September 7, 2004
Cambodia joins the WTO
The world business community is the best judge of systemic economic policies because it puts its fortune, in every sense of the word, where its mouth is. This is why an admission of a post-central plan country to the World Trade Organization (WTO) is a much better test of whether or not it is a market economy than the pronunciations of politicians and international financial bureaucrats and prognostications of academics and journalists. These groups risk neither own money nor reputation when they base their view of countries and markets on expediency, dogmas, and group-think.
A recent announcement that Cambodia joins the WTO, on the heels of China's accession in November 2001 and bypassing the disqualified Russia, makes abundantly clear who is what.1 We sketched the contrast between China and Russia in their respective qualifications and disqualifications for the WTO membership in the comment "Market, Shmarket, WTO." The underlying context is systemic.
Forty-three economies have abandoned industrial central planning and changed economic systems in the late 20th century. Two economies still live under central planning, Cuba and North Korea, but they, too, make small steps out. Chapter 2 of From Predation to Prosperity described systemic reversals and divergent paths among the forty-three post-central-plan economies. Figures 2.1 and 2.2 quantified economic performance and different systemic strategies in forty-two of these countries (the data for Bosnia-Herzegovina are lacking for most years due to the war there).
Cambodia, like Vietnam, Laos, Myanmar, and, to a lesser extent, Poland and Slovenia, followed the path most consistently developed in China. It is the phase-in of the new-entrant market sector, largely under municipal ownership, and the phase-out of the preexisting state sector. This two-track process forestalls the transition of the inherited state sector into a predatory enterprise network, capable of seizing fiscal power, and breaks up the network. This process necessitates substantial government control, which itself is easing and scaling down as the need for government restriction declines. This path from central planning has successfully led to a new economic system, a restricted market economy. This path is opposite to liberalization and privatization in Russia and similar countries which devolved central planning into Enterprise Network Socialism, a free non-market economy. We laid out the contrast between the two paths and two systems in Chapter 2 of from Predation to Prosperity and in Addendum to Chapter 4, "Fixing China's Banks, Not Russia's."
Vietnam is on the way to the WTO accession next year. Two countries stay out and stand out, unsure to join and unqualified to enter the WTO: Russia and Saudi Arabia.
1 Actually, the WTO had already admitted Cambodia's entry in September 2003, a year ago. The delay with the accession was caused by domestic bureaucratic problems. The country needed the Parliament to ratify the WTO entry, had to wait through the elections, and then labored several months on forming the government, which finally submitted the WTO documents to the new Parliament for ratification, effected August 31, 2004. The rest is automatic. Cambodia will file a formal notification with the WTO, the papers will shuffle for 30 days inside the WTO headquarters, and the accession will be sealed.