A supporter of the opposition Cambodia National Rescue Party takes part in a march to deliver a petition to the parliament and King Norodom Sihamoni, asking them to intervene in the country's political crisis, in Phnom Penh on May 30, 2016. © Reuters

International donors must call Cambodia out on corruption

Economic growth is leaving the poor behind

  | 16 March 2017

Cambodia's economy has grown rapidly in the last two decades, with gross domestic product increasing almost sixfold from 1998 to 2015, according to the World Bank. But for most of that period, headline economic growth failed to generate commensurate development outcomes or increases in government revenue [and meanwhile, all the one-off natural resources have been plundered and destroyed to oblivion].

Annual growth in GDP exceeded 7% from 2011 to 2016, and is forecast by the Bank to hit 6.9% in 2017. But the growth record is not that impressive compared to countries such as the Philippines, East Timor, Laos and Myanmar. In any case, Cambodia may face a gradual economic slowdown, caused by its focus on exploiting low-skilled, low-cost labor to attract foreign investment to produce goods for export rather than on developing the country's human capital. Even the Asian Development Bank, a strong supporter of the export factory growth model for developing Asia, warned in May 2016 that Cambodia has to diversify its economy "if it hopes to maintain the high growth rates it has enjoyed in recent years."

Moreover, Cambodia's relatively high GDP growth masks structural weaknesses, including the worst corruption record of the 10 members of the Association of Southeast Asian Nations, according to the Corruption Perceptions Index 2016 published by Transparency International, an anti-corruption organization based in Germany. In the 2015 Human Development Index produced by the United Nations Development Program, Cambodia outperforms only Myanmar among ASEAN member states. In the past, Phnom Penh could count on Laos to be at the bottom of the pile, but Vientiane has now gotten its house in order sufficiently to rank two places above Cambodia.

It is true that Cambodia's development indicators have improved recently, and that tax revenues have risen. But this improvement leaves a host of questions unanswered. After all, if basic development indicators do not budge after decades of foreign aid and growth, the entire basis of economic development has to be re-examined. Even trickle-down economics (the theory that poor people benefit from overall economic growth even if the better-off benefit more) eventually produces some improvement in living standards for the poorest. But it should not have taken this long to translate GDP growth into development.

SOME ANSWERS What took so long? One answer is that Cambodia's corruption problem is most damaging for the poor, who pay the price in the form of a larger proportion of their already meager income, compared with the rich, for whom corruption is at worst an irritant, and at best an opportunity.

The poor also pay most in terms of lost human potential -- when corruption interferes with progress on development indicators such as health, education and living standards, it is the poorest who suffer the greatest opportunity cost. In the end, the wealth of nations lies not in levels of GDP but in the extent to which individuals can achieve their potential. After all, what is the point of high GDP if it is produced by miserable people?

For any country, the journey from public and private sector corruption to accountable democracy and the rule of law is a long and difficult one. It is especially problematic for a nation with Cambodia's blood-soaked recent history. As Gordon Brown, a former U.K. prime minister, once said, in establishing the rule of law, the first five centuries are the hardest; after that it's a piece of cake. Yet striving toward a rational and accountable system of law and government is still worthwhile.

REFORM ZONES So what should Cambodia do? The country could take the approach of "charter" cities promoted by Paul Romer, now chief economist of the World Bank, who before his appointment suggested that impoverished cities in the developing world could be transformed into "reform zones" to spur economic growth and change -- including, potentially, importing services such as law and order from outside.

In Cambodia, this might mean handing over judicial decisions to another country or to the U.N. One model could be the U.N. International Commission Against Impunity in Guatemala -- an independent organization that since 2006 has investigated criminal groups believed to have infiltrated state institutions. Of course, in the current political environment in Cambodia, this is unthinkable. Why would those who run the country not want to remain in control? They would agree to such an intervention only if the rewards to them outweighed the costs, which is unlikely.

Meanwhile, Prime Minister Hun Sen and the governing Cambodian People's Party seem to have lost confidence in traditional methods of winning elections by argument and campaigning, focusing instead on imprisoning land-rights activists, using the courts to clamp down on criticism through defamation proceedings, and fracturing the country's main political opposition, the Cambodia National Rescue Party, ahead of commune elections in June and a general election next year. By comparison with the 1990s and early 2000s, the body count is much lower, so from that standpoint, things have improved (fewer deaths). But dissolving the opposition, or threatening to do so through judicial means enabled by legislation, is uncharted territory even for Cambodia.

Cambodia's economy has grown rapidly in the last two decades, with gross domestic product increasing almost sixfold from 1998 to 2015, according to the World Bank. But for most of that period, headline economic growth failed to generate commensurate development outcomes or increases in government revenue.

Annual growth in GDP exceeded 7% from 2011 to 2016, and is forecast by the Bank to hit 6.9% in 2017. But the growth record is not that impressive compared to countries such as the Philippines, East Timor, Laos and Myanmar. In any case, Cambodia may face a gradual economic slowdown, caused by its focus on exploiting low-skilled, low-cost labor to attract foreign investment to produce goods for export rather than on developing the country's human capital. Even the Asian Development Bank, a strong supporter of the export factory growth model for developing Asia, warned in May 2016 that Cambodia has to diversify its economy "if it hopes to maintain the high growth rates it has enjoyed in recent years."

Moreover, Cambodia's relatively high GDP growth masks structural weaknesses, including the worst corruption record of the 10 members of the Association of Southeast Asian Nations, according to the Corruption Perceptions Index 2016 published by Transparency International, an anti-corruption organization based in Germany. In the 2015 Human Development Index produced by the United Nations Development Program, Cambodia outperforms only Myanmar among ASEAN member states. In the past, Phnom Penh could count on Laos to be at the bottom of the pile, but Vientiane has now gotten its house in order sufficiently to rank two places above Cambodia.

It is true that Cambodia's development indicators have improved recently, and that tax revenues have risen. But this improvement leaves a host of questions unanswered. After all, if basic development indicators do not budge after decades of foreign aid and growth, the entire basis of economic development has to be re-examined. Even trickle-down economics (the theory that poor people benefit from overall economic growth even if the better-off benefit more) eventually produces some improvement in living standards for the poorest. But it should not have taken this long to translate GDP growth into development.

SOME ANSWERS What took so long? One answer is that Cambodia's corruption problem is most damaging for the poor, who pay the price in the form of a larger proportion of their already meager income, compared with the rich, for whom corruption is at worst an irritant, and at best an opportunity.

The poor also pay most in terms of lost human potential -- when corruption interferes with progress on development indicators such as health, education and living standards, it is the poorest who suffer the greatest opportunity cost. In the end, the wealth of nations lies not in levels of GDP but in the extent to which individuals can achieve their potential. After all, what is the point of high GDP if it is produced by miserable people?

For any country, the journey from public and private sector corruption to accountable democracy and the rule of law is a long and difficult one. It is especially problematic for a nation with Cambodia's blood-soaked recent history. As Gordon Brown, a former U.K. prime minister, once said, in establishing the rule of law, the first five centuries are the hardest; after that it's a piece of cake. Yet striving toward a rational and accountable system of law and government is still worthwhile.

REFORM ZONES So what should Cambodia do? The country could take the approach of "charter" cities promoted by Paul Romer, now chief economist of the World Bank, who before his appointment suggested that impoverished cities in the developing world could be transformed into "reform zones" to spur economic growth and change -- including, potentially, importing services such as law and order from outside.

In Cambodia, this might mean handing over judicial decisions to another country or to the U.N. One model could be the U.N. International Commission Against Impunity in Guatemala -- an independent organization that since 2006 has investigated criminal groups believed to have infiltrated state institutions. Of course, in the current political environment in Cambodia, this is unthinkable. Why would those who run the country not want to remain in control? They would agree to such an intervention only if the rewards to them outweighed the costs, which is unlikely.

Meanwhile, Prime Minister Hun Sen and the governing Cambodian People's Party seem to have lost confidence in traditional methods of winning elections by argument and campaigning, focusing instead on imprisoning land-rights activists, using the courts to clamp down on criticism through defamation proceedings, and fracturing the country's main political opposition, the Cambodia National Rescue Party, ahead of commune elections in June and a general election next year. By comparison with the 1990s and early 2000s, the body count is much lower, so from that standpoint, things have improved (fewer deaths). But dissolving the opposition, or threatening to do so through judicial means enabled by legislation, is uncharted territory even for Cambodia.

If there is to be a countervailing force, the potential of social media is tremendous. While fake news has been a problem globally, it has been combated effectively through social media outlets in Cambodia, which were a leading cause of the unexpected outcome of the 2013 election, when the CPP was shocked by high levels of support for the opposition. In the last four years the impact of social media has grown further, creating an alternative narrative to the official discourse, reinforced by more traditional foreign media outlets such as Radio Free Asia and Voice of America. Of course, the authorities have upped their game dramatically, but they cannot buy trust, or stop the scandals, which leave them constantly scrambling to put out fires.

While the World Economic Forum will fete Cambodia in May with the first ever WEF on ASEAN hosted in Phnom Penh, donor countries have stood aside, doing little or nothing to criticize or oppose the behavior of the authorities. If they want to show that aid helps rather than hinders political and economic development, the first step is to stop supporting the authorities by behaving like the three wise monkeys -- who see no evil, hear no evil and speak no evil.

With the U.S. hobbled as a moral leader following the election of a president who uses the language of the Khmer Rouge to label the free press the enemy of the people, the international donor community must speak out. It has a responsibility to speak truth to power, helping to sustain civil society against the government's attacks and raising its voice for better governance.

If donors find this course of action unpalatable, they should pack up and leave.

Sophal Ear, a Cambodian refugee, is associate professor of diplomacy and world affairs at Occidental College in Los Angeles. He is the author of "Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy."