The political economy of the asean free trade area (afta)

the development of domestic capital through regionalism.  We may regard the concern 

with domestic capital as a preoccupation with distribution, or with the selective allocation 

of economic benefits including rents to domestic businesses, in contrast with the 

generalised growth/efficiency imperative that underpins open regionalism.  Nevertheless, 

concern with growth/efficiency is not absent either in developmental regionalism.  Rather, 

the growth imperative is infused with distributive concerns.  Developmental regionalism 

is, therefore, not about resisting globalisation completely, but neither is it about complete 

acquiescence to global market forces.  Instead, it encompasses a period of temporary and 

limited resistance to aspects of globalisation through which attempts are made to build 

capabilities to enable domestic businesses to eventually participate in global market 

activities.  This model of regionalism, therefore, allows us to consider departures from 

open regionalism as representing a distinct approach to regionalism rather than merely as 

inconsistencies in open regionalism or as instances of protectionism.   

 

The question that remains, however, is why political actors would seek to nurture 

domestic capital.  Why would they prefer to maximise the wealth of a segment of society 

instead of maximising the wealth and efficiency in society as a whole?  The following 

section addresses this question with regard to the specific case of ASEAN by focusing on 

the nature of domestic coalitions amidst elite politics. 

 

Domestic coalitions and elite politics in ASEAN 

Although political systems in ASEAN during much of the 1990s ranged from 

democracies, to semi-democracies and authoritarian regimes, all the ASEAN countries 

shared the basic characteristics of elite governance political systems where political power 

was largely in the hands of elites despite the presence of mechanisms for citizen 

participation (McCargo, 1998: 127).  The political elite was, however, not completely 

insulated from domestic society, and needed to respond to concerns arising from this level 

in order to maintain elite rule and its legitimacy, which remained fragile throughout the 

1990s.  In such settings, political elites depend on two factors to maintain themselves in 

power as well as to ensure the stability and security of the prevailing domestic regime or 

political system.   

 

On the one hand, political elites need the support of citizens to maintain their right 

to rule and to ensure political order, and this is largely achieved through creating material 

7 

---

wealth for citizens – the notion of performance legitimacy, which remains relevant to date 

(Alagappa, 1995: 330; Stubbs, 2001).  This explains the preoccupation of political leaders 

with securing and maintaining key sources of growth in the economy, of which FDI is pre-

eminent in ASEAN.  On the other hand, elite rule is also sustained by unity and 

accommodation between members of the elite/governing coalition (Haggard and 

Kaufman, 1997).  Political elites selectively distribute economic benefits to their elite 

partners as a primary means to achieve elite unity.  See Figure. 

 

The Role of Growth and Distribution in Elite Governance Political Systems 

 

  Satisfies 

masses 

    

Economic 

growth 

   

 

 

 

    Maintains 

elite 

cohesion 

    (especially 

among 

political 

 

    and 

domestic 

business 

elites) 

     

 

 

 

 

 

 

 

 

 

   Distribution 

 

 

 

 

    Satisfies 

politically 

 

favoured non-elite social  

groups (e.g. ethnic groups) 

 

 

 

 

 

 

 

 

    Core 

Elite 

Goals 

 

 

 

 

 

Maintenance of elite rule (especially incumbents); 

    Stability 

of 

the 

domestic 

 

political regime (sustains the political status quo); 

 

Source: Nesadurai (2001: 85) 

 

By the 1990s, it was the accommodation between the political elite and an 

emerging domestic business class that was crucial in much of ASEAN.  The material and 

other forms of political support provided by domestic businesses helped incumbent 

political elites maintain their power base, while the former in turn received economic 

privileges through preferential policies instituted by the latter.  In addition, domestic 

businesses were privileged because they helped political actors fulfil broader political 

aims.  This was especially clear in the Malaysian and Indonesian cases, where political 

legitimacy also rests on the capacity of the state to develop respectively an ethnic Malay 

and indigenous Indonesian domestic capital class, particularly to offset the dominance of 

8 

---

ethnic Chinese capital.

9

  Thus, although political actors were powerful and had some 

degree of autonomy in decision-making, they were, nevertheless, constrained by the need 

to respond to domestic society at these two levels – citizens in general and to domestic 

business interests allied with political and state elites.   

 

Tensions can emerge when particular policies generate significant trade-offs 

between the growth and distributive imperatives,

10

 or between maximising wealth and 

efficiency in society as a whole and maximising the wealth of a segment of society.  In 

much of ASEAN, foreign capital remains a key source of growth and exports, particularly 

in the high value-added and advanced sectors of the economy that virtually all 

governments are increasingly targeting, although domestic-owned firms are not entirely 

absent from this picture.  On the other hand, the distributive imperative in ASEAN, where 

it exists, is usually aimed at privileging domestic-owned capital or segments of it that are 

also close allies of the political elite.  A simplifying, though not unreasonable assumption 

made in the paper is that the foreign capital governments are targeting is internationally 

oriented and thus in favour of liberal market policies that maximise growth.  While 

domestic capital may be either internationally oriented or emerging/inward focused, it is 

when the political elite is closely allied to the latter that the tension between growth and 

distribution becomes pronounced.  Since this segment of domestic capital is not as well 

developed as foreign capital, policymakers may well adopt measures to protect, preserve 

and/or nurture emerging domestic capital vis-à-vis foreign capital if the former is to 

survive direct competition with the latter.   

 

When such distributive policies involve restricting the domestic operations of 

foreign (or internationally oriented) firms, growth prospects may be weakened if the latter 

are significant agents of growth.  Growth need not, however, be disrupted if the extent of 

distribution is limited, either to particular sectors or in terms of time.  On the other hand, 

governments may find it necessary to limit their distributive agenda during times of 

economic distress, or expected economic hardship, which will affect citizens in general 

through unemployment, for instance as well as threaten elite unity (Haggard and Kaufman, 

                                                 

9

 See Crouch (1996) for Malaysia and Habir (1999) for Indonesia. 

10

 Growth is defined here as the expansion of economic wealth of a country, irrespective of its distribution 

among different groups, firms or individuals.  Distribution, on the other hand, involves the conscious 

allocation by governments of income, rents and other economic benefits to particular individuals, groups or 

firms who would otherwise not have received these gains through the workings of the free market.   

9 

---