclusive content, including:

• Corporate Power in Asia – in-depth analyses of the business groups and corporations shaping Asia’s economies

• Southeast Asia Political Economy Briefing – regular updates on key political and economic developments across the region

• Europe–Southeast Asia Briefing – insights into the evolving relationship between Europe and one of the world’s most dynamic regions

Your support allows me to dedicate more time to research, writing, and expanding this platform.

If you find value in this work, I hope you will consider upgrading to a paid subscription.

Thank you for reading and for being part of this growing community.

Corporate Power In Asia 03 Cp Group First Edition 2026

3.96MB ∙ PDF file

Download

Download

I. Introduction: The paradox of corporate power in Thailand

When discussions turn to Asia’s economic rise, attention often gravitates toward firms that came to symbolize national transformation. South Korea has Samsung. Japan has Toyota Motor Corporation. More recently, China has produced giants such as Huawei and BYD Company. These corporations are frequently portrayed not merely as successful businesses but as engines of industrial upgrading, technological capability and national development.

Their stories are intertwined with broader transformations of the societies from which they emerged. They helped reposition entire economies within global production networks. The rise of these firms coincided with shifts from low-value manufacturing toward higher-value technological production, from dependence toward greater autonomy.

Thailand appears to present a different trajectory.

For more than a century, CP Group has expanded from a small seed business into one of Southeast Asia’s largest corporate empires. Its activities span agribusiness, food production, retail, telecommunications, finance and international investment. The company reaches into everyday life in ways that many consumers scarcely notice. Millions purchase food products linked to CP, shop in retail networks associated with the conglomerate, or rely on infrastructures shaped by its investments.

Measured by diversification, longevity and regional reach, CP ranks among the most successful corporate groups in Asia.

Yet a puzzle emerges.

Despite producing one of Southeast Asia’s most powerful conglomerates, Thailand did not experience the same form of structural transformation associated with the rise of firms such as Samsung. The country integrated successfully into global production networks but remained heavily dependent upon foreign technology, multinational corporations and external sources of innovation in many strategic sectors. In automobiles, electronics and advanced manufacturing, foreign firms continued to occupy dominant positions.

This contrast raises a broader question: Why do some domestic conglomerates become instruments of national technological upgrading while others accumulate enormous economic power without fundamentally altering their country’s position in the global economy?

The answer cannot simply be sought within the firms themselves. Corporations emerge within particular political and historical contexts. Their trajectories reflect state structures, patterns of labour organization, international hierarchies and inherited forms of capitalism.

Understanding CP therefore requires moving beyond corporate biography.

This essay argues that the history of CP Group reveals a distinctive model of Southeast Asian capitalism: one based on diversification, market control and regional expansion rather than sustained technological upgrading. The company became extraordinarily successful while operating within an economy characterized by continuing dependence on foreign capital and foreign technology.

This success was also inseparable from transformations in labour. The expansion of agribusiness reorganized rural production. Contract farming altered relations between corporations and producers. New forms of dependence emerged alongside modernization. The accumulation of corporate power rested not only on entrepreneurial strategies but also on changing labour regimes across the countryside and beyond.

The central paradox examined here is therefore twofold:

How did Thailand produce one of Southeast Asia’s most powerful conglomerates without generating a comparable process of national upgrading?

And:

What happened to labour during this process of corporate expansion?

These questions extend beyond Thailand. They speak to wider debates about capitalism in Southeast Asia and the possibility that powerful domestic firms may flourish within globalization without necessarily reducing structural dependency.

Corporate success and national transformation, in other words, are not always the same thing.

II. The Historical Roots of Thai Capitalism: Chinese Capital, Agrarian Transformation and the Making of Corporate Power

To understand how CP Group became one of Southeast Asia’s largest corporate empires, it is necessary to move beyond the company itself. The story begins not with agribusiness or retail, but with deeper historical processes that shaped Thai capitalism: migration, the formation of commercial networks, the relationship between business and the state, and the transformation of agriculture.

Unlike many of its Southeast Asian neighbours, Thailand was never formally colonized. This exceptionalism has often been emphasized in national narratives. Yet political independence did not imply insulation from global capitalism. During the nineteenth and early twentieth centuries, Siam was progressively integrated into international trade through rice exports, infrastructure development and expanding commercial relations with Europe and China. The result was a distinctive form of capitalist development in which local elites, foreign capital and migrant commercial communities became increasingly intertwined.

Among these groups, Chinese migrants occupied a particularly important position.

From the nineteenth century onward, migrants from southern China settled in Siam in growing numbers. Many initially worked in commerce, transport and small-scale trade. Over time, Chinese entrepreneurial networks became deeply embedded within the economy. Family ties, linguistic connections and transnational commercial relations facilitated access to capital and markets. By the twentieth century, ethnic Chinese business groups had become central actors in sectors ranging from finance and manufacturing to trade and agriculture.

This pattern was not unique to Thailand. Across Southeast Asia, Chinese business families frequently occupied strategic economic positions. Yet Thailand differed in one important respect: integration between Chinese commercial elites and the Thai state proved relatively successful. While tensions periodically emerged—including episodes of nationalist suspicion—Chinese entrepreneurs often became incorporated into broader structures of economic and political power.

The result was the gradual emergence of a capitalist model characterized by:

• family ownership;

• diversified conglomerates;

• close but flexible relationships between business and political elites;

• relatively weak separation between economic and political influence.

This environment would later prove highly favourable for the expansion of large business groups. Yet explaining CP solely through ethnic Chinese entrepreneurship risks reproducing an overly familiar narrative: hardworking migrants building success through commercial skill. Such accounts overlook the structural transformations occurring in Thailand’s countryside.

For much of the twentieth century, Thailand remained predominantly agrarian. Rural households formed the backbone of the economy, and rice production occupied a central place in national development. However, agriculture itself was changing.

Population growth, infrastructure expansion and increasing integration into global markets gradually altered patterns of production. Farmers who had once produced primarily for subsistence became increasingly incorporated into commercial systems. Inputs, credit, seeds and access to markets acquired growing importance. Agriculture became progressively more dependent upon organized supply chains.

These shifts generated opportunities for firms capable of mediating between rural producers and expanding markets. This context helps explain the significance of a small seed business founded in Bangkok in 1921.

The company that would eventually become CP began as Chia Tai, established by brothers of Chinese origin who had migrated from Guangdong province. Their initial business was modest: importing and distributing seeds to Thai farmers. Yet the enterprise occupied an increasingly strategic position within a transforming rural economy.

At first glance, selling seeds may appear far removed from building a corporate empire. In reality, seeds represented entry into something much larger: control over agricultural inputs and, potentially, influence over entire production systems.

This distinction matters. Many successful conglomerates begin by controlling technologically advanced sectors or manufacturing capabilities. CP’s origins were different. The company emerged within agriculture and would later expand by progressively organizing entire value chains surrounding food production.

This path reflected both opportunities and constraints within Thai capitalism. Thailand’s comparative advantages lay in agriculture, natural resources and labour-intensive production. Unlike South Korea or Taiwan, industrial policy did not consistently prioritize domestic technological upgrading through disciplined support for national firms. The state’s relationship with capital was often more fragmented, shaped by shifting political coalitions and recurrent instability.

As a consequence, accumulation tended to favour diversification and market expansion rather than sustained technological transformation. This observation is important because it anticipates a puzzle explored later in this essay: Why did Thailand produce powerful conglomerates without producing corporations capable of fundamentally repositioning the country within higher-value segments of global production networks?

The answer may partly lie in the historical foundations of Thai capitalism itself.

At the same time, these transformations altered labour relations. Commercial agriculture did not simply increase productivity; it reorganized the relationship between producers and markets. Farmers became more dependent upon purchased inputs, contractual arrangements and external buyers. The boundaries separating independent producers from subordinated labour grew increasingly blurred.

This process has often been overlooked because agrarian modernization is frequently portrayed as a story of development and efficiency. Yet modernization also redistributed risk and dependence.

A farmer integrated into commercial networks may remain formally independent while becoming economically constrained by suppliers, creditors or corporate buyers. In this sense, capitalist transformation in agriculture frequently creates hybrid labour relations situated somewhere between autonomy and wage dependence.

The historical significance of CP lies partly in its capacity to recognize and exploit these changing conditions. The company did not simply sell products to farmers. Over time, it learned to position itself within the organizational architecture of agricultural production itself. That shift—from participating in markets to structuring them—would become the foundation of corporate power.

III. From Seed Shop to Agribusiness Empire: Vertical Integration and the Reorganization of Labour

The transformation of CP Group from a small seed importer into one of Asia’s largest conglomerates did not occur through a single breakthrough innovation or state-led industrial strategy. Unlike the trajectories associated with firms in South Korea or Japan, CP’s rise was gradual, cumulative and deeply rooted in the reorganization of agricultural production.

Its success emerged through something less visible but equally powerful: control over value chains.

By the mid-twentieth century, Thailand’s agricultural economy was undergoing profound change. Population growth, urbanization and expanding export markets increased demand for food production beyond traditional farming systems. Simultaneously, technological changes in livestock breeding, feed production and processing altered how agriculture was organized globally.

For companies able to coordinate these processes, opportunities multiplied. CP moved beyond seeds into animal feed production during the 1950s and 1960s. At first glance, this might appear an ordinary diversification strategy. In reality, feed represented a strategic entry point into a much larger system.

Feed sits near the beginning of industrial livestock production. Controlling feed creates opportunities to influence breeding, farming methods, productivity and ultimately processing and distribution. Rather than remaining a supplier to agricultural producers, CP progressively expanded into multiple stages of production itself.

This strategy became increasingly systematic. The company entered poultry farming, livestock breeding, processing facilities and food distribution. Over time, it built vertically integrated structures in which numerous stages of production were linked within corporate networks.

Vertical integration offered several advantages:

· greater control over quality;

· reduced transaction costs;

· improved coordination;

· increased resilience against market fluctuations;

· stronger bargaining power.

Most importantly, integration allowed CP to occupy positions of influence across agricultural systems rather than depending upon a single segment.

The implications extended far beyond business efficiency. As agribusiness expanded globally during the late twentieth century, corporations increasingly reshaped agricultural production itself. The traditional image of independent farmers selling products in relatively open markets became less representative of reality. Instead, production often evolved toward coordinated systems linking inputs, technical guidance, processing and distribution under corporate influence.

Thailand followed this trend. CP played a central role in promoting forms of contract farming, particularly within poultry and livestock sectors. Under such arrangements, farmers typically provided land and labour while companies supplied inputs including feed, chicks, technical assistance and access to markets.

The model promised mutual benefits. For farmers:

· reduced market uncertainty;

· access to technology;

· guaranteed buyers;

· potential productivity improvements.

For companies:

· expanded production without direct ownership of all assets;

· lower labour costs;

· transfer of certain risks onto producers;

· greater flexibility.

Contract farming therefore blurred conventional distinctions between independent entrepreneurship and wage labour. The farmer remained formally autonomous. Yet important aspects of production increasingly became shaped by corporate requirements concerning inputs, standards and timing. Economic dependence could deepen even in the absence of direct employment relationships.

This raises an important analytical question: When producers remain legally independent but operate within tightly structured corporate systems, how should their labour be understood?

The issue has attracted growing attention among scholars examining agrarian change in Asia. Some describe these processes as forms of subordinated inclusion within capitalist markets. Producers become incorporated into global production systems while retaining limited autonomy over strategic decisions.

For CP, such arrangements supported rapid expansion. For rural households, outcomes were more uneven. Some farmers experienced increased incomes and access to modern production systems. Others encountered rising indebtedness, dependence upon corporate buyers or vulnerability to fluctuations beyond their control. The distribution of risks and rewards often remained unequal.

Modernization, in other words, did not eliminate precarity. In some cases, it reorganized it. This observation complicates celebratory narratives surrounding agribusiness development. Increased productivity and commercialization can coexist with new forms of dependence.

The labour dimension becomes particularly important because Thailand’s broader economic transformation relied heavily upon cheap labour and rural restructuring. During periods of industrial growth, agriculture continued to absorb risks associated with uneven development, while rural households frequently combined farming with wage work or migration.

CP’s expansion unfolded within this wider landscape. The company benefited not simply from entrepreneurial skill but also from historical conditions characterized by:

· relatively abundant labour;

· ongoing rural transformation;

· expanding domestic and international markets;

· state support for agricultural modernization;

· integration into global food systems.

Its rise therefore reflects more than corporate strategy. It illustrates how accumulation can emerge through the restructuring of labour relations across entire sectors.

By the late twentieth century, CP had moved well beyond agriculture. The company increasingly diversified into new industries and expanded internationally. Yet the organizational principles underpinning its growth remained recognizable: integration, coordination and strategic positioning across multiple stages of production. This capacity to transform participation within markets into influence over market structures would become the foundation of one of Southeast Asia’s largest corporate empires.

At the same time, a paradox was beginning to emerge. CP had mastered the organization of agricultural value chains and achieved extraordinary commercial success. Yet success in agribusiness and market coordination did not automatically generate technological capabilities comparable to those associated with industrial champions elsewhere in Asia.

The difference would prove consequential.

IV. Going Global: CP Group, China and the Regionalization of Asian Capitalism

If the previous decades established CP Group as a dominant force within Thailand’s agribusiness sector, the company’s subsequent expansion revealed something equally important: its ability to anticipate shifts in the geography of Asian capitalism.

Long before terms such as global value chains, Asian integration or the rise of China became commonplace, CP had already begun positioning itself within emerging regional transformations.

This timing mattered.

Many accounts of Asia’s economic rise emphasize the role of states. South Korea’s industrialization, Singapore’s developmental strategies and China’s reforms all illustrate how governments shaped economic trajectories. Yet regional integration was also driven by firms capable of moving capital, knowledge and organizational models across borders.

CP became one such actor. Its most consequential international move occurred in the late 1970s, when the company became among the earliest foreign investors entering China after the launch of economic reforms under Deng Xiaoping. At a moment when many foreign businesses remained cautious, CP recognized opportunities within China’s gradual opening.

The decision appears remarkably prescient in retrospect. Today, China occupies a central position within global manufacturing and trade. In the late 1970s and early 1980s, however, this future was far from inevitable. Entering China required navigating institutional uncertainty, regulatory ambiguity and political risk.

Why was CP willing to move early? Part of the answer lies in business networks. Like many Southeast Asian firms associated with overseas Chinese communities, CP benefited from transnational connections extending beyond national boundaries. Shared linguistic, cultural and family ties often facilitated commercial relationships, information flows and trust. Such networks did not determine outcomes, but they could reduce uncertainty in environments where formal institutions remained weak.

The significance of these networks should not be romanticized. Overseas Chinese capital has sometimes been portrayed as a cohesive force operating through cultural affinity alone. Reality was more complex. Competition, divergent interests and political differences persisted. Nonetheless, transnational connections often supported early market entry and adaptation.

CP’s investments in China initially concentrated on agriculture and food production—areas aligned with the company’s existing expertise. Yet these investments also reflected broader structural changes. As Asian economies became increasingly interconnected, firms no longer operated solely within national markets. Production, sourcing and investment progressively acquired regional dimensions. Capital moved across borders seeking lower costs, new consumers and strategic positioning.

CP was participating in a wider phenomenon: the regionalization of capitalism in Asia. This process would later become visible through manufacturing networks linking Japan, Southeast Asia and China; through the relocation of production; and through growing intra-Asian trade. Yet firms such as CP had begun adapting before these transformations became fully apparent.

International expansion accelerated. Beyond China, CP expanded operations across Southeast Asia, including Vietnam, Indonesia and other neighbouring economies. In doing so, the company increasingly resembled a regional corporate actor rather than a Thai enterprise alone.

This distinction matters. National champions are often understood as firms closely linked to domestic industrial strategies. CP’s trajectory appears different. The company accumulated power through regional diversification rather than through concentration on developing advanced technological capabilities within Thailand.

This observation raises an important question: Does globalization weaken incentives for domestic firms to pursue national technological upgrading? If profitable opportunities exist through regional expansion, diversification and control over existing sectors, investment in uncertain and costly innovation may become less attractive.

The contrast with South Korea becomes instructive. South Korean conglomerates developed under conditions characterized by intense state pressure to upgrade technologically and compete internationally. Failure carried consequences. Support was often conditional upon performance.

Thailand’s environment proved less disciplinary. Conglomerates could prosper through diversification, market control and regional expansion without necessarily becoming engines of technological transformation.

In this sense, globalization may have reinforced rather than reduced existing patterns of dependent development. This interpretation challenges assumptions that internationalization automatically produces upgrading. Firms may become highly global while remaining concentrated in sectors generating limited technological spillovers.

CP’s expansion illustrates this possibility. The company became increasingly international without fundamentally altering Thailand’s position within higher-value segments of global production networks. Regional success and national transformation did not necessarily coincide.

Labour dimensions also accompanied this process.

As agribusiness expanded across borders, labour regimes became increasingly fragmented and transnational. Differences in wages, regulations and production systems shaped investment decisions. Rural producers and workers in different countries became incorporated into overlapping corporate networks.

Globalization therefore redistributed opportunities and vulnerabilities unevenly. For corporations, regionalization expanded strategic flexibility. For workers and producers, integration often generated new forms of competition and dependence. This asymmetry would become increasingly significant as Asian capitalism deepened its cross-border connections.

By the end of the twentieth century, CP had evolved far beyond its origins as a seed company. It had become a regional conglomerate operating across multiple sectors and countries.

Yet another transformation was underway. The company would increasingly diversify beyond agriculture and food production into retail, telecommunications and other sectors, embedding itself not merely in production systems but in everyday consumption itself.

Corporate power was no longer confined to farms or factories. It was becoming infrastructural.

V. Diversification and the Consolidation of Corporate Power: From Farms to Everyday Life

By the end of the twentieth century, CP Group had already become one of Thailand’s dominant agribusiness actors and an increasingly international corporation. Yet its subsequent evolution reveals an important characteristic shared by many Southeast Asian conglomerates: successful firms often do not remain within the sectors that initially generated their accumulation.

Diversification has long represented a defining feature of large business groups across Asia. Conglomerates expand across multiple sectors, reducing vulnerability to market fluctuations while increasing access to new sources of profit. In environments characterized by political uncertainty, changing regulations and uneven institutional development, diversification can also function as a strategy of resilience.

For CP, diversification became a mechanism not merely for growth but for consolidating power. Over time, the company extended its presence into sectors including retail, telecommunications, finance, real estate and logistics. The result was a corporate structure reaching far beyond agriculture.

The implications were significant. Corporate influence no longer depended solely upon controlling production. Increasingly, power derived from occupying strategic positions across multiple domains of economic life.

Perhaps nowhere is this more visible than retail. Through its association with 7-Eleven Thailand, CP gained influence over everyday consumption patterns. Convenience stores became embedded within urban and semi-urban landscapes, shaping how consumers access food, services and commodities.

This transformation illustrates a broader shift. Agribusiness had enabled CP to organize production. Retail allowed the company to shape consumption. The distance between producer and consumer narrowed within integrated corporate systems. Food grown through networks linked to corporate inputs could move through processing, distribution and retail channels associated with the same conglomerate. Value creation increasingly occurred across entire chains rather than isolated stages.

The economic advantages are evident. Yet diversification also alters the nature of corporate power. When firms occupy multiple sectors simultaneously, their influence becomes harder to disentangle from everyday social life. Corporate actors begin to resemble infrastructural institutions.

This phenomenon extends beyond retail. Telecommunications represented another important frontier. CP’s involvement in telecommunications through True Corporation expanded its presence into sectors central to contemporary economies. Digital infrastructure, connectivity and information services increasingly shape opportunities for participation in economic and social life.

Control over such sectors differs fundamentally from control over agricultural production. Infrastructure creates forms of power characterized less by direct ownership of production and more by influence over systems enabling economic activity itself.

The distinction is subtle but important. Corporate power becomes increasingly durable when embedded in infrastructures that individuals rely upon daily. This expansion also altered relations with the state. Large conglomerates operating across strategic sectors frequently become difficult for governments to ignore. Their economic importance increases bargaining power. At the same time, firms remain dependent upon regulatory environments, licenses and political stability. The relationship between business and politics therefore becomes mutually constitutive rather than one-sided.

In Thailand, where recurrent political instability, military interventions and shifting governments have periodically reshaped institutional landscapes, adaptability became valuable. Conglomerates capable of navigating changing political environments often proved more resilient than firms dependent upon narrower alliances.

CP’s longevity partly reflects this capacity. The company expanded across sectors while maintaining sufficient flexibility to operate under differing political conditions. This observation raises a broader question concerning capitalism in Southeast Asia: Does diversification strengthen national development, or does it reinforce patterns in which conglomerates accumulate influence without contributing to technological transformation?

The answer is not straightforward. On one hand, diversified firms create employment, investment and infrastructure. Their scale may support modernization. On the other, diversification can redirect resources toward sectors generating stable returns while reducing incentives for riskier forms of technological innovation.

The contrast with East Asian developmental experiences remains instructive. Conglomerates such as Samsung eventually concentrated substantial resources in technologically demanding sectors requiring sustained investment in research and development.

CP followed another trajectory. Its growth depended less upon becoming a technological frontier firm than upon coordinating, integrating and diversifying across existing sectors. The distinction may appear technical. Its consequences, however, are profound.

A company can become extraordinarily powerful while remaining embedded within an economic structure characterized by dependence on external technological capabilities. This paradox sits near the heart of Thailand’s development trajectory. The question is not whether CP succeeded. By conventional measures, it clearly did. The deeper issue concerns what kind of success was achieved, and whether corporate accumulation translated into broader processes of national upgrading.

Before addressing that question directly, however, another dimension requires attention: labour.

Discussions of conglomerates often focus on founders, strategies and markets. Yet corporate expansion depends equally upon workers, producers and labour regimes distributed across sectors and countries. Understanding whose labour sustained accumulation—and under what conditions—is essential for interpreting the social foundations of corporate power.

VI. Labour Under Corporate Capitalism: Who Paid for Growth?

Corporate histories are often told through founders, investments and strategies. Success appears as the outcome of entrepreneurial vision, organizational efficiency or technological adaptation. Yet corporations do not accumulate in abstraction. Their growth depends upon labour: on workers, producers and households whose efforts sustain production across sectors and generations.

The rise of CP Group is no exception. Understanding the company’s expansion therefore requires shifting attention away from boardrooms and toward farms, factories and supply chains. The question is not merely how CP became powerful, but also: What forms of labour made that accumulation possible, and how were risks and rewards distributed?

This question is especially important because CP’s historical trajectory differs from the manufacturing-centred development associated with some East Asian economies. Agribusiness occupies an ambiguous position in debates on capitalism and labour.

Industrial labour is often easier to conceptualize. Workers enter factories, receive wages and become incorporated into recognizable employment relations. Agribusiness frequently operates differently. Production may depend upon family farms, contract arrangements, seasonal workers and informal labour systems.

The boundaries separating independent production from wage dependence become blurred. This ambiguity characterized much of Thailand’s rural transformation. As commercial agriculture expanded during the late twentieth century, millions of rural households experienced changing relationships with markets. Traditional forms of subsistence production gradually gave way to increased dependence on purchased inputs, commercial credit and corporate buyers.

CP’s contract farming systems became one important mechanism within this process.

Under such arrangements, producers often retained ownership of land while receiving:

· feed;

· livestock;

· technical guidance;

· access to markets;

· production specifications.

In exchange, companies gained greater influence over production processes without assuming direct responsibility for all stages.

The model offered advantages. For some farmers, integration into commercial systems generated higher incomes and improved access to technology. Participation reduced uncertainty associated with finding buyers and facilitated entry into expanding markets.

Yet modernization rarely distributes benefits evenly. Dependence can increase alongside opportunity. When production standards, inputs and market access become concentrated within corporate networks, producers may retain formal independence while losing strategic autonomy. Risks associated with disease outbreaks, price fluctuations or indebtedness frequently remain concentrated at lower levels of production systems.

This tension has led some scholars to describe contract farming as a form of controlled incorporation into capitalist production. The concept captures an important contradiction: Producers become increasingly integrated into markets while remaining exposed to vulnerabilities over which they exercise limited control.

For rural households, this transformation often generated mixed outcomes. Commercialization expanded possibilities for accumulation among some producers. Others experienced rising debt burdens or growing dependence upon single buyers. The distinction between entrepreneur and subordinated producer became increasingly unstable.

The labour dimension extends beyond farming. Large-scale agribusiness depends upon processing facilities, logistics systems and distribution networks requiring substantial workforces. These sectors often rely upon migrant labour, temporary employment and forms of labour characterized by varying degrees of precarity. Thailand’s broader development trajectory intensified these dynamics.

Rapid economic growth during the late twentieth century generated demand for labour exceeding domestic supply in certain sectors. Migrant workers from neighbouring countries—including Myanmar, Cambodia and Laos—became increasingly important within agriculture, food processing and related industries.

Migration supplied flexibility. It also created new hierarchies. Migrant workers frequently occupy positions characterized by lower wages, weaker protections and heightened vulnerability. Their labour becomes essential while their social and legal status remains precarious. The coexistence of economic dependence and social marginalization is not unusual within contemporary capitalism. Nevertheless, it raises difficult questions concerning who bears the costs of accumulation. The expansion of conglomerates often appears in aggregate indicators: revenues, investment volumes, market shares.

Labour conditions receive less attention. Yet corporate success and labour precarity may coexist. This observation does not imply a simple opposition between growth and exploitation. Reality is more complex. Economic transformation associated with agribusiness contributed to productivity increases, employment generation and integration into expanding markets. For many households, commercialization improved material conditions compared with earlier periods. At the same time, modernization reorganized insecurity rather than eliminating it. The significance of this process extends beyond Thailand. Across Southeast Asia, capitalist development has frequently combined rapid accumulation. labour flexibility, persistent informality, and uneven social protection. Corporate power emerged alongside labour regimes characterized by varying degrees of precarity.

CP’s history illustrates these broader patterns. The company’s rise depended not solely upon entrepreneurial skill or strategic diversification but also upon historical transformations in how labour was organized, disciplined and incorporated into markets. Seen from this perspective, the question is not whether labour benefited or suffered. The more important question is: What forms of labour become compatible with particular models of capitalist development?

Thailand’s experience suggests that diversified conglomerate capitalism may coexist with labour systems marked by flexibility, dependence and uneven protection. This observation matters because labour regimes shape developmental trajectories. Economies built upon low costs and flexible labour may generate strong domestic conglomerates while producing weaker incentives for technological upgrading. Under such conditions, competitiveness often derives from organizational coordination and cost management rather than sustained innovation.

If this interpretation is correct, labour is not merely a social consequence of development. It becomes part of the explanation. The same structures facilitating corporate accumulation may also help explain why Thailand produced powerful conglomerates without generating technological champions comparable to those emerging elsewhere in Asia.

This possibility returns us to the central puzzle of this essay. How did one of Southeast Asia’s most successful corporate groups emerge within an economy that remained dependent on foreign technology and external sources of innovation? The answer may lie less in the company itself than in the broader political economy of Thai capitalism.

VII. The Missing National Champion: Why CP Did Not Transform Thailand’s Position in Global Production Networks

By most conventional measures, the rise of CP Group represents an extraordinary success story.

A company founded as a modest seed business evolved into one of Southeast Asia’s largest conglomerates, operating across agriculture, food processing, retail, telecommunications and international markets. The group expanded beyond Thailand and anticipated shifts in regional capitalism before many competitors. Its influence became deeply embedded within everyday economic life.

Yet despite this remarkable trajectory, a difficult question remains. Thailand produced one of Asia’s most powerful conglomerates without producing a corporation capable of transforming the country’s position within higher-value segments of the global economy.

Unlike South Korea, Thailand did not generate globally dominant firms in semiconductors, advanced electronics or technologically intensive manufacturing. The country integrated successfully into global production networks but often occupied positions dependent upon foreign technology, multinational corporations and external sources of innovation.

This contrast suggests a paradox: How can domestic capital become extraordinarily successful while the broader economy remains structurally dependent? The answer requires moving beyond corporate performance toward the political economy shaping accumulation itself.

Different sectors, different possibilities

One explanation concerns sectoral trajectories. The sectors through which corporations accumulate matter.

CP emerged primarily through agriculture and food systems. These sectors may generate substantial profits and support international expansion, but they do not necessarily produce technological capabilities comparable to those associated with semiconductors, advanced machinery or digital technologies.

This distinction should not be interpreted as a hierarchy of importance. Agriculture remains strategically significant. Yet the pathways toward technological leadership differ. Compare CP’s trajectory with that of Samsung. Samsung evolved from trading and light industry into electronics, semiconductors and technologies requiring sustained investment in research and development. Such sectors generate cumulative learning effects. Innovation becomes central to competitiveness.

CP followed another route: control over agricultural systems, diversification and regional expansion. The company excelled at organizing production and markets rather than producing frontier technologies. The difference proved consequential.

Technological upgrading depends not only upon successful firms but upon the sectors within which they operate. However, sectoral explanations alone remain insufficient. After all, corporations can diversify. They can move into new industries. Why did Thailand’s largest conglomerates not undertake transitions comparable to those observed elsewhere in East Asia? To answer this question, the state becomes unavoidable.

The absent developmental state

The rise of industrial champions in East Asia rarely occurred through markets alone.

South Korea’s experience is instructive. During periods of rapid industrialization, the state exercised significant influence over large business groups. Access to credit, protection and support frequently depended upon performance. Firms faced pressure to export, upgrade technologically and compete internationally. Support was conditional. Failure carried consequences. The relationship between state and capital was therefore neither purely autonomous nor simply captured by business interests. Instead, it often involved forms of discipline aimed at transforming economic structures.

Thailand’s trajectory appears different. Political instability, recurrent military interventions and shifting coalitions contributed to a more fragmented environment. The state supported growth but demonstrated weaker capacity to direct domestic capital toward long-term technological transformation. Large conglomerates could prosper without being compelled to become engines of national upgrading.

This observation should not be overstated. Thailand pursued industrial policies and achieved considerable growth. Yet the contrast remains important: South Korea produced developmental discipline. Thailand more often produced developmental accommodation. The distinction helps explain why diversified conglomerates accumulated power while technological dependence persisted.

Diversification versus innovation

Another explanation concerns incentives. Innovation is costly. Investment in advanced technologies involves uncertainty, long time horizons and significant risks. Returns are not guaranteed.

By contrast, diversification into sectors generating stable profits may appear more attractive. CP’s expansion into retail, telecommunications and other areas reflects this logic. The strategy proved successful. Yet success itself may reduce pressure for transformation.

If firms can accumulate through diversification, market control and regional expansion, incentives to pursue uncertain technological upgrading weaken. This possibility raises a provocative question: Did Thailand’s model of capitalism become too profitable in existing sectors to encourage structural transformation? The implication is uncomfortable. Corporate success may coexist with developmental stagnation. The same mechanisms supporting accumulation can reduce incentives for upgrading.

Dependency without weakness

Traditional dependency theories often portray dependent economies as weak or externally dominated. Thailand complicates this picture.

The country developed powerful domestic capital groups. Conglomerates accumulated influence and expanded internationally. Economic growth proved substantial. Yet dependence persisted. This suggests that dependency should not necessarily be understood as the absence of domestic capital. Rather, domestic capital can thrive while remaining embedded within international hierarchies of technology and production.

This distinction matters. A powerful conglomerate is not automatically a national champion in the developmental sense. The ability to accumulate wealth differs from the ability to transform a country’s structural position within global capitalism.

CP’s trajectory illustrates this tension. The company succeeded spectacularly. Thailand remained integrated within production systems shaped significantly by foreign technological leadership. Both statements may be true simultaneously.

Labour and the politics of competitiveness

Labour regimes may also help explain these outcomes.

Thailand’s growth relied partly upon relatively flexible labour systems and comparatively low production costs. Such conditions support competitiveness in sectors where efficiency and coordination matter. However, development strategies based upon labour flexibility can generate weaker pressures for automation and technological upgrading.

When competitiveness depends upon cost advantages, transitions toward innovation-intensive models may proceed more slowly. Labour therefore enters the explanation not merely as a social outcome but as a structural condition. The organization of labour shapes accumulation. Accumulation shapes incentives. Incentives shape developmental trajectories.

The CP paradox

Seen from this perspective, the history of CP reveals something larger than the evolution of a single corporation. The company embodies a distinctive model of Southeast Asian capitalism:

· diversified;

· regionally integrated;

· politically adaptive;

· successful in accumulation;

· less oriented toward technological transformation.

Its trajectory forces reconsideration of assumptions linking corporate success with national development. Powerful firms do not automatically generate autonomous development. Large domestic conglomerates may prosper while dependence persists. The central paradox can therefore be restated: Thailand produced one of Southeast Asia’s strongest conglomerates without producing an equivalent process of structural upgrading.

Understanding why requires examining not only corporate strategies but also the historical interaction between labour, state capacity, sectoral specialization and global hierarchies. The lesson extends beyond Thailand. As developing economies seek national champions in an era of globalization, the experience of CP suggests an uncomfortable possibility: corporate power and developmental transformation may increasingly diverge.

VIII. Conclusion: Corporate Power Without Transformation?

The rise of CP Group is, by almost any measure, a remarkable story. From a small seed business founded by Chinese migrants in early twentieth-century Bangkok, the company evolved into one of Southeast Asia’s largest conglomerates. It helped transform agricultural production, reorganized value chains, expanded across Asia and diversified into sectors reaching deeply into everyday economic life. Its trajectory mirrors broader processes reshaping the region: agrarian commercialization, regional integration and the consolidation of corporate power.

Viewed narrowly, CP represents a clear success. Yet this essay began with a puzzle rather than a celebration. How did Thailand produce one of Southeast Asia’s most powerful conglomerates without producing a comparable process of technological upgrading? Why did corporate accumulation fail to generate the type of structural transformation associated with some East Asian developmental experiences?

The answer proposed here is necessarily partial, but several observations emerge.

First, corporate power and developmental transformation are not synonymous. The existence of large domestic conglomerates does not automatically imply greater autonomy within global production networks. Firms may accumulate extraordinary influence while remaining concentrated in sectors generating limited technological spillovers.

Second, the sectors through which accumulation occurs matter. CP’s trajectory emerged primarily through agribusiness, food systems and diversification. These sectors supported growth and regional expansion but created weaker incentives for frontier technological upgrading than those characterizing some manufacturing-based developmental experiences.

Third, state structures shape the trajectories of domestic capital. Thailand produced powerful conglomerates but demonstrated more limited capacity to direct them toward long-term technological transformation. Corporate success often unfolded within environments characterized by accommodation rather than discipline.

Fourth, labour belongs at the centre of these explanations. The expansion of agribusiness reorganized rural livelihoods. Contract farming altered relations between producers and markets. Flexible labour regimes supported accumulation while contributing to forms of competitiveness not necessarily dependent upon sustained innovation. Labour was not merely affected by development. Labour helped constitute the model of development itself. This observation deserves emphasis because discussions of national champions frequently focus on technology, industrial policy or entrepreneurship while overlooking the social relations underlying accumulation. The experience of CP suggests that labour regimes and developmental trajectories are deeply interconnected.

More broadly, the company’s history complicates familiar narratives surrounding dependency. Dependency is often imagined as weakness: economies subordinated to foreign capital because they lack domestic corporate capacity.

Thailand presents another possibility. Domestic conglomerates may become highly successful while remaining embedded within international hierarchies of technology and production. Powerful national firms can coexist with continuing structural dependence.

This insight may prove increasingly relevant beyond Southeast Asia. In an era characterized by renewed industrial policies, geopolitical competition and efforts to cultivate national champions, governments frequently assume that strengthening domestic firms will produce greater economic autonomy.

The experience of CP offers a cautionary perspective: corporate success alone does not guarantee structural transformation. The distinction matters. A country may generate influential conglomerates without fundamentally altering its position within the global economy.

This conclusion also invites comparison with other trajectories in Asia. South Korea’s Samsung became associated with technological upgrading under conditions of strong developmental discipline. Vietnam’s Vingroup represents an ambitious attempt to construct national champions within a socialist-oriented market economy and globalized environment.

CP reflects another path: a model of diversified conglomerate capitalism characterized by regional integration, political adaptability and successful accumulation without equivalent technological transformation.

None of these trajectories should be treated as universally superior. Each emerged within particular historical conditions. Yet comparing them reveals an important truth: there is no singular Asian capitalism. Instead, different combinations of state structures, labour regimes, sectoral specialization and historical legacies produce distinct forms of corporate power.

CP’s significance lies not only in what it achieved, but also in what it did not produce. Its history forces a reconsideration of assumptions linking accumulation with autonomy, corporate expansion with national upgrading and growth with transformation. Perhaps the most important lesson is also the simplest. Powerful corporations shape economies. But they do not necessarily remake them.

I. Singapore’s Global Myth

Few countries have attracted as much fascination among policymakers, economists, business elites, and political leaders as Singapore.

To admirers, Singapore represents one of the greatest development success stories of the modern era: a small island without natural resources that transformed itself within a few decades into one of the richest and most technologically advanced societies in the world. The country is praised for its efficient bureaucracy, modern infrastructure, low corruption, world-class port facilities, public housing system, and ability to attract global investment. In an era marked by political dysfunction and institutional decay across many parts of the world, Singapore is often presented as proof that competent technocratic governance can still deliver prosperity and stability.

But Singapore also generates unease. Critics see a society built on intense social discipline, restricted political pluralism, labour control, and widening inequality. Beneath the gleaming skyline, luxury condominiums, and carefully managed urban order lies a much harsher political economy structured around migrant labour, state-managed capitalism, and deep integration into global financial networks.

This duality is precisely what makes Singapore such an important case.

The country challenges many conventional assumptions about capitalism, globalization, and development. Singapore is often described simultaneously as capitalist and statist, neoliberal and interventionist, meritocratic and unequal, globalized and tightly controlled. At first glance, these characteristics may appear contradictory. In reality, they form part of a highly coherent political-economic model.

Singapore did not become successful by minimizing the role of the state. Quite the opposite. The state has remained deeply involved in economic planning, industrial policy, finance, housing, land management, and strategic investment. Government-linked corporations continue to occupy central positions within the economy. Sovereign wealth funds exert enormous influence. Long-term planning and technocratic coordination remain fundamental to economic governance.

At the same time, Singapore became one of the most globalized economies in the world. The city-state positioned itself as a strategic hub within global capitalism:

• a financial centre,

• a logistics platform,

• a headquarters economy,

• a tax-efficient jurisdiction,

• and a gateway connecting Asian production networks to global markets.

Rather than choosing between state intervention and globalization, Singapore fused them together. This combination helps explain both the country’s extraordinary achievements and its growing tensions.

For decades, the Singapore model appeared remarkably successful. Rapid industrialization generated rising incomes, expanding infrastructure, and relatively broad social stability. Public housing programs created high levels of home ownership. Industrial policy attracted multinational corporations. State coordination minimized many forms of corruption and political fragmentation that affected other postcolonial states.

Yet the very success of this model has produced new contradictions.

Singapore today is among the most unequal societies in the developed world. Wealth concentration has intensified. Property prices have surged dramatically. Migrant workers occupy highly precarious positions within the labour hierarchy. The city-state increasingly functions as a major node for global wealth management and transnational capital flows. At the same time, younger generations face rising anxieties surrounding social mobility, housing affordability, and economic competition.

These tensions are not accidental deviations from the Singapore model. They are deeply connected to how the model itself operates. Singapore’s development strategy depended on maintaining a delicate balance between openness and control, between global capital and national discipline, between state intervention and market competition, and between social stability and labour flexibility.

For decades, the balance held remarkably well. But contemporary global capitalism is placing increasing pressure on that equilibrium.

The rise of global finance, escalating property values, growing inequality, technological transformation, and geopolitical fragmentation are reshaping the environment within which Singapore developed. The city-state now faces a difficult challenge: how to remain one of the world’s most globally integrated economies while preserving the social and political foundations upon which its success historically depended.

Understanding this tension requires moving beyond simplistic narratives of either “Singaporean exceptionalism” or authoritarian efficiency. Singapore is neither a free-market utopia nor a quasi-socialist developmental state. It is better understood as one of the most sophisticated forms of state-managed global capitalism in the contemporary world. And precisely because of this, Singapore offers a revealing window into some of the broader contradictions shaping twenty-first century capitalism itself.

II. The Developmental State That Never Disappeared

One of the most persistent myths surrounding Singapore is that its economic success emerged primarily through free markets and minimal state intervention.

This interpretation has always been misleading.

From the beginning, Singapore’s development strategy depended on an extraordinarily active and interventionist state. The country did not industrialize by withdrawing public authority from economic life. Instead, the state positioned itself at the centre of capital accumulation, labour management, infrastructure development, and long-term strategic planning.

In many respects, Singapore represents one of the clearest examples of the developmental state outside Northeast Asia.

Following independence in 1965, the new leadership under Lee Kuan Yew confronted a deeply uncertain environment. Singapore lacked natural resources, possessed a small domestic market, faced high unemployment, and remained vulnerable geopolitically after separation from Malaysia. Survival itself appeared uncertain.

Under these conditions, the ruling People’s Action Party adopted a highly pragmatic developmental strategy. The state aggressively pursued industrialization through export-oriented manufacturing, infrastructure development, and attraction of foreign direct investment. Agencies such as the Economic Development Board played central roles in coordinating industrial policy and identifying strategic sectors for development. Rather than leaving industrialization to spontaneous market forces, the state actively shaped the direction of economic transformation.

This model differed in important ways from the more protectionist developmental strategies pursued by countries such as South Korea or Taiwan. Singapore embraced global integration much more openly from the outset. Multinational corporations were actively courted rather than restricted. Foreign capital became central to industrialization itself. American, Japanese, and European firms established manufacturing operations in electronics, petrochemicals, pharmaceuticals, and precision engineering.

Yet openness did not imply passivity. The Singaporean state maintained extensive influence over (a) land, (b) finance, (c) housing, (d) infrastructure, (e) labour relations, and (f) strategic investment decisions.

Even today, state-linked corporations occupy commanding positions across major sectors of the economy. Entities connected to sovereign wealth funds such as Temasek Holdings and the Government of Singapore Investment Corporation maintain substantial influence in banking, telecommunications, transport, real estate, logistics, and advanced services. Singapore Airlines, DBS Bank, Singtel, PSA International, and numerous other major corporations operate within ecosystems shaped heavily by state ownership or coordination.

This creates an important paradox. Singapore is frequently celebrated as one of the world’s most market-oriented economies. Yet large segments of its economy remain deeply intertwined with state capital.

The contradiction is only apparent. Singapore did not pursue laissez-faire capitalism in the classical neoliberal sense. Instead, it developed a highly disciplined form of state capitalism integrated into global markets. The state’s role was not to replace capitalism, but to organize and manage its development strategically.

This distinction matters enormously. The Singapore model depended on combining:

• strong state capacity,

• technocratic governance,

• global openness,

• and tight political control.

Economic liberalization was never accompanied by equivalent political liberalization. On the contrary, the developmental project depended heavily on centralized authority and the suppression of forms of political contestation viewed as potentially destabilizing.

Labour relations provide a clear example. Unlike many industrializing societies that experienced intense labour conflict, Singapore developed a highly controlled industrial relations system closely integrated with the state. Independent union militancy was marginalized. The National Trades Union Congress became deeply aligned with the ruling political order. Wage negotiations, industrial policy, and labour discipline were incorporated into a broader developmental framework emphasizing stability, competitiveness, and productivity. This arrangement contributed significantly to Singapore’s attractiveness for multinational capital. Foreign investors encountered efficient administration, modern infrastructure, disciplined labour, low corruption, and minimal industrial unrest.

These conditions helped transform Singapore into a crucial node within global production and logistics networks. At the same time, state intervention extended far beyond industrial policy alone. Perhaps nowhere is this more visible than in housing. The Housing and Development Board became one of the central pillars of Singapore’s political economy. Through massive public housing programs, the state achieved extraordinarily high levels of home ownership. This helped stabilize society, reduce urban poverty, and generate broad support for the developmental project.

But public housing also performed deeper political functions. Home ownership tied large segments of the population materially to the stability of the existing system. Rising property values became linked to personal economic security and middle-class aspiration. Housing policy therefore operated not only as welfare provision, but also as a mechanism of social integration and political stabilization.

In this sense, Singapore’s developmental state was never purely economic. It involved the construction of a broader social order based on technocratic legitimacy, controlled political participation, rising living standards, and disciplined incorporation into global capitalism.

For decades, this model appeared remarkably effective. Rapid growth generated widespread upward mobility. Poverty declined dramatically. Infrastructure became world class. Singapore emerged as one of the most efficient and globally connected urban economies in the world.

Yet the very success of this model gradually transformed the structure of the economy itself. As manufacturing upgraded and incomes rose, Singapore increasingly shifted toward finance, high-end services, wealth management, and global capital intermediation. Industrial production remained important, but the city-state’s role within global capitalism evolved. This transition generated new tensions.

The developmental state that once focused primarily on industrialization increasingly found itself managing asset inflation, financial globalization, rising inequality, transnational wealth, and intensified class stratification. The logic of the system itself began to change. Singapore had succeeded spectacularly in integrating itself into global capitalism. The question now was whether the political and social foundations of the developmental model could survive that success.

III. Labour Discipline and Migrant Capitalism

The global image of Singapore is built around efficiency, modernity, and prosperity. Visitors encounter one of the cleanest and most technologically advanced urban environments in the world: luxury skyscrapers, highly efficient public transport, immaculate public spaces, advanced digital infrastructure, and extraordinary levels of urban order.

Yet beneath this highly managed urban landscape lies another Singapore that remains far less visible. The city-state’s economic model depends heavily on a vast and highly stratified migrant labour regime that performs much of the physically demanding, low-paid, and socially precarious work underpinning everyday life and urban development.

Construction workers, shipyard labourers, cleaners, delivery workers, security guards, and domestic workers—many originating from Bangladesh, India, Myanmar, Indonesia, and the Philippines—occupy positions at the bottom of Singapore’s labour hierarchy. Their labour built much of the infrastructure, housing, transport systems, ports, and luxury developments associated with the Singaporean miracle.

This is not a secondary feature of the model. It is one of its structural foundations.

Singapore’s developmental trajectory depended not only on state capacity and global integration, but also on maintaining highly disciplined labour relations and segmented labour markets. The state sought to minimize industrial conflict, preserve international competitiveness, and ensure labour flexibility within a highly open economy deeply dependent on foreign investment and global trade.

From the early decades of industrialization, labour militancy was treated as a potential threat to national development. The ruling People’s Action Party systematically incorporated organized labour into the developmental state through institutions closely aligned with government priorities. Independent union activism became increasingly constrained. Wage negotiations and labour relations were integrated into a broader framework emphasizing productivity, competitiveness, and social stability.

This system proved highly effective from the perspective of capital accumulation. Singapore offered multinational corporations an unusually attractive environment: low corruption, efficient administration, advanced infrastructure, and highly predictable labour relations.

But over time, the structure of the labour market itself became increasingly segmented. At the top emerged highly paid professionals connected to finance, technology, multinational management, and advanced services. Beneath them stood a large domestic middle class linked to education, state employment, and skilled urban labour. At the bottom developed an enormous migrant workforce occupying highly precarious positions with limited political rights and restricted social integration.

This hierarchy became essential to Singapore’s economic model. Migrant labour allowed the city-state simultaneously to maintain relatively low labour costs in key sectors, preserve middle-class living standards, support construction and infrastructure expansion, and sustain the highly service-intensive urban economy upon which affluent lifestyles increasingly depended.

The contradiction was striking. Singapore projected an image of hypermodern post-industrial prosperity while relying heavily on labour conditions often characterized by extreme precarity and tight social control.

The dormitory system illustrates this particularly clearly.

Large numbers of migrant construction and industrial workers live in highly concentrated dormitory complexes located largely outside the spaces associated with affluent urban Singapore. These dormitories became globally visible during the Covid-19 pandemic, when major outbreaks spread rapidly through overcrowded facilities housing migrant workers.

The pandemic briefly exposed the hidden labour geography underlying the Singaporean economy. While much of the resident population experienced relatively effective public health management and strong state coordination, migrant workers often faced cramped living conditions, intense surveillance, movement restrictions, and limited social protection. The contrast generated international attention precisely because it disrupted the dominant narrative of Singaporean exceptionalism.

But the dormitory system was not an anomaly created by the pandemic. It reflected deeper structural dynamics within Singapore’s political economy. Migrant labour in Singapore is carefully regulated through temporary work permits, restricted mobility, employer dependency, and limited pathways toward citizenship or permanent residency. Workers are generally incorporated as labour rather than as full social or political members of society. Their presence is economically essential but politically conditional.

This arrangement allows Singapore to maintain a highly flexible labour force without fully extending the social obligations associated with citizenship.

In effect, the labour market operates through differentiated layers of belonging. Highly skilled expatriates may receive substantial incentives and mobility opportunities. Middle-class Singaporean citizens benefit from housing access, education systems, and state-supported stability. Low-wage migrant workers, by contrast, remain structurally temporary even when they spend years contributing to the economy.

This segmentation is not merely economic. It is also spatial and social. Singapore’s urban landscape is intensely organized. Luxury districts, financial centres, public housing estates, industrial zones, and migrant dormitories occupy sharply differentiated spaces within the city-state’s geography. The visibility of migrant labour is often carefully managed. Workers are indispensable to the functioning of the economy, yet socially marginalized within dominant narratives of national success.

From a political economy perspective, this arrangement performs several functions simultaneously. First, it supports cost competitiveness in sectors such as construction, logistics, maintenance, and domestic services. Second, it helps stabilize middle-class consumption and living standards by keeping service and infrastructure costs relatively low. Third, it reduces pressure for broader redistributive reforms by externalizing segments of labour precarity onto non-citizen populations. And fourth, it contributes to the broader governance model built around controlled social order and managed political stability.

This system differs in important ways from labour regimes in Western liberal economies. Singapore does not simply rely on deregulated labour markets. Rather, labour mobility, migration, and employment relations are highly managed by the state itself. Openness to labour migration coexists with extensive administrative control over workers’ rights, residency status, and mobility.

In this sense, labour flexibility is politically organized rather than simply market-driven. The result is a highly distinctive form of migrant capitalism. Global labour flows are incorporated into a tightly regulated developmental framework designed to maximize economic efficiency while minimizing political disruption.

For decades, this arrangement appeared remarkably stable. Yet growing tensions are becoming increasingly visible. Rising inequality, escalating living costs, intensified competition for housing and employment, and anxieties surrounding immigration have generated mounting social pressures. Younger Singaporeans increasingly confront a more polarized economy characterized by high property prices, intensified educational competition, slower upward mobility, and widening wealth disparities.

At the same time, migrant workers remain indispensable to the functioning of the economy itself. This creates a structural contradiction at the heart of the Singapore model.

The city-state depends on deep integration into global labour and capital flows. But this very integration increasingly complicates the social compact upon which political legitimacy historically depended. Singapore’s success was built partly through disciplined incorporation into global capitalism. The challenge now is whether that discipline can continue to contain the inequalities and tensions generated by the system itself.

IV. Finance, Property, and Global Wealth

Over the past two decades, Singapore has undergone a profound transformation. The city-state remains an important manufacturing and logistics hub. Advanced industry, petrochemicals, semiconductors, pharmaceuticals, and electronics continue to play central roles within the economy. Yet increasingly, Singapore’s strategic importance within global capitalism lies elsewhere.

It has become one of the world’s most important centres for global finance and transnational wealth management. This shift has reshaped the structure of Singaporean capitalism itself.

Today, Singapore functions simultaneously as:

• a financial hub,

• an offshore wealth centre,

• a headquarters economy,

• a logistics platform,

• and a strategic intermediary linking global capital flows across Asia.

The scale of this transformation is enormous.

International banking, asset management, private equity, hedge funds, sovereign wealth, and family offices now occupy increasingly central positions within the economy. As geopolitical tensions intensified between China and the West, Singapore benefited further from its image as a politically stable, legally predictable, and globally connected financial jurisdiction.

The city-state increasingly operates as a secure platform through which wealth circulates across Asia and beyond. This transition generated substantial economic benefits.

Finance and advanced services helped sustain high incomes, technological upgrading, and Singapore’s role as a global city. The country successfully positioned itself at the commanding heights of globalization rather than remaining simply a manufacturing platform. In many respects, Singapore became one of the clearest examples of how small states can leverage strategic positioning within global capitalism to achieve extraordinary levels of wealth.

Yet this transformation also intensified new forms of inequality and class polarization. The rise of finance and transnational wealth fundamentally altered the political economy of property.

Real estate in Singapore increasingly became more than housing. It evolved into a crucial financial asset linked to global capital accumulation, wealth preservation, and speculative investment. Luxury condominiums, high-end developments, and elite property markets expanded dramatically alongside the growth of global finance.

This process generated tensions within a society historically organized around relatively broad-based home ownership and developmental stability.

For decades, the Housing and Development Board system helped anchor the social foundations of the Singapore model. Public housing supported middle-class formation, social stability, and political legitimacy. Rising property values reinforced the idea that economic growth would continue benefiting large segments of the population. But financial globalization gradually transformed the logic of urban development itself.

As Singapore became more deeply integrated into transnational wealth circuits, property prices accelerated sharply. Real estate increasingly reflected not only domestic demand, but also global investment flows. International capital, wealthy expatriates, and transnational elites all became significant actors within the urban economy.

This contributed to widening gaps between:

• asset owners and non-owners,

• older and younger generations,

• highly skilled professionals and precarious workers,

• and globally connected elites and more vulnerable social groups.

Singapore today remains relatively cohesive compared to many other global cities. Yet inequality has clearly intensified. The city-state now contains extraordinary concentrations of wealth, luxury consumption, and elite financial power, alongside growing anxieties surrounding affordability, social mobility, and economic insecurity.

This contradiction is deeply connected to Singapore’s developmental trajectory itself. The country succeeded by integrating aggressively into global capitalism. But integration into global finance operates differently from export-oriented industrialization.

Manufacturing-led development tends to generate broad employment, industrial expansion, and infrastructure growth. Financialized capitalism, by contrast, often concentrates wealth far more unevenly through asset inflation, speculative investment, property appreciation, and transnational capital mobility.

Singapore increasingly exhibits these dynamics.

The city-state’s growing role as a wealth-management centre accelerated after the global financial crisis and especially during recent geopolitical instability. Family offices expanded rapidly. Capital from China, Southeast Asia, and other regions increasingly flowed into Singaporean financial institutions and property markets. Wealth preservation became one of the country’s most important economic functions.

This further strengthened Singapore’s position within global capitalism. But it also reinforced a difficult political dilemma. The same openness to global capital that generates prosperity can simultaneously undermine the social compact upon which political stability historically depended.

Rising property values benefit many existing asset owners. But they also create mounting barriers for younger generations entering the housing market. Expanding financial sectors generate high-income professional employment, but they also intensify inequality between globally connected elites and less mobile segments of society.

At the same time, the state itself remains deeply implicated in these processes. Unlike classic neoliberal models characterized by state retreat, Singapore’s government continues to play a central role in managing land, investment, urban planning, and strategic economic coordination. Sovereign wealth funds remain enormously influential. State-linked corporations continue to shape major sectors of the economy.

This creates another important paradox. Singapore’s financialization is not simply market-driven. It is actively governed and managed through state institutions. The state simultaneously seeks:

• global competitiveness,

• financial openness,

• social stability,

• and political legitimacy.

For decades, this balancing act proved remarkably successful. But the tensions are becoming harder to manage.

Younger Singaporeans increasingly confront a society characterized by intense competition, rising living costs, escalating educational pressures, and growing uncertainty regarding long-term upward mobility. The promise that technocratic capitalism would steadily deliver expanding prosperity for all appears less secure than during earlier developmental decades.

At the same time, Singapore cannot easily retreat from global finance.

Its role within transnational capital networks has become central to the economy itself. The city-state’s prosperity increasingly depends on remaining attractive to international wealth, multinational corporations, and global investors. Openness is no longer simply a developmental strategy. It has become structurally embedded within Singaporean capitalism.

This is why Singapore represents such a revealing case for understanding twenty-first century capitalism more broadly.

The city-state demonstrates how successful developmental models can gradually evolve into highly financialized forms of global capitalism while still retaining strong state coordination and political control. In this sense, Singapore may represent not an exception to global capitalism, but one of its most advanced forms.

A system where state planning, global finance, disciplined labour, and concentrated wealth operate together within a remarkably stable political order.

At least for now.

V. Conclusion: Can the Singapore Model Survive Its Own Success?

For decades, Singapore appeared to solve many of the central dilemmas confronting postcolonial development.

The city-state industrialized rapidly despite lacking natural resources. It achieved high levels of infrastructure development, technological sophistication, and administrative efficiency. Corruption remained relatively limited compared to many other countries in the region. Public housing expanded massively. Living standards improved dramatically. The state successfully positioned Singapore as one of the key strategic nodes within global capitalism.

In historical terms, these achievements are extraordinary. Few societies have transformed themselves so rapidly and so effectively within such a short period of time.

This success explains why Singapore continues to fascinate policymakers, economists, business elites, and political leaders around the world. At a moment when many democracies appear fragmented and economically unstable, Singapore projects an image of competence, order, and long-term strategic planning rarely found elsewhere.

But the Singapore model was never simply about efficiency. Its success depended on a highly specific political-economic configuration:

• strong state capacity,

• technocratic governance,

• disciplined labour relations,

• controlled political pluralism,

• strategic global integration,

• and carefully managed social stability.

For decades, these elements reinforced one another remarkably well. The developmental state generated growth. Growth supported legitimacy. Public housing and rising living standards stabilized society. Labour discipline attracted multinational capital. State coordination minimized many forms of political and economic fragmentation.

Yet the very success of this model gradually transformed the structure of Singaporean capitalism itself.

Industrialization and global integration eventually produced a far more financialized and unequal society. Singapore evolved from an export-manufacturing hub into one of the world’s major centres of global wealth management and transnational capital flows. Property became increasingly financialized. Wealth concentration intensified. Labour markets grew more segmented. Migrant labour became structurally indispensable to the economy while remaining socially marginalized.

In other words, Singapore succeeded so well at integrating into global capitalism that it increasingly began to reproduce some of the same contradictions visible across other advanced capitalist societies.

This is the central paradox of the Singapore model. The system solved many developmental problems associated with poverty, instability, and underindustrialization. But success generated new tensions linked to:

• inequality,

• financialization,

• rising property costs,

• labour fragmentation,

• elite globalization,

• and intensified social competition.

These contradictions are not signs that the model failed. They are products of how the model succeeded. Singapore’s political economy always depended on maintaining a delicate balance between openness and control, markets and state coordination, globalization and national stability, labour flexibility and social cohesion.

The question now is whether this balance can continue to hold under changing global conditions. This challenge is becoming increasingly visible.

Younger Singaporeans confront a more polarized social landscape than previous generations. Educational competition has intensified. Housing affordability has become a growing concern despite the continued importance of public housing. The gap between globally mobile elites and more vulnerable social groups has widened. At the same time, the city-state remains deeply dependent on migrant labour and international capital flows for the functioning of its economy.

Meanwhile, geopolitical fragmentation is reshaping the global environment within which Singapore historically prospered.

The city-state benefited enormously from globalization, open trade, and relatively stable international economic integration. But contemporary capitalism is becoming increasingly fractured:

• tensions between the United States and China are intensifying,

• technological competition is accelerating,

• supply chains are reorganizing,

• and economic nationalism is returning in many parts of the world.

Singapore’s strategy historically depended on functioning as a trusted intermediary within global capitalism. The challenge now is whether such a role remains sustainable within a more fragmented geopolitical order.

And yet, Singapore retains important advantages.

The state continues to possess unusually high administrative capacity. Long-term planning remains central to governance. Infrastructure and education systems remain highly developed. Sovereign wealth and strategic investment provide significant economic resilience. Few governments possess equivalent ability to coordinate policy across finance, housing, infrastructure, and industrial development.

This helps explain why predictions of crisis or imminent instability in Singapore have repeatedly proven wrong. The system remains remarkably adaptive. But adaptation does not eliminate contradiction.

Singapore increasingly embodies a broader transformation occurring within global capitalism itself: the fusion of technocratic governance, financial globalization, disciplined labour management, and concentrated wealth within highly organized urban environments.

In this sense, Singapore may represent less a historical exception than an early illustration of a broader global trend. A form of capitalism where:

• markets remain globalized,

• states remain powerful,

• inequality intensifies,

• labour becomes increasingly segmented,

• and political legitimacy depends heavily on technocratic performance rather than democratic contestation.

Whether such systems can preserve long-term social cohesion remains uncertain. What is clear is that Singapore’s future challenges will differ profoundly from those it confronted during earlier developmental decades.

The city-state no longer needs to prove that it can industrialize, modernize, or attract global capital. It already has. The deeper question now is whether the political and social foundations of the Singapore model can survive the inequalities and tensions generated by its own extraordinary success.